[Federal Register Volume 87, Number 97 (Thursday, May 19, 2022)]
[Proposed Rules]
[Pages 30610-30728]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-10011]



[[Page 30609]]

Vol. 87

Thursday,

No. 97

May 19, 2022

Part III





Department of Energy





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10 CFR Part 431





Energy Conservation Program: Energy Conservation Standards for 
Commercial Water Heating Equipment; Proposed Rule

  Federal Register / Vol. 87 , No. 97 / Thursday, May 19, 2022 / 
Proposed Rules  

[[Page 30610]]


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DEPARTMENT OF ENERGY

10 CFR Part 431

[EERE-2021-BT-STD-0027]
RIN 1904-AD34


Energy Conservation Program: Energy Conservation Standards for 
Commercial Water Heating Equipment

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

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

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SUMMARY: The Energy Policy and Conservation Act, as amended (``EPCA''), 
prescribes energy conservation standards for certain commercial and 
industrial equipment, including commercial water heaters, hot water 
supply boilers, and unfired hot water storage tanks (hereinafter 
referred to as ``commercial water heating (CWH) equipment''). EPCA 
requires the U.S. Department of Energy (``DOE'') to periodically 
determine whether more-stringent standards for CWH equipment would be 
technologically feasible and economically justified, and would result 
in significant energy savings. In this notice of proposed rulemaking 
(``NOPR''), DOE proposes to amend the standards for certain classes of 
CWH equipment for which DOE has tentatively determined there is clear 
and convincing evidence to support more-stringent standards. 
Additionally, DOE is proposing to codify standards for electric 
instantaneous CWH equipment from EPCA into the Code of Federal 
Regulations (``CFR''). DOE also announces a public meeting to receive 
comment on these proposed standards and the associated analyses and 
results.

DATES: 
    Comments: DOE will accept comments, data, and information regarding 
this NOPR no later than July 18, 2022.
    Comments regarding the likely competitive impact of the proposed 
standard should be sent to the Department of Justice contact listed in 
the ADDRESSES section on or before July 18, 2022.
    Meeting: DOE will hold a public meeting via webinar on June 23, 
2022, from 1:00 p.m. to 5:00 p.m. See section VII, ``Public 
Participation,'' for webinar registration information, participant 
instructions and information about the capabilities available to 
webinar participants.

ADDRESSES: Interested persons are encouraged to submit comments using 
the Federal eRulemaking Portal at www.regulations.gov. Follow the 
instructions for submitting comments. Alternatively, interested persons 
may submit comments, identified by docket number EERE-2021-BT-STD-0027 
and/or regulatory information number (RIN) 1904-AD34, by any of the 
following methods:
    (1) Federal eRulemaking Portal: www.regulations.gov. Follow the 
instructions for submitting comments.
    (2) Email: Mail to: CommWater [email protected]. 
Include the docket number EERE-2021-BT-STD-0027 in the subject line of 
the message.
    No telefacsimiles (faxes) will be accepted. For detailed 
instructions on submitting comments and additional information on the 
rulemaking process, see section VII of this document.
    Although DOE has routinely accepted public comment submissions 
through a variety of mechanisms, including the Federal eRulemaking 
Portal, email, postal mail and hand delivery/courier, the Department 
has found it necessary to make temporary modifications to the comment 
submission process in light of the ongoing coronavirus 2019 (``COVID-
19'') pandemic. DOE is currently suspending receipt of public comments 
via postal mail and hand delivery/courier. If a commenter finds that 
this change poses an undue hardship, please contact Appliance Standards 
Program staff at (202) 586-1445 to discuss the need for alternative 
arrangements. Once the COVID-19 pandemic health emergency is resolved, 
DOE anticipates resuming all of its regular options for public comment 
submission, including postal mail and hand delivery/courier.
    Docket: The docket for this rulemaking, which includes Federal 
Register notices, 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, such as those containing information 
that is exempt from public disclosure, may not be publicly available.
    The docket webpage can be found at www.regulations.gov/docket/EERE-2021-BT-STD-0027. The docket webpage contains instructions on how to 
access all documents, including public comments, in the docket. See 
section VII, ``Public Participation,'' for information on how to submit 
comments through www.regulations.gov.
    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 following the instructions at www.reginfo.gov.
    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 (``DOJ'') 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] on or before the date specified in the DATES 
section. Please indicate in the ``Subject'' line of your email the 
title and Docket Number of this proposed rulemaking.

FOR FURTHER INFORMATION CONTACT: 
    Ms. Julia Hegarty, 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: 
(240) 597-6737. Email: [email protected]">ApplianceStandards[email protected].
    Mr. Matthew Ring, U.S. Department of Energy, Office of the General 
Counsel, GC-33, 1000 Independence Avenue SW, Washington, DC 20585-0121. 
Telephone: (202) 586-2555. Email: [email protected].
    DOE has submitted the collection of information contained in the 
proposed rule to OMB for review under the Paperwork Reduction Act, as 
amended. (44 U.S.C. 3507(d)) Comments on the information collection 
proposal shall be directed to the Office of Information and Regulatory 
Affairs, Office of Management and Budget, Attention: Sofie Miller, OIRA 
Desk Officer by email: [email protected].
    For further information on how to submit a comment, or review other 
public comments and the docket, contact the Appliance and Equipment 
Standards Program staff at (202) 287-1445 or by email: 
[email protected]">ApplianceStandards[email protected].

SUPPLEMENTARY INFORMATION: DOE proposes to update previously approved 
incorporations by reference of the following industry standards in part 
431:
    ASTM C177-13, ``Standard Test Method for Steady-State Heat Flux 
Measurements and Thermal Transmission Properties by Means of the 
Guarded-Hot-Plate Apparatus,'' approved September 15, 2013.
    ASTM C518-15, ``Standard Test Method for Steady-State Thermal 
Transmission Properties by Means of the Heat Flow Meter Apparatus,'' 
approved September 1, 2015.

[[Page 30611]]

    Copies of ASTM C177-13 and ASTM C518-15 can be obtained from ASTM 
International, 100 Barr Harbor Drive, P.O. Box C700, West Conshohocken, 
PA 19428-2959, (610) 832-9585, or go to www.astm.org.
    For a further discussion of these standards, see section VI.M of 
this document.

Table of Contents

I. Synopsis of the Proposed Rule
    A. Benefits and Costs to Consumers
    B. Impact on Manufacturers
    C. National Benefits and Costs
    D. Conclusion
II. Introduction
    A. Authority
    B. Background and Rulemaking History
    C. Deviation From Appendix A
III. General Discussion
    A. Test Procedures
    B. Scope of Rulemaking
    1. Residential-Duty Commercial Water Heaters
    2. Oil-Fired Commercial Water Heating Equipment
    3. Unfired Hot Water Storage Tanks
    4. Electric Instantaneous Water Heaters
    5. Commercial Heat Pump Water Heaters
    6. Electric Storage Water Heaters
    7. Instantaneous Water Heaters and Hot Water Supply Boilers
    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 Commercial Consumers
    b. Savings in Operating Costs Compared to Increase in Price 
(Life-Cycle Costs)
    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. Revisions to Notes in Regulatory Text
    G. Certification, Compliance, and Enforcement Issues
    H. General Comments
IV. Methodology and Discussion of Related Comments
    A. Market and Technology Assessment
    1. Definitions
    2. Equipment Classes
    a. Residential-Duty Electric Instantaneous Water Heaters
    b. Storage-Type Instantaneous Water Heaters
    c. Condensing Gas-Fired Water Heating Equipment
    d. Tankless Water Heaters and Hot Water Supply Boilers
    e. Gas-Fired and Oil-Fired Storage Water Heaters
    f. Grid-Enabled Water Heaters
    g. Input Capacity for Instantaneous Water Heaters and Hot Water 
Supply Boilers
    3. Review of the Current Market for CWH Equipment
    4. Technology Options
    B. Screening Analysis
    1. Screened-Out Technologies
    2. Remaining Technologies
    C. Engineering Analysis
    1. Efficiency Analysis
    2. Cost Analysis
    3. Representative Equipment for Analysis
    4. Efficiency Levels for Analysis
    a. Thermal Efficiency Levels
    b. Standby Loss Levels
    c. Uniform Energy Efficiency Levels
    5. Standby Loss Reduction Factors
    6. Teardown Analysis
    7. Manufacturing Production Costs
    8. Manufacturer Markup and Manufacturer Selling Price
    9. Shipping Costs
    D. Markups Analysis
    1. Distribution Channels
    2. Comments on Withdrawn May 2016 CWH ECS NOPR
    3. Markups Used in This NOPR
    E. Energy Use Analysis
    F. Life-Cycle Cost and Payback Period Analysis
    1. Approach
    2. Life-Cycle Cost Inputs
    a. Equipment Cost
    b. Installation Costs
    c. Annual Energy Consumption
    d. Energy Prices
    e. Maintenance Costs
    f. Repair Costs
    g. Product Lifetime
    h. Discount Rate
    i. Energy Efficiency Distribution in the No-New-Standards Case
    3. Payback Period
    G. Shipments Analysis
    1. Commercial Gas-Fired and Electric Storage Water Heaters
    2. Residential-Duty Gas-Fired Storage and Instantaneous Water 
Heaters
    3. Available Products Database and Equipment Efficiency Trends
    4. Shipments to Residential Consumers
    5. NOPR Shipments Model
    H. National Impact Analysis
    1. Equipment Efficiency Trends
    2. Fuel and Technology Switching
    3. National Energy Savings
    4. Net Present Value Analysis
    I. Consumer Subgroup Analysis
    1. Residential Sector Subgroup Analysis
    J. Manufacturer Impact Analysis
    1. Overview
    2. Government Regulatory Impact Model and Key Inputs
    a. Manufacturer Production Costs
    b. Shipments Projections
    c. Product and Capital Conversion Costs
    d. Manufacturer Markup Scenarios
    K. Emissions Analysis
    1. Air Quality Regulations Incorporated in DOE's Analysis
    L. Monetizing Emissions Impacts
    1. Monetization of Greenhouse Gas Emissions
    a. Social Cost of Carbon
    b. Social Cost of Methane and Nitrous Oxide
    2. Monetization 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
    2. Economic Impacts on Manufacturers
    a. Industry Cash Flow Analysis Results
    b. Impacts on Direct 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 CWH Equipment 
Standards
    2. 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
    2. Objectives of, and Legal Basis for, Rule
    3. Description on Estimated Number of Small Entities Regulated
    4. Description and Estimate of Compliance Requirements
    5. Duplication, Overlap, and Conflict With Other Rules and 
Regulations
    6. Significant Alternatives to the Rule
    C. Review Under the Paperwork Reduction Act
    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
    M. Materials Incorporated by Reference
VII. Public Participation
    A. Participation in the Webinar
    B. Procedure for Submitting Prepared General Statements for 
Distribution
    C. Conduct of the Webinar
    D. Submission of Comments
    E. Issues on Which DOE Seeks Comment
VIII. Approval of the Office of the Secretary

[[Page 30612]]

I. Synopsis of the Proposed Rule

    Title III, Part C \1\ of EPCA,\2\ established the Energy 
Conservation Program for Certain Industrial Equipment. (42 U.S.C. 6311-
6317) Such equipment includes CWH equipment, the subject of this NOPR. 
(42 U.S.C. 6311(1)(K))
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    \1\ For editorial reasons, upon codification in the U.S. Code, 
Part C was re-designated Part A-1.
    \2\ All references to EPCA in this document refer to the statute 
as amended through the Energy Act of 2020, Public Law 116-260 (Dec. 
27, 2020).
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    Pursuant to EPCA, DOE must consider amending the energy efficiency 
standards for certain types of commercial and industrial equipment, 
including the equipment at issue in this document, whenever the 
American Society of Heating, Refrigerating, and Air-Conditioning 
Engineers (``ASHRAE'') amends the standard levels or design 
requirements prescribed in ASHRAE Standard 90.1, ``Energy Standard for 
Buildings Except Low-Rise Residential Buildings,'' (``ASHRAE Standard 
90.1''), and at a minimum, every six 6 years. (42 U.S.C. 6313(a)(6)(A)-
(C))
    In accordance with these and other statutory provisions discussed 
in this document, DOE proposes amended energy conservation standards 
for certain classes of CWH equipment. The proposed standards, which are 
expressed in terms of thermal efficiency, standby loss, and uniform 
energy factor (``UEF''), are shown in Table I.1 and Table I.2. These 
proposed standards, if adopted, would apply to all CWH equipment listed 
in Table I.1 and Table I.2, manufactured in, or imported into the 
United States starting on the date 3 years after the publication of the 
final rule for this rulemaking. DOE is also proposing to codify 
standards for electric instantaneous CWH equipment from EPCA into the 
CFR. Finally, DOE is proposing several changes to the footnotes to 
tables of energy conservation standards at 10 CFR 431.110 to clarify 
existing regulations for CWH equipment. The proposed standards for 
electric instantaneous CWH equipment and changes to the footnotes are 
also shown in Table I.1.

Table I.1--Proposed Energy Conservation Standards for Commercial Water Heating Equipment Except for Residential-
                                          Duty Commercial Water Heaters
----------------------------------------------------------------------------------------------------------------
                                                                             Energy conservation standards *
                                                                       -----------------------------------------
                                                                          Minimum
                Equipment                              Size               thermal        Maximum standby loss
                                                                         efficiency            [dagger]
                                                                            (%)
----------------------------------------------------------------------------------------------------------------
Gas-fired storage water heaters..........  All........................           95  0.86 x [Q/800 + 110(Vr)\1/
                                                                                      2\] (Btu/h).
Electric instantaneous water heaters       <10 gal....................           80  N/A.
 [Dagger].
                                           >=10 gal...................           77  2.30 + 67/Vm (%/h).
Gas-fired instantaneous water heaters and  <10 gal....................           96  N/A.
 hot water supply boilers.
                                           >=10 gal...................           96  Q/800 + 110(Vr)\1/2\ (Btu/
                                                                                      h).
----------------------------------------------------------------------------------------------------------------
* Vm is the measured storage volume, and Vr is the rated volume, both in gallons. Q is the rated input rate in
  Btu/h, as determined pursuant to 10 CFR 429.44.
[dagger] Water heaters and hot water supply boilers having more than 140 gallons of storage capacity need not
  meet the standby loss requirement if: (1) The tank surface area is thermally insulated to R-12.5 or more, (2)
  a standing pilot light is not used, and (3) for gas or oil-fired storage water heaters, they have a flue
  damper or fan-assisted combustion.
[Dagger] Energy conservation standards for electric instantaneous water heaters are included in EPCA. (42 U.S.C.
  6313(a)(5)(D)-(E)) The compliance date for these energy conservation standards is January 1, 1994. In this
  NOPR, DOE proposes to codify these standards for electric instantaneous water heaters in its regulations at 10
  CFR 431.110. Further discussion of standards for electric instantaneous water heaters is included in section
  III.B.4 of this NOPR.


    Table I.2--Proposed Amended Energy Conservation Standards for Gas-Fired Residential-Duty Commercial Water
                                                     Heaters
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                                                                                          Uniform energy factor
              Equipment                    Specification *          Draw pattern **              [dagger]
----------------------------------------------------------------------------------------------------------------
Gas-fired Residential-Duty Storage...  >75 kBtu/h and.........  Very Small.............  0.5374-(0.0009 x Vr).
                                       <=105 kBtu/h and.......  Low....................  0.8062-(0.0012 x Vr).
                                       <=120 gal and..........  Medium.................  0.8702-(0.0011 x Vr).
                                       <=180 [deg]F...........  High...................  0.9297-(0.0009 x Vr).
----------------------------------------------------------------------------------------------------------------
* Additionally, to be classified as a residential-duty water heater, a commercial water heater must meet the
  following conditions: (1) If requiring electricity, use single-phase external power supply; and (2) the water
  heater must not be designed to heat water at temperatures greater than 180 [deg]F.
** Draw pattern is a classification of hot water use of a consumer water heater or residential-duty commercial
  water heater, based upon the first-hour rating. The draw pattern is determined using the Uniform Test Method
  for Measuring the Energy Consumption of Water Heaters in appendix E to subpart B of 10 CFR part 430.
[dagger] Vr is the rated storage volume (in gallons), as determined pursuant to 10 CFR 429.44.

A. Benefits and Costs to Consumers

    Table I.3 presents DOE's evaluation of the economic impacts of the 
proposed standards on consumers of CWH equipment, as measured by the 
average life-cycle cost (``LCC'') savings and the simple payback period 
(``PBP'').\3\ The average LCC savings are positive for all equipment 
classes, and the PBP is less than the average lifetime of CWH 
equipment, which is estimated to range from 10 years for commercial 
gas-fired storage water heaters to 25 years for instantaneous water 
heaters and hot water supply boilers (see section IV.F.2.g of this 
document).
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    \3\ The average LCC savings refer to consumers that are affected 
by a standard and 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 new or amended standards 
(see section IV.F.2.i of this document). The simple PBP, which is 
designed to compare specific efficiency levels, is measured relative 
to the baseline product (see section IV.F.3 of this document).

[[Page 30613]]



     Table I.3--Impacts of Proposed Energy Conservation Standards on
                       Consumers of CWH Equipment
------------------------------------------------------------------------
                                                              Simple
                                            Average LCC       payback
                Equipment                     savings         period
                                              (2020$)         (years)
------------------------------------------------------------------------
Commercial Gas-Fired Storage and Storage-            301               5
 Type Instantaneous.....................
Residential-Duty Gas-Fired Storage......              90               9
Gas-Fired Instantaneous Water Heaters                599               9
 and Hot Water Supply Boilers...........
    --Instantaneous, Gas-Fired Tankless.              63               9
    --Instantaneous Water Heaters and              1,047               9
     Hot Water Supply Boilers...........
------------------------------------------------------------------------

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

B. Impact on Manufacturers

    The industry net present value (``INPV'') is the sum of the 
discounted cash flows to the industry from the base year through the 
end of the analysis period (2020-2055). Using a real discount rate of 
9.1 percent, DOE estimates that the INPV for manufacturers of CWH 
Equipment in the case without amended standards is $183.1 million in 
2020$. Under the proposed standards, the change in INPV is estimated to 
range from -12.8 percent to -5.9 percent, which is approximately 
equivalent to a decrease of $23.4 million to a decrease of $10.8 
million, respectively. In order to bring products into compliance with 
amended standards, it is estimated that the industry would incur total 
conversion costs of $34.6 million.
    DOE's analysis of the impacts of the proposed standards on 
manufacturers is described in section IV.J of this document. The 
analytic results of the manufacturer impact analysis (``MIA'') are 
presented in section V.B.2 of this document.

C. National Benefits and Costs 4 
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    \4\ All monetary values in this document are expressed in 2020 
dollars.
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    DOE's analyses indicate that the proposed energy conservation 
standards for CWH equipment would save a significant amount of energy. 
Relative to the case without amended standards, the lifetime energy 
savings for CWH Equipment purchased in the 30-year period that begins 
in the anticipated year of compliance with the amended standards (2026-
2055) amount to 0.70 quadrillion British thermal units (``Btu''), or 
quads.\5\ This represents a savings of 4.9 percent relative to the 
energy use of these products in the case without amended standards 
(referred to as the ``no-new-standards case'').
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    \5\ The quantity refers to full-fuel-cycle (``FFC'') energy 
savings. FFC energy savings include 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.3 of this document.
---------------------------------------------------------------------------

    The cumulative net present value (``NPV'') of total consumer 
benefits of the proposed standards for CWH equipment ranges from $0.48 
billion (at a 7-percent discount rate) to $1.49 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 CWH equipment purchased in 2026-2055.
    In addition, the proposed standards for CWH equipment are projected 
to yield significant environmental benefits. DOE estimates that the 
proposed standards would result in cumulative emission reductions (over 
the same period as for energy savings) of 38 million metric tons 
(``Mt'') \6\ of carbon dioxide (``CO2''), -0.02 thousand 
tons of sulfur dioxide (``SO2''), 95 thousand tons of 
nitrogen oxides (``NOX''), 471 thousand tons of methane 
(``CH4''), 0.07 thousand tons of nitrous oxide 
(``N2O''), and -0.001 tons of mercury (``Hg'').\7\
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    \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 reflects key assumptions in the Annual Energy 
Outlook 2021 (``AEO2021''). AEO2021 represents current Federal and 
State legislation and final implementation of regulations as of the 
time of its preparation. See section IV.K for further discussion of 
AEO2021 assumptions that effect air pollutant emissions.
---------------------------------------------------------------------------

    DOE estimates climate benefits from a reduction in greenhouse gases 
using four different estimates of the ``social cost of carbon'' (``SC-
CO2''), the social cost of methane (``SC-CH4''), 
and the social cost of nitrous oxide (``SC-N2O''). Together 
these represent the social cost of greenhouse gases (``SC-GHG''). DOE 
used interim estimates of SC-GHG values developed by an Interagency 
Working Group on the Social Cost of Greenhouse Gases (IWG).\8\ The 
derivation of these values is discussed in section IV.L.1. of this 
document. For presentational purposes, the climate benefits associated 
with the average SC-GHG at a 3-percent discount rate is $1.96 billion. 
DOE does not have a single central SC-GHG point estimate and it 
emphasizes the importance and value of considering the benefits 
calculated using all four SC-GHG estimates.\9\
---------------------------------------------------------------------------

    \8\ See Interagency Working Group on Social Cost of Greenhouse 
Gases, Technical Support Document: Social Cost of Carbon, Methane, 
and Nitrous Oxide. Interim Estimates Under Executive Order 13990, 
Washington, DC February 2021. www.whitehouse.gov/wp-content/uploads/2021/02/TechnicalSupportDocument_SocialCostofCarbonMethaneNitrousOxide.pdf?so
urce=email.
    \9\ On March 16, 2022, the Fifth Circuit Court of Appeals (No. 
22-30087) granted the Federal Government's emergency motion for stay 
pending appeal of the February 11, 2022, preliminary injunction 
issued in Louisiana v. Biden, No. 21-cv-1074-JDC-KK (W.D. La.). As a 
result of the Fifth Circuit's order, the preliminary injunction is 
no longer in effect, pending resolution of the Federal Government's 
appeal of that injunction or a further court order. Among other 
things, the preliminary injunction enjoined the defendants in that 
case from ``adopting, employing, treating as binding, or relying 
upon'' the interim estimates of the social cost of greenhouse 
gases--which were issued by the Interagency Working Group on the 
Social Cost of Greenhouse Gases on February 26, 2021--to monetize 
the benefits of reducing greenhouse gas emissions. In the absence of 
further intervening court orders, DOE will revert to its approach 
prior to the injunction and present monetized benefits where 
appropriate and permissible under law.
---------------------------------------------------------------------------

    DOE also estimates the health benefits from SO2 and 
NOX emissions reduction.\10\ DOE estimates the present value 
of the health benefits would be $0.99 billion using a 7-percent 
discount rate, and $2.62 billion using a 3-percent discount. DOE is 
currently only monetizing fine particulate matter 
(``PM2.5'') and (for NOX) ozone precursor health 
benefits, but will continue to assess the ability to monetize other 
effects such as health benefits from reductions in direct 
PM2.5 emissions.
---------------------------------------------------------------------------

    \10\ DOE estimated the monetized value of SO2 and 
NOX emissions reductions associated with site and 
electricity savings using benefit per ton estimates from the 
scientific literature. See section IV.L.2 of this document for 
further discussion.
---------------------------------------------------------------------------

    Table I.4 summarizes the economic benefits and costs expected to 
result from the proposed standards for CWH equipment. In the table, 
total benefits for both the 3-percent and 7-percent cases are presented 
using the average GHG social costs with 3-percent discount rate. DOE 
does not have a

[[Page 30614]]

single central SC-GHG point estimate and it emphasizes the importance 
and value of considering the benefits calculated using all four SC-GHG 
estimates. The estimated total net benefits using each of the four SC-
GHG estimates are presented in section V.B.6. of this document.

  Table I.4--Summary of Economic Benefits and Costs of Proposed Energy
                Conservation Standards for CWH Equipment
                                 [TSL 3]
------------------------------------------------------------------------
                                                           Billion 2020$
------------------------------------------------------------------------
                            3% Discount Rate
------------------------------------------------------------------------
Consumer Operating Cost Savings.........................             2.4
Climate Benefits *......................................             2.0
Health Benefits **......................................             2.6
Total Benefits [dagger].................................             7.0
Consumer Incremental Product Costs [Dagger].............             1.0
Net Benefits............................................             6.1
------------------------------------------------------------------------
                            7% Discount Rate
------------------------------------------------------------------------
Consumer Operating Cost Savings.........................             1.0
Climate Benefits * (3% discount rate)...................             2.0
Health Benefits **......................................             1.0
Total Benefits [dagger].................................             4.0
Consumer Incremental Product Costs [Dagger].............             0.6
Net Benefits............................................             3.4
------------------------------------------------------------------------
Note: This table presents the costs and benefits associated with
  commercial water heaters shipped in 2026-2055. These results include
  benefits to consumers which accrue after 2055 from the products
  shipped in 2026-2055. Numbers may not add due to rounding.
* Climate benefits are calculated using four different estimates of the
  social cost of carbon (SC-CO2), methane (SC-CH4), and nitrous oxide
  (SC-N2O) (model average at 2.5 percent, 3 percent, and 5 percent
  discount rates; 95th percentile at 3 percent discount rate), as shown
  in Table V.37 through Table V.39. Together these represent the global
  social cost of greenhouse gases (SC-GHG). For presentational purposes
  of this table, the climate benefits associated with the average SC-GHG
  at a 3 percent discount rate are shown, but the Department does not
  have a single central SC-GHG point estimate. See section IV.L of this
  document for more details.
** Health benefits are calculated using benefit-per-ton values for NOX
  and SO2. DOE is currently only monetizing PM2.5 and (for NOX) ozone
  precursor health benefits, but will continue to assess the ability to
  monetize other effects such as health benefits from reductions in
  direct PM2.5 emissions. The health benefits are presented at real
  discount rates of 3 and 7 percent. See section IV.L of this document
  for more details.
 [dagger] Total and net benefits include consumer, climate, and health
  benefits. For presentation purposes, total and net benefits for both
  the 3-percent and 7-percent cases are presented using the average SC-
  GHG with 3-percent discount rate, but the Department does not have a
  single central SC-GHG point estimate. DOE emphasizes the importance
  and value of considering the benefits calculated using all four SC-GHG
  estimates. See Table V.42 for net benefits using all four SC-GHG
  estimates. On March 16, 2022, the Fifth Circuit Court of Appeals (No.
  22-30087) granted the federal government's emergency motion for stay
  pending appeal of the February 11, 2022, preliminary injunction issued
  in Louisiana v. Biden, No. 21-cv-1074-JDC-KK (W.D. La.). As a result
  of the Fifth Circuit's order, the preliminary injunction is no longer
  in effect, pending resolution of the federal government's appeal of
  that injunction or a further court order. Among other things, the
  preliminary injunction enjoined the defendants in that case from
  ``adopting, employing, treating as binding, or relying upon'' the
  interim estimates of the social cost of greenhouse gases--which were
  issued by the Interagency Working Group on the Social Cost of
  Greenhouse Gases on February 26, 2021--to monetize the benefits of
  reducing greenhouse gas emissions. In the absence of further
  intervening court orders, DOE will revert to its approach prior to the
  injunction and present monetized benefits where appropriate and
  permissible under law.
 [Dagger] Costs include incremental equipment costs as well as
  installation costs.

    The benefits and costs of the proposed standards can also be 
expressed in terms of annualized values. The monetary values for the 
total annualized net benefits are (1) the reduced consumer operating 
costs, minus (2) the increase in product purchase prices and 
installation costs, plus (3) the value of the benefits of GHG, 
NOX, and SO2 emission reductions, all 
annualized.\11\
---------------------------------------------------------------------------

    \11\ To convert the time-series of costs and benefits into 
annualized values, DOE calculated a present value in 2021, 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., 2030), and then discounted the present value from each year 
to 2021. 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.3. 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 savings are domestic private U.S. consumer 
monetary savings that occur as a result of purchasing the covered 
products and are measured for the lifetime of CWH equipment shipped in 
2026-2055. The climate benefits associated with reduced GHG emissions 
achieved as a result of the proposed standards are also calculated 
based on the lifetime of CWH equipment shipped in 2026-2055.
    Estimates of annualized benefits and costs of the proposed 
standards are shown in Table I.5. The results under the primary 
estimate are as follows.
    Using a 7-percent discount rate for consumer benefits and costs and 
health benefits from reduced SO2 and NOX 
emissions, and the 3-percent discount rate case for climate benefits 
from reduced GHG emissions, the estimated cost of the standards 
proposed in this rulemaking is $59 million per year in increased 
equipment costs, while the estimated annual benefits are $110 million 
in reduced equipment operating costs, $113 million in climate benefits, 
and $104 million in health benefits. In this case, the net benefit 
would amount to $267 million per year.
    Using a 3-percent discount rate for all benefits and costs, the 
estimated cost of the proposed standards is $55 million per year in 
increased equipment costs, while the estimated annual benefits are $140 
million in reduced operating costs, $113 million in climate benefits, 
and $150 million in health benefits. In this case, the net benefit 
would amount to $349 million per year.

[[Page 30615]]



      Table I.5--Annualized Benefits and Costs of Proposed Energy Conservation Standards for CWH Equipment
                                                     [TSL 3]
----------------------------------------------------------------------------------------------------------------
                                                                                Million 2020$/year
                                                                 -----------------------------------------------
                            Category                                                 Low-net-        High-net-
                                                                      Primary        benefits        benefits
                                                                     estimate        estimate        estimate
----------------------------------------------------------------------------------------------------------------
                                                3% Discount Rate
----------------------------------------------------------------------------------------------------------------
Consumer Operating Cost Savings.................................           140.3           130.3           151.7
Climate Benefits *..............................................           112.8           107.2           117.8
Health Benefits **..............................................           150.4           143.5           170.0
Total Benefits [dagger].........................................             404             381             439
Consumer Incremental Product Costs [Dagger].....................            54.7            52.6            56.6
Net Benefits....................................................             349             328             383
----------------------------------------------------------------------------------------------------------------
                                                7% Discount Rate
----------------------------------------------------------------------------------------------------------------
Consumer Operating Cost Savings.................................           109.6           103.3           116.7
Climate Benefits * (3% discount rate)...........................           112.8           107.2           117.8
Health Benefits **..............................................           104.3           100.4           117.2
Total Benefits [dagger].........................................             327             311             352
Consumer Incremental Product Costs [Dagger].....................            59.2            57.5            60.9
Net Benefits....................................................             267             253             291
----------------------------------------------------------------------------------------------------------------
Note: This table presents the annualized costs and benefits associated with CWH equipment shipped in 2026-2055.
  These results include benefits to consumers which accrue after 2055 from the products purchased in 2026-2055.
* Climate benefits are calculated using four different estimates of the social cost of carbon (SC-CO2), methane
  (SC-CH4), and nitrous oxide (SC-N2O) (model average at 2.5 percent, 3 percent, and 5 percent discount rates;
  95th percentile at 3 percent discount rate). Together these represent the global social cost of greenhouse
  gases (SC-GHG). For presentational purposes of this table, the climate benefits associated with the average SC-
  GHG at a 3 percent discount rate are shown, but the Department does not have a single central SC-GHG point
  estimate, and it emphasizes the importance and value of considering the benefits calculated using all four SC-
  GHG estimates. See section IV.L of this document for more details.
** Health benefits are calculated using benefit-per-ton values for NOX and SO2. DOE is currently only monetizing
  PM2.5 and (for NOX) ozone precursor health benefits, but will continue to assess the ability to monetize other
  effects such as health benefits from reductions in direct PM2.5 emissions. The health benefits are presented
  at real discount rates of 3 and 7 percent. See section IV.L of this document for more details.
[dagger] Total and net benefits include consumer, climate, and health benefits. For presentation purposes, total
  and net benefits for both the 3-percent and 7-percent cases are presented using the average SC-GHG with 3-
  percent discount rate, but the Department does not have a single central SC-GHG point estimate. DOE emphasizes
  the importance and value of considering the benefits calculated using all four SC-GHG estimates. On March 16,
  2022, the Fifth Circuit Court of Appeals (No. 22-30087) granted the federal government's emergency motion for
  stay pending appeal of the February 11, 2022, preliminary injunction issued in Louisiana v. Biden, No. 21-cv-
  1074-JDC-KK (W.D. La.). As a result of the Fifth Circuit's order, the preliminary injunction is no longer in
  effect, pending resolution of the federal government's appeal of that injunction or a further court order.
  Among other things, the preliminary injunction enjoined the defendants in that case from ``adopting,
  employing, treating as binding, or relying upon'' the interim estimates of the social cost of greenhouse
  gases--which were issued by the Interagency Working Group on the Social Cost of Greenhouse Gases on February
  26, 2021--to monetize the benefits of reducing greenhouse gas emissions. In the absence of further intervening
  court orders, DOE will revert to its approach prior to the injunction and present monetized benefits where
  appropriate and permissible under law.
[Dagger] Costs include incremental equipment costs as well as installation costs.

    DOE's analysis of the national impacts of the proposed standards is 
described in sections IV.H, IV.K, and IV.L of this document.

D. Conclusion

    DOE has tentatively concluded that, based on clear and convincing 
evidence as presented in the following sections, the proposed standards 
are technologically feasible and economically justified, and would 
result in the significant additional conservation of energy. 
Specifically, with regards to technological feasibility, CWH equipment 
achieving these standard levels are already commercially available for 
all equipment classes covered by this proposal. As for economic 
justification, DOE's analysis shows that the benefits of the proposed 
standard exceed, to a great extent, the burdens of the proposed 
standards. Using a 7-percent discount rate for consumer benefits and 
costs and NOX and SO2 reduction benefits, and a 
3-percent discount rate case for GHG social costs, the estimated cost 
of the proposed standards for CWH equipment is $59.2 million per year 
in increased equipment costs, while the estimated annual benefits are 
$109.6 million in reduced equipment operating costs, $112.8 million in 
GHG reductions, $104.6 million in reduced NOX emissions, and 
-$0.30 million in (increased) SO2 emissions. The net benefit 
amounts to $267.4 million per year.
    As previously mentioned, the proposed standards would result in 
estimated national energy savings of 0.70 quad, the equivalent of the 
electricity use of 7.0 million homes in one year. In determining 
whether energy savings are significant, DOE considers the specific 
circumstances surrounding a given rulemaking.\12\ In making this 
determination, DOE looks at, among other things, the FFC effects of the 
proposed standards. These effects include the energy consumed in 
electricity production (depending on load shape), in distribution and 
transmission, and in extracting, processing, and transporting primary 
fuels (i.e., coal, natural gas, petroleum fuels), and thus present a 
more complete picture of the impacts of energy conservation standards, 
including greenhouse gas emissions. Accordingly, taking into account 
the significance of cumulative FFC national energy savings, the 
cumulative FFC emissions

[[Page 30616]]

reductions, and the need to confront the global climate crisis, among 
other factors, DOE has initially determined the energy savings for the 
TSL proposed in this rulemaking are ``significant'' within the meaning 
of EPCA. Finally, DOE notes that a more detailed discussion of the 
basis for these tentative conclusions is contained in the remainder of 
this document and the accompanying TSD. Based on available facts, data, 
and DOE's own analyses, DOE has preliminarily determined that it is 
highly probable an amended standard would result in a significant 
additional amount of energy savings, and is technologically feasible 
and economically justified.
---------------------------------------------------------------------------

    \12\ Procedures, Interpretations, and Policies for Consideration 
in New or Revised Energy Conservation Standards and Test Procedures 
for Consumer Products and Commercial/Industrial Equipment, 86 FR 
70892, 70901 (Dec. 13, 2021).
---------------------------------------------------------------------------

    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 efficiency levels would outweigh the 
projected benefits.
    Based on consideration of the public comments DOE receives in 
response to this document and related information collected and 
analyzed during the course of this rulemaking effort, DOE may adopt 
energy efficiency levels presented in this document 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 NOPR, as well as some of the historical background 
relevant to the establishment of the amended standards for CWH 
equipment.

A. Authority

    EPCA authorizes DOE to regulate the energy efficiency of a number 
of consumer products and industrial equipment. Title III, Part C of 
EPCA, added by Public Law 95-619, Title IV, section 441(a) (42 U.S.C. 
6311-6317, as codified), established the Energy Conservation Program 
for Certain Industrial Equipment, which sets forth a variety of 
provisions designed to improve energy efficiency. This equipment 
includes the classes of CWH equipment that are the subject of this 
NOPR. (42 U.S.C. 6311(1)(K)) EPCA prescribed energy conservation 
standards for CWH equipment. (42 U.S.C. 6313(a)(5)) Additionally, DOE 
must consider amending the energy efficiency standards for certain 
types of commercial and industrial equipment, including CWH equipment, 
whenever ASHRAE amends the standard levels or design requirements 
prescribed in ASHRAE/IES Standard 90.1, and at a minimum, every 6 
years. (42 U.S.C. 6313(a)(6)(A)-(C))
    The energy conservation program for covered products under EPCA 
consists essentially of four parts: (1) Testing, (2) labeling, (3) the 
establishment of Federal energy conservation standards, and (4) 
certification and enforcement procedures. Relevant provisions of EPCA 
specifically include definitions (42 U.S.C. 6311), energy conservation 
standards (42 U.S.C. 6313), test procedures (42 U.S.C. 6314), labeling 
provisions (42 U.S.C. 6315), and the authority to require information 
and reports from manufacturers (42 U.S.C. 6316).
    Federal energy conservation requirements for covered equipment 
established under EPCA generally supersede State laws and regulations 
concerning energy conservation testing, labeling, and standards. (42 
U.S.C. 6316(a) and (b); 42 U.S.C. 6297) 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 
EPCA. (See 42 U.S.C. 6316(b)(2)(D))
    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 covered equipment. (42 U.S.C. 
6314) Manufacturers of covered equipment must use the Federal test 
procedures as the basis for (1) certifying to DOE that their equipment 
complies with the applicable energy conservation standards adopted 
pursuant to EPCA (42 U.S.C. 6316(b); 42 U.S.C. 6296), and (2) making 
representations about the efficiency of that equipment (42 U.S.C. 
6314(d)). Similarly, DOE uses these test procedures to determine 
whether the equipment complies with relevant standards promulgated 
under EPCA. The DOE test procedures for CWH equipment appear at part 
431, subpart G.
    ASHRAE Standard 90.1 sets industry energy efficiency levels for 
small, large, and very large commercial package air-conditioning and 
heating equipment, packaged terminal air conditioners, packaged 
terminal heat pumps, warm air furnaces, packaged boilers, storage water 
heaters, instantaneous water heaters, and unfired hot water storage 
tanks (collectively ``ASHRAE equipment''). For each type of listed 
equipment, EPCA directs that if ASHRAE amends Standard 90.1, DOE must 
adopt amended standards at the new ASHRAE efficiency level, unless DOE 
determines, supported by clear and convincing evidence,\13\ that 
adoption of a more stringent level would produce significant additional 
conservation of energy and would be technologically feasible and 
economically justified. (42 U.S.C. 6313(a)(6)(A)(ii) (The threshold for 
``clear and convincing'' evidence is discussed in more detail in 
section III.H.) Under EPCA, DOE must also review energy efficiency 
standards for CWH equipment every 6 years and either: (1) Issue a 
notice of determination that the standards do not need to be amended as 
adoption of a more stringent level is not supported by clear and 
convincing evidence; or (2) issue a notice of proposed rulemaking 
including new proposed standards based on certain criteria and 
procedures in subparagraph (B) of 42 U.S.C. 6313(a)(6). (42 U.S.C. 
6313(a)(6)(C))
---------------------------------------------------------------------------

    \13\ The clear and convincing threshold is a heightened 
standard, and would only be met where the Secretary has an abiding 
conviction, based on available facts, data, and DOE's own analyses, 
that it is highly probable an amended standard would result in a 
significant additional amount of energy savings, and is 
technologically feasible and economically justified. American Public 
Gas Association v. U.S. Dep't of Energy, No. 20-1068, 2022 WL 
151923, at *4 (D.C. Cir. January 18, 2022) (citing Colorado v. New 
Mexico, 467 U.S. 310, 316, 104 S.Ct. 2433, 81 L.Ed.2d 247 (1984)).
---------------------------------------------------------------------------

    In deciding whether a more-stringent standard is economically 
justified, under either the provisions of 42 U.S.C. 6313(a)(6)(A) or 42 
U.S.C. 6313(a)(6)(C), DOE must determine whether the benefits of the 
standard exceed its burdens. DOE must make this determination after 
receiving comments on the proposed standard, and by considering, to the 
maximum extent practicable, the following seven factors:
    (1) The economic impact of the standard on manufacturers and 
consumers of 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 equipment that are likely to result from the standard;
    (3) The total projected amount of energy savings likely to result 
directly from the standard;
    (4) Any lessening of the utility or the performance of the covered 
product 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 conservation; and
    (7) Other factors the Secretary of Energy considers relevant.


[[Page 30617]]


(42 U.S.C. 6313(a)(6)(B)(ii)(I)-(VII))
    Further, EPCA establishes a rebuttable presumption that an energy 
conservation standard is economically justified if the Secretary finds 
that the additional cost to the consumer of purchasing a product that 
complies with the standard 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 applicable test procedure. (42 U.S.C. 
6295(o)(2)(B)(iii)) However, while this rebuttable presumption analysis 
applies to most commercial and industrial equipment (42 U.S.C. 
6316(a)), it is not a required analysis for ASHRAE equipment (42 U.S.C. 
6316(b)(1)). Nonetheless, DOE included the analysis of rebuttable 
presumption in its economic analysis and presents the results in 
section V.B.1.c of this document.
    EPCA 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. 6313(a)(6)(B)(iii)(I)) 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. 
6313(a)(6)(B)(iii)(II)(aa))

B. Background and Rulemaking History

    As previously noted, EPCA established initial Federal energy 
conservation standards for CWH equipment that generally corresponded to 
the levels in ASHRAE Standard 90.1-1989. On October 29, 1999, ASHRAE 
released Standard 90.1-1999, which included new efficiency levels for 
numerous categories of CWH equipment. DOE evaluated these new standards 
and subsequently amended energy conservation standards for CWH 
equipment in a final rule published in the Federal Register on January 
12, 2001. 66 FR 3336 (``January 2001 final rule''). DOE adopted the 
levels in ASHRAE Standard 90.1-1999 for all classes of CWH equipment, 
except for electric storage water heaters. For electric storage water 
heaters, the standard in ASHRAE Standard 90.1-1999 was less stringent 
than the standard prescribed in EPCA and, consequently, would have 
increased energy consumption.
    Under those circumstances, DOE could not adopt the new efficiency 
level for electric storage water heaters in ASHRAE Standard 90.1-1999. 
66 FR 3336, 3350. In the January 2001 final rule, DOE also adopted the 
efficiency levels contained in the Addendum to ASHRAE Standard 90.1-
1989 for hot water supply boilers, which were identical to the 
efficiency levels for instantaneous water heaters. 66 FR 3336, 3356.
    On October 21, 2004, DOE published a direct final rule in the 
Federal Register (``October 2004 direct final rule'') that recodified 
the existing energy conservation standards, so that they are located 
contiguous with the test procedures that were promulgated in the same 
notice. 69 FR 61974. The October 2004 final rule also updated 
definitions for CWH equipment at 10 CFR 431.102.
    The American Energy Manufacturing Technical Corrections Act 
(``AEMTCA''), Public Law 112-210 (Dec. 18, 2012), amended EPCA to 
require that DOE publish a final rule establishing a uniform efficiency 
descriptor and accompanying test methods for covered consumer water 
heaters and some CWH equipment. (42 U.S.C. 6295(e)(5)(B)) EPCA further 
required that the final rule must replace the energy factor (for 
consumer water heaters) and thermal efficiency and standby loss (for 
some commercial water heaters) metrics with a uniform efficiency 
descriptor. (42 U.S.C. 6295(e)(5)(C)) Pursuant to 42 U.S.C. 6295(e), on 
July 11, 2014, DOE published a final rule for test procedures for 
residential and certain commercial water heaters (``July 2014 final 
rule'') that, among other things, established UEF, a revised version of 
the current residential energy factor metric, as the uniform efficiency 
descriptor required by AEMTCA. 79 FR 40542, 40578. In addition, the 
July 2014 final rule defined the term ``residential-duty commercial 
water heater,'' an equipment category that is subject to the new UEF 
metric and the corresponding UEF test procedures. 79 FR 40542, 40586-
40588 (July 11, 2014). Conversely, CWH equipment that does not meet the 
definition of a residential-duty commercial water heater is not subject 
to the UEF metric or corresponding UEF test procedures. Id. Further 
details on the UEF metric and residential-duty commercial water heaters 
are discussed in section III.A of this document.
    In a NOPR published on April 14, 2015 (``April 2015 NOPR''), DOE 
proposed, among other things, conversion factors from thermal 
efficiency and standby loss to UEF for residential-duty commercial 
water heaters. 80 FR 20116, 20143. Subsequently, in a final rule 
published on December 29, 2016 (the ``December 2016 conversion factor 
final rule''), DOE specified standards for residential-duty commercial 
water heaters in terms of UEF. However, while the metric was changed 
from thermal efficiency and/or standby loss, the stringency was not 
changed. 81 FR 96204, 96239 (Dec. 29, 2016).
    In ASHRAE Standard 90.1-2013, ASHRAE increased the thermal 
efficiency level for commercial oil-fired storage water heaters, 
thereby triggering DOE's statutory obligation to promulgate an amended 
uniform national standard at those levels, unless DOE were to determine 
that there is clear and convincing evidence supporting the adoption of 
more-stringent energy conservation standards than the ASHRAE 
levels.\14\ In a final rule published on July 17, 2015 (``July 2015 
ASHRAE equipment final rule''), among other things, DOE adopted the 
standard for commercial oil-fired storage water heaters at the level 
set forth in ASHRAE Standard 90.1-2013, which increased the standard 
from 78 to 80 percent thermal efficiency with compliance required 
starting on October 9, 2015. 80 FR 42614 (July 17, 2015). Since that 
time ASHRAE has issued 2 updated versions of Standard 90.1, 90.1-2016 
and 90.1-2019. However, DOE was not triggered to review amended 
standards for commercial water heaters by any updates in ASHRAE 
Standard 90.1-2016 or ASHRAE Standard 90.1-2019. Overall, DOE has not 
been triggered to review the standards for the equipment subject to 
this rulemaking based on an update

[[Page 30618]]

to the efficiency levels in ASHRAE Standard 90.1 since the 1999 edition 
because ASHRAE has not updated the efficiency levels for such equipment 
since 1999. The current standards for all CWH equipment classes are set 
forth in DOE's regulations at 10 CFR 431.110, except for electric 
instantaneous water heaters that are not residential-duty, which are 
included in EPCA (the history of the standards for electric 
instantaneous water heaters is discussed in section III.B.4 of this 
document). (42 U.S.C. 6313(a)(5)(D)-(E)) Table II.1 shows the current 
standards for all CWH equipment classes, except residential-duty 
commercial water heaters, which are shown in Table II.2 of this 
document.
---------------------------------------------------------------------------

    \14\ ASHRAE Standard 90.1-2013 also appeared to change the 
standby loss levels for four equipment classes (gas-fired storage 
water heaters, oil-fired storage water heaters, gas-fired 
instantaneous water heaters, and oil-fired instantaneous water 
heaters) to efficiency levels that surpassed the Federal energy 
conservation standard levels. However, upon reviewing the changes 
DOE concluded that all changes to standby loss levels for these 
equipment classes were editorial errors because they were identical 
to SI (International System of Units; metric system) formulas rather 
than I-P (Inch-Pound; English system) formulas. As a result, DOE did 
not conduct an analysis of the potential energy savings from amended 
standby loss standards for this equipment in response to the ASHRAE 
updates. DOE did not receive any comments on this issue. 80 FR 1171, 
1185 (January 8, 2015). The standby loss levels for these equipment 
classes were reverted to the previous levels in ASHRAE Standard 
90.1-2016 and have not been updated since then.

     Table II.1--Current Federal Energy Conservation Standards for CWH Equipment Except for Residential-Duty
                                            Commercial Water Heaters
----------------------------------------------------------------------------------------------------------------
                                                                           Energy conservation standards *
                                                                   ---------------------------------------------
                                                                     Minimum thermal
                                                                        efficiency
                Product                             Size                (equipment        Maximum standby loss
                                                                     manufactured on    (equipment manufactured
                                                                    and after October   on and after October 29,
                                                                     9, 2015) ** ***       2003) ** [dagger]
                                                                           (%)
----------------------------------------------------------------------------------------------------------------
Electric storage water heaters.........  All......................                N/A  0.30 + 27/Vm (%/h).
Gas-fired storage water heaters........  <=155,000 Btu/h..........                 80  Q/800 + 110(Vr)\1/2\ (Btu/
                                                                                        h).
                                         >155,000 Btu/h...........                 80  Q/800 + 110(Vr)\1/2\ (Btu/
                                                                                        h).
Oil-fired storage water heaters........  <=155,000 Btu/h..........             *** 80  Q/800 + 110(Vr)\1/2\ (Btu/
                                                                                        h).
                                         >155,000 Btu/h...........             *** 80  Q/800 + 110(Vr)\1/2\ (Btu/
                                                                                        h).
Electric instantaneous water heaters     <10 gal..................                 80  N/A.
 [Dagger].
                                         >=10 gal.................                 77  2.30 + 67/Vm (%/h).
Gas-fired instantaneous water heaters    <10 gal..................                 80  N/A.
 and hot water supply boilers.
                                         >=10 gal.................                 80  Q/800 + 110(Vr)\1/2\ (Btu/
                                                                                        h).
Oil-fired instantaneous water heater     <10 gal..................                 80  N/A.
 and hot water supply boilers.
                                         >=10 gal.................                 78  Q/800 + 110(Vr)\1/2\ (Btu/
                                                                                        h).
----------------------------------------------------------------------------------------------------------------
                                                  Minimum thermal insulation
----------------------------------------------------------------------------------------------------------------
Unfired hot water storage tank.........  All......................                     R-12.5
----------------------------------------------------------------------------------------------------------------
* Vm is the measured storage volume, and Vr is the rated volume, both in gallons. Q is the nameplate input rate
  in Btu/h.
** For hot water supply boilers with a capacity of less than 10 gallons: (1) The standards are mandatory for
  products manufactured on and after October 21, 2005 and (2) products manufactured prior to that date, and on
  or after October 23, 2003, must meet either the standards listed in this table or the applicable standards in
  subpart E of this part for a ``commercial packaged boiler.''
*** For oil-fired storage water heaters: (1) The standards are mandatory for equipment manufactured on and after
  October 9, 2015 and (2) equipment manufactured prior to that date must meet a minimum thermal efficiency level
  of 78 percent.
[dagger] Water heaters and hot water supply boilers having more than 140 gallons of storage capacity need not
  meet the standby loss requirement if: (1) The tank surface area is thermally insulated to R-12.5 or more, (2)
  a standing pilot light is not used, and (3) for gas or oil-fired storage water heaters, they have a fire
  damper or fan-assisted combustion.
[Dagger] Energy conservation standards for electric instantaneous water heaters are included in EPCA. (42 U.S.C.
  6313(a)(5)(D)-(E)) The compliance date for these energy conservation standards is January 1, 1994. In this
  NOPR, DOE proposes to codify these standards for electric instantaneous water heaters in its regulations at 10
  CFR 431.110. Further discussion of standards for electric instantaneous water heaters is included in section
  III.B.4 of this NOPR.


         Table II.2--Current Energy Conservation Standards for Residential-Duty Commercial Water Heaters
----------------------------------------------------------------------------------------------------------------
                                                                     Uniform energy
          Equipment             Specification *   Draw  pattern **       factor            Compliance date
----------------------------------------------------------------------------------------------------------------
Gas-fired Storage............  >75 kBtu/h and    Very Small.......  0.2674-(0.0009   December 29, 2016.
                                <=105 kBtu/h                         x Vr).
                                and <=120 gal.
                                                 Low..............  0.5362-(0.0012
                                                                     x Vr).
                                                 Medium...........  0.6002-(0.0011
                                                                     x Vr).
                                                 High.............  0.6597-(0.0009
                                                                     x Vr).
Oil-fired storage............  >105 kBtu/h and   Very Small.......  0.2932-(0.0015
                                <=140 kBtu/h                         x Vr).
                                and <=120 gal.
                                                 Low..............  0.5596-(0.0018
                                                                     x Vr).
                                                 Medium...........  0.6194-(0.0016
                                                                     x Vr).
                                                 High.............  0.6740-(0.0013
                                                                     x Vr).
Electric instantaneous.......  >12 kW and        Very Small.......  0.80...........
                                <=58.6 kW and
                                <= 2 gal.
                                                 Low..............  0.80...........
                                                 Medium...........  0.80...........
                                                 High.............  0.80...........
----------------------------------------------------------------------------------------------------------------
* Additionally, to be classified as a residential-duty water heater, a commercial water heater must meet the
  following conditions: (1) If requiring electricity, use single-phase external power supply; and (2) the water
  heater must not be designed to heat water at temperatures greater than 180 [deg]F.
** Draw pattern is a classification of hot water use of a consumer water heater or residential-duty commercial
  water heater, based upon the first-hour rating. The draw pattern is determined using the Uniform Test Method
  for Measuring the Energy Consumption of Water Heaters in appendix E to subpart B of 10 CFR part 430.


[[Page 30619]]

    On October 21, 2014, DOE published a request for information 
(``RFI'') as an initial step for reviewing the energy conservation 
standards for CWH equipment. 79 FR 62899 (``October 2014 RFI''). The 
October 2014 RFI solicited information from the public to help DOE 
determine whether more-stringent energy conservation standards for CWH 
equipment would result in a significant amount of additional energy 
savings, and whether those standards would be technologically feasible 
and economically justified. 79 FR 62899, 62899-62900. DOE received a 
number of comments from interested parties in response to the October 
2014 RFI.
    On May 31, 2016, DOE published a NOPR and notice of public meeting 
in the Federal Register (``May 2016 CWH ECS NOPR'') that addressed all 
of the comments received in response to the RFI and proposed amended 
energy conservation standards for CWH equipment. 81 FR 34440. The May 
2016 CWH ECS NOPR and the technical support document (``TSD'') for that 
NOPR are available at www.regulations.gov/docket?D=EERE-2014-BT-STD-0042.
    On June 6, 2016, DOE held a public meeting at which it presented 
and discussed the analyses conducted as part of this rulemaking (e.g., 
engineering analysis, LCC, PBP, and MIA). In the public meeting, DOE 
presented the results of the analysis and requested comments from 
stakeholders on various issues related to the rulemaking in response to 
the May 2016 CWH ECS NOPR.
    DOE received a number of comments from interested parties in 
response to the May 2016 CWH ECS NOPR. Table II.3 identifies these 
commenters. Although DOE withdrew the May 2016 CWH ECS NOPR (as 
discussed in the following paragraphs), DOE considered comments 
received in response to that document to the extent relevant to the 
preparation of this NOPR.

         Table II.3--Interested Parties Providing Written and Oral Comments on the May 2016 CWH ECS NOPR
----------------------------------------------------------------------------------------------------------------
                       Name                                   Abbreviation                 Commenter type *
----------------------------------------------------------------------------------------------------------------
Appliance Standards Awareness Project, Alliance    Joint Advocates..................  EA
 to Save Energy, Northeast Energy Efficiency
 Partnership, American Council for an Energy-
 Efficient Economy, EarthJustice.
Northwest Energy Efficiency Alliance.............  NEEA.............................  EA
Air-Conditioning, Heating and Refrigeration        AHRI.............................  TA
 Institute.
The U.S. Chamber of Commerce, the American         The 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 Manufacturers, the National
 Mining Association, the National Oilseed
 Processors Association, and the Portland Cement
 Association.
Industrial Energy Consumers of America...........  IECA.............................  TA
American Gas Association and American Public Gas   AGA and APGA.....................  UA
 Association.
Edison Electric Institute........................  EEI..............................  UA
National Propane Gas Association.................  NPGA.............................  IR
National Rural Electric Cooperative Association,   Joint Utilities..................  IR
 American Public Power Association, Edison
 Electric Institute.
Plumbing-Heating-Cooling Contractors National      PHCC.............................  IR
 Association.
A.O. Smith Corporation...........................  A.O. Smith.......................  M
Bock Water Heaters, Inc..........................  Bock.............................  M
Bradford White Corporation.......................  Bradford White...................  M
HTP, Inc.........................................  HTP..............................  M
Raypak, Inc......................................  Raypak...........................  M
Rheem Corporation................................  Rheem............................  M
California Energy Commission.....................  CEC..............................  OS
Environmental Defense Fund, Institute for Policy   Joint Organizations..............  OS
 Integrity at New York University School of Law,
 Natural Resources Defense Council, and Union of
 Concerned Scientists.
Pacific Gas and Electric Company, Southern         CA IOUs..........................  U
 California Gas Company, San Diego Gas and
 Electric, and Southern California Edison.
Spire Inc........................................  Spire............................  U
Anonymous........................................  Anonymous........................  I
Johnnie Temples..................................  Johnnie Temples..................  I
PVI Industries, Inc..............................  PVI..............................  M
NegaWatt Consulting..............................  NegaWatt.........................  OS
Bradley Corporation..............................  Bradley..........................  M
----------------------------------------------------------------------------------------------------------------
* TA: trade association, EA: efficiency/environmental advocate, IR: industry representative, M: manufacturer,
  OS: other stakeholder, U: utility or utilities filing jointly, UA: utility association, and I: individual.

    A parenthetical reference at the end of a comment quotation or 
paraphrase provides the location of the item in the public record.\15\
---------------------------------------------------------------------------

    \15\ The parenthetical reference provides a reference for 
information located in the docket. (Docket No. EERE-2014-BT-STD-
0042, which is maintained at www.regulations.gov/#!docketDetail;D=EERE-2014-BT-STD-0042). The references are arranged 
as follows: (commenter name, comment docket ID number, page of that 
document).
---------------------------------------------------------------------------

    On December 23, 2016, DOE published a notice of data availability 
(``NODA'') for energy conservation standards for CWH equipment 
(``December 2016 CWH ECS NODA''). 81 FR 94234. The December 2016 CWH 
ECS NODA presented the thermal efficiency and standby loss levels 
analyzed in the May 2016 CWH ECS NOPR for residential-duty gas-fired 
storage water heaters in terms of UEF, using the updated conversion 
factors for gas-fired and oil-fired storage water heaters adopted in 
the December 2016 conversion factor final rule (81 FR 94234, 94237).
    On January 15, 2021, in response to a petition for rulemaking 
submitted by the American Public Gas Association, Spire, Inc., the 
Natural Gas Supply Association, the American Gas Association, and the 
National Propane Gas Association (83 FR 54883; Nov. 1, 2018) DOE 
published a final interpretive

[[Page 30620]]

rule (``the January 2021 final interpretive rule'') determining that, 
in the context of residential furnaces, commercial water heaters, and 
similarly-situated products/equipment, use of non-condensing technology 
(and associated venting) constitute a performance-related ``feature'' 
under EPCA that cannot be eliminated through adoption of an energy 
conservation standard. 86 FR 4776. Correspondingly, DOE withdrew the 
May 2016 CWH ECS NOPR. 86 FR 3873 (Jan. 15, 2021).
    However, DOE has subsequently published a final interpretive rule 
that returns to the previous and long-standing interpretation (in 
effect prior to the January 15, 2021 final interpretive rule), under 
which the technology used to supply heated air or hot water is not a 
performance-related ``feature'' that provides a distinct consumer 
utility under EPCA. 86 FR 73947 (Dec. 29, 2021).
    In conducting the analysis for this NOPR, DOE evaluates condensing 
technologies and associated venting systems (i.e., trial standard 
levels (``TSLs'') 2, 3, and 4) in its analysis of potential energy 
conservation standards. Any adverse impacts on utility and availability 
of non-condensing technology options are considered in DOE's analyses 
of these TSLs.
    As illustrated by the preceding discussion, the rulemaking for CWH 
equipment has been subject to multiple rounds of public comment, 
including public meetings, and extensive records have been developed in 
the relevant dockets. (See Docket Number EERE-2014-BT-STD-0042, 
respectively). Consequently, the information obtained through those 
earlier rounds of public comment, information exchange, and data 
gathering have been considered in this rulemaking and DOE is building 
upon the existing record through further analysis and further notice 
and comment.

C. Deviation From Appendix A

    On January 11, 2022, DOE published a test procedure NOPR for 
consumer water heaters and residential-duty commercial water heaters. 
87 FR 1554. In accordance with section 3(a) of 10 CFR part 430, subpart 
C, appendix A (``appendix A''), DOE notes that it is deviating from the 
provision in appendix A specifying that test procedures be finalized at 
least 180 days before new or amended standards are proposed for the 
same equipment. 10 CFR part 430, subpart C, appendix A, section 
8(d)(2). DOE is opting to deviate from this step because the proposed 
test procedure amendments for residential-duty commercial water heaters 
are not expected to impact the current efficiency ratings. Further, the 
test procedure final rule for consumer water heaters and residential-
duty commercial water heaters is expected to publish before a final 
rule in this proposed rulemaking. If DOE determines that the test 
procedure amendments for residential-duty commercial water heaters do 
in fact impact the efficiency ratings, DOE will review the implications 
of those changes before finalizing amended standards for residential-
duty commercial water heaters.
    Issue 1: DOE requests comment on its assumption that the proposed 
test procedure amendments for residential-duty commercial water heaters 
are not expected to impact the efficiency ratings.

III. General Discussion

    DOE developed this proposed rule after considering comments, data, 
and information from interested parties that represent a variety of 
interests. This proposed rule addresses issues raised by commenters to 
the extent relevant to the preparation of this NOPR.

A. Test Procedures

    DOE's current test procedures for CWH equipment are specified at 10 
CFR 431.106 and provide mandatory methods for determining the thermal 
efficiency, standby loss, and UEF, as applicable, of CWH equipment.
    As noted previously, on October 21, 2004, DOE published the October 
2004 direct final rule, which adopted amended test procedures for CWH 
equipment. 69 FR 61974. These test procedure amendments incorporated by 
reference certain sections of ANSI Z21.10.3-1998, ``Gas Water Heaters, 
Volume III, Storage Water Heaters with Input Ratings above 75,000 Btu 
per Hour, Circulating and Instantaneous.'' Id. at 69 FR 61983. On May 
16, 2012, DOE published a final rule for certain commercial heating, 
air-conditioning, and water heating equipment in the Federal Register 
that, among other things, updated the test procedures for certain CWH 
equipment by incorporating by reference ANSI Z21.10.3-2011. 77 FR 
28928. These updates did not materially alter DOE's test procedure for 
CWH equipment.
    On May 9, 2016, DOE published a NOPR that proposed to amend the 
test procedures for certain CWH equipment (``May 2016 CWH TP NOPR''). 
81 FR 28588. In the May 2016 CWH TP NOPR, DOE proposed several changes, 
including (1) updating references of industry test standards to 
incorporate by reference the most recent versions of the industry 
standards; (2) updating the requirements for ambient conditions, 
measurement locations, and measurement intervals for the thermal 
efficiency and standby loss test procedures; (3) amending the test 
procedure set-up requirements for storage water heaters, storage-type 
instantaneous water heaters, instantaneous water heaters, and hot water 
supply boilers; (4) developing a test method for determining the 
standby loss of unfired hot water storage tanks; (5) updating 
provisions for setting the tank thermostat for storage and storage-type 
instantaneous water heaters prior to the thermal efficiency and standby 
loss tests; (6) clarifying the thermal efficiency and standby loss test 
procedures with regard to stored energy loss and manipulation of 
settings during efficiency testing; (7) defining ``storage-type 
instantaneous water heater'' and modifying several definitions for 
certain consumer water heaters and CWH equipment included at 10 CFR 
430.2 and 10 CFR 431.102, respectively; (8) updating DOE's procedures 
for determining storage volume and standby loss of instantaneous water 
heaters and hot water supply boilers (other than storage-type 
instantaneous water heaters); (9) developing a new test procedure for 
commercial heat pump water heaters and incorporating by reference 
certain sections, figures, and tables from ASHRAE 118.1-2012; (10) 
establishing a procedure for determining the fuel input rate of gas-
fired and oil-fired CWH equipment and clarifying DOE's certification 
and enforcement regulations regarding fuel input rate; and (11) 
establishing default values for certain testing parameters for oil-
fired CWH equipment.
    On November 10, 2016, DOE published a final rule amending the test 
procedures for certain CWH equipment (``November 2016 CWH TP final 
rule''). 81 FR 79261. In the November 2016 CWH TP final rule, DOE 
generally adopted the proposals set forth in the May 2016 CWH TP NOPR, 
except that it did not adopt the following proposals: (1) Ambient 
humidity requirements, (2) tightened ambient room temperature allowable 
range (75 [deg]F  5 [deg]F), and (3) requirements that the 
certified fuel input rate be equal to the mean of the measured values 
of fuel input rate in a sample. In that final rule, DOE also amended 
its regulations for gas supply and outlet pressure of gas-fired CWH 
equipment, modified the definition for ``storage-type instantaneous 
water heater,'' and updated the requirements for establishing steady-
state operation. DOE received many industry comments

[[Page 30621]]

in response to DOE's proposed standby loss test procedure for unfired 
hot water storage tanks, and in the November 2016 CWH TP final rule, 
DOE stated that it was still considering these comments and would 
address the comments and its proposed test procedure for unfired hot 
water storage tanks in a separate rulemaking notice. 81 FR 79261, 79277 
(Nov. 10, 2016).
    In addition, as discussed in section II.B, AEMTCA amended EPCA to 
require that DOE publish a final rule establishing a uniform efficiency 
descriptor and accompanying test methods for covered consumer water 
heaters and certain CWH equipment. (42 U.S.C. 6295(e)(5)(B)) The AEMTCA 
amendments required DOE, in the final rule, to replace the current 
energy factor (for consumer water heaters) and thermal efficiency and 
standby loss (for commercial water heaters) metrics with a uniform 
efficiency descriptor. (42 U.S.C. 6295(e)(5)(C)) However, under the 
AEMTCA amendments, DOE may provide an exclusion from the uniform 
efficiency descriptor for specific categories of covered water heaters 
that do not have residential uses, that can be clearly described, and 
that are effectively rated using the current thermal efficiency and 
standby loss descriptors. (42 U.S.C. 6295(e)(5)(F))
    The AEMTCA amendments to EPCA further require that, along with 
developing a uniform descriptor, DOE develop a mathematical conversion 
factor to translate the results based upon use of the efficiency metric 
under the test procedure in effect on December 18, 2012, to the new 
energy descriptor. (42 U.S.C. 6295(e)(5)(E)(i)) In addition, pursuant 
to 42 U.S.C. 6295(e)(5)(E)(ii) and (iii), the conversion factor must 
not affect the minimum efficiency requirements for covered water 
heaters, including residential-duty commercial water heaters. 
Furthermore, such conversions must not lead to a change in measured 
energy efficiency for covered residential and residential-duty 
commercial water heaters manufactured and tested prior to the final 
rule establishing the uniform efficiency descriptor. Id.
    In the July 2014 test procedure final rule, DOE, among other 
things, established the UEF metric, a revised version of the current 
residential energy factor metric, as the uniform efficiency descriptor 
required by AEMTCA. 79 FR 40542, 40578-40579 (July 11, 2014).
    The uniform efficiency descriptor established in the July 2014 
final rule applies to all commercial water heaters that meet the 
definition of ``residential-duty commercial water heater.'' This term 
was initially defined in the July 2014 final rule, and later revised in 
the November 2016 CWH TP final rule. 81 FR 79261, 79288-79289 (Nov. 10, 
2016). Residential-duty commercial water heater is defined in 10 CFR 
431.102 as any gas-fired storage, oil-fired storage, or electric 
instantaneous commercial water heater that meets the following 
conditions:
    (1) For models requiring electricity, uses single-phase external 
power supply;
    (2) Is not designed to provide outlet hot water at temperatures 
greater than 180 [deg]F; and
    (3) Does not meet any of the criteria shown in Table III.1, which 
reflects the table in 10 CFR 431.102.

 Table III.1--Rated Input and Storage Volume Ranges for Non-Residential-
                      Duty Commercial Water Heaters
------------------------------------------------------------------------
                                           Indicator of non-residential
           Water heater type                       application
------------------------------------------------------------------------
Gas-fired storage......................  Rated input >105 kBtu/h; Rated
                                          storage volume >120 gallons.
Oil-fired storage......................  Rated input >140 kBtu/h; Rated
                                          storage volume >120 gallons.
Electric instantaneous.................  Rated input >58.6 kW; Rated
                                          storage volume >2 gallons.
------------------------------------------------------------------------

    CWH equipment not meeting the definition of ``residential-duty 
commercial water heater'' was deemed to be sufficiently characterized 
by the current thermal efficiency and standby loss metrics. DOE 
provided a method for converting existing thermal efficiency and/or 
standby loss ratings for residential-duty commercial water heaters to 
UEF in the December 2016 conversion factor final rule. DOE also adopted 
UEF standard levels for the equipment, and DOE's methodology for 
translating the standards ensured equivalent stringency between the 
then-existing standards (in terms of thermal efficiency and standby 
loss metrics) and the converted standards (in terms of UEF). 81 FR 
96204, 96219-96223 (Dec. 29, 2016).
    Compliance with the UEF metric has been mandatory since December 
29, 2016, and manufacturers have been required to determine UEF based 
on UEF test data, rather than using equations to convert from thermal 
efficiency and standby loss, since December 29, 2017. Therefore, in 
this NOPR, DOE analyzes residential-duty gas-fired storage water 
heaters in terms of UEF and does not utilize any UEF conversion 
factors.

B. Scope of Rulemaking

1. Residential-Duty Commercial Water Heaters
    As discussed in the July 2014 final rule, DOE regulates 
residential-duty commercial water heaters as commercial water heaters. 
79 FR 40542, 40544 (July 11, 2014) However, as discussed in section 
III.B.2 of this document, DOE is not considering amended standards for 
residential-duty oil-fired storage water heaters because DOE has 
initially found that the market for this equipment has not changed 
appreciably since standards were last amended. However, the same is not 
true for residential-duty gas-fired storage water heaters. DOE has 
tentatively determined that the market for residential-duty gas-fired 
storage water heaters has appreciably changed since the July 2014 final 
rule. DOE is considering amended energy conservation standards for 
residential-duty commercial gas-fired storage water heaters in the 
current rulemaking, which addresses commercial water heaters generally.
    As discussed in sections II.B and III.A of this document, DOE 
established that residential-duty commercial water heaters are covered 
by the new UEF metric in the July 2014 final rule. 79 FR 40542, 40586 
(July 11, 2014). The analyses of residential-duty equipment for the 
withdrawn May 2016 CWH ECS NOPR were conducted in terms of the thermal 
efficiency and standby loss metrics because there were insufficient 
efficiency data in terms of UEF available when DOE undertook the 
analyses for the withdrawn May 2016 CWH ECS NOPR. 81 FR 34440, 34453. 
Those results were subsequently converted to the UEF metric in the 
December 2016 NODA. 81 FR 94234. However, data in terms of UEF have 
since become available; therefore, DOE updated the analysis of 
residential-duty equipment to be in terms of UEF for this NOPR. Details 
about the UEF levels analyzed in this NOPR are discussed in sections 
IV.C.4.c and IV.C.6 of this document.
2. Oil-Fired Commercial Water Heating Equipment
    ASHRAE Standard 90.1-2013 raised the thermal efficiency level for 
commercial oil-fired storage water heaters from 78 percent to 80 
percent. In the July 2015 ASHRAE equipment final rule, DOE adopted the 
ASHRAE Standard 90.1 efficiency level of 80 percent having determined 
that there was insufficient potential for energy savings to justify 
further increasing the standard. 80 FR 42614 (July 17, 2015). This 
standard applied to both residential-duty commercial oil storage

[[Page 30622]]

water heaters as well as non-residential-duty commercial oil storage 
water heaters at the time, although equivalent standards in terms of 
UEF were developed and adopted for residential-duty commercial gas 
storage water heaters in the December 2016 Conversion Factor Final 
Rule. 81 FR 96204 (Dec. 29, 2016).
    In considering amended efficiency standards for commercial oil-
fired storage water heaters (including residential-duty oil-fired 
storage water heaters) in the withdrawn May 2016 CWH ECS NOPR, DOE 
initially determined that circumstances did not change appreciably 
between the publication of the July 2015 ASHRAE equipment final rule 
and the May 2016 CWH ECS NOPR, and, therefore, DOE did not analyze 
amended efficiency standards for this equipment in the May 2016 CWH ECS 
NOPR. 81 FR 34440, 34453. DOE has not received any new or additional 
information on this issue to suggest that DOE should consider amended 
standards for commercial oil-fired storage water heaters or 
residential-duty oil-fired storage water heaters and therefore DOE 
maintains the approach from the withdrawn May 2016 CWH ECS NOPR.
    For this NOPR, DOE considered whether amended standby loss 
standards for commercial oil-fired water heaters would be warranted. 
DOE has initially determined that a change in the maximum standby loss 
level would likely effect less of a change in energy consumption of 
oil-fired storage water heaters than would a change in the thermal 
efficiency due to the magnitude of energy consumed in active mode as 
compared to standby losses. Therefore, DOE has tentatively determined 
that an amended standby loss standard would likely result in only a 
negligible amount of additional energy savings. Thus, DOE has not 
analyzed amended standby loss standards for commercial oil-fired 
storage water heaters in this rulemaking.
    DOE also considered oil-fired instantaneous water heaters and hot 
water supply boilers and only identified a small number of oil-fired 
tank-type instantaneous units currently on the market that would meet 
DOE's definition of oil-fired tank-type instantaneous commercial water 
heaters. DOE estimates that there are very few annual shipments for 
this equipment class. Therefore, DOE has initially determined that the 
energy savings possible from amended standards for such equipment is 
negligible, and thus, would not impact the results of the analyses 
conducted for this NOPR. Therefore, DOE did not analyze amended 
standards for commercial oil-fired instantaneous water heaters and hot 
water supply boilers for this NOPR.
    Based on the discussion in the preceding paragraphs, and because 
DOE has not received new information to contradict its previous 
findings, DOE tentatively concludes that the potential energy savings 
resulting from amended standards for commercial oil-fired water heating 
equipment would be negligible. Any such energy savings from amended 
standards for commercial oil-fired water heating equipment would not 
appreciably change the absolute energy savings estimated for CWH 
equipment; i.e., would not impact the determination of whether amended 
energy conservation standards for CWH equipment would result in 
significant energy savings. Thus, DOE has continued to exclude 
commercial oil-fired water heating equipment from the analysis 
conducted for this NOPR.
3. Unfired Hot Water Storage Tanks
    Unfired hot water storage tanks are a class of CWH equipment. On 
August 9, 2019, DOE published an RFI initiating an effort to determine 
whether to amend the current uniform national standard for unfired hot 
water storage tanks. 84 FR 39220. Subsequently, on June 10, 2021 DOE 
published a notice of proposed determination and request for comment 
proposing not to amend energy conservation standards for unfired hot 
water storage tanks. 86 FR 30796. Because amended energy conservation 
standards for unfired hot water storage tanks are being considered as 
part of that proceeding, they were not considered further for this 
NOPR.
4. Electric Instantaneous Water Heaters
    EPCA prescribes energy conservation standards for several classes 
of CWH equipment manufactured on or after January 1, 1994. (42 U.S.C. 
6313(a)(5)) DOE codified these standards in its regulations for CWH 
equipment at 10 CFR 431.110. However, when codifying these standards 
from EPCA, DOE inadvertently omitted the standards put in place by EPCA 
for electric instantaneous water heaters. Specifically, for 
instantaneous water heaters with a storage volume of less than 10 
gallons, EPCA prescribes a minimum thermal efficiency of 80 percent. 
For instantaneous water heaters with a storage volume of 10 gallons or 
more, EPCA prescribes a minimum thermal efficiency of 77 percent and a 
maximum standby loss, in percent/hour, of 2.30 + (67/measured volume 
(in gallons)). (42 U.S.C. 6313(a)(5)(D) and (E)) Although DOE's 
regulations at 10 CFR 431.110 do not currently include energy 
conservation standards for electric instantaneous water heaters, these 
standards prescribed in EPCA are applicable. Therefore, in this NOPR, 
DOE is proposing to codify these standards in its regulations at 10 CFR 
431.110.
    DOE is also proposing to allow use of a calculation-based method 
for determining storage volume of electric instantaneous water heaters 
that is the same as the method for gas-fired and oil-fired 
instantaneous water heaters and hot water supply boilers found at 10 
CFR 429.72(e) (added at 81 FR 79261, 79320 (Nov. 10, 2016)). DOE has 
initially concluded that the same rationale for including these 
provisions for gas-fired and oil-fired instantaneous water heaters and 
hot water supply boilers also applies to electric instantaneous water 
heaters (i.e., it may be difficult to completely empty the 
instantaneous water heater in order to obtain a dry weight measurement, 
which is needed in a weight-based test for an accurate representation 
of the storage volume). Therefore, DOE is proposing to include electric 
instantaneous water heaters in these provisions in order to provide 
manufacturers with flexibility as to how the storage volume is 
determined.
    DOE notes that because electric instantaneous water heaters 
typically use electric resistance heating elements, which are highly 
efficient, the thermal efficiency of these units already approaches 100 
percent. DOE has also tentatively determined that there are no options 
for substantially increasing the rated thermal efficiency of this 
equipment, and the impact of setting thermal efficiency energy 
conservation standards for these products would be negligible. 
Similarly, the stored water volume is typically low, resulting in 
limited potential for reducing standby losses for most electric 
instantaneous water heaters. As a result, amending the standards for 
electric instantaneous water heaters established in EPCA would result 
in minimal energy savings. Even if DOE were to account for the energy 
savings potential of amended standards for electric instantaneous water 
heaters, the contribution of any potential energy savings from amended 
standards for these units would be negligible and not appreciably 
impact the energy savings analysis for CWH equipment. Therefore, DOE 
did not analyze amended energy conservation standards for electric 
instantaneous water heaters.

[[Page 30623]]

5. Commercial Heat Pump Water Heaters
    In the withdrawn May 2016 CWH ECS NOPR, DOE did not consider energy 
conservation standards for commercial heat pump water heaters because 
DOE's proposed test procedure for commercial heat pump water heaters 
was not finalized, and there were insufficient data with the proposed 
test procedure for units currently on the market. DOE expressed its 
intent to consider energy conservation standards for commercial heat 
pump water heaters in a future rulemaking. 81 FR 34440, 34454-34455 
(May 31, 2016). Further, DOE noted that all commercial heat pump water 
heaters it had identified on the market were ``add-on'' heat pumps 
designed to be paired with a storage tank in the field, and DOE had not 
identified any commercial water heater models that integrate a storage 
tank and heat pump. DOE did not consider commercial integrated heat 
pump water heaters as a design option for electric storage water 
heaters because DOE did not identify any such units on the market. 81 
FR 34440, 34454 and 34469.
    In the November 2016 CWH TP final rule, DOE adopted a test 
procedure for commercial heat pump water heaters. 81 FR 79261, 79301-
79304. However, DOE has initially concluded that there are still 
limited data using this test procedure for units currently on the 
market due to limited units on the market. Since the November 2016 CWH 
TP DOE is aware of only one commercial integrated heat pump water 
heater model currently on the market. Therefore, DOE did not consider 
energy conservation standards for commercial heat pump water heaters in 
this NOPR. As stated in the withdrawn May 2016 CWH ECS NOPR, DOE plans 
to analyze standards for commercial heat pump water heaters in a future 
rulemaking, at which time DOE will consider the appropriate equipment 
class structure for commercial electric water heaters, including 
commercial heat pump water heaters. Section IV.A.2.f of this NOPR 
includes discussion of DOE's consideration of grid-enabled water 
heaters.
6. Electric Storage Water Heaters
    In this rulemaking, DOE is not analyzing thermal efficiency 
standards for electric storage water heaters. Electric storage water 
heaters are not currently subject to a thermal efficiency standard 
under 10 CFR 431.110. Electric storage water heaters typically use 
electric resistance heating elements, which are highly efficient. The 
thermal efficiency of these units already approaches 100 percent. DOE 
did not consider commercial integrated heat pump water heaters as the 
maximum technologically feasible (``max-tech'') for electric storage 
water heaters at this time. DOE found only one such model on the 
market, at a single storage volume and heating capacity. Given the wide 
range of capacities and stored water volumes in products currently on 
the market, which are required to meet hot water loads in commercial 
buildings, it is unclear based on this single model whether heat pump 
water heater technology would be suitable to meet the range of load 
demands on the market.
    Issue 2: DOE requests comment and information on whether integrated 
heat pump water heaters are capable of meeting the same hot water loads 
as commercial electric storage water heaters that use electric 
resistance elements.
    Although DOE did not consider an integrated heat pump water heater 
as a design option for electric storage water heaters, DOE proposed 
amended standby loss standards for electric storage water heaters in 
the withdrawn May 2016 CWH ECS NOPR based on increased insulation 
thickness. 81 FR 34440, 34443 (May 31, 2016). In response to the 
withdrawn May 2016 CWH ECS NOPR, DOE received several comments opposing 
the proposed amended standby loss standard for electric storage water 
heaters. Summaries of these comments and DOE's responses are included 
in section IV.C.4.b of this NOPR. After consideration of industry 
comments and closer examination of the market, DOE recognizes that the 
only technology option that DOE analyzed in the engineering analysis as 
providing standby loss reduction for electric storage water heaters 
(i.e., increasing tank foam insulation thickness to 3 inches) is 
already currently included in some models rated at or near the current 
standby loss standard. Consequently, DOE did not analyze any technology 
options for reducing standby loss below (i.e., more stringent than) the 
current standard, and therefore, this NOPR does not propose to amend 
the standby loss standard for electric storage water heaters. Section 
IV.C.4.b of this NOPR includes further discussion of standby loss 
levels for electric storage water heaters and DOE's decision not to 
amend standby loss standards for electric storage water heaters.
7. Instantaneous Water Heaters and Hot Water Supply Boilers
    Other than storage-type instantaneous water heaters, DOE did not 
include instantaneous water heaters and hot water supply boilers in its 
analysis of potential amended standby loss standards.\16\ Instantaneous 
water heaters and hot water supply boilers (other than storage-type 
instantaneous water heaters) with greater than 10 gallons of water 
stored have a standby loss requirement under 10 CFR 431.110. However, 
DOE did not analyze more stringent standby loss standards for these 
units because it has initially determined that such amended standards 
would result in minimal energy savings. DOE identified only 81 out of 
468 models on the market of instantaneous water heaters or hot water 
supply boilers with greater than or equal to 10 gallons of water stored 
(other than storage-type instantaneous water heaters), and 32 of the 
identified models have less than 15 gallons of water stored. Even if 
DOE were to account for the energy savings potential of amended standby 
loss standards for instantaneous water heaters and hot water supply 
boilers (other than storage-type instantaneous water heaters) with 
greater than 10 gallons of water stored CWH equipment, the contribution 
of any potential energy savings from amended standards for these units 
would be negligible and not appreciably impact the energy savings 
analysis for CWH equipment.
---------------------------------------------------------------------------

    \16\ DOE adopted a definition for ``storage-type instantaneous 
water heater'' in the November 2016 CWH TP final rule. 81 FR 79261, 
79289-79290 (Nov. 10, 2016). Storage-type instantaneous water 
heaters are discussed in section IV.A.2.b of this NOPR.
---------------------------------------------------------------------------

    DOE has initially determined that instantaneous water heaters 
(other than storage-type instantaneous water heaters) and hot water 
supply boilers with less than 10 gallons of water stored would not have 
significantly different costs and benefits as compared to instantaneous 
water heaters (other than storage-type instantaneous water heaters) and 
hot water supply boilers with greater than or equal to 10 gallons of 
water stored. Therefore, DOE analyzed both equipment classes of 
instantaneous water heaters and hot water supply boilers (less than 10 
gallons and greater than or equal to 10 gallons stored volume) together 
for thermal efficiency standard levels in this NOPR.
    DOE also initially determined that establishing standby loss 
standards for instantaneous water heaters and hot water supply boilers 
with less than or equal to 10 gallons water stored would result in 
minimal energy savings. Even if DOE were to account for the energy 
savings potential of amended standby loss standards for instantaneous 
water

[[Page 30624]]

heaters and hot waters supply boilers with less than or equal to 10 
gallons of water stored, the contribution any potential energy savings 
from amended standards for these units would be negligible and not 
appreciably impact the energy savings analysis for CWH equipment. For 
instantaneous water heaters and hot water supply boilers (other than 
storage-type instantaneous water heaters), DOE has not found and did 
not receive any information or data suggesting that DOE should analyze 
amended standby loss standards or separately analyze amended thermal 
efficiency standards for each stored volume range (less than 10 
gallons, and greater than or equal to 10 gallons stored volume).

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 is 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 these means for improving efficiency are 
technologically feasible. DOE considers technologies incorporated in 
commercially-available equipment or in working prototypes to be 
technologically feasible.
    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. See generally 10 CFR 431.4; 10 CFR part 430, subpart 
C, appendix A, sections 6(c)(3)(ii)-(v) and 7(b)(2)-(5). Additionally, 
it is DOE's policy not to include in its analyses any proprietary 
technology that is a unique pathway to achieving a certain efficiency 
level. Section IV.B of this document discusses the results of the 
screening analysis for CWH equipment, particularly the designs DOE 
considered, those it screened out, and those that are the basis for the 
standard levels considered in this proposed rulemaking. For further 
details on the screening analysis for this proposed rulemaking, see 
chapter 4 of the NOPR TSD.
2. Maximum Technologically Feasible Levels
    When DOE proposes to adopt an amended standard for a type or class 
of covered equipment, it determines the maximum improvement in energy 
efficiency or maximum reduction in energy use that is technologically 
feasible for such equipment. Accordingly, in the engineering analysis, 
DOE determined the max-tech improvements in energy efficiency for CWH 
equipment, using the design parameters for the most efficient products 
available on the market. The max-tech levels that DOE determined for 
this proposed rulemaking are described in section IV.C.4 of this NOPR 
and chapter 5 of the NOPR TSD.

D. Energy Savings

1. Determination of Savings
    For each TSL, DOE projected energy savings from the application of 
the TSL to CWH equipment purchased in the 30-year period that begins in 
the first full year of compliance with potential standards (2026-2055 
for gas-fired CWH equipment).\17\ The savings are measured over the 
entire lifetime of CWH equipment purchased in the previous 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\ DOE also presents a sensitivity analysis that considers 
impacts for equipment shipped in a 9-year period.
---------------------------------------------------------------------------

    DOE used its national impacts analysis (``NIA'') spreadsheet model 
to estimate national energy savings (``NES'') from potential amended 
standards for CWH equipment. The NIA spreadsheet model (described in 
section IV.H of this document) calculates energy savings in terms of 
site energy, which is the energy directly consumed by equipment at the 
locations where they are used. For electricity, DOE reports NES in 
terms of primary energy savings, which is the savings in the energy 
that is used to generate and transmit the site electricity. For natural 
gas, the primary energy savings are considered to be equal to the site 
energy savings because they are supplied to the user without 
transformation from another form of energy.
    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 (e.g., coal, 
natural gas, petroleum fuels), and thus presents a more complete 
picture of the impacts of energy conservation standards.\18\ DOE's 
approach is based on the calculation of an FFC multiplier for each of 
the energy types used by covered equipment.\19\ For more information on 
FFC energy savings, see section IV.H.3 of this document.
---------------------------------------------------------------------------

    \18\ The FFC metric is discussed in DOE's statement of policy 
and notice of policy amendment. 76 FR 51282 (Aug. 18, 2011), as 
amended at 77 FR 49701 (Aug. 17, 2012).
    \19\ Natural gas and electricity were the energy types analyzed 
in the FFC calculations.
---------------------------------------------------------------------------

2. Significance of Savings
    To adopt any new or amended standards for covered equipment, DOE 
must determine that such action would result in significant energy 
savings. (See 42 U.S.C. 6313(a)(6)(C)(i); 42 U.S.C. 
6313(a)(6)(A)(ii)(II)) \20\
---------------------------------------------------------------------------

    \20\ In setting a more stringent standard for ASHRAE equipment, 
DOE must have ``clear and convincing evidence'' that doing so 
``would result in significant additional conservation of energy'' in 
addition to being technologically feasible and economically 
justified. 42 U.S.C. 6313(a)(6)(A)(ii)(II). This language indicates 
that Congress had intended for DOE to ensure that, in addition to 
the savings from the ASHRAE standards, DOE's standards would yield 
additional energy savings that are significant. In DOE's view, this 
statutory provision shares the requirement with the statutory 
provision applicable to covered products and non-ASHRAE equipment 
that ``significant conservation of energy'' must be present (42 
U.S.C. 6295(o)(3)(B))--and supported with ``clear and convincing 
evidence''--to permit DOE to set a more stringent requirement than 
ASHRAE.
---------------------------------------------------------------------------

    The significance of energy savings offered by a new or amended 
energy conservation standard cannot be determined without knowledge of 
the specific circumstances surrounding a given rulemaking.\21\ For 
example, the United States has now rejoined the Paris Agreement and 
will exert leadership in confronting the climate crisis.\22\ 
Additionally, some covered products and equipment have most of their 
energy consumption occur during periods of peak energy demand. The 
impacts of these products on the energy infrastructure can be more 
pronounced than products with relatively constant demand. In evaluating 
the significance of energy savings, DOE considers differences in 
primary energy and FFC effects for different covered products and 
equipment when determining whether energy savings are significant.

[[Page 30625]]

Primary energy and FFC effects include the energy consumed in 
electricity production (depending on load shape), in distribution and 
transmission, and in extracting, processing, and transporting primary 
fuels (i.e., coal, natural gas, petroleum fuels), and thus present a 
more complete picture of the impacts of energy conservation standards.
---------------------------------------------------------------------------

    \21\ The numeric threshold for determining the significance of 
energy savings established in a final rule published on February 14, 
2020 (85 FR 8626, 8670), was subsequently eliminated in a final rule 
published on December 13, 2021 (86 FR 70755).
    \22\ See Executive Order 14008, 86 FR 7619 (Feb. 1, 2021) 
(``Tackling the Climate Crisis at Home and Abroad'').
---------------------------------------------------------------------------

    Accordingly, DOE evaluates the significance of energy savings on a 
case-by-case basis, taking into account the significance of cumulative 
FFC national energy savings, the cumulative FFC emissions reductions, 
and the need to confront the global climate crisis, among other 
factors. As stated, the proposed standards would result in estimated 
national energy savings of 0.70 quad, the equivalent of the electricity 
use of 7.0 million homes in one year. DOE has initially determined, 
based on the methodology described in section IV.E and the analytical 
results presented in section V.B.3.a, that there is clear and 
convincing evidence that the energy savings for the TSL proposed in 
this rulemaking are ``significant'' within the meaning of 42 U.S.C. 
6313(a)(6)(A)(ii)(II).

E. Economic Justification

1. Specific Criteria
    EPCA provides seven factors to be evaluated in determining whether 
a potential energy conservation standard for CWH equipment is 
economically justified. (42 U.S.C. 6313(a)(6)(B)(ii)(I)-(VII) and 
(C)(i)) The following sections discuss how DOE has addressed each of 
those seven factors in this rulemaking.
a. Economic Impact on Manufacturers and Commercial Consumers
    EPCA requires DOE to consider the economic impact of a standard on 
manufacturers and the commercial consumers of the products subject to 
the standard. (42 U.S.C. 6313(a)(6)(B)(I) and (C)(i)) In determining 
the impacts of a potential amended standard on manufacturers, DOE 
typically conducts an MIA. For the MIA, DOE first uses an annual cash-
flow approach to determine the quantitative impacts. This step 
incorporates both a short-term impact 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 impact assessment (over a 30-year period).\23\ The industry-wide 
impacts analyzed include: (1) 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 (manufacturer subgroups), 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 new and amended 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.
---------------------------------------------------------------------------

    \23\ DOE also presents a sensitivity analysis that considers 
impacts for equipment shipped in a 9-year period, which 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.
---------------------------------------------------------------------------

    For individual commercial consumers, measures of economic impact 
include the changes in LCC and PBP associated with new or amended 
standards. These measures are discussed further in the following 
section. For commercial consumers in the aggregate, DOE also calculates 
the national net present value of the economic impacts applicable to a 
particular rulemaking. DOE also evaluates the LCC impacts of potential 
standards on identifiable subgroups of commercial consumers that may be 
affected disproportionately by a national standard.
b. Savings in Operating Costs Compared to Increase in Price (Life-Cycle 
Costs)
    EPCA requires DOE to consider the savings in operating costs 
throughout the estimated average life of CWH equipment compared to any 
increase in the price of the equipment that is likely to result from 
the standard. (42 U.S.C. 6313(a)(6)(B)(ii)(II); 42 U.S.C. 
6313(a)(6)(C)(i)) DOE conducts this comparison in its LCC and PBP 
analysis.
    The LCC is the sum of the purchase price of a piece of equipment 
(including installation cost and sales tax) and the operating expense 
(including energy, maintenance, and repair expenditures) discounted 
over the lifetime of the equipment. To account for uncertainty and 
variability in specific inputs, such as equipment lifetime and discount 
rate, DOE uses distributions of values, with probabilities attached to 
each value. For its analysis, DOE assumes that commercial consumers 
will purchase the covered equipment in the first full year of 
compliance with amended standards.
    The PBP is the estimated amount of time (in years) it takes 
consumers to recover the increased purchase cost (including 
installation) of a more-efficient equipment through lower operating 
costs. DOE calculates the PBP by dividing the change in purchase cost 
due to a more-stringent standard by the change in annual operating cost 
for the year that standards are assumed to take effect.
    The LCC savings are calculated relative to a no-new-standards case 
that reflects projected market trends in the absence of amended 
standards. DOE identifies the percentage of commercial consumers 
estimated to receive LCC savings or experience an LCC increase, in 
addition to the average LCC savings associated with a particular 
standard level. DOE's LCC analysis is discussed in further detail in 
section IV.F of this NOPR.
c. Energy Savings
    Although significant conservation of energy is a separate statutory 
requirement for adopting an energy conservation standard, EPCA requires 
DOE, in determining the economic justification of a standard, to 
consider the total projected energy savings that are expected to result 
directly from the standard. (42 U.S.C. 6313(a)(6)(B)(ii)(III)) As 
discussed in section IV.H of this NOPR and chapter 10 of the NOPR TSD, 
DOE uses the NIA spreadsheet to project NES.
d. Lessening of Utility or Performance of Products
    In establishing classes of equipment, and in evaluating design 
options and the impact of potential standard levels, DOE must consider 
any lessening of the utility or performance of the considered equipment 
likely to result from the standard. (42 U.S.C. 6313(a)(6)(B)(ii)(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. As discussed in section IV.A.2.c, DOE 
considered whether different venting technologies should be considered 
a necessary feature.
    Although the standards proposed in this NOPR would, if adopted, 
effectively eliminate non-condensing technology (and associated 
venting), DOE has recently published a final interpretive rule that 
returns to the previous and long-standing interpretation (in effect 
prior to the January 15, 2021 final interpretive rule), under which the 
technology used to supply heated air or hot water is not a performance-
related ``feature'' that provides a distinct utility under EPCA. 86 FR 
73947 (Dec. 29, 2021). Therefore, for the purpose of the analysis 
conducted for this rulemaking DOE is not precluded from setting

[[Page 30626]]

energy conservation standards that preclude non-condensing technology 
and did not analyze separate equipment classes for non-condensing and 
condensing CWH equipment in this NOPR.
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. (See 42 U.S.C. 
6313(a)(6)(B)(ii)(V)) DOE will transmit a copy of this proposed rule to 
the Attorney General with a request that the 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 the 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. 6313(a)(6)(B)(ii)(VI)) The energy savings from 
the proposed standards are likely to provide improvements to the 
security and reliability of the Nation's energy 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 
of this document.
    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 GHGs associated with energy production and use. As part 
of the analysis of the need for national energy and water conservation, 
DOE conducts an emissions analysis to estimate how potential standards 
may affect these emissions, as discussed in section IV.K of this 
document; the estimated emissions impacts are reported in section V.B.6 
of this document.\24\ DOE also estimates the economic value of 
emissions reductions resulting from the considered TSLs, as discussed 
in section IV.L of this document. DOE emphasizes that the SC-GHG 
analysis presented in this NOPR and TSD was performed in support of the 
cost-benefit analyses required by Executive Order 12866, and is 
provided to inform the public of the impacts of emissions reductions 
resulting from this proposed rule. The SC-GHG estimates were not 
factored into DOE's EPCA analysis of the need for national energy and 
water conservation.
---------------------------------------------------------------------------

    \24\ As discussed in section IV.L of this document, for the 
purpose of complying with the requirements of Executive Order 12866, 
DOE also estimates the economic value of emissions reductions 
resulting from the considered TSLs. DOE calculates this estimate 
using a measure of the social cost (``SC'') of each pollutant (e.g., 
SC-CO2). Although this estimate is calculated for the 
purpose of complying with Executive Order 12866, the Seventh Circuit 
Court of Appeals confirmed in 2016 that DOE's consideration of the 
social cost of carbon in energy conservation standards rulemakings 
is permissible under EPCA. Zero Zone v. Dept of Energy, 832 F.3d 
654, 678 (7th Cir. 2016).
---------------------------------------------------------------------------

g. Other Factors
    EPCA allows the Secretary of Energy, in determining whether a 
standard is economically justified, to consider any other factors that 
the Secretary deems to be relevant. (42 U.S.C. 6313(a)(6)(B)(ii)(VII) 
and (C)(i)) DOE did not consider other factors for this document.
2. Rebuttable Presumption
    EPCA creates a rebuttable presumption that an energy conservation 
standard is economically justified if the additional cost to the 
consumer of a product that meets the standard is less than three times 
the value of the first year's energy savings resulting from the 
standard, as calculated under the applicable DOE test procedure. DOE's 
LCC and PBP analyses generate values used to calculate the effects that 
potential amended energy conservation standards would have on the PBP 
for commercial consumers. These analyses include, but are not limited 
to, the 3-year PBP contemplated under the rebuttable-presumption test.
    In addition, DOE routinely conducts an economic analysis that 
considers the full range of impacts to commercial consumers, 
manufacturers, the Nation, and the environment, as required under 42 
U.S.C. 6313(a)(6)(B)(ii) and 42 U.S.C. 6313(a)(6)(C)(i). The results of 
this analysis serve as the basis for DOE's evaluation of the economic 
justification for a potential standard level (thereby supporting or 
rebutting the results of any preliminary determination of economic 
justification). The rebuttable presumption payback calculation is 
discussed in section V.B.1.c of this document.

F. Revisions to Notes in Regulatory Text

    In the withdrawn May 2016 CWH ECS NOPR, DOE proposed to modify the 
three notes to the table of energy conservation standards in 10 CFR 
431.110. 81 FR 34440, 34458 (May 31, 2016). First, DOE proposed to 
modify the note to the table of energy conservation standards denoted 
by subscript ``a'' to maintain consistency with DOE's procedure and 
enforcement provisions for determining fuel input rate of gas-fired and 
oil-fired CWH equipment that were proposed in the May 2016 CWH TP NOPR 
(81 FR 28588, 28622 (May 9, 2016)). Among these changes, DOE proposed 
that the fuel input rate certified to DOE, which must be equal to the 
mean of the measured values of fuel input rate in a sample, be used to 
determine equipment classes and calculate the standby loss standard. 
Therefore, in the withdrawn May 2016 CWH ECS NOPR, DOE proposed to 
replace the term ``nameplate input rate'' with the term ``fuel input 
rate.'' 81 FR 34440, 34458 (May 31, 2016).
    DOE also proposed to remove the note to the table of energy 
conservation standards denoted by subscript ``b.'' This note clarifies 
the compliance date for energy conservation standards for hot water 
supply boilers with capacity less than 10 gallons. Specifically, the 
note says that the standards in the table are mandatory for such 
equipment beginning on October 21, 2005, but that between October 23, 
2003 and October 21, 2005 manufacturers may either comply with the 
standards listed in the table for hot water supply boilers with less 
than 10 gallons of storage or with the standards in subpart E of 10 CFR 
part 431 for a ``commercial packaged boiler.'' DOE determined that this 
note is no longer needed because the specific compliance dates for hot 
water supply boilers with less than 10 gallons of storage is well in 
the past, with all such equipment being required to meet the standards 
in the table in 10 CFR 431.110 since October 21, 2005. Id.
    DOE also proposed to modify the note to the table of energy 
conservation standards denoted by subscript ``c,'' which establishes 
design requirements for water heaters and hot water supply boilers 
having more than 140 gallons of storage capacity that do not meet the 
standby loss standard. DOE proposed to replace the phrase ``fire 
damper'' with the phrase ``flue damper,'' because ``flue damper'' was 
more consistent with commonly used terminology and likely the intended 
meaning, and that ``fire

[[Page 30627]]

damper'' was a typographical error.\25\ The intent of this design 
requirement was to require that any water heaters or hot water supply 
boilers greater than 140 gallons that do not meet the standby loss 
standard must have some device that physically restricts heat loss 
through the flue, either a flue damper or blower that sits atop the 
flue. Id.
---------------------------------------------------------------------------

    \25\ In the January 2001 final rule, DOE used the terminology 
``flue damper'' in the footnote to the standards table. 66 FR 3356. 
The October 2004 final rule, which recodified the existing standards 
to be contiguous with newly adopted test procedures, changed the 
footnote terminology to ``fire damper'' without providing rationale. 
69 FR 61985. Further, ASHRAE Standard 90.1 has consistently used the 
term ``flue damper'' to describe the requirements. Therefore, DOE 
concluded the change in the October 2004 final rule was likely 
inadvertent.
---------------------------------------------------------------------------

    In response to the withdrawn May 2016 CWH ECS NOPR, A.O. Smith and 
Rheem opposed DOE's proposal to replace the term ``nameplate input 
rate'' with ``fuel input rate.'' A.O. Smith argued that because input 
rate is one of the characteristics that define a product's DOE 
classification, a fixed number such as the nameplate rated input is 
necessary. A.O. Smith stated that manufacturers are required by safety 
standards to display the rated input on product labels and operating 
instructions. A.O. Smith also argued that the only role for rated input 
during efficiency testing is to ensure the unit is firing on rate, and 
that rated input has no effect on measurement of energy efficiency. 
A.O. Smith added that replacing the term with ``fuel input rate'' does 
not help consumers but will add regulatory burden to manufacturers. 
Rheem disagreed with the method for determining ``fuel input rate'' 
proposed in the May 2016 CWH TP NOPR and believes that the term 
``nameplate input rate'' is clear and consistent for all water heaters 
and is should remain in subscript ``a.'' Rheem stated that it would 
only support a change to the term ``fuel input rate'' if the method of 
determining fuel input rate remains unchanged from how it is currently 
performed in industry. (A.O. Smith, No. 39 at pp. 6-7; Rheem, No. 43 at 
p. 8)
    In the November 2016 CWH TP final rule, DOE did not adopt its 
proposed certification provisions for fuel input rate. DOE stated that 
the safety certification process during the design and development of 
CWH equipment is sufficient for determining the rated input for CWH 
equipment. Additionally, DOE adopted the term ``rated input'' to mean 
the maximum rate at which CWH equipment is rated to use energy as 
specified on the nameplate and adopted the term ``fuel input rate'' to 
mean the rate at which any particular unit of CWH equipment consumes 
energy during testing. 81 FR 79261, 79304-79306 (Nov. 10, 2016). To 
maintain consistency with the November 2016 CWH TP final rule, DOE is 
no longer proposing to adopt its proposal in the May 2016 CWH ECS NOPR 
to replace the term ``nameplate input rate'' with the term ``fuel input 
rate.'' Instead, DOE is proposing to replace the term ``nameplate input 
rate'' with the term ``rated input.'' DOE notes that this change simply 
ensures consistency in nomenclature throughout DOE's regulations for 
CWH equipment. Similar to the term ``nameplate input rate,'' the term 
``rated input'' also refers to the input rate specified on the 
nameplate of CWH equipment. Additionally, in this NOPR, DOE continues 
to propose the other revisions initially proposed in the May 2016 CWH 
ECS NOPR to subscript ``b'' and ``c'' of 10 CFR 431.110 for the reasons 
previously stated.
    Issue 3: DOE requests comment on its proposed revisions to notes to 
the table of energy conservation standards in 10 CFR 431.110.

G. Certification, Compliance, and Enforcement Issues

    In the withdrawn May 2016 CWH ECS NOPR, DOE proposed to add 
requirements to its certification, compliance, and enforcement 
regulations at 10 CFR 429.44 that the rated value of storage volume 
must equal the mean of the measured storage volume of the units in the 
sample. 81 FR 34440, 34458 (May 31, 2016). DOE notes that there are 
currently no requirements from the Department limiting the amount of 
difference that is allowable between the tested (i.e., measured) 
storage volume and the ``rated'' storage volume that is specified by 
the manufacturer for CWH equipment other than residential-duty 
commercial water heaters. In the July 2014 test procedure final rule, 
DOE established a requirement for consumer water heaters and 
residential-duty commercial water heaters that requires the rated 
volume to be equal to the mean of the measured volumes in a sample. 79 
FR 40542, 40565 (July 11, 2014).
    From examination of reported measured storage volume data in the 
AHRI Directory, DOE observed that many units are rated at storage 
volumes above the measured storage volume. DOE's maximum standby loss 
equations for gas-fired and oil-fired CWH equipment are based on the 
rated storage volume, and the maximum standby loss standard increases 
as rated storage volume increases. Consequently, DOE proposed to 
require that the rated storage volume must be equal to the mean of the 
values measured using DOE's test procedure. In addition, DOE proposed 
to specify that for DOE-initiated testing, the mean of the measured 
storage volumes must be within 5 percent of the rated volume in order 
to use the rated storage volume in calculation of maximum standby loss. 
If the mean of the measured storage volume is more than 5 percent 
different than the rated storage volume, then DOE proposed to use the 
mean of the measured values in calculation of maximum standby loss. DOE 
notes that similar changes were made to DOE's certification, 
compliance, and enforcement regulations for residential and 
residential-duty water heaters in the July 2014 final rule. 79 FR 
40542, 40565 (July 11, 2014). In the May 2016 CWH ECS NOPR, DOE 
requested comment on its proposed changes to the certification, 
compliance, and enforcement regulations requiring the rated volume to 
be equal to the mean of the measured volumes in a sample.
    AHRI, Bock, A.O. Smith, and Bradford White opposed DOE's proposed 
changes to 10 CFR 429.44(b)(1)(ii)(C), which would make the rated 
volume equal to the mean of measured storage volumes within the sample. 
(AHRI, No. 40 at p. 37; Bock, No. 33 at p. 3; A.O. Smith, No. 39 at p. 
7; Bradford White, No. 42 at p. 3) AHRI, Bock, A.O. Smith, Bradford 
White, and Rheem stated that the relationship of measured volume and 
rated volume is already addressed by the applicable water heater safety 
standards. (AHRI, No. 40 at p. 37; Bock, No. 33 at p. 3; A.O. Smith, 
No. 39 at p. 7; Bradford White, No. 42 at p. 3; Rheem, No. 43 at p. 9) 
Bock stated that safety certification with ANSI Z21.10.3-2015 requires 
that rated storage volume be within 5 percent of the 
measured volume. Therefore, Bock argued that DOE should use rated 
volume for the calculation of maximum standby loss, and the certifying 
agency, ANSI, should resolve any discrepancy beyond a threshold of 5 
percent between rated and measured volume with the manufacturer. (Bock, 
No. 33 at p. 3)
    AHRI, Rheem, Bradford White, and A.O. Smith commented that DOE's 
proposed changes regarding certification of rated volume are 
unnecessary. (AHRI, No. 40 at p. 37; Rheem, No. 43 at p. 9; Bradford 
White, No. 42 at p. 3; A.O. Smith, No. 39 at p. 7) AHRI commented that 
there is no evidence that the current practice of determining rated 
volume has caused any problems in the field or in the compliance of CWH 
equipment with the existing energy conservation standards. (AHRI, No. 
40 at p. 37) AHRI and Rheem suggested that it is also

[[Page 30628]]

outside of DOE's authority to redefine how rated volume is determined 
because it is not an energy conservation metric. (AHRI, No. 40 at p. 
37; Rheem, No. 43 at p. 10) AHRI stated that it filed a petition with 
DOE which was published in the Federal Register on November 7, 2014 (79 
FR 66338) in response to a similar provision included in the July 2014 
final rule for consumer water heaters and residential-duty commercial 
water heaters. Specifically, AHRI's petition sought the repeal of 
provisions that required the rated volume to be equal to the mean of 
the measured volumes in a sample for consumer water heaters and 
residential-duty commercial water heaters. AHRI stated in the petition 
that these amendments in effect increase the stringency of the 
applicable minimum standards for residential water heaters, are 
unnecessary to develop a uniform energy descriptor, do not coincide 
with industry practice, and would impose significant burden on 
manufacturers in terms of additional testing and rewriting of market 
literature. (AHRI, No. 40 at p. 37) Rheem added that to define rated 
storage volume in the manner proposed in the May 2016 CWH ECS NOPR 
provides no measurable benefits nor addresses any known complaints, and 
it only would serve to infringe on industry standards and customary 
practice in the marketplace (i.e., requiring rated volume to be equal 
to the mean of measured volumes, rather than allowing a 5-percent 
tolerance when determining rated volume as included in ANSI Z21.10.3-
2015). (Rheem, No. 43 at p. 10)
    AHRI argued that according to 42 U.S.C. 6314(a)(4)(A), DOE is 
required to adopt ``generally accepted industry test procedures'' 
unless that procedure either does not adequately measure energy or is 
unduly burdensome. AHRI stated that establishing certification and 
enforcement regulations for the rated volume of storage water heaters 
is contrary to the policy established by Office of Management and 
Budget (``OMB'') Circular No. A-119 and Executive Order 13563, in that 
DOE has provided no evidence or compelling arguments that voluntary 
consensus standards requirements for rated volume have failed to serve 
the agency's needs. (AHRI, No. 40 at p. 38)
    Rheem stated that while rated storage volume is used as a variable 
in the standby loss equations for gas-fired and oil-fired CWH 
equipment, thermal efficiency is the desired energy efficiency value 
for these classes of CWH equipment in the industry and marketplace. 
Rheem commented that thermal efficiency is not dependent on storage 
volume. Conversely, Rheem stated that standby loss is the desired 
energy efficiency metric for electric storage water heaters, but the 
current maximum standby loss equation uses measured storage volume and 
not rated storage volume. Therefore, Rheem argued that rated storage 
volume is not a critical input to determining the desired energy 
efficiency values by commercial consumers of CWH equipment. (Rheem, No. 
43 at p. 10)
    After considering the comments, DOE is not proposing to change the 
requirements regarding certification of storage volume in this NOPR.
    Additionally, in the withdrawn May 2016 CWH ECS NOPR DOE proposed 
changes to the equations for maximum standby losses that would be 
consistent with the proposed changes to DOE's certification, 
compliance, and enforcement regulations. DOE received several comments 
on these proposals. (A.O. Smith, No. 39 at p. 7; Bradford White, No. 42 
at pp. 3-4; AHRI, Public Meeting Transcript, No. 20 at p. 14; Rheem, 
No. 43 at pp. 10-11) However, because DOE is no longer proposing 
changes to the storage volume determination of CWH equipment in this 
NOPR, DOE is also no longer proposing to change the equations to 
calculate maximum standby losses.
    DOE is not proposing to establish equipment-specific certification 
requirements for electric instantaneous water heaters in this NOPR. DOE 
may propose to establish certification requirements for electric 
instantaneous water heaters in future rulemakings.

H. General Comments

    As discussed in section II.A of this NOPR, pursuant to EPCA, DOE 
must determine, supported by clear and convincing evidence, that 
amended standards for CWH equipment would result in significant 
additional conservation of energy and be technologically feasible and 
economically justified. (42 U.S.C. 6313(a)(6)(A)(ii)(II); 42 U.S.C. 
6313(a)(6)(C)(i)) The statutory criteria require more than just a 
consideration of a standard level that provides the maximum improvement 
in energy savings for CWH equipment. In making the determination of 
economic justification of an amended standard, DOE must determine 
whether the benefits of the proposed standard exceed the burdens of the 
proposed standard by considering, to the maximum extent practicable, 
the seven criteria described in EPCA (see 42 U.S.C. 
6313(a)(6)(B)(ii)(I)-(VII)). A discussion of DOE's consideration of the 
statutory factors is contained in section V of this NOPR.
    The clear and convincing threshold is a heightened standard, and 
would only be met where the Secretary has an abiding conviction, based 
on available facts, data, and DOE's own analyses, that it is highly 
probable an amended standard would result in a significant additional 
amount of energy savings, and is technologically feasible and 
economically justified. See American Public Gas Association v. U.S. 
Dep't of Energy, No. 20-1068, 2022 WL 151923, at *4 (D.C. Cir. January 
18, 2022) (citing Colorado v. New Mexico, 467 U.S. 310, 316, 104 S.Ct. 
2433, 81 L.Ed.2d 247 (1984)).
    In response to the withdrawn May 2016 CWH ECS NOPR, DOE received 
comments and information regarding the assumptions that it used for 
inputs in the rulemaking analyses. DOE considered these comments in 
appropriate analyses conducted in this NOPR and modified its 
assumptions and inputs as necessary to account for the information or 
feedback provided by industry representatives. For example, DOE 
received comments from stakeholders about the achievable standby loss 
levels of gas-fired and electric storage water heaters. DOE used the 
suggestions provided in these comments and updated its analyzed standby 
loss levels to better reflect models currently on the market and the 
technology options that are used to reduce standby loss. Based on 
comments from stakeholders regarding the standby loss of electric 
storage water heaters, DOE concluded that the only technology option 
analyzed in the withdrawn NOPR would not reduce standby loss for all 
models on the market across the range of storage volumes. Therefore, 
DOE did not analyze amended energy conservation standards for electric 
storage water heaters for this NOPR.
    Several stakeholders commented that DOE's analysis incorrectly 
estimates the energy use of CWH equipment (AHRI, No. 40 at p. 1; A.O. 
Smith, No. 39 at p. 3; IECA, No. 24 at p. 1; Spire, No. 45 at pp. 12-
13) and costs to commercial consumers (AHRI, No. 40 at p. 1; A.O. 
Smith, No. 39 at p. 3; IECA, No. 24 at p. 1; Bock, No. 33 at p. 2), and 
underestimates the market share of higher-efficiency (i.e., condensing) 
gas-fired CWH equipment currently on the market (AHRI, No. 40 at p. 1; 
Bock, No. 33 at p. 2). AHRI further argued that DOE's analysis 
overestimates the future shipments of CWH equipment. (AHRI, No. 40 at 
p. 1) IECA argued that DOE substantially overstated the potential 
benefits of the proposed standards and

[[Page 30629]]

understated the negative impact on U.S. manufacturing jobs. (IECA, No. 
24 at p. 1)
    In response, DOE notes that for this NOPR, it refined the total 
shipment estimates and no-new-standards-case efficiency distributions 
in its analyses by integrating additional shipment data provided by 
AHRI in response to the withdrawn NOPR. DOE also updated its energy use 
analysis by incorporating data from CBECS 2012, as suggested by 
stakeholders.\26\ After thoroughly considering the stakeholder's 
comments regarding installation costs of condensing gas-fired CWH 
equipment, DOE re-evaluated its installation costs to align more 
closely with field applications. Furthermore, DOE reiterates that it 
conducts a rigorous analysis on impacts of amended standards on 
manufacturers, including impact on direct employment. Section IV of 
this NOPR provides details on DOE's updates to its various analyses.
---------------------------------------------------------------------------

    \26\ DOE is aware that a new version of CBECS (CBECS 2018) will 
likely be available for the next rulemaking phase, and DOE will 
evaluate its applicability for the commercial water heater energy 
analysis in that phase.
---------------------------------------------------------------------------

    Spire argued that significant energy savings cannot be based on the 
claim that the aggregate additional energy savings for all proposed 
standards are significant. Spire asserted that DOE's obligation is to 
consider each standard individually on the basis of clear and 
convincing evidence. Spire further argued that DOE failed to consider 
how fuel switching would affect the energy savings and emissions 
reductions estimated in the withdrawn NOPR. (Spire, No. 45 at p. 5) AGA 
and APGA recommended that DOE disaggregate the analyses of each 
equipment class and treat each of its economic justification criteria 
separately. AGA and APGA further argued that DOE's consideration of 
each TSL by comparing the commercial consumer LCC results against 
monetized emission reductions is entirely subjective and leads to 
uncertainty as to what DOE considers to constitute ``economic 
justification.'' (AGA and APGA, No. 35 at p. 4)
    In response to the comments from Spire and AGA and APGA, as 
described in section V.A of this NOPR, DOE groups various efficiency 
levels for each equipment class into TSLs in order to examine the 
combined impact that amended standards for all analyzed equipment 
classes would have on an industry. This approach also allows DOE to 
capture the effects on manufacturers of amended standards for all 
classes, better reflecting the burdens for manufacturers that produce 
equipment across several equipment classes. As discussed in section 
IV.H.2 of this NOPR, DOE also considered the effects of fuel switching 
by comparing total installed costs and operating costs of competing CWH 
equipment types. From this analysis, DOE has tentatively concluded that 
this NOPR will not incentivize fuel switching in the CWH market.
    DOE disputes the notion that its consideration of TSLs is 
subjective. Rather, through a detailed and thorough analysis, DOE 
considered the benefits and burdens of amended standards for CWH 
equipment to commercial consumers, the Nation, and manufacturers, in 
accordance with the criteria described in EPCA (see 42 U.S.C. 
6313(a)(6)(B)(ii)(I)-(VII)). Contrary to the assertion of AGA and APGA, 
DOE's economic justification is not based on comparing the commercial 
consumer LCC results against monetized emissions reductions. In fact, 
DOE considers a variety of economic factors, including commercial 
consumer LCC results, NPV of commercial consumer benefits, and 
manufacturer INPV. DOE presents monetized benefits in accordance with 
the applicable Executive Orders and DOE would reach the same tentative 
conclusions presented in this NOPR in the absence of the social cost of 
greenhouse gases, including the Interim Estimates presented by the 
Interagency Working Group.

IV. Methodology and Discussion of Related Comments

    This section addresses the analyses DOE has performed for this 
proposed rulemaking with regard to CWH equipment. Separate subsections 
address each component of DOE's analyses.
    In overview, DOE used several analytical tools to estimate the 
impact of the standards considered in this document. The first tool is 
a spreadsheet that calculates the LCC and PBP of potential amended or 
new energy conservation standards. The NIA uses a second spreadsheet 
set that provides shipments forecasts and calculates NES and NPV 
resulting from potential new or amended energy conservation 
standards.\27\ These spreadsheet tools are available on the DOE website 
for this proposed rulemaking: www1.eere.energy.gov/buildings/appliance_standards/standards.aspx?productid=36.
---------------------------------------------------------------------------

    \27\ DOE routinely uses a third spreadsheet tool, the Government 
Regulatory Impact Model (``GRIM''), to assess manufacturer impacts 
of potential new or amended standards as part of the MIA. However, 
as discussed in section III.E.1.a of this document, the MIA was not 
updated for the SNOPR.
---------------------------------------------------------------------------

    Additionally, DOE estimated the impacts on electricity demand and 
air emissions from utilities due to the amended energy conservation 
standards for CWH equipment. DOE used a version of the U.S. Energy 
Information Administration's (``EIA's'') National Energy Modeling 
System (``NEMS'') for the electricity and air emissions analyses. The 
NEMS model simulates the energy sector of the U.S. economy. EIA uses 
NEMS \28\ to prepare its Annual Energy Outlook (``AEO''), a widely 
known baseline energy forecast for the United States. The version of 
NEMS used for appliance standards analysis, which makes minor 
modifications to the AEO version, is called NEMS-BT.\29\ NEMS-BT 
accounts for the interactions among the various energy supply and 
demand sectors and the economy as a whole.
---------------------------------------------------------------------------

    \28\ For more information on NEMS, refer to EIA. The National 
Energy Modeling System: An Overview. 2018. EIA: Washington, DC. DOE/
EIA-0581(2018). Available at www.eia.gov/outlooks/aeo/.
    \29\ EIA approves the use of the name ``NEMS'' to describe only 
an AEO version of the model without any modification to code or 
data. Because the present analysis entails some minor code 
modifications and runs the model under various policy scenarios that 
deviate from AEO assumptions, the name ``NEMS-BT'' refers to the 
model as used here. (BT stands for DOE's Building Technologies 
Office.)
---------------------------------------------------------------------------

A. Market and Technology Assessment

    For the market and technology assessment for CWH equipment, DOE 
gathered information that provides an overall picture of the market for 
the equipment concerned, including the purpose of the equipment, the 
industry structure, manufacturers, market characteristics, and 
technologies used in the equipment. This activity included both 
quantitative and qualitative assessments based primarily on publicly-
available information. The subjects addressed in the market and 
technology assessment for this rulemaking include the following: (1) A 
determination of equipment classes, (2) manufacturers and industry 
structure, (3) types and quantities of CWH equipment sold, (4) existing 
efficiency programs, and (5) technologies that could improve the energy 
efficiency of CWH equipment. The key findings of DOE's market 
assessment are summarized below. Chapter 3 of the NOPR TSD provides 
further discussion of the market and technology assessment.
1. Definitions
    EPCA includes the following categories of CWH equipment as

[[Page 30630]]

covered industrial equipment: Storage water heaters, instantaneous 
water heaters, and unfired hot water storage tanks. EPCA defines a 
``storage water heater'' as a water heater that heats and stores water 
internally at a thermostatically-controlled temperature for use on 
demand. This term does not include units that heat with an input rating 
of 4,000 Btu per hour or more per gallon of stored water. EPCA defines 
an ``instantaneous water heater'' as a water heater that heats with an 
input rating of at least 4,000 Btu per hour per gallon of stored water. 
Lastly, EPCA defines an ``unfired hot water storage tank'' as a tank 
that is used to store water that is heated external to the tank. (42 
U.S.C. 6311(12)(A)-(C))
    DOE first codified the following more specific definitions for CWH 
equipment at 10 CFR 431.102 in the October 2004 direct final rule. 69 
FR 61974, 61983. Several of these definitions were subsequently amended 
in the November 2016 CWH TP final rule. 81 FR 79261, 79287-79288 (Nov. 
10, 2016).
    Specifically, DOE now defines ``hot water supply boiler'' in 10 CFR 
431.102 as a packaged boiler that is industrial equipment and that (1) 
has an input rating from 300,000 Btu/h to 12,500,000 Btu/h and of at 
least 4,000 Btu/h per gallon of stored water; (2) is suitable for 
heating potable water; and (3) meets either or both of the following 
conditions: (i) It has the temperature and pressure controls necessary 
for heating potable water for purposes other than space heating; or 
(ii) the manufacturer's product literature, product markings, product 
marketing, or product installation and operation instructions indicate 
that the boiler's intended uses include heating potable water for 
purposes other than space heating.
    DOE also defines an ``instantaneous water heater'' in 10 CFR 
431.102 as a water heater that uses gas, oil, or electricity, 
including: (1) Gas-fired instantaneous water heaters with a rated input 
both greater than 200,000 Btu/h and not less than 4,000 Btu/h per 
gallon of stored water; (2) oil-fired instantaneous water heaters with 
a rated input both greater than 210,000 Btu/h and not less than 4,000 
Btu/h per gallon of stored water; and (3) electric instantaneous water 
heaters with a rated input both greater than 12 kW and not less than 
4,000 Btu/h per gallon of stored water.
    DOE defines a ``storage water heater'' in 10 CFR 431.102 as a water 
heater that uses gas, oil, or electricity to heat and store water 
within the appliance at a thermostatically-controlled temperature for 
delivery on demand including: (1) Gas-fired storage water heaters with 
a rated input both greater than 75,000 Btu/h and less than 4,000 Btu/h 
per gallon of stored water; (2) oil-fired storage water heaters with a 
rated input both greater than 105,000 Btu/h and less than 4,000 Btu/h 
per gallon of stored water; and (3) electric storage water heaters with 
a rated input both greater than 12 kW and less than 4,000 Btu/h per 
gallon of stored water.
    Lastly, DOE defines an ``unfired hot water storage tank'' in 10 CFR 
431.102 as a tank used to store water that is heated externally, and 
that is industrial equipment.
2. Equipment Classes
    When evaluating and establishing energy conservation standards, DOE 
generally divides covered equipment into equipment classes by the type 
of energy used or by capacity or other performance-related features 
that justify a different standard. In determining whether a 
performance-related feature justifies a different standard, DOE 
considers such factors as the utility to the commercial consumers of 
the feature and other factors DOE determines are appropriate.
    CWH equipment classes are divided based on the energy source, 
equipment category (i.e., storage vs. instantaneous and hot water 
supply boilers), and size (i.e., input capacity and rated storage 
volume). Unfired hot water storage tanks are also included as a 
separate equipment class, but as discussed in section III.B.3 of this 
proposed rulemaking are being considered as part of a separate 
proceeding and therefore were not analyzed for this NOPR. Table IV.1 
shows the current equipment classes and energy conservation standards 
for CWH equipment other than residential-duty commercial water heaters, 
and Table IV.2 shows DOE's current equipment classes and energy 
conservation standards for residential-duty commercial water heaters.

Table IV.1--Current Equipment Classes and Energy Conservation Standards for CWH Equipment Except for Residential-
                                          Duty Commercial Water Heaters
----------------------------------------------------------------------------------------------------------------
                                                                           Energy conservation standards *
                                                                   ---------------------------------------------
                                                                     Minimum thermal
                                                                        efficiency        Maximum standby loss
            Equipment class                         Size                (equipment      (equipment manufactured
                                                                     manufactured on     on and after Oct. 29,
                                                                    and after Oct. 9,      2003) ** [dagger]
                                                                     2015) ** *** (%)
----------------------------------------------------------------------------------------------------------------
Electric storage water heaters.........  All......................                N/A  0.30 + 27/Vm (%/h).
Gas-fired storage water heaters........  <=155,000 Btu/h..........                 80  Q/800 + 110(Vr)\1/2\ (Btu/
                                                                                        h).
                                         >155,000 Btu/h...........                 80  Q/800 + 110(Vr)\1/2\ (Btu/
                                                                                        h).
Oil-fired storage water heaters........  <=155,000 Btu/h..........             *** 80  Q/800 + 110(Vr)\1/2\ (Btu/
                                                                                        h).
                                         >155,000 Btu/h...........             *** 80  Q/800 + 110(Vr)\1/2\ (Btu/
                                                                                        h).
Electric instantaneous water heaters     <10 gal..................                 80  N/A.
 [Dagger].
                                         >=10 gal.................                 77  2.30 + 67/Vm (%/h).
Gas-fired instantaneous water heaters    <10 gal..................                 80  N/A.
 and hot water supply boilers.           >=10 gal.................                 80  Q/800 + 110(Vr)\1/2\ (Btu/
                                                                                        h).
Oil-fired instantaneous water heater     <10 gal..................                 80  N/A
 and hot water supply boilers.           >=10 gal.................                 78  Q/800 + 110(Vr)\1/2\ (Btu/
                                                                                        h).
----------------------------------------------------------------------------------------------------------------
                                                  Minimum thermal insulation
----------------------------------------------------------------------------------------------------------------
Unfired hot water storage tank.........  All......................                     R-12.5
----------------------------------------------------------------------------------------------------------------
* Vm is the measured storage volume, and Vr is the rated volume, both in gallons. Q is the nameplate input rate
  in Btu/h.

[[Page 30631]]

 
** For hot water supply boilers with a capacity of less than 10 gallons: (1) The standards are mandatory for
  products manufactured on and after October 21, 2005 and (2) products manufactured prior to that date, and on
  or after October 23, 2003, must meet either the standards listed in this table or the applicable standards in
  subpart E of part 431 for a ``commercial packaged boiler.''
*** For oil-fired storage water heaters: (1) The standards are mandatory for equipment manufactured on and after
  October 9, 2015 and (2) equipment manufactured prior to that date must meet a minimum thermal efficiency level
  of 78 percent.
[dagger] Water heaters and hot water supply boilers having more than 140 gallons of storage capacity need not
  meet the standby loss requirement if: (1) The tank surface area is thermally insulated to R-12.5 or more, (2)
  a standing pilot light is not used, and (3) for gas or oil-fired storage water heaters, they have a fire
  damper or fan-assisted combustion.
[Dagger] Energy conservation standards for electric instantaneous water heaters are included in EPCA. In this
  NOPR, DOE codifies these standards for electric instantaneous water heaters in its regulations at 10 CFR
  431.110. Further discussion of standards for electric instantaneous water heaters is included in section
  III.B.4 of this document.


  Table IV.2--Current Equipment Classes and Energy Conservation Standards for Residential-Duty Commercial Water
                                                     Heaters
----------------------------------------------------------------------------------------------------------------
              Equipment                    Specification *          Draw pattern **       Uniform energy factor
----------------------------------------------------------------------------------------------------------------
Gas-fired Storage....................  >75 kBtu/h and.........  Very Small.............  0.2674-(0.0009 x Vr).
                                       <=105 kBtu/h and.......  Low....................  0.5362-(0.0012 x Vr).
                                       <=120 gal and..........  Medium.................  0.6002-(0.0011 x Vr).
                                       <=180 [deg]F...........  High...................  0.6597-(0.0009 x Vr).
Oil-fired storage....................  >105 kBtu/h and........  Very Small.............  0.2932-(0.0015 x Vr).
                                       <=140 kBtu/h and.......  Low....................  0.5596-(0.0018 x Vr).
                                       <=120 gal and..........  Medium.................  0.6194-(0.0016 x Vr).
                                       <=180 [deg]F...........  High...................  0.6740-(0.0013 x Vr).
Electric instantaneous...............  >12 kW and.............  Very Small.............  0.80.
                                       <=58.6 kW and..........  Low....................  0.80.
                                       <=2 gal and............  Medium.................  0.80.
                                       <=180 [deg]F...........  High...................  0.80.
----------------------------------------------------------------------------------------------------------------
* To be classified as a residential-duty water heater, a commercial water heater must, if requiring electricity,
  use single-phase external power supply, and not be designed to heat water at temperatures greater than 180
  [deg]F.
** Draw pattern is a classification of hot water use of a consumer water heater or residential-duty commercial
  water heater, based upon the first-hour rating. The draw pattern is determined using the Uniform Test Method
  for Measuring the Energy Consumption of Water Heaters in appendix E to subpart B of 10 CFR part 430.

    As discussed in section IV.A.2.e, DOE proposed in the May 2016 CWH 
ECS NOPR to consolidate commercial gas-fired and oil-fired storage 
water heater equipment classes that are currently divided by input 
rates of 155,000 Btu/h. 81 FR 34440, 34462 In the May 2016 CWH ECS 
NOPR, DOE sought comment on the overall proposed equipment class 
structure for CWH equipment. 81 FR 34440, 34460 (May 31, 2016). The 
following subsections include clarifications in response to the various 
comments received.
a. Residential-Duty Electric Instantaneous Water Heaters
    Residential-duty electric instantaneous water heaters are a 
separate equipment class within DOE's regulations for CWH equipment. In 
the December 2016 conversion factor final rule, DOE established 
equipment classes and energy conservation standards for residential-
duty commercial water heaters, including residential-duty electric 
instantaneous water heaters. 81 FR 96204, 96239 (Dec. 29, 2016). 
However, DOE notes that it did not analyze amended energy conservation 
standards for this equipment class in this NOPR, as further discussed 
in section III.B.4 of this NOPR.
b. Storage-Type Instantaneous Water Heaters
    Based on a review of equipment on the market, DOE has found that 
gas-fired storage-type instantaneous water heaters are very similar to 
gas-fired storage water heaters, but with a higher ratio of input 
rating to tank volume. This higher input-volume ratio is achieved with 
a relatively larger heat exchanger paired with a relatively smaller 
tank. Increasing either the input capacity or storage volume increases 
the hot water delivery capacity of the water heater. However, through a 
review of product literature, DOE did not identify any significant 
design differences that would warrant different energy conservation 
standard levels (for either thermal efficiency or standby loss) between 
models in these two equipment classes. Therefore, DOE grouped the two 
equipment classes together in the May 2016 CWH ECS NOPR analyses and 
proposed the same standard levels for each equipment class.
    In the withdrawn May 2016 CWH TP NOPR, DOE noted that the ``gas-
fired instantaneous water heaters and hot water supply boilers with a 
storage volume greater than or equal to 10 gallons'' equipment class 
encompasses both instantaneous water heaters and hot water supply 
boilers with large volume heat exchangers, as well as instantaneous 
water heaters with storage tanks (but with at least 4,000 Btu/h of 
input per gallon of water stored). 81 FR 28588, 28607 (May 9, 2016). 
Therefore, in the May 2016 CWH TP NOPR, DOE proposed to define 
``storage-type instantaneous water heater'' as an instantaneous water 
heater that includes a storage tank with a submerged heat exchanger(s) 
or heating element(s). Id. at 81 FR 28637. However, based on industry 
feedback, in the November 2016 CWH TP final rule, DOE decided not to 
include the criterion regarding submerged heat exchanger(s) or heating 
element(s) in the definition. Instead, DOE defined ``storage-type 
instantaneous water heater'' as an instantaneous water heater that 
includes a storage tank with a storage volume greater than or equal to 
10 gallons. 81 FR 79261, 79289-79290 (Nov. 10, 2016).
    In response to the May 2016 CWH ECS NOPR, DOE received various 
comments regarding the difference (or lack of difference) between 
storage-type instantaneous water heaters and storage water heaters and 
questioning whether storage-type instantaneous equipment should be 
considered in DOE's analysis. (Rheem, No. 43 at p. 11; Bock, No. 33 at 
p. 3; A.O. Smith, No. 39 at p. 7; Bradford White, No. 42 at p. 4) As 
stated, the definition for storage-type instantaneous water heaters was 
finalized in the November 2016 CWH TP final rule. 81 FR 79261, 79289-

[[Page 30632]]

79290 (Nov. 10, 2016). For this NOPR DOE has continued to analyze 
amended energy conservation standards for storage-type instantaneous 
water heaters in a manner consistent with storage water heaters, as was 
done in the withdrawn May 2016 CWH ECS NOPR. The potential standard 
levels considered in this document reflect the similarity of these 
types of equipment, with the same standard levels considered for both 
storage water heaters and storage-type instantaneous water heaters.
c. Condensing Gas-Fired Water Heating Equipment
    DOE has recently considered whether non-condensing technology (and 
associated venting) constitutes a performance-related ``feature'' that 
provides a distinct consumer utility under EPCA which may not be 
eliminated by an energy conservation standard. On January 15, 2021, in 
response to a petition for rulemaking submitted by the American Public 
Gas Association, Spire, Inc., the Natural Gas Supply Association, the 
American Gas Association, and the National Propane Gas Association (83 
FR 54883; Nov. 1, 2018), DOE published the January 2021 final 
interpretive rule determining that, in the context of residential 
furnaces, commercial water heaters, and similarly-situated products/
equipment, use of non-condensing technology (and associated venting) 
constitute a performance-related ``feature'' under EPCA that cannot be 
eliminated through adoption of an energy conservation standard. 86 FR 
4776. Correspondingly, DOE withdrew the May 2016 CWH ECS NOPR. 86 FR 
3873 (Jan. 15, 2021).
    However, DOE has subsequently published a final interpretive rule 
that returns to the previous and long-standing interpretation (in 
effect prior to the January 15, 2021 final interpretive rule), under 
which the technology used to supply heated air or hot water is not a 
performance-related ``feature'' that provides a distinct consumer 
utility under EPCA. 86 FR 73947 (Dec. 29, 2021). For the purpose of the 
analysis conducted for this rulemaking DOE did not analyze separate 
equipment classes for non-condensing and condensing CWH equipment in 
this NOPR.
d. Tankless Water Heaters and Hot Water Supply Boilers
    In the withdrawn May 2016 CWH ECS NOPR, DOE discussed the 
differences in design and application between equipment within the 
``gas-fired instantaneous water heaters and hot water supply boilers'' 
equipment class with storage volume less than 10 gallons. 81 FR 34440, 
34461-34462 (May 31, 2016). Specifically, DOE identified gas-fired 
instantaneous water heaters and hot water supply boilers that are 
``tankless water heaters'' and those that are ``hot water supply 
boilers.'' Id. From examination of equipment literature and discussion 
with manufacturers, DOE stated that tankless water heaters are 
typically used without a storage tank, flow-activated, wall-mounted, 
and capable of higher temperature rises. Hot water supply boilers, 
conversely, are typically used with a storage tank and recirculation 
loop, thermostatically-activated, and not wall-mounted. However, 
despite these differences, tankless water heaters and hot water supply 
boilers share basic similarities: Both kinds of equipment supply hot 
water in commercial applications with at least 4,000 Btu/h per gallon 
of stored water, and both include heat exchangers through which 
incoming water flows and is heated by combustion flue gases that flow 
around the heat exchanger tubes. DOE analyzed tankless water heaters 
and hot water supply boilers as two separate kinds of representative 
equipment for the instantaneous water heaters and hot water supply 
boilers equipment class for the May 2016 CWH ECS NOPR. Id.
    In response to the May 2016 CWH ECS NOPR, DOE received several 
comments related to whether tankless water heaters and hot water supply 
boilers should be treated as separate equipment classes in DOE's energy 
conservation standards for CWH equipment and whether proposing the same 
standards incentivizes any switching in shipments from one equipment 
class to the other. In addition, responses to the withdrawn May 2016 
NOPR indicated that some stakeholders were confused by the terminology 
used in that NOPR and the types of equipment that were considered as 
representative of this class. (AHRI, No. 40 at pp. 6-8 and Raypak, No. 
41 at pp. 6-7; Rheem, No. 43 at p. 12; Bradford White, No. 42 at p. 4)
    In the withdrawn May 2016 CWH ECS NOPR analysis, DOE used the term 
``hot water supply boiler'' to generally refer not only to hot water 
supply boilers, but also to instantaneous water heaters that have 
similar designs and applications as hot waters supply boilers (i.e., 
instantaneous water heaters other than tankless water heaters and 
storage-type instantaneous water heaters). DOE recognizes that this 
terminology may have led to confusion for some stakeholders. Therefore, 
in this NOPR, DOE refers to this representative equipment within the 
equipment class of ``gas-fired instantaneous water heaters and hot 
water supply boilers'' as ``gas-fired circulating water heaters and hot 
water supply boilers.'' The term ``circulating water heater'' is a 
commonly used term in industry, and its use is intended to resolve 
confusion for stakeholders regarding the equipment included in DOE's 
analyses. DOE is not proposing to define the term ``circulating water 
heater'' in DOE's regulations, but rather uses the term within this 
rulemaking notice and the NOPR TSD to clarify the name of 
representative equipment for the analysis of gas-fired instantaneous 
water heaters in response to the comments received on the May 2016 CWH 
ECS NOPR. DOE reiterates that within this NOPR, the term ``circulating 
water heaters and hot water supply boilers'' refers to both 
instantaneous water heaters (other than tankless water heaters and 
storage-type instantaneous water heaters) and hot water supply boilers.
    With respect to the issue of whether separate equipment classes are 
necessary, DOE acknowledges that there are certain design differences 
between tankless water heaters and circulating water heaters and hot 
water supply boilers. For this NOPR, DOE maintained its approach of 
analyzing ``tankless water heaters'' and ``circulating water heaters 
and hot water supply boilers'' as two separate kinds of representative 
equipment in the gas-fired instantaneous water heaters equipment class, 
and presents analytical results separately for the two types of 
representative equipment in section V of this NOPR, although DOE is not 
proposing to restructure the equipment classes.
e. Gas-Fired and Oil-Fired Storage Water Heaters
    In the withdrawn May 2016 CWH ECS NOPR, DOE proposed to consolidate 
commercial gas-fired and oil-fired storage water heater equipment 
classes that are currently divided by input rates of 155,000 Btu/h. DOE 
proposed the following two equipment classes without an input rate 
distinction: (1) Gas-fired storage water heaters and (2) oil-fired 
storage water heaters. 81 FR 34440, 34462 (May 31, 2016). The input 
rate of 155,000 Btu/h was first used as a dividing criterion for 
storage water heaters in the Energy Policy Act of 1992 (``EPAct 1992'') 
amendments to EPCA, which mirrored the standard levels and equipment 
classes in ASHRAE Standard 90.1-1989. (42 U.S.C. 6313(a)(5)(B)-(C)) 
ASHRAE has since updated its efficiency levels for oil-fired and gas-
fired storage water heaters in ASHRAE

[[Page 30633]]

Standard 90.1-1999 by consolidating equipment classes that were 
previously divided by an input rate of 155,000 Btu/h. Pursuant to 
requirements in EPCA, DOE adopted the increased standards in ASHRAE 
Standard 90.1-1999, but did not correspondingly consolidate the 
equipment classes above and below 155,000 Btu/h. As a result, DOE's 
current standards are identical for the equipment classes that are 
divided by input rate of 155,000 Btu/h.
    For this NOPR, DOE is maintaining its proposal to realign the 
equipment class structure to eliminate the input rate division at 
155,000 Btu/h for commercial gas-fired storage water heaters and oil-
fired storage water heaters, consistent with the equipment class 
structure in the latest version of ASHRAE Standard 90.1.
f. Grid-Enabled Water Heaters
    DOE currently only prescribes a standby loss standard for 
commercial electric storage water heaters, and in this NOPR DOE is not 
proposing to amend the standby loss level for electric storage water 
heaters. In the withdrawn May 2016 CWH ECS NOPR DOE had proposed an 
amended standby loss standard for electric storage water heaters, which 
DOE determined would be most commonly met by increasing insulation 
thickness, and which would not differentially affect grid-enabled 
technology. Therefore, in the May 2016 CWH ECS NOPR, DOE tentatively 
concluded that a separate equipment class for grid-enabled commercial 
electric storage water heaters was not warranted. 81 FR 34440 (May 31, 
2016). DOE did not receive comments regarding its tentative conclusion 
in the May 2016 CWH ECS NOPR. Because DOE is not proposing to amend the 
standard for commercial electric storage water heaters, and because DOE 
maintains that a grid-enabled water heater would not be differentially 
impacted by a standby loss standard, DOE is not proposing to establish 
a separate equipment class for grid-enabled electric storage water 
heaters in this NOPR.
g. Input Capacity for Instantaneous Water Heaters and Hot Water Supply 
Boilers
    In response to the May 2016 CWH ECS NOPR, DOE received comments 
suggesting that DOE should split up the equipment class for gas-fired 
instantaneous water heaters and hot water supply boilers by input 
capacity, similar to DOE's current energy conservation standards for 
commercial packaged boilers. (Raypak, No. 41 at p. 7) However, DOE 
notes that it adopted the current equipment class structure for 
commercial packaged boilers, including the division by input capacity, 
from ASHRAE 90.1. As discussed in section IV.A.2.c of this document, 
EPCA established a specific and separate statutory scheme for 
establishing and amending energy conservation standards applicable to 
ASHRAE equipment, including CWH equipment. (See 42 U.S.C. 6313(a)(6)) 
DOE must adopt the level set forth in ASHRAE Standard 90.1 unless the 
Department has clear and convincing evidence to adopt a more-stringent 
standard. (See 42 U.S.C. 6313(a)(6)). ASHRAE 90.1 does not divide the 
equipment classes for commercial gas-fired instantaneous water heaters 
and hot water supply boilers by input capacity. Therefore, DOE has not 
analyzed separate classes for gas-fired instantaneous water heaters and 
hot water supply boilers equipment class by input capacity.
3. Review of the Current Market for CWH Equipment
    In order to gather information needed for the market assessment for 
CWH equipment, DOE consulted a variety of sources, including 
manufacturer literature, manufacturer websites, the AHRI Directory of 
Certified Product Performance,\30\ the CEC Appliance Efficiency 
Database,\31\ and DOE's Compliance Certification Database.\32\ DOE used 
these sources to compile a database of CWH equipment that served as 
resource material throughout the analyses conducted for this 
rulemaking. This database contained the following counts of unique 
models: 768 commercial gas-fired storage water heaters, 94 residential-
duty commercial gas-fired storage water heaters, 167 commercial gas-
fired storage-type instantaneous water heaters (tank-type water heaters 
with greater than 4,000 Btu/h per gallon of stored water), 19 gas-fired 
tankless water heaters, 449 gas-fired circulating water heaters and hot 
water supply boilers, 115 commercial oil-fired storage water heaters, 2 
residential-duty commercial oil-fired storage water heaters, and 36 
commercial oil-fired storage-type instantaneous water heaters. No oil-
fired tankless water heaters or hot water supply boilers were found on 
the market. Chapter 3 of the NOPR TSD provides more information on the 
CWH equipment currently available on the market, including a full 
breakdown of these units into their equipment classes and graphs 
showing performance data.
---------------------------------------------------------------------------

    \30\ Last accessed on March 4, 2021 and available at 
www.ahridirectory.org.
    \31\ Last accessed on March 4, 2021 and available at 
cacertappliances.energy.ca.gov/Pages/ApplianceSearch.aspx.
    \32\ Last accessed on February 26, 2021 and available at 
www.regulations.doe.gov/certification-data/.
---------------------------------------------------------------------------

4. Technology Options
    As part of the market and technology assessment, DOE uses 
information about commercially-available technology options and 
prototype designs to help identify technologies that manufacturers 
could use to improve energy efficiency for CWH equipment. This effort 
produces an initial list of all the technologies that are 
technologically feasible. This assessment provides the technical 
background and structure on which DOE bases its screening and 
engineering analyses. Chapter 3 of the NOPR TSD includes descriptions 
of all technology options identified for this equipment.
    Because thermal efficiency, standby loss, and UEF are the relevant 
performance metrics in this rulemaking, DOE did not consider 
technologies that have no significant effect on these metrics. However, 
DOE does not discourage manufacturers from using these other 
technologies because they might reduce annual energy consumption in the 
field. The following list includes the technologies that DOE did not 
consider because they would not significantly affect efficiency as 
measured by the DOE test procedure. Chapter 3 of the NOPR TSD provides 
details and reasoning for the exclusion from further consideration of 
each technology option, as listed here:
     Plastic tank.
     Direct vent.
     Timer controls.
     Intelligent and wireless controls.
     Modulating combustion.
     Self-cleaning.
    DOE also did not consider technologies as options for increasing 
efficiency if they are included in baseline equipment, as determined 
from an assessment of units on the market. DOE's research suggests that 
electromechanical flue dampers and electronic ignition are technologies 
included in baseline equipment for commercial gas-fired storage water 
heaters; therefore, they were not included as technology options for 
that equipment class. However, electromechanical flue dampers and 
electronic ignition were not identified on baseline units for 
residential-duty gas-fired storage water heaters, and these options 
were, therefore, considered for increasing efficiency of residential-
duty gas-fired storage water heaters. DOE also considered insulation of 
fittings around pipes and ports in the

[[Page 30634]]

tank to be included in baseline equipment; therefore, such insulation 
was not considered as a technology option for the analysis.
    The technology options that were considered for improving the 
energy efficiency of CWH equipment for this NOPR are as follows:
     Improved insulation (including increasing jacket 
insulation, insulating tank bottom, advanced insulation types, and foam 
insulation).
     Mechanical draft (including induced draft (also known as 
power vent) and forced draft).
     Condensing heat exchanger (for all gas-fired equipment 
classes and including optimized flue geometry).
     Condensing pulse combustion.
     Improved heat exchanger design (including increased 
surface area and increased baffling).
     Sidearm heating and two-phase thermosiphon technology.
     Electronic ignition systems.
     Improved heat pump water heaters (including gas absorption 
heat pump water heaters).
     Premix burner (including submerged combustion chamber for 
gas-fired storage water heaters and storage-type instantaneous water 
heaters).
     Electromechanical flue damper.
     Modulating combustion.

B. Screening Analysis

    DOE uses the following screening criteria to determine which 
technology options are suitable for further consideration in an energy 
conservation standards rulemaking:
     Technological feasibility. DOE will consider technologies 
incorporated in commercial products or in working prototypes to be 
technologically feasible. Technologies that are not incorporated in 
commercial equipment or in working prototypes are not considered in 
this NOPR.
     Practicability to manufacture, install, and service. If 
mass production and reliable installation and servicing of a technology 
in commercial products could be achieved on the scale necessary to 
serve the relevant market at the time of the compliance date of the 
standard, then DOE will consider that technology practicable to 
manufacture, install, and service.
     Adverse impacts on product utility or product 
availability. If DOE determines a technology would have a significant 
adverse impact on the utility of the product to significant subgroups 
of commercial consumers, or would result in the unavailability of any 
covered product type with performance characteristics (including 
reliability), features, sizes, capacities, and volumes that are 
substantially the same as products generally available in the United 
States at the time, it will not consider this technology further.
     Adverse impacts on health or safety. If DOE determines 
that a technology will have significant adverse impacts on health or 
safety, it will not consider this technology further.
     Unique-pathway proprietary technologies. If a design 
option utilizes proprietary technology that represents a unique pathway 
to achieving a given efficiency level, that technology will not be 
considered further.
10 CFR 431.4; 10 CFR part 430, subpart C, appendix A, sections 6(c)(3) 
and 7(b).
1. Screened-Out Technologies
    Technologies that pass through the screening analysis are 
subsequently examined in the engineering analysis for consideration in 
DOE's downstream cost-benefit analysis. Based upon a review under the 
above factors, DOE screened out the design options listed in Table IV.3 
for the reasons provided. Chapter 4 of the NOPR TSD contains additional 
details on the screening analysis, including a discussion of why each 
technology option was screened out.

                                                 Table IV.3--Summary of Screened-Out Technology Options
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                      Reasons for exclusion
                                                                       ---------------------------------------------------------------------------------
                                               Applicable equipment                       Practicability      Adverse         Adverse         Unique-
        Excluded technology option                  classes *            Technological   to manufacture,    impacts on      impacts on        pathway
                                                                          feasibility      install, and       product        health or      proprietary
                                                                                             service          utility         safety        technology
--------------------------------------------------------------------------------------------------------------------------------------------------------
Advanced insulation types................  All storage water heaters..               X                X
Condensing pulse combustion..............  All gas-fired equipment                                    X
                                            classes.
Sidearm heating..........................  All gas-fired storage......                                X
Two-phase thermosiphon technology........  All gas-fired storage......                                X
Gas absorption heat pump water heaters...  Gas-fired instantaneous                                    X
                                            water heaters.
--------------------------------------------------------------------------------------------------------------------------------------------------------
* All mentions of storage water heaters in this column refer to both storage water heaters and storage-type instantaneous water heaters.

    In this NOPR, DOE has tentatively concluded that none of the 
identified technology options are proprietary. However, in the 
engineering analysis, DOE included the manufacturer production costs 
associated with multiple designs of condensing heat exchangers used by 
a range of manufacturers and these represent the vast majority of the 
condensing gas-fired storage water heater market to account for 
intellectual property rights surrounding specific designs of condensing 
heat exchangers.
2. Remaining Technologies
    After screening out or otherwise removing from consideration 
certain technologies, the remaining technologies are passed through for 
consideration in the engineering analysis. Table IV.4 presents 
identified technologies for consideration in the engineering analysis. 
Chapter 3 of the NOPR TSD contains additional details on the technology 
assessment and the technologies analyzed.

[[Page 30635]]



                                           Table IV.4--Technology Options Considered for Engineering Analysis
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                       Increased heat                                        Electro-
                     Equipment                         Mechanical    Condensing heat  exchanger area,     Electronic     Premix burner   mechanical flue
                                                         draft          exchanger         baffling         ignition                           damper
--------------------------------------------------------------------------------------------------------------------------------------------------------
Commercial gas-fired storage water heaters and                   X                X                X                                 X
 storage-type instantaneous water heaters.........
Residential-duty gas-fired storage water heaters..               X                X                X                X                X                X
Gas-fired instantaneous water heaters and hot                    X                X                X                                 X
 water supply boilers.............................
--------------------------------------------------------------------------------------------------------------------------------------------------------

C. Engineering Analysis

    The purpose of the engineering analysis is to establish the 
relationship between the efficiency and cost of CWH equipment. There 
are two elements to consider in the engineering analysis: The selection 
of efficiency levels to analyze (i.e., the ``efficiency analysis'') and 
the determination of product cost at each efficiency level (i.e., the 
``cost analysis''). In determining the performance of higher-efficiency 
equipment, DOE considers technologies and design option combinations 
not eliminated by the screening analysis. For each equipment category, 
DOE estimates the baseline cost, as well as the incremental cost for 
the equipment at efficiency levels above the baseline. The output of 
the engineering analysis is a set of cost-efficiency ``curves'' that 
are used in downstream analyses (i.e., the LCC and PBP analyses and the 
NIA).
1. Efficiency Analysis
    DOE typically uses one of two approaches to develop energy 
efficiency levels for the engineering analysis: (1) Relying on observed 
efficiency levels in the market (i.e., the efficiency-level approach), 
or (2) determining the incremental efficiency improvements associated 
with incorporating specific design options to a baseline model (i.e., 
the design-option approach). Using the efficiency-level approach, the 
efficiency levels established for the analysis are determined based on 
the market distribution of existing products (in other words, based on 
the range of efficiencies and efficiency level ``clusters'' that 
already exist on the market). Using the design option approach, the 
efficiency levels established for the analysis are determined through 
detailed engineering calculations and/or computer simulations of the 
efficiency improvements from implementing specific design options that 
have been identified in the technology assessment. DOE may also rely on 
a combination of these two approaches. For example, the efficiency-
level approach (based on actual products on the market) may be extended 
using the design option approach to ``gap fill'' levels (to bridge 
large gaps between other identified efficiency levels) and/or to 
extrapolate to the max-tech level (particularly in cases where the max-
tech level exceeds the maximum efficiency level currently available on 
the market).
    For the analysis of thermal efficiency and UEF levels, DOE 
identified the efficiency levels for the analysis based on market data 
(i.e., the efficiency level approach). For the analysis of standby loss 
levels, DOE identified efficiency levels for analysis based on market 
data, commonly used technology options (e.g., electronic ignition), and 
testing data (i.e., a combination of the efficiency level approach and 
the design option approach). DOE's selection of efficiency levels for 
this NOPR is discussed in additional detail in section IV.C.4 of this 
document.
2. Cost Analysis
    The cost analysis portion of the engineering analysis is conducted 
using one or a combination of cost approaches. The selection of cost 
approach depends on a suite of factors, including the availability and 
reliability of public information, characteristics of the regulated 
product, the availability and timeliness of purchasing the product/
equipment on the market. The cost approaches are summarized as follows:
     Physical teardowns: Under this approach, DOE physically 
dismantles a commercially-available product, component-by-component, to 
develop a detailed bill of materials (``BOM'') for the product.
     Catalog teardowns: In lieu of physically deconstructing a 
product, DOE identifies each component using parts diagrams (available 
from manufacturer websites or appliance repair websites, for example) 
to develop the bill of materials for the product.
     Price surveys: If neither a physical nor catalog teardown 
is feasible (for example, for tightly integrated products such as 
fluorescent lamps, which are infeasible to disassemble and for which 
parts diagrams are unavailable) or cost-prohibitive and otherwise 
impractical (e.g., large commercial boilers), DOE conducts price 
surveys using publicly-available pricing data published on major online 
retailer websites and/or by soliciting prices from distributors and 
other commercial channels.
    For this NOPR, DOE conducted the cost analysis using a combination 
of physical teardowns and catalog teardowns. The resulting BOMs from 
physical and catalog teardowns provide the basis for the manufacturer 
production cost (``MPC'') estimates.
    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 manufacturer selling price (``MSP'') 
is the price at which the manufacturer distributes a unit into 
commerce. DOE developed an average manufacturer markup by examining the 
annual Securities and Exchange Commission (SEC) 10-K reports filed by 
companies that manufacturer CWH equipment. During manufacturer 
interviews conducted ahead of the May 2016 CWH ECS NOPR, DOE discussed 
the manufacturer markup and used the industry feedback to modify the 
manufacturer markup estimate. DOE considers the manufacturer markup 
published in the May 2016 CWH ECS NOPR to be the best publicly 
available information.
    The approach for this NOPR was similar to that used for the 
withdrawn May 2016 CWH ECS NOPR, except that the analysis for 
residential-duty commercial storage water heaters is now done in terms 
of UEF instead of thermal efficiency and standby loss (which for the 
May 2016 CWH ECS NOPR were then converted to UEF). Chapter 5 of the 
NOPR TSD includes further detail on the engineering analysis.
    In choosing the physical and catalog teardown approach over the 
price survey approach, DOE considered

[[Page 30636]]

several factors. DOE notes that the sales prices of CWH equipment 
currently seen in the marketplace, which include both an MPC and 
various markups applied through the distribution chain, are not 
necessarily indicative of what the sales prices of those models of CWH 
equipment would be following the implementation of a more-stringent 
energy conservation standard. At a given efficiency level, the MPC of 
CWH equipment depends in part on the production volume. At any given 
efficiency level above the current baseline, the industry-aggregated 
MPC for CWH equipment 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 CWH equipment components), which would occur at that level if 
a Federal standard made it the new baseline efficiency level.
    Furthermore, under a more-stringent standard, the markups 
incorporated into the sales price may change relative to current 
markups. Therefore, basing the engineering analysis on prices of CWH 
equipment as currently seen in the marketplace would be a less accurate 
method of estimating future CWH equipment prices following an amended 
standard. It is for these reasons that DOE contractors conduct 
interviews with manufacturers under non-disclosure agreements 
(``NDAs'') to determine if the MPCs developed by the analysis reflect 
the industry average cost rather than rely on current sales prices 
whenever feasible (although as noted above in some cases this approach 
is not feasible). 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.
    Additionally, while manufacturers of CWH equipment offer both non-
condensing and condensing models, condensing equipment is often 
marketed as a premium product and, therefore, often includes features 
and capabilities that are not efficiency-related. While such features 
(e.g., powered anode rods, more sophisticated building management 
system integration) may be included in condensing equipment currently 
on the market, these features are not necessary in order to achieve a 
higher efficiency level, and, therefore, DOE does not believe that the 
costs for these features should be included in the costs of condensing 
equipment in the engineering analysis.
    The Department must balance transparency and access to information 
alongside protection of intellectual property and proprietary data. DOE 
understands that 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 conducted in advance of the 
withdrawn May 2016 CWH ECS NOPR 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 
in this NOPR take into account the feedback received from 
manufacturers, which DOE has found to be a valuable tool for ensuring 
the accuracy of its cost estimates. Without adequate safeguards, 
manufacturers would likely be unwilling to share information relevant 
to the rulemaking, which would have correspondingly negative impacts on 
the rulemaking process.
    In the present case, as is generally the case in appliance 
standards rulemakings, manufacturer and equipment specific data are 
presented in aggregate. Additionally, prices for raw materials and 
purchased parts have been updated to the most recent market estimates, 
in 2020$, to create the current MPCs. Given the potential for 
competitive harm, data are not released outside the aggregated form 
(neither publicly, nor to DOE). 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. Such aggregated data are used to 
help populate the analytical spreadsheets for the rulemaking that are 
publicly available. (DOE notes that it does not typically receive any 
separate report regarding the aggregated data; therefore, there is no 
such report available for entry in the rulemaking docket.) This 
approach allows manufacturers to provide feedback under NDA, improving 
the quality of the analysis.
3. Representative Equipment for Analysis
    For the engineering analysis, DOE reviewed all CWH equipment 
categories analyzed in this rulemaking (see section III.B for 
discussion of rulemaking scope) and examined each one separately. 
Within each equipment category, DOE analyzed the distributions of input 
rating and storage volume of models available on the market and held 
discussions with manufacturers to determine appropriate representative 
equipment. DOE notes that representative equipment was selected which 
reflects the most common capacity and/or storage volume for a given 
equipment category. While a single representative equipment capacity 
can never perfectly represent a wide range of input capacities or 
storage volumes, DOE reasons that analyzing a representative capacity 
and storage volume that was selected using manufacturer feedback is 
sufficiently representative of the equipment category while also 
allowing for a feasible analysis.
    For storage water heaters, the volume of the tank is a significant 
factor for costs and efficiency. Water heaters with larger volumes have 
higher materials, labor, and shipping costs. A larger tank volume is 
likely to lead to a larger tank surface area, thereby increasing the 
standby loss of the tank (assuming other factors are held constant, 
e.g., same insulation thickness and materials). The current standby 
loss standards for storage water heaters are, in part, a function of 
volume to account for this variation with tank size. The incremental 
cost of increasing insulation thickness varies as the tank volume 
increases, and there may be additional installation concerns for 
increasing the insulation thickness on larger tanks. Installation 
concerns are discussed in more detail in section IV.F.2.b of this NOPR. 
DOE examined specific storage volumes for storage water heaters and 
storage-type instantaneous water heaters (referred to as representative 
storage volumes). Because DOE lacked specific information on shipments, 
DOE used its CWH equipment database (discussed in section IV.A.3 of 
this NOPR) to examine the number of models at each rated storage volume 
to determine the representative storage volume, and also solicited 
feedback from manufacturers during manufacturer interviews as to which 
storage volumes corresponded to the most shipments. Table IV.5 shows 
the representative storage volumes that DOE determined best 
characterize each equipment category.
    As discussed in sections III.B.6 and IV.C.4.b of this NOPR, DOE did 
not analyze amended energy conservation standards for electric storage 
water heaters in this NOPR because manufacturer feedback and DOE's 
research of equipment on the market

[[Page 30637]]

indicated that the only technology option analyzed in the withdrawn May 
2016 CWH ECS NOPR for decreasing standby loss is already used in some 
models at the baseline. Consequently, no representative volume was 
analyzed for electric storage water heaters in this NOPR.
    For all CWH equipment categories, the input capacity is also a 
significant factor for cost and efficiency. Water heaters with higher 
input capacities typically have higher materials costs and may also 
have higher labor and shipping costs. Gas-fired storage water heaters 
with higher input capacities may have additional heat exchanger length 
to transfer more heat. This leads to higher material costs and may 
require the tank to expand to compensate for the displaced volume. Gas-
fired tankless water heaters, circulating water heaters, and hot water 
supply boilers require larger heat exchangers to transfer more heat 
with a higher input capacity. DOE examined input capacities for models 
in all gas-fired CWH equipment categories to determine representative 
input capacities. Because the gas-fired instantaneous water heaters and 
hot water supply boilers equipment class includes several types of 
equipment that is technologically disparate, DOE selected 
representative input capacities that would represent both tankless 
water heaters and circulating water heaters and hot water supply 
boilers within this broader equipment class. DOE did not receive any 
shipments data for specific input capacities, and, therefore, DOE 
considered the number of models at each input capacity in the database 
of models it compiled (based on DOE's Compliance Certification 
Database, the AHRI Directory, the CEC Appliance Database, and 
manufacturer literature), as well as feedback from manufacturer 
interviews in determining the appropriate representative input 
capacities for this NOPR. The representative input capacities used in 
the analyses for this NOPR are shown in Table IV.5.

                         Table IV.5--Representative Storage Volumes and Input Capacities
----------------------------------------------------------------------------------------------------------------
                                                                                  Representative  Representative
                   Equipment                             Specifications            rated storage  input capacity
                                                                                   volume (gal)      (kBtu/h)
----------------------------------------------------------------------------------------------------------------
Commercial gas-fired storage water heaters and  >105 kBtu/h or >120 gal.........             100             199
 gas-fired storage-type instantaneous water
 heaters *.
Residential-duty gas-fired storage water        <=105 kBtu/h and <=120 gal......              75              76
 heaters **.
Gas-fired instantaneous water heaters and hot
 water supply boilers:
    Tankless water heaters....................  <10 gal.........................  ..............             250
    Circulating water heaters and hot water     All ***.........................  ..............             399
     supply boilers.
----------------------------------------------------------------------------------------------------------------
* Any commercial gas storage water heater that does not meet the definition of a residential-duty storage water
  heater is a commercial gas-fired storage water heater regardless of whether it meets the specifications
  listed.
** To be classified as a residential-duty water heater, a commercial water heater must, if requiring
  electricity, use single-phase external power supply, and not be designed to heat water at temperatures greater
  than 180 [deg]F. 79 FR 40542, 40586 (July 11, 2014).
*** For the engineering analysis, circulating water heaters and hot water supply boilers with storage volume <10
  gallons and >=10 gallons were analyzed in the same equipment class. Amended standby loss standards for
  circulating water heaters and hot water supply boilers with storage volume >=10 gallons were not analyzed in
  this NOPR, as discussed in section III.B.7 of this NOPR. Therefore, no representative storage volume was
  chosen for the instantaneous water heaters and hot water supply boilers equipment class.

    The representative volume and input capacities shown in Table IV.5 
are the same as those used for the withdrawn May 2016 CWH ECS NOPR. DOE 
sought comment on the representative CWH equipment used in the 
engineering analysis in the May 2016 CWH ECS NOPR (81 FR 34440, 34467 
(May 31, 2016)), and is including the clarifications in the following 
subsections in response to the various comments received.
    Some commenters expressed concerns regarding the representative 
input capacity for instantaneous water heaters and hot water supply 
boilers. (Raypak, No. 41 at p. 7; Spire, No. 45 at pp. 24-25) In 
response, DOE notes that the representative input capacity is meant to 
describe the most typical model sold of circulating water heaters and 
hot water supply boilers. From DOE's market assessment and feedback 
from manufacturer interviews, DOE has determined that the most 
frequently sold input capacity of circulating water heaters and hot 
water supply boilers is 399,000 Btu/h. Additionally, DOE has 
tentatively determined that a representative capacity of 250,000 Btu/h 
is appropriate for tankless water heaters. No stakeholders have 
suggested an alternative input capacity that would be more appropriate 
for use as the representative input capacity for gas-fired tankless 
water heaters.
    DOE also examined the parts catalogs of circulating water heaters 
and hot water supply boilers from various manufacturers. From this 
examination, DOE determined that the same or similar materials, as well 
as purchased parts, are typically utilized in the manufacture of both 
representative and larger-capacity circulating water heaters and hot 
water supply boilers. For example, DOE's market assessment and feedback 
from manufacturer interviews indicate that the majority of condensing 
circulating water heaters and hot water supply boilers on the market 
use purchased condensing heat exchangers. These purchased condensing 
heat exchangers are typically designed to be modular, so that a larger-
capacity unit may include either a larger, similar heat exchanger or 
multiple similar heat exchangers. Although the amount of material used 
increases as capacity increases, DOE has not found any evidence that 
the unit cost of the material would increase due to a lack of economy 
of scale.
    DOE research suggests that within a set input capacity range, 
circulating water heaters and hot water supply boilers feature many of 
the same components. For example, a larger-capacity condensing 
circulating water heater or hot water supply boiler may feature one or 
more heat exchangers, each of which features a separate premix burner, 
gas valve, and blower system. Thus, within a given range of input 
capacities, the MPC of the combustion and heat exchange system will not 
change materially until an input/efficiency limit is reached; at that 
point, manufacturers typically add another parallel combustion path to 
the system (requiring a burner, heat exchanger, blower, and associated 
controls) or turn to a wholly new combustion system. Hence, the MPC 
related to the combustion and heat exchange subsystems for condensing 
circulating water heaters and hot water

[[Page 30638]]

supply boilers typically follows a step-like pattern as input 
capacities increase.
    DOE research suggests that condensing circulating water heaters and 
hot water supply boilers with input capacity less than 1 million Btu/h 
typically do not require more than one premix burner tube or one 
blower, and that circulating water heaters and hot water supply boilers 
with input capacity up to 1.7 million Btu/h only require two premix 
burner tubes and two blowers. Therefore, a condensing circulating water 
heater or hot water supply boiler with an input capacity of 800,000 
Btu/h, twice the representative input capacity, would still include 
only one premix burner tube and one blower, and a condensing 
circulating water heater or hot water supply boiler with an input 
capacity four times the representative input capacity would include 
only two premix burner tubes and two blowers. While the cost of premix 
burner tubes does increase with increasing input capacity, feedback 
from manufacturer interviews indicates that the cost would increase 
less than linearly with the input capacity. Additionally, within an 
input range in which circulating water heaters and hot water supply 
boilers use the same number of premix burner tubes, a larger-capacity 
unit would utilize the same or similar controls and wiring harness as a 
smaller input-capacity unit, the cost of which would likely remain 
fixed regardless of the input capacity. There may be examples of 
components of certain larger capacity circulating water heaters and hot 
water supply boilers that may be purchased at a higher cost due to a 
lack of economy of scale. However, the potential increase in price of 
any such purchased part would be offset by the many instances in which 
the production costs remain fixed regardless of input capacity.
    For gas-fired storage water heaters and tankless water heaters, DOE 
expects that the fraction of costs that remain fixed regardless of 
input capacity would be even higher than for circulating water heaters 
and hot water supply boilers. Given the smaller input capacity ranges, 
DOE is not aware of any larger-capacity condensing models in these 
classes that require more blowers or premix burners than are required 
in models at the representative capacity. Similar to circulating water 
heaters and hot water supply boilers, larger-capacity models in these 
classes would utilize the same controls and wiring harness as smaller-
capacity models; thus, the controls and wiring harness costs would 
remain fixed regardless of the input capacity. Therefore, the 
representative capacities and corresponding manufacturer production 
costs used in this analysis appropriately estimate the costs for 
larger-capacity CWH equipment.
4. Efficiency Levels for Analysis
    For each equipment category, DOE analyzed multiple efficiency 
levels and estimated manufacturer production costs at each efficiency 
level. The following subsections provide a description of the full 
efficiency level range that DOE analyzed from the baseline efficiency 
level to the max-tech efficiency level for each equipment category.
    Baseline equipment is used as a reference point for each equipment 
category in the engineering analysis and the LCC and PBP analyses, 
which provides a starting point for analyzing potential technologies 
that provide energy efficiency improvements. Generally, DOE considers 
``baseline'' equipment to refer to a model or models having features 
and technologies that just meet, but do not exceed, the Federal energy 
conservation standard and provide basic consumer utility.
    DOE conducted a survey of its CWH equipment database and 
manufacturers' websites to determine the highest thermal efficiency 
levels on the market for each equipment category. DOE identified the 
most stringent standby loss level for each class by consideration of 
rated standby loss values of models currently on the market as well as 
technology options that are feasible but may not currently be included 
in models on the market in each equipment category.
    As discussed in section III.B.1, DOE conducted the analysis for 
residential-duty gas-fired storage commercial water heaters using UEF 
rating data, whereas the analysis in the withdrawn May 2016 CWH ECS 
NOPR analysis was conducted in terms of thermal efficiency and standby 
loss levels because sufficient data were not available when the 
rulemaking analysis was initially conducted to conduct the analysis in 
terms of UEF.
a. Thermal Efficiency Levels
    In establishing the baseline thermal efficiency levels for this 
analysis, DOE used the current energy conservation standards for CWH 
equipment to identify baseline units. The baseline thermal efficiency 
levels used for the analysis in this NOPR are presented in Table IV.6.

    Table IV.6--Baseline Thermal Efficiency Levels for CWH Equipment
------------------------------------------------------------------------
                                                              Thermal
                        Equipment                         efficiency (%)
------------------------------------------------------------------------
Commercial gas-fired storage water heaters and storage-               80
 type instantaneous water heaters.......................
Gas-fired instantaneous water heaters and hot water                   80
 supply boilers.........................................
------------------------------------------------------------------------

    For both the commercial gas-fired storage water heaters and gas-
fired instantaneous water heaters and hot water supply boilers 
equipment categories, DOE analyzed several thermal efficiency levels 
and determined the manufacturing cost at each of these levels. For this 
NOPR, DOE developed thermal efficiency levels based on a review of 
equipment currently available on the market. As noted previously, DOE 
compiled a database of CWH equipment to determine what types of 
equipment are currently available to commercial consumers. For each 
equipment class, DOE surveyed various manufacturers' equipment 
offerings to identify the commonly available thermal efficiency levels. 
By identifying the most prevalent thermal efficiency levels in the 
range of available equipment and examining models at these levels, DOE 
established a technology path that manufacturers typically use to 
increase the thermal efficiency of CWH equipment.
    DOE established intermediate thermal efficiency levels for each 
gas-fired equipment category (aside from residential-duty gas-fired 
storage water heaters, which as noted previously were analyzed using 
UEF). The intermediate thermal efficiency levels are representative of 
the most common efficiency levels and those that represent significant 
technological changes in the design of CWH equipment. For commercial 
gas-fired storage water heaters and for commercial gas-fired 
instantaneous water heaters and hot water supply boilers, DOE chose 
four thermal

[[Page 30639]]

efficiency levels between the baseline and max-tech levels for 
analysis. DOE selected the highest thermal efficiency level identified 
on the market (99 percent) as the ``max-tech'' level for commercial 
gas-fired storage water heaters and storage-type instantaneous water 
heaters. For gas-fired instantaneous water heaters and hot water supply 
boilers, DOE identified hot water supply boilers with thermal 
efficiency levels of up to 99 percent and tankless instantaneous water 
heaters with thermal efficiency levels of up to 97 percent available on 
the market. However, the tankless water heaters with thermal 
efficiencies of 97 percent were all at a single input capacity and it 
is unclear whether this thermal efficiency is achievable at other input 
capacities. As discussed in section IV.A.2.d of this document, DOE 
analyzed tankless water heaters and circulating water heaters and hot 
water supply boilers as two separate kinds of representative equipment 
for this rulemaking analysis, but they are part of the same equipment 
class (gas-fired instantaneous water heaters and hot water supply 
boilers). Therefore, because DOE did not find evidence that 97 percent 
would be an appropriate max-tech level for tankless instantaneous water 
heaters that is achievable across the range of product inputs currently 
available, DOE analyzed 96 percent thermal efficiency as the max-tech 
level for the gas-fired instantaneous water heaters and hot water 
supply boilers equipment class. The selected thermal efficiency levels 
used in the current NOPR analysis are shown in Table IV.7.

   Table IV.7--Baseline, Intermediate, and Max-Tech Thermal Efficiency Levels for Representative CWH Equipment
----------------------------------------------------------------------------------------------------------------
                                                                     Thermal efficiency levels
                                                  --------------------------------------------------------------
                    Equipment                       Baseline--                                          Et EL5 *
                                                    Et EL0 (%)   Et EL1    Et EL2    Et EL3    Et EL4      (%)
                                                                   (%)       (%)       (%)       (%)
----------------------------------------------------------------------------------------------------------------
Commercial gas-fired storage water heaters and              80        82        90        92        95        99
 storage-type instantaneous water heaters........
Gas-fired instantaneous water heaters and hot               80        82        84        92        94        96
 water supply boilers............................
----------------------------------------------------------------------------------------------------------------
* Et EL5 is the max-tech efficiency level for commercial gas-fired storage water heaters and storage-type
  instantaneous water heaters, as well as for gas-fired instantaneous water heaters and hot water supply
  boilers.

b. Standby Loss Levels
    DOE used the current energy conservation standards for standby loss 
to set the baseline standby loss levels. Table IV.8 shows these 
baseline standby loss levels for representative commercial gas-fired 
storage water heaters and storage-type instantaneous water heaters. In 
the withdrawn May 2016 CWH ECS NOPR, DOE also identified baseline 
standby loss levels for electric storage water heaters. 81 FR 34440, 
34443 (May 31, 2016). However, as discussed in this section and section 
III.B.6 of this NOPR, DOE did not further analyze amended standards for 
electric storage water heaters in this NOPR because of manufacturer 
feedback and DOE research of equipment on the market indicating that 
the only analyzed technology option for decreasing standby loss is 
already used in some units at the baseline.

                    Table IV.8--Baseline Standby Loss Levels for Representative CWH Equipment
----------------------------------------------------------------------------------------------------------------
                                                              Representative    Representative       Baseline
                         Equipment                             rated storage    input capacity    standby  loss
                                                               volume (gal)        (kBtu/h)       level (Btu/h)
----------------------------------------------------------------------------------------------------------------
Commercial gas-fired storage water heaters and storage-type              100               199            1,349
 instantaneous water heaters...............................
----------------------------------------------------------------------------------------------------------------

    Standby loss is a function of storage volume and input capacity for 
gas-fired and oil-fired storage water heaters, and is affected by many 
aspects of the design of a water heater. Additionally, standby loss is 
not widely reported in manufacturer literature so DOE relied on current 
and past data obtained from DOE's Compliance Certification Database and 
the AHRI Directory. There is significant variation in reported standby 
loss values in these databases (e.g., standby loss values for 
commercial gas storage water heaters range from 33 percent to 100 
percent of the maximum allowable standby loss standard for those 
units). However, most manufacturers do not disclose the presence of 
technology options that affect standby loss, including insulation 
thickness and type, and baffle design, in their publicly-available 
literature. Because most manufacturers do not disclose the presence of 
such options, DOE was unable to determine the standby loss reduction 
from standby-loss-reducing technology options using market-rated 
standby loss data.
    Therefore, DOE analyzed technology options commonly used on the 
market to help guide its selection of standby loss levels. To inform 
the selection of standby loss levels for the withdrawn May 2016 CWH ECS 
NOPR, DOE performed heat loss calculations for representative equipment 
to estimate how more-stringent standby loss levels correspond to the 
identified technology options. Chapter 5 of the May 2016 CWH ECS NOPR 
TSD provides details on these heat loss calculations. Because DOE used 
heat loss calculations corresponding to commonly used technology 
options to inform the selection of standby loss levels for the May 2016 
CWH ECS NOPR in addition to rated standby loss market data, the most 
stringent standby loss levels analyzed did not necessarily reflect the 
current market max-tech level for each equipment category. However, as 
described later in this section, DOE did not analyze improved tank 
insulation as a technology option for reducing standby loss in this 
NOPR because such insulation improvements would not be a viable standby 
loss reducing option for

[[Page 30640]]

all models on the market. Therefore, DOE did not use tank heat loss 
calculations to determine standby loss levels in this NOPR. The 
technology options analyzed and selection of max-tech levels are 
discussed in the following sections for each equipment category.
    In addition to the potential to reduce standby losses using 
technology options, for commercial and residential-duty gas-fired 
storage water heaters, standby loss is also reduced by increasing 
thermal efficiency. Standby loss is measured in the test procedure 
predominantly as a function of the fuel used to heat the stored water 
during the standby loss test, with a small contribution of electric 
power consumption (if the unit requires a power supply). Because 
standby loss is calculated using the fuel consumed during the test to 
maintain the water temperature, the standby loss is dependent on the 
thermal efficiency of the water heater. DOE used data from independent 
testing of CWH equipment at a third-party laboratory to estimate the 
fraction of standby loss that can be attributed to fuel consumption or 
electric power consumption. DOE then scaled down (i.e., made more 
stringent) the portion of the standby loss attributable to fuel 
consumption as thermal efficiency increased to estimate the inherent 
improvement in standby loss associated with increasing thermal 
efficiency. Chapter 5 of the NOPR TSD explains these calculations, and 
the interdependence of thermal efficiency (``Et'') and 
standby loss (``SL'') are explained in more detail. However, for 
condensing thermal efficiency levels for residential-duty gas-fired 
storage water heaters, DOE did not include dependence on thermal 
efficiency in its standby loss levels, as discussed further later in 
this section.
    Standby loss levels for each equipment category are shown in the 
following sections in terms of Btu/h for the representative equipment. 
However, to analyze potential amendments to the current Federal 
standard, factors (``standby loss reduction factors'') were developed 
to multiply by the current maximum standby loss equation for each 
equipment class, based on the ratio of standby loss at each efficiency 
level to the current standby loss standard. The translation from 
standby loss values to maximum standby loss equations is described in 
further detail in section IV.C.5 of this NOPR.
1. Heat Loss Calculations in the May 2016 CWH ECS NOPR
    For the withdrawn May 2016 CWH ECS NOPR, DOE used heat loss 
calculations to determine the standby loss reduction from technology 
options used on the market because other options (including those 
suggested by manufacturers in response to the NOPR and discussed as 
follows) were not feasible. As previously discussed, manufacturers 
typically do not disclose the presence of standby loss reducing 
technology options in public literature. Additionally, the testing and/
or tearing down of units currently on the market would only help inform 
the determination of standby loss reduction of technology options if 
DOE could isolate the effect of each individual technology option. 
However, DOE is unaware of any manufacturer that offers commercial or 
residential-duty storage water heater models that are completely 
identical except for one specific standby-loss-reducing technology 
option. Therefore, DOE would not reliably be able to determine to what 
extent (if at all) design difference(s) between two different storage 
water heaters contribute to the difference in standby loss. For 
example, two storage water heaters on the market at the same 
representative capacity might differ in any or all of the following 
respects that could affect the standby loss: Tank dimensions, numbers 
and/or sizes of fittings and connections, heat exchanger surface area, 
insulation type and thickness, and coverage of the tank (including tank 
walls, top, and bottom) with foam insulation. Therefore, DOE initially 
concluded in the May 2016 CWH ECS NOPR that neither testing nor tearing 
down of storage water heaters on the market would allow DOE to reliably 
select standby loss levels or determine the technological pathway and 
manufacturing costs for manufacturers to achieve those levels, and 
instead performed heat loss calculations to estimate the standby loss 
reductions. The heat loss calculations are described in detail in the 
May 2016 NOPR TSD.
    In response to the May 2016 CWH ECS NOPR, DOE received comments 
from several stakeholders expressing concerns about DOE's heat loss 
calculations. For example, Rheem argued that DOE's calculation 
methodologies are incorrect because the proposed standby loss levels in 
the NOPR are not achieved by models currently on the market that use 
the analyzed standby-loss-reducing technology options. (Rheem, No. 43 
at p. 20) Rheem further stated that the maximum standby loss 
requirements proposed in the May 2016 CWH ECS NOPR cannot be achieved 
for every tank size of commercial storage water heater with the 
technology options that DOE analyzed for the representative volume. 
(Rheem, No. 43 at p. 14)
    Bock argued that the proposed standby loss levels are not 
representative of the capabilities of the analyzed technology options. 
(Bock, No. 33 at pp. 3-4) A.O. Smith argued that DOE must not establish 
standby loss standards based on theoretical values that have not been 
validated. (A.O. Smith, No. 39 at pp. 9-10) AHRI also suggested that 
DOE is speculating costs of products that either do not exist or are 
produced by specialty companies, which is a departure from DOE's 
longstanding practice of not including such products in its analysis. 
(AHRI, No. 40 at p. 20) Bradford White disagreed with DOE's approach of 
using theoretical calculations to determine the proposed standby loss 
levels. (Bradford White, No. 42 at p. 14)
    A.O. Smith commented that DOE incorrectly assumed that heat loss 
has a linear relationship based on the R-value of the insulation 
multiplied by the thickness of the insulation. Instead, A.O. Smith 
argued that the relationship between heat loss and insulation thickness 
is non-linear and that foam insulation reaches a maximum effective 
thickness before experiencing diminishing returns. A.O. Smith also 
stated that there are design and engineering limitations as to where 
insulation can be applied on the water heater. (A.O. Smith, No. 39 at 
pp. 9-10)
    DOE recognizes manufacturers' concerns regarding the use of 
theoretical calculations to inform the selection of standby loss 
levels, the feasibility of achieving DOE's proposed standby loss levels 
with the analyzed technology options, and the lack of models currently 
on the market that meet DOE's proposed standby loss levels. DOE also 
recognizes Rheem's concerns regarding the proposed standby loss levels 
not being achievable for all tank volumes of storage water heaters and 
storage-type instantaneous water heaters. In large part, DOE's 
subsequent analysis of models on the market agrees with these comments 
in that DOE found few models that meet the proposed standby loss 
levels, and it is not clear that the proposed levels could be met with 
the analyzed technology options across the range of storage volumes on 
the market. In light of these comments, DOE has made several changes to 
its standby loss level analysis for this NOPR. First, DOE adjusted the 
technology options that correspond to the standby loss baseline (i.e., 
the technology options that DOE assumes are used to meet the current 
standby loss standard) based on stakeholder comments. Second, because 
of the adjustment in technology options

[[Page 30641]]

analyzed at the baselines, DOE did not analyze improved tank insulation 
as a technology option for reducing standby loss. Third, because of 
comments indicating that there are no technology options that reliably 
decrease standby loss beyond the baseline for electric storage water 
heaters, DOE did not analyze amended standby loss standards for 
electric storage water heaters. All of these changes to the analysis 
are based on comments received for the May 2016 CWH ECS NOPR and are 
further discussed later in this section.
    For all commercial gas-fired storage water heater levels, the only 
standby loss reduction analyzed corresponds to the inherent standby 
loss reduction from increasing thermal efficiency. (DOE notes that for 
non-condensing residential-duty gas-fired storage water heaters, an 
electromechanical flue damper and electronic ignition were considered 
which would improve UEF by reducing standby losses. This is discussed 
further in section IV.C.4.c. of this document) DOE research regarding 
rated standby loss values showed that the vast majority of models at a 
given thermal efficiency level already meet the standby loss level 
associated with the standby loss reduction factor being applied for 
that level. In addition, because the vast majority of models on the 
market that meet each thermal efficiency level being analyzed also meet 
the corresponding standby loss level, further validating the standby 
loss levels by testing models on the market or by building water heater 
prototypes is not necessary and was not done for this NOPR.
2. Reduction in Standby Loss Associated With Increased Thermal 
Efficiency
    In the May 2016 CWH ECS NOPR, DOE stated that, for gas-fired 
storage water heaters, standby loss is a function of storage volume and 
input rate and is affected by many aspects of the design of a water 
heater. Further, because standby loss is calculated using the fuel 
consumed during the test to maintain the water temperature, the standby 
loss is dependent on the thermal efficiency of the water heater. DOE 
also suggested that variation in reported standby loss values may be 
partially attributed to undisclosed technology options (including 
insulation type and thickness, and baffle design) and sources of 
variation in the current standby loss test procedure. 81 FR 34440, 
34470.
    In response to the May 2016 CWH ECS NOPR, commenters questioned the 
certainty of the relationship between standby loss and thermal 
efficiency portrayed in DOE's analysis. (See Rheem, No. 43 at p. 16; 
Bradford White, No. 42 at p. 6) In response, DOE notes that although it 
is true that actual heat losses are largely dependent on tank 
insulation, fittings, and flue openings, there is also an important 
distinction to be made between heat loss from the tank and standby loss 
measured as a function of fuel flow. Increased thermal efficiency does 
not necessarily affect heat loss from the tank, but it inherently 
decreases the amount of fuel consumed to reheat the stored water, and 
thus decreases measured standby loss. Accounting for this inherent 
difference does not ignore or understate the impacts of water heater 
design on standby loss.
    DOE also recognizes that heat exchangers in non-condensing and 
condensing storage water heater have different geometries and surface 
areas. However, DOE's research suggests that many condensing models 
currently on the market include 1 inch of foam insulation, similar to 
many baseline non-condensing commercial gas-fired storage water 
heaters, indicating that the lower standby loss of the condensing 
models relative to the non-condensing models likely comes as a result 
of their higher thermal efficiency and condensing heat exchanger 
designs.
    DOE notes that the fact that the vast majority of models on the 
market already achieve the standby loss decreases that are inherent to 
increased thermal efficiency from condensing operation using a wide 
variety of heat exchanger designs (e.g., multi-pass and helical 
condensing heat exchangers with either a top-fired, side-fired, or 
bottom-fired configuration \33\) indicates that there are a variety of 
design paths available to manufacturers to achieve this standby loss 
reduction. Therefore, DOE maintained its approach to include a 
dependence of standby loss levels on thermal efficiency in this NOPR. 
Chapter 5 of the NOPR TSD includes further detail on the dependence of 
standby loss on thermal efficiency and on the corresponding analysis of 
models currently on the market.
---------------------------------------------------------------------------

    \33\ In a multi-pass condensing heat exchanger design, the flue 
gases are forced through flue tubes that span the length of the tank 
multiple times. Typically, the flue gases are re-directed back 
through the tank via return plenums located above and/or below the 
tank. Top-fired, side-fired, and bottom-fired refer to the 
configuration of the burner assembly (consisting of a gas valve, 
blower, and premix burner tube) in a condensing gas-fired storage 
water heater. In a top-fired configuration, the premix burner 
assembly is located at the top of the tank and fires down into the 
heat exchanger. In a side-fired configuration, the burner assembly 
is located on the side of the tank. In a bottom-fired configuration, 
the burner assembly is located below the tank and fired up into the 
heat exchanger.
---------------------------------------------------------------------------

3. Commercial Gas-Fired Storage Water Heaters and Gas-Fired Storage-
Type Instantaneous Water Heaters Technology Options
    For commercial gas-fired storage water heaters, DOE preliminarily 
determined in the May 2016 CWH ECS NOPR analysis that the current 
minimum Federal standard can be met with installation of 1 inch of 
fiberglass insulation around the walls of the tank. In the standby loss 
analysis, DOE considered baseline non-condensing equipment to include 
electromechanical flue dampers and all condensing equipment to include 
mechanical draft systems, both of which act to reduce standby losses 
out the flue. 81 FR 34440, 34470 (May 31, 2016).
    In the May 2016 CWH ECS NOPR analysis, DOE then considered the next 
incremental standby loss level to correspond to the use of 1 inch of 
sprayed polyurethane foam insulation instead of fiberglass insulation. 
From DOE's market assessment and manufacturer interviews, DOE found the 
highest insulation thickness available for commercial gas-fired water 
heaters to be 2 inches. Therefore, DOE considered the next incremental 
standby loss level to correspond to 2 inches of polyurethane foam. 
While more-stringent standby loss levels than the max-tech standby loss 
level analyzed in the May 2016 CWH ECS NOPR exist on the market, these 
more-stringent values are only rated for condensing models with 
specific heat exchanger designs. To avoid mandating specific heat 
exchanger designs for achieving condensing thermal efficiency levels, 
DOE considered the max-tech standby loss level to correspond to 2 
inches of foam insulation in the May 2016 CWH ECS NOPR. Id.
    In response to the May 2016 CWH ECS NOPR, A.O. Smith stated that 
DOE overestimated the max-tech standby loss levels for gas-fired 
storage water heaters. (A.O. Smith, No. 39 at p. 9) A.O. Smith and 
Bradford White disagreed with DOE's assertion that the current standby 
loss standard can be met with 1 inch of fiberglass insulation and with 
DOE's consideration of this technology option as the baseline standby 
loss technology for commercial gas-fired storage water heaters. Rather, 
A.O. Smith and Bradford White argued that models available on the 
market typically use a combination of fiberglass and sprayed 
polyurethane foam. (A.O. Smith, No. 39 at p. 10; Bradford White, No. 42 
at p. 5) A.O. Smith further argued that if DOE's proposed max-tech 
standby loss level

[[Page 30642]]

were adopted, it would result in a significant reduction of models 
available on the market, which would impact competition and pricing. 
A.O. Smith asserted that DOE does not appreciate the engineering 
complexity and costs involved in meeting the proposed standby loss 
standard. A.O. Smith further stated that minimizing heat loss through a 
heat exchanger while the water heater is in standby mode has a direct 
and significant correlation to standby loss, and that the methods of 
reducing standby loss through the heat exchanger are complicated and 
require use of mechanical draft and changes in controls or heat 
exchanger geometry. (A.O. Smith, No. 39 at p. 10) A.O. Smith also 
argued that the current ENERGY STAR standby loss level (i.e., 
corresponding to a standby loss reduction factor of 0.84) is 
representative of max-tech technology. (A.O. Smith, No. 39 at p. 11)
    Rheem stated that the standby loss level proposed in the May 2016 
CWH ECS NOPR cannot be met using the analyzed technology option of 2-
inch foam insulation because there is significant heat loss from 
uninsulated areas of the tank (e.g., fittings). (Rheem, No. 43 at p. 
18) Bradford White stated that it was unable to identify any commercial 
gas-fired storage water heater models at the representative capacities 
(i.e., 199,000 Btu/h input capacity and 100 gallons rated volume) 
currently available on the market that meet the max-tech standby level 
or even some of the intermediate standby loss levels. Bradford White 
also commented that while some lower-capacity models may meet these 
standby loss levels, it would be unfair to include them in the analysis 
for the representative equipment. Bradford White also asserted that the 
technology options DOE used to select the standby loss levels in the 
May 2016 CWH ECS NOPR are already used in equipment currently on the 
market. (Bradford White, No. 42 at pp. 5-6) Bock stated that none of 
Bock's condensing gas-fired storage models would meet DOE's proposed 
standby loss standard, even though these models use the technology 
options that DOE assumes are sufficient to meet the proposed standard. 
(Bock, No. 33 at p. 1)
    In light of comments received regarding the technology options used 
for baseline models and subsequent DOE research of equipment on the 
market, DOE agrees that many commercial gas-fired storage water heaters 
rated at or near the current standby loss standard use a combination of 
fiberglass and polyurethane foam insulation. Specifically, many models 
have fiberglass insulation near the bottom of the tank and around 
fittings and connections, and polyurethane foam insulation covering the 
rest of the tank walls. DOE acknowledges that changing from 1 inch of 
fiberglass insulation to 1 inch of foam insulation is not a viable 
standby-loss-reducing technology option for some models on the market 
rated at or near the current standby loss standard because they already 
have 1 inch of foam insulation. Additionally, DOE recognizes that there 
is significant variation in standby loss ratings for models currently 
on the market--such that an increase from 1 inch to 2 inches of foam 
insulation does not necessarily allow all models within a model line to 
achieve the incremental standby levels corresponding to foam insulation 
analyzed for the May 2016 CWH ECS NOPR. Specifically, not all models 
within a model line can necessarily meet a given standby loss level 
(i.e., standby loss reduction factor, see section IV.C.4.c of this 
NOPR) with the same insulation thickness. Additionally, stakeholder 
comments and DOE's research suggest that many commercial gas-fired 
storage water heaters with standby loss values at or near the current 
standby loss standard already have foam insulation thicknesses greater 
than 1 inch. Therefore, increasing foam insulation thickness from 1 
inch to 2 inches is also not a viable standby-loss-reducing technology 
option for some models on the market. Consequently, in this NOPR, DOE 
did not analyze increasing insulation thickness for commercial gas-
fired storage water heaters. The only level of standby loss reduction 
analyzed for commercial gas-fired storage water heaters in this NOPR 
corresponds to the standby loss reduction inherent to an increase in 
thermal efficiency (as discussed previously in this section). Because 
the analyzed standby loss levels only correspond to the standby loss 
reduction inherent to achieving each thermal efficiency, DOE expects 
that at the standby loss levels analyzed, heat exchanger modifications 
would not be required to meet any of the standby loss levels analyzed 
for this NOPR.
    DOE further notes that all commercial gas-fired storage water 
heaters that DOE identified on the market have either an 
electromechanical flue damper (non-condensing models) or mechanical 
draft technology (condensing models). For the May 2016 CWH ECS NOPR, 
DOE assumed an equivalent standby loss reduction between these two 
technologies. The baseline standby loss level reflects use of a flue 
damper (i.e., the baseline standby loss level is based on non-
condensing models). When evaluating condensing thermal efficiency 
levels, DOE assumed the impact to standby loss from the use of a flue 
damper, which is not used in condensing models, is equal to the impact 
from use of mechanical draft.
    DOE notes that in the analysis for both the May 2016 CWH ECS NOPR 
and this NOPR, DOE included the increased standby electrical 
consumption associated with condensing technology in its determination 
of the fraction of standby loss attributable to fuel consumption. 
Chapter 5 of the NOPR TSD includes further detail on the consideration 
of standby losses from electricity consumption.
    DOE recognizes that the primary function of a blower is to propel 
flue gases as part of a mechanical draft system. However, the fact that 
it is not the primary function of a blower to restrict flue losses does 
not necessarily mean that a blower does not have the effect of 
restricting such flue losses. Similar to a flue damper, a blower sits 
on the top of the heat exchanger and is a barrier to prevent hot air 
from rising out of the flue(s) during standby mode. Therefore, in its 
analysis of the dependence of standby loss on thermal efficiency, DOE 
maintained its assumption that a blower would provide a similar level 
of flue loss reduction to that of an electromechanical flue damper. 
Correspondingly, DOE did not assume any change in flue loss reduction 
when moving from non-condensing to condensing thermal efficiency 
levels. This assumption is validated by the previously discussed 
observation that the majority of condensing commercial gas-fired 
storage water heaters currently on the market already achieve the 
inherent standby loss reduction associated with the thermal efficiency 
increases resulting from condensing operation. As discussed in section 
IV.C.6 of this NOPR and chapter 5 of the NOPR TSD, DOE's teardown 
analysis and feedback from manufacturer interviews indicate that 
blowers are required for condensing operation.
    In the May 2016 CWH ECS NOPR TSD, in the context of comparing the 
standby loss reduction from a flue damper for commercial gas-fired 
storage water heaters and consumer gas-fired storage water heaters, DOE 
stated that many commercial water heaters have multiple vented flue 
pipes, meaning that there is significantly more opportunity for standby 
loss reduction from a flue damper in commercial water heaters than in 
consumer water heaters. (Docket No. EERE-2014-BT-STD-

[[Page 30643]]

0042-0016 at p. 5-15 \34\) To further clarify, this statement was 
comparing the standby losses of a consumer gas-fired storage water 
heater to those of a commercial gas-fired storage water heater. DOE 
noted that the flue losses would comprise a larger share of total 
standby loss for a commercial gas-fired storage water heater than for a 
consumer gas-fired storage water heater. One of DOE's justifications 
for this argument was that many commercial gas-fired storage water 
heaters have multiple vented flue pipes, while consumer gas-fired 
storage water heaters typically only have one flue pipe. DOE clarifies 
that the phrase ``multiple vented flue pipes'' was meant to refer to 
multiple flue pipes that exhaust flue gases outside of the tank, though 
all the flue gases may pass through a collector that has a single 
outlet to the vent system. Additionally, DOE's intended position was 
that multiple vented flue pipes would have a higher heat exchanger 
surface area over which heat can be lost from the stored water when in 
standby mode.
---------------------------------------------------------------------------

    \34\ Page 5-15 of the May 2016 CWH ECS NOPR TSD is page 101 of 
the document PDF file.
---------------------------------------------------------------------------

    Table IV.9 presents the examined standby loss levels in this NOPR 
for commercial gas-fired storage water heaters and storage-type 
instantaneous water heaters (other than residential-duty gas-fired 
storage water heaters, which are addressed in the next section). As 
discussed, these levels reflect only the reduction in standby loss that 
is achieved by increasing thermal efficiency.

 Table IV.9--Standby Loss Levels for Commercial Gas-Fired Storage Water
 Heaters and Storage-Type Instantaneous Water Heaters, 100 Gallon Rated
              Storage Volume, 199,000 Btu/h Input Capacity
------------------------------------------------------------------------
                                                 Thermal
          Thermal efficiency level             efficiency   Standby loss
                                                   (%)         (Btu/h)
------------------------------------------------------------------------
Et EL0......................................            80          1349
Et EL1......................................            82          1316
Et EL2......................................            90          1223
Et EL3......................................            92          1197
Et EL4......................................            95          1160
Et EL5......................................            99          1115
------------------------------------------------------------------------

4. Electric Storage Water Heaters Technology Options
    In the withdrawn May 2016 CWH ECS NOPR analysis for electric 
storage water heaters, DOE determined that the current Federal standard 
can be met through use of 2 inches of polyurethane foam insulation. 
Therefore, this design was selected to represent the baseline standby 
loss level. The more-stringent standby loss level that DOE considered, 
representing the max-tech efficiency level, corresponded to 3 inches of 
polyurethane foam insulation.
    In response to the May 2016 CWH ECS NOPR, AHRI and A.O. Smith 
stated that no electric storage water heater models on the market at 
that time met the proposed standby loss standard. (AHRI, No. 40 at p. 
16; A.O. Smith, No. 39 at p. 4) AHRI stated that while DOE has put 
forward possible engineering paths to reach its proposed standby loss 
levels, there is no direct manufacturing experience to demonstrate 
either that these levels can be met in practice or that these levels 
can be met at the costs projected by DOE. (AHRI, No. 40 at p. 17)
    Several commenters suggested that DOE's standby loss calculations 
overestimate the reduction in standby loss for given technology options 
for electric storage water heaters. (Bock, No. 33 at p. 4; A.O. Smith, 
No. 39 at p. 9; Bradford White, No. 42 at p. 7; Rheem, No. 43 at p. 17) 
A.O. Smith and Bradford White stated that DOE's analyzed technology 
option for reducing standby loss (i.e., using 3 inches of foam 
insulation) is already utilized in some electric storage water heaters 
on the market to meet the current standby loss standard. (A.O. Smith, 
No. 39 at p. 4; Bradford White, No. 42 at p. 7) A.O. Smith and Rheem 
commented that there are several models on the market with 3 inches of 
foam insulation, and none of these models meet the proposed standby 
loss limits. (A.O. Smith, No. 39 at p. 9; Rheem, No. 43 at p. 17)
    Rheem argued that consideration of water heater design was absent 
from DOE's analysis, and that there should have been a comparison with 
actual models to validate the theoretical calculations. (Rheem, No. 43 
at p. 17)
    A.O. Smith argued that DOE created a theoretical max-tech level 
without explaining whether testing, research, and/or other analysis 
were performed to validate its theoretical standby loss level. A.O. 
Smith also argued that DOE has the burden to demonstrate that the 
proposed level can be achieved. (A.O. Smith, No. 39 at p. 9) EEI 
requested that DOE clarify whether the proposed 16-percent reduction in 
standby loss for electric storage water heaters is achievable for 
larger-volume models. EEI added that commercial electric storage water 
heaters are sized as large as 10,000 gallons and questioned whether 
DOE's proposed standby loss reduction is possible for these larger 
water heaters that have more fittings and surface area (EEI, Public 
Meeting Transcript, No. 20 at pp. 38-40) AHRI suggested that the 
standby loss reduction analyzed for electric storage water heaters with 
119 gallons storage volume might not scale well for models with storage 
volume less than 50 gallons, and that these lower-volume models might 
be adversely affected by DOE's proposed standby loss standard. (AHRI, 
No. 40 at p. 9)
    In light of comments received and DOE's market research, DOE 
recognizes that some electric storage water heater models currently on 
the market with 3 inches of foam insulation have a rated standby loss 
at or near the current standard. Because these models already have 3 
inches of foam insulation, the standby loss reduction that DOE 
attributed to using 3 inches of foam insulation in the May 2016 CWH ECS 
NOPR would not be achievable for these models using DOE's analyzed 
technology option. Therefore, in this NOPR, DOE analyzed 3 inches of 
polyurethane foam insulation as the technology option used to achieve 
the current standby loss standard. However, 3 inches of foam insulation 
is also the max-tech technology option, and DOE did not consider any 
additional technology options for the reduction of standby loss for 
electric storage water heaters. Therefore, in this NOPR, DOE did not 
further analyze and is not adopting amended standby loss standards for 
electric storage water heaters.
c. Uniform Energy Efficiency Levels
    As discussed in III.B.1 of this NOPR, DOE conducted all analyses of 
potential amended standards for residential-duty commercial water 
heaters in this document in terms of UEF to reflect the current test 
procedure and metric. However, the withdrawn May 2016 CWH ECS NOPR 
analysis was conducted in terms of the previous thermal efficiency and 
standby loss metrics because there were insufficient efficiency data in 
terms of UEF available when DOE undertook the initial analyses for this 
proposed rulemaking.
    In the May 2016 CWH ECS NOPR analysis for residential-duty gas-
fired storage water heaters, DOE previously determined that the Federal 
standards can be met through use of 1 inch of polyurethane foam 
insulation. From surveying commercially-available equipment, DOE also 
determined that all baseline residential-duty gas-fired storage water 
heaters have a standing pilot and do not use flue dampers. Therefore, 
in addition to considering increased foam insulation thickness, DOE 
also considered electromechanical

[[Page 30644]]

flue dampers and electronic ignition as technology options for 
improving efficiency. Electromechanical flue dampers were only 
considered as a technology option for non-condensing residential-duty 
gas-fired storage water heaters, because flue dampers are not used with 
mechanical draft systems and condensing water heaters use mechanical 
draft systems. Therefore, for residential-duty gas-fired storage water 
heaters, DOE considered electromechanical flue dampers to be a 
technology option to improve efficiency for non-condensing equipment 
and considered mechanical draft systems to be featured in all 
condensing equipment. Both of these technologies improve efficiency by 
reducing standby losses through the flue during periods when the burner 
is not operating. Additionally, because all condensing residential-duty 
gas-fired storage water heaters include electronic ignition, DOE only 
considered electronic ignition as a technology option for non-
condensing residential-duty gas-fired storage water heaters.
    In response to the May 2016 CWH ECS NOPR, Bradford White commented 
that for residential-duty gas-fired storage water heaters, in most 
cases, 2 inches of polyurethane foam insulation are required to meet 
the current Federal standard, rather than 1 inch as assumed by DOE in 
the NOPR. (Bradford White, No. 42 at p. 7)
    DOE acknowledges Bradford White's comment that some residential-
duty gas-fired storage water heaters with rated standby loss values at 
or near the current standard (now in terms of UEF rather than standby 
loss) have 2 inches of polyurethane foam insulation. Because these 
baseline or near-baseline models already have 2 inches of foam 
insulation, DOE considered 2 inches of polyurethane foam insulation as 
a baseline technology option for residential-duty gas-fired storage 
water heaters, and did not consider any efficiency gains associated 
with increased insulation.
    As previously discussed, electromechanical flue dampers and 
electronic ignition were only considered as a technology option for 
non-condensing equipment. Technology options that would specifically 
decrease standby losses were not considered for condensing residential-
duty gas-fired storage water heaters (for which the baseline includes 2 
inches of foam insulation and electronic ignition and for which 
electromechanical flue dampers are not an appropriate technology 
option). (Even though standby losses are no longer measured directly 
for residential-duty gas-fired storage water heaters, standby losses 
still contribute to UEF.)
    UEF standards are draw pattern-specific (i.e., there are separate 
standards for very small, low, medium, and high draw patterns) and are 
expressed by an equation as a function of the stored water volume. DOE 
analyzed increased standards in terms of increases to the constant term 
of the UEF equations and did not consider changes to the slopes of the 
volume-dependent term. Based on a review of the rated UEF and storage 
volume for products currently on the market, DOE tentatively determined 
that the existing slopes of the equations are representative of the 
relationship between UEF and stored volume across the range of 
efficiency levels, and thus, DOE did not find justification to consider 
varying the slope. Additionally, because all residential-duty gas-fired 
storage water heaters on the market are in the high draw pattern, the 
analysis was done for the high draw pattern and the same step increase 
are applied to all other draw patterns. For residential-duty gas-fired 
storage water heaters, DOE chose four UEF levels between the baseline 
and max-tech levels for analysis.
    To determine the max-tech level, DOE analyzed the difference 
between UEF ratings of residential-duty gas-fired storage water heaters 
in its database (see section IV.A.3 of this document) and the minimum 
UEF allowed for each model based on their rated volumes. The maximum 
step increase (rounded to the nearest hundredth) was 0.35. However, 
this level was only achieved at a single storage volume and has not 
been demonstrated as being achievable across a range of storage 
volumes. As a result, DOE considered the max-tech step increase to be 
0.34, a level that has been demonstrated achievable by residential-duty 
gas-fired storage water heaters at a range of volumes.
    The four intermediate UEF levels are representative of common 
efficiency levels and those that represent significant technological 
changes in the design of CWH equipment. Table IV.10 shows the examined 
UEF levels in this NOPR for residential-duty gas-fired storage water 
heaters in terms of the incremental step increase and the resulting 
equation for high draw pattern models.

    Table IV.10--Baseline, Intermediate, and Max-Tech UEF Levels for Residential-Duty Gas-Fired Storage Water
                                                     Heaters
----------------------------------------------------------------------------------------------------------------
                                             Incremental
                UEF level                   step increase                UEF (high draw pattern) *
----------------------------------------------------------------------------------------------------------------
EL0--Baseline............................               0  0.6597-(0.0009 x Vr)
EL1......................................            0.02  0.6797-(0.0009 x Vr)
EL2......................................            0.09  0.7497-(0.0009 x Vr)
EL3......................................            0.18  0.8397-(0.0009 x Vr)
EL4......................................            0.27  0.9297-(0.0009 x Vr)
EL5......................................            0.34  0.9997-(0.0009 x Vr)
----------------------------------------------------------------------------------------------------------------
* UEF standards vary based on the test procedure draw pattern that is used to determine the UEF rating. For
  simplicity and because all residential-duty gas-fired storage water heaters on the market are in the high draw
  pattern, only the high draw pattern efficiency levels are shown.

5. Standby Loss Reduction Factors
    As part of the engineering analysis for commercial gas-fired 
storage water heaters, DOE reviewed the maximum standby loss equations 
that define the existing Federal energy conservation standards for gas-
fired storage water heaters. The equations allow DOE to expand the 
analysis on the representative rated input capacity and storage volume 
to the full range of values covered under the existing Federal energy 
conservation standards.
    DOE uses equations to characterize the relationship between rated 
input capacity, rated storage volume, and standby loss. The equations 
allow DOE to account for the increases in standby loss as input 
capacity and tank volume increase. As the tank storage volume 
increases, the tank surface area increases, resulting in higher jacket 
losses. As the input capacity increases, the surface area of flue tubes 
may increase, thereby providing additional

[[Page 30645]]

area for standby heat loss through the flue tubes. The current 
equations show that for gas-fired storage water heaters, the allowable 
standby loss increases as the rated storage volume and input rating 
increase. The current form of the standby loss standard (in Btu/h) for 
commercial gas-fired and oil-fired water heaters is shown in the 
multivariable equation below, depending upon both rated input (Q, Btu/
h) and rated storage volume (Vr, gal).
[GRAPHIC] [TIFF OMITTED] TP19MY22.000

    In order to consider amended standby loss standards for commercial 
gas-fired storage water heaters, DOE needed to revise the current 
standby loss standard equation to correspond to the decreased standby 
loss value, in Btu/h, determined for the representative capacity. In 
the withdrawn May 2016 CWH ECS NOPR, DOE considered revising the 
standby loss equations for gas-fired and electric storage water 
heaters. 81 FR 34440, 34476-34477 (May 31, 2016). However, as discussed 
in sections III.B.6 and IV.C.4.b of this NOPR, DOE is not proposing to 
amend the standby loss standard for electric storage water heaters.
    DOE analyzed more-stringent standby loss standards by multiplying 
the current maximum standby loss equation by reduction factors. The use 
of reduction factors maintains the structure of the current maximum 
standby loss equation and does not change the dependence of maximum 
standby loss on rated input and rated storage volume, but still allows 
DOE to consider increased stringency for standby loss standards. The 
standby loss reduction factor is calculated by dividing each standby 
loss level (in Btu/h) by the current standby loss standard (in Btu/h) 
for the representative input capacity and storage volume.
    Table IV.11 shows the standby loss reduction factors determined in 
this NOPR for commercial gas-fired storage water heaters for each 
thermal efficiency level. As discussed in section IV.C.4.b of this 
NOPR, the standby loss reductions associated with commercial gas-fired 
storage water heaters result from increased thermal efficiency. Chapter 
5 of the NOPR TSD includes more detail on the calculation of the 
standby loss reduction factor.

  Table IV.11--Standby Loss Reduction Factors for Commercial Gas-Fired
                          Storage Water Heaters
------------------------------------------------------------------------
                                                 Thermal    Standby loss
          Thermal efficiency level             efficiency     reduction
                                                   (%)         factor
------------------------------------------------------------------------
Et EL0......................................            80          1.00
Et EL1......................................            82          0.98
Et EL2......................................            90          0.91
Et EL3......................................            92          0.89
Et EL4......................................            95          0.86
Et EL5......................................            99          0.83
------------------------------------------------------------------------

6. Teardown Analysis
    After selecting a representative input capacity and representative 
storage volume (for storage water heaters) for each equipment category, 
DOE selected equipment near both the representative values and the 
selected efficiency levels for its teardown analysis. DOE gathered 
information from these teardowns to create detailed BOMs that included 
all components and processes used to manufacture the equipment. For the 
analysis of residential-duty gas-fired storage water heaters DOE 
identified the UEF ratings of previously torn-down models, wherever 
possible, and used information from those existing teardowns to inform 
its analyses. To assemble the BOMs and to calculate the MPCs of CWH 
equipment, 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 known 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 ``catalog teardown,'' 
which examines published manufacturer catalogs and supplementary 
component data to allow DOE to estimate the major differences between 
equipment that was physically disassembled and similar equipment that 
was not. For catalog teardowns, DOE gathered product data such as 
dimensions, weight, and design features from publicly-available 
information (e.g., manufacturer catalogs and manufacturer websites). 
DOE also obtained information and data not typically found in catalogs, 
such as fan motor details or assembly details, from physical teardowns 
of similar equipment or through estimates based on industry knowledge. 
The teardown analysis performed for the withdrawn May 2016 CWH ECS NOPR 
used data from 11 physical teardowns and 22 catalog teardowns to inform 
development of cost estimates for CWH equipment. In the current NOPR 
analysis, DOE included results from 11 additional physical teardowns of 
water heaters and hot water supply boilers. These additional physical 
teardowns replaced several of the virtual and physical teardowns 
conducted for the NOPR analysis to ensure that the MPC estimates better 
reflect designs of models on the market by including physical teardowns 
of models from additional manufacturers at numerous efficiency levels. 
Chapter 5 of the NOPR TSD provides further detail on the CWH equipment 
units that were torn down.
    The teardown analysis allowed DOE to identify the technologies that 
manufacturers typically incorporate into their equipment, along with 
the efficiency levels associated with each technology or combination of 
technologies. As noted previously, the end result of each teardown is a 
structured BOM, which DOE developed for each of the physical and 
catalog 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 to calculate the MPCs 
for each type of equipment that was torn down. The MPCs resulting from 
the teardowns were then used to develop an industry

[[Page 30646]]

average MPC for each efficiency level and equipment category analyzed. 
Chapter 5 of the NOPR TSD provides more details on BOMs and how they 
were used in determining the manufacturing cost estimates.
    During the manufacturer interviews, DOE requested feedback on the 
engineering analysis and the assumptions that DOE used in the May 2016 
CWH ECS NOPR. DOE used the information it gathered from those 
interviews, along with the information obtained through the teardown 
analysis, to refine the assumptions and data used to develop MPCs. 
Chapter 5 of the NOPR TSD provides additional details on the teardown 
process.
    During the teardown process, DOE gained insight into the typical 
technology options manufacturers use to reach specific efficiency 
levels. DOE also determined the efficiency levels at which 
manufacturers tend to make major technological design changes. Table 
IV.12 through Table IV.15 show the major technology options DOE 
observed and analyzed for each efficiency level and equipment category. 
DOE notes that in equipment above the baseline, and sometimes even at 
the baseline efficiency, additional features and functionalities that 
do not impact efficiency are often used to address non-efficiency-
related consumer demands (e.g., related to comfort or noise when 
operating). DOE did not include the additional costs for options such 
as advanced building communication and control systems or powered anode 
rods that are included in many of the high-efficiency models currently 
on the market, as they do not improve efficiency but do add cost to the 
model. In other words, DOE assumed the same level of non-efficiency 
related features and functionality at all efficiency levels. Chapter 5 
of the NOPR TSD includes further detail on the exclusion of costs for 
non-efficiency-related features from DOE's MPC estimates.

  Table IV.12--Technologies Identified at Each Thermal Efficiency Level
             for Commercial Gas-Fired Storage Water Heaters
------------------------------------------------------------------------
                                    Thermal
   Thermal efficiency level     efficiency (%)      Design changes *
------------------------------------------------------------------------
Et EL0........................              80
Et EL1........................              82  Increased heat exchanger
                                                 area.
Et EL2........................              90  Condensing heat
                                                 exchanger, forced draft
                                                 blower, premix burner.
Et EL3........................              92  Condensing heat
                                                 exchanger, forced draft
                                                 blower, premix burner,
                                                 increased heat
                                                 exchanger surface area.
Et EL4........................              95  Condensing heat
                                                 exchanger, forced draft
                                                 blower, premix burner,
                                                 increased heat
                                                 exchanger surface area.
Et EL5........................              99  Condensing heat
                                                 exchanger, forced draft
                                                 blower, premix burner,
                                                 increased heat
                                                 exchanger surface area.
------------------------------------------------------------------------
* The condensing heat exchanger surface area incrementally increases at
  each EL from Et EL2 to Et EL5.


  Table IV.13--Technologies Identified at Each Thermal Efficiency Level
          for Residential-Duty Gas-Fired Storage Water Heaters
------------------------------------------------------------------------
                        UEF (high draw
      UEF level           pattern) *            Design changes **
------------------------------------------------------------------------
EL0--Baseline........  0.6597-(0.0009 x
                        Vr).
EL1..................  0.6797-(0.0009 x  Increased heat exchanger area.
                        Vr).
EL2..................  0.7497-(0.0009 x  Electronic ignition,
                        Vr).              electromechanical flue damper
                                          or power venting; increased
                                          heat exchanger area.
EL3..................  0.8397-(0.0009 x  Electronic ignition; condensing
                        Vr).              heat exchanger; power venting.
EL4..................  0.9297-(0.0009 x  Electronic ignition; condensing
                        Vr).              heat exchanger; power venting;
                                          premix burner; increased heat
                                          exchanger area.
EL5..................  0.9997-(0.0009 x  Electronic ignition; condensing
                        Vr).              heat exchanger; power venting;
                                          premix burner; increased heat
                                          exchanger area.
------------------------------------------------------------------------
* UEF standards vary based on the test procedure draw pattern that is
  used to determine the UEF rating. For simplicity and because all
  residential-duty gas-fired storage water heaters on the market are in
  the high draw pattern, only the high draw pattern efficiency levels
  are shown.
** The condensing heat exchanger surface area incrementally increases at
  each EL from EL3 to EL5.


  Table IV.14--Technologies Identified at Each Thermal Efficiency Level
                  for Gas-Fired Tankless Water Heaters
------------------------------------------------------------------------
                                    Thermal
   Thermal efficiency level     efficiency (%)      Design changes *
------------------------------------------------------------------------
Et EL0........................              80
Et EL1........................              82  Increased heat exchanger
                                                 area.
Et EL2........................              84  Increased heat exchanger
                                                 area.
Et EL3........................              92  Secondary condensing
                                                 heat exchanger.
Et EL4........................              94  Secondary condensing
                                                 heat exchanger,
                                                 increased heat
                                                 exchanger surface area.
Et EL5........................              96  Secondary condensing
                                                 heat exchanger,
                                                 increased heat
                                                 exchanger surface area.
------------------------------------------------------------------------
* The heat exchanger surface area incrementally increases at each EL
  from Et EL0 to Et EL2 and from Et EL3 to Et EL5.


[[Page 30647]]


  Table IV.15--Technologies Identified at Each Thermal Efficiency Level
  for Gas-Fired Circulating Water Heaters and Hot Water Supply Boilers
------------------------------------------------------------------------
                                    Thermal
   Thermal efficiency level     efficiency (%)      Design changes *
------------------------------------------------------------------------
Et EL0........................              80
Et EL1........................              82  Increased heat exchanger
                                                 area.
Et EL2........................              84  Increased heat exchanger
                                                 area, induced draft
                                                 blower.
Et EL3........................              92  Condensing heat
                                                 exchanger, forced draft
                                                 blower, premix burner.
Et EL4........................              94  Condensing heat
                                                 exchanger, forced draft
                                                 blower, premix burner,
                                                 increased heat
                                                 exchanger surface area.
Et EL5........................              96  Condensing heat
                                                 exchanger, forced draft
                                                 blower, premix burner,
                                                 increased heat
                                                 exchanger surface area.
------------------------------------------------------------------------
* The heat exchanger surface area incrementally increases at each EL
  from Et EL0 to Et EL2 and from Et EL3 to Et EL5.

    From surveying models currently on the market, DOE determined that 
the only design change for many efficiency levels is an increased heat 
exchanger surface area. Based upon heat exchanger calculations and 
feedback from manufacturer interviews, DOE determined a factor by which 
heat exchangers would need to expand to reach higher thermal efficiency 
levels. This factor was higher for condensing efficiency levels than 
for non-condensing efficiency levels. Chapter 5 of the NOPR TSD 
provides more information on these heat exchanger sizing calculations, 
as well as on the technology options DOE considered at each efficiency 
level.
    In response to the May 2016 CWH ECS NOPR, DOE received comments 
from stakeholders questioning the typical design features assumed in 
DOE's analysis. For example, Bradford White stated that manufacturers 
must use more anode rods on products with more flues (i.e., higher 
thermal efficiency) to ensure the product is sufficiently protected 
against corrosion. (Bradford White, No. 42 at p. 7)
    Lochinvar commented that in determining manufacturer production 
cost, DOE should take into consideration that condensing equipment 
requires costlier, corrosion-resistant material. In addition, Lochinvar 
stated that use of such corrosion-resistant material means condensing 
equipment may not need anode rods. Lochinvar further stated that anode 
rods are required for condensing equipment that is built from less 
expensive, corrosive materials. (Lochinvar, Public Meeting Transcript, 
No. 20 at p. 44)
    In the May 2016 CWH ECS NOPR analysis, DOE assumed that the number 
of anode rods is independent of efficiency and, thus, analyzed the same 
number of anode rods across all efficiency levels for each storage 
water heater class. However, DOE recognizes that the welds inside a 
storage water heater are typically the primary source of concern for 
corrosion inside a storage water heater. As stated by Bradford White, a 
condensing gas-fired storage water heater with a multi-pass heat 
exchanger design \35\ will typically have more flue pipes and, 
therefore, more welds (joining the flue pipe and tank top or bottom) 
than would a non-condensing gas-fired storage water heater. Therefore, 
DOE acknowledges that condensing gas-fired storage water heaters may 
require an additional anode rod to compensate for the additional welds, 
relative to a non-condensing gas-fired storage water heater. To reflect 
this possibility, DOE included the costs of an additional anode rod for 
residential-duty and commercial gas-fired storage water heaters with a 
multi-pass condensing heat exchanger design. In response to Lochinvar, 
DOE included the cost of anode rods in its cost estimates for storage 
water heaters if the tank and heat exchanger are not constructed 
entirely from corrosion-resistant materials (e.g., stainless steel or 
cupronickel), but did not include the cost of anode rods for designs 
where the tank and heat exchanger are constructed of corrosion-
resistant alloys. Manufacturer literature for storage water heaters 
constructed with stainless steel tanks and heat exchangers indicate 
that such models do not require anode rods for corrosion protection. 
Chapter 5 of the NOPR TSD includes further detail on the number of 
anode rods DOE analyzed to develop cost estimates for storage water 
heaters.
---------------------------------------------------------------------------

    \35\ In a multi-pass condensing heat exchanger design, the flue 
gases are forced through flue tubes that span the length of the tank 
multiple times. Typically, the flue gases are re-directed back 
through the tank via return plenums located above and below the 
tank.
---------------------------------------------------------------------------

    In addition, DOE notes that many condensing gas-fired storage water 
heaters currently on the market are often marketed as premium products 
and include non-efficiency-related features. Some of these features, 
such as built-in diagnostics and run history information, may require 
user interfaces, but a user interface is not necessary for operation of 
a condensing gas-fired storage water heater. DOE research suggests that 
condensing appliances may feature as little as a push button and 
several light-emitting diodes on the control board to communicate the 
status of the unit, error codes, and so on. Some condensing models on 
the market also include modulating burners and gas valves, which do 
require more sophisticated controls. However, modulation is not 
required to achieve condensing operation for gas-fired storage water 
heaters and does not affect efficiency as measured by DOE's test 
procedure, and DOE notes that many condensing gas-fired storage water 
heaters currently on the market do not include modulating combustion 
systems or the corresponding more sophisticated controls. While a 
condensing combustion assembly (comprising a gas valve, blower, and 
premix burner) may require calibration by the manufacturer (the costs 
for which DOE accounts in its development of cost estimates), DOE does 
not believe that a technician would need a user interface included 
within the water heater to service a gas-fired storage water heater 
with a non-modulating combustion assembly. In order to accurately 
assess the costs of adopting a more-stringent standard, DOE only 
considers costs of components that are necessary for models to achieve 
each efficiency level as measured by DOE's test procedure. Therefore, 
DOE does not include the costs of features such as modulation, more 
sophisticated controls, and powered anode rods. Chapter 5 of the NOPR 
TSD includes further detail on the exclusion of costs for non-
efficiency-related features from DOE's MPC estimates.
    In the May 2016 CWH ECS NOPR TSD, in the context of assessing 
market standby loss data for commercial gas-fired storage water 
heaters, DOE stated that, relative to non-condensing models, many 
condensing models tend to have fewer flue pipes that vent because the

[[Page 30648]]

flue gas must follow a longer path within the heat exchanger to begin 
condensation. DOE further stated that because there are fewer pipes 
that vent outside the water heater in most condensing models than in 
non-condensing models, less heat is lost out of these pipes in standby 
mode. DOE also mentioned that standby loss for condensing models would 
generally be lower than for non-condensing models because standby loss 
is in large part dependent on thermal efficiency, because standby loss 
is calculated using fuel flow to the burner during the test period. 
(Docket No. EERE-2014-BT-STD-0042-0016 at pp. 3-21) \36\ This statement 
appears to have caused confusion among stakeholders as to DOE's 
assumptions about typical condensing heat exchanger designs.
---------------------------------------------------------------------------

    \36\ Page 3-21 of the May 2016 CWH ECS NOPR TSD is page 56 of 
the document PDF file.
---------------------------------------------------------------------------

    To clarify, DOE notes that, as stated in chapter 5 of the withdrawn 
May 2016 CWH ECS NOPR TSD, DOE did not assume that manufacturers will 
switch from their current condensing heat exchanger designs to a 
helical condensing heat exchanger design. (Docket No. EERE-2014-BT-STD-
0042-0016 at pp. 5-21) \37\ In the engineering analysis, DOE assumed 
that manufacturers would continue making condensing gas-fired storage 
water heaters with heat exchangers similar in design to those included 
in their current product offerings. Therefore, DOE modeled both helical 
and multi-pass condensing heat exchanger designs \38\ and calculated a 
weighted average MPC based on manufacturer market shares. The intent of 
DOE's aforementioned statements in the May 2016 CWH ECS NOPR TSD was to 
explain why condensing gas-fired storage water heaters currently on the 
market typically have lower standby losses than do non-condensing 
storage water heaters. Rather than assuming that manufacturers would 
change their designs, DOE was simply interpreting the efficiency 
distributions of models currently on the market. DOE clarifies that the 
intended meaning of its statement was that condensing gas-fired storage 
water heaters (including those with helical and multi-pass condensing 
heat exchanger designs) typically have less surface area on flue pipes 
(i.e., fewer pipes or smaller-diameter pipes) that vent vertically 
outside the top of the water heater and into the vent system than do 
non-condensing gas-fired storage water heaters, therefore providing 
less opportunity for standby heat loss. In other words, in non-
condensing gas-fired storage water heaters, all flue pipes typically 
vent outside the water heater; therefore, all flue pipes provide a 
direct air path for standby flue losses out the top of the water 
heater. Conversely, condensing heat exchangers often include flue pipes 
(or a single helical pipe) that do not vent out to the top of the water 
heater and therefore do not provide a direct air path for flue losses 
(e.g., in a multi-pass heat exchanger, flue gases in many tubes are re-
routed within the heat exchanger rather than vented outside the water 
heater).
---------------------------------------------------------------------------

    \37\ Page 5-21 of the May 2016 CWH ECS NOPR TSD is page 107 of 
the document PDF file.
    \38\ In a multi-pass condensing heat exchanger design, the flue 
gases are forced through flue tubes that span the length of the tank 
multiple times. Typically, the flue gases are re-directed back 
through the tank via return plenums located above and below the 
tank.
---------------------------------------------------------------------------

    Additionally, DOE notes that it has identified at least one 
manufacturer who produces commercial gas-fired tankless water heaters 
that include a secondary, condensing heat exchanger made of an aluminum 
alloy and are intended for potable water heating applications. 
Therefore, DOE included the manufacturing costs of this model in its 
market-share weighted average MPCs for gas-fired tankless water heaters 
in the analyses for both the May 2016 CWH ECS NOPR and this NOPR. 
However, DOE did not identify any circulating water heaters or hot 
water supply boilers on the market that include an aluminum heat 
exchanger, and, therefore, DOE only included condensing heat exchangers 
made of stainless steel in its cost estimates for circulating water 
heaters and hot water supply boilers. Chapter 5 of the NOPR TSD 
includes further details on the materials and cost estimates for 
condensing heat exchangers.
    In the analysis for the withdrawn May 2016 CWH ECS NOPR, DOE did 
not include the costs of ASME construction as part of the MPC. Bradford 
White disagreed with DOE's decision not to include the costs of ASME 
construction in cost estimates for commercial gas-fired storage water 
heaters, and argued that DOE should consider these costs in its 
analysis. Bradford White stated that while ASME construction is not 
required in most States for storage water heaters at DOE's 
representative capacity (i.e., 100 gallons, 199,000 Btu/h), ASME 
construction is required for models with an input capacity exceeding 
the ASME criteria. According to the commenter, manufacturing costs 
would be higher for condensing products if ASME construction is 
required. Bradford White also pointed out that Kansas requires ASME 
construction for all storage water heaters with a storage volume 
exceeding 85 gallons. (Bradford White, No. 42 at p. 7)
    In response to Bradford White's concerns, DOE adjusted its MPC 
estimates for commercial gas-fired storage water heaters for this NOPR 
to account for the costs of ASME construction. Specifically, DOE 
estimated that 20 percent of commercial gas-fired storage water heater 
shipments are manufactured with ASME construction, based on feedback 
from manufacturer interviews. For this share of the market, DOE applied 
a multiplier of 1.2 to the MPC to account for the various costs 
associated with ASME construction (e.g., materials, labor, testing). 
This multiplier is consistent with feedback from manufacturer 
interviews and with the approach DOE used for estimating the costs of 
ASME construction for instantaneous water heaters and hot water supply 
boilers in the May 2016 CWH ECS NOPR engineering analysis. Chapter 5 of 
the NOPR TSD includes additional details on DOE's analysis of ASME 
construction for commercial gas-fired storage water heaters.
    In the analysis for the withdrawn May 2016 CWH ECS NOPR, DOE 
estimated the burdened assembly and fabrication labor wages as $24/
hour.\39\ In response, Bradford White indicated that the average 
burdened assembly and fabrication labor wages used in DOE's analysis of 
$24/hour was significantly too low. Bradford White stated that this 
value is closer to the actual value (but still low) if DOE is only 
considering wages plus benefits. However, Bradford White argued that 
DOE should consider fully burdened wages (including wages, benefits, 
and overhead) in its cost estimates. Bradford White further stated that 
it provided similar feedback regarding the burdened wage during 
manufacturer interviews and was disappointed that this feedback was not 
incorporated in the May 2016 CWH ECS NOPR analysis. (Bradford White, 
No. 42 at p. 14)
---------------------------------------------------------------------------

    \39\ DOE uses the term ``burdened wage'' to refer to the gross 
wages and benefits paid to a manufacturing employee.
---------------------------------------------------------------------------

    In response, DOE's estimate of $24/hour for burdened assembly and 
fabrication labor wages is based on feedback from manufacturer 
interviews across many manufacturing industries. DOE typically uses the 
same wage estimate for many manufacturing industries because the wages 
across these industries are competitive (e.g., welders are in demand in 
many manufacturing industries in addition to the CWH equipment 
industry). DOE also notes that other than Bradford White, no

[[Page 30649]]

manufacturers of CWH equipment indicated that this labor wage estimate 
was too low in either public comments or manufacturer interviews. 
Additionally, DOE does not consider employee overhead costs in its 
labor wage estimates. While Bradford White's comment does not specify 
what is meant by ``overhead,'' DOE presumes that the costs to which 
Bradford White is referring to are those that DOE designates as ``non-
production costs,'' such as general corporate costs or, alternatively, 
a ``shop rate.'' The DOE wage estimate reflects only gross wages and 
benefits to the employee. Other overhead costs are captured in the 
manufacturer markup that is applied to the manufacturer production cost 
to determine the manufacturer selling price. DOE does not believe that 
these costs would directly scale with increased labor requirements in 
the same manner as wages and benefits. However, in order to better 
represent the costs for Bradford White of manufacturing CWH equipment, 
DOE included a 20 percent higher value for burdened assembly and 
fabrication labor wages for a portion of the market in the development 
of MPC estimates in this NOPR.
7. Manufacturing Production Costs
    After calculating the cost estimates for all the components in each 
torn-down unit, DOE totaled the cost of materials, labor, depreciation, 
and direct overhead used to manufacture each type of equipment in order 
to calculate the MPC. DOE used the results of the teardowns on a 
market-share weighted average basis to determine the industry average 
cost increase to move from one efficiency level to the next. DOE 
reports the MPCs in aggregated form to maintain confidentiality of 
sensitive component data. DOE obtained input from manufacturers during 
the manufacturer interview process on the MPC estimates and 
assumptions. Chapter 5 of the NOPR TSD contains additional details on 
how DOE developed the MPCs and related results.
    DOE estimated the MPC at each efficiency level considered for 
representative equipment of each equipment category. DOE also 
calculated the percentages attributable to each element of total 
production costs (i.e., materials, labor, depreciation, and overhead). 
These percentages are used to validate the assumptions by comparing 
them to manufacturers' actual financial data published in annual 
reports, along with feedback obtained from manufacturers during 
interviews.
    DOE notes that it developed its MPC estimates based on teardowns of 
CWH equipment from a variety of manufacturers. DOE conducted several 
rounds of manufacturer interviews and follow-up interviews with all CWH 
equipment manufacturers that responded to DOE's requests for 
interviews. As part of the manufacturer interview process, DOE sought 
feedback on its MPC estimates, as well as feedback on specific 
component, material, labor, and assembly costs. DOE's methodology for 
developing MPC estimates involves estimating the material, labor, 
depreciation, and overhead costs for every part and assembly within a 
unit. This level of detail allows DOE to estimate the cost of units 
that were not physically torn down, or to estimate the costs of making 
slight design changes such as adding an inch of insulation or 
increasing heat exchanger size. DOE presented manufacturers with MPC 
estimates broken down by each assembly (e.g., burner and gas valve, 
heat exchanger, controls) of the water heater, or even a BOM of a torn-
down unit from that manufacturer for specific feedback on the estimated 
costs for every single part within the torn-down unit. As part of the 
manufacturer interview process, manufacturers did not provide any 
specific feedback on components or labor that would call into question 
the validity of the incremental MPC estimates for moving from non-
condensing to condensing technology. The incremental MPC estimate 
reflects the additional components needed to build a condensing product 
while subtracting components that are either replaced or obviated. For 
example, condensing gas-fired storage water heaters require a 
mechanical draft combustion system, while baseline non-condensing 
models do not. Conversely, baseline non-condensing commercial water 
heaters typically include an electromechanical flue damper, while 
condensing models do not because they have a mechanical-draft 
combustion system that obviates the need for a flue damper.
    Additionally, as discussed in section IV.C.6 of this NOPR, DOE 
standardized non-efficiency-related features across all efficiency 
levels. This may cause DOE's incremental MPC estimates to seem lower 
than that of equipment currently on the market, because in many cases 
condensing equipment is currently marketed as a premium product and 
includes features (e.g., advanced controls, powered anode rods, 
modulating gas valves) that are not necessary for condensing operation 
and do not affect efficiency as measured by DOE's test procedure. 
Chapter 5 of the NOPR TSD includes further detail on the exclusion of 
costs for non-efficiency-related features from DOE's MPC estimates.
    The MPC estimates presented in this NOPR and chapter 5 of the NOPR 
TSD are market-shared weighted average MPCs, which will not necessarily 
be representative for every design pathway used by every manufacturer 
(i.e., they reflect the industry average cost). DOE research suggests 
that the absolute and incremental MPCs between baseline and condensing 
levels are higher for some manufacturers than others. Therefore, DOE 
included multiple design pathways that are used by a range of 
manufacturers and that represent the vast majority of models on the 
market in the market-share weighted average cost estimates, both in 
absolute as well as incremental terms.
    Regarding MPC estimates for tankless water heaters, DOE notes that 
a significant difference between the incremental cost for condensing 
technology for gas-fired storage water heaters and gas-fired tankless 
water heaters is the cost of a blower. DOE research and manufacturer 
feedback suggest that commercial gas-fired tankless water heaters 
typically feature forced-draft combustion systems, necessitating a 
blower for both condensing as well as non-condensing models. Therefore, 
while reflected in the incremental MPC difference between non-
condensing and condensing gas-fired storage water heaters, the cost of 
a blower would not be reflected in the incremental MPC difference for 
moving from non-condensing to condensing technology for gas-fired 
tankless water heaters.
    Regarding the incremental costs between condensing levels, the 
additional heat exchanger area required in DOE's analysis to increase 
thermal efficiency between condensing levels is based upon feedback 
from manufacturer interviews. Multiple condensing units that DOE torn 
down had a rated thermal efficiency in the middle of the range of 
condensing thermal efficiency levels (e.g., 95-96 percent). MPC 
estimates for lower condensing efficiency levels (i.e., 90 and 92 
percent) were developed by scaling down the design of more-efficient 
units by reducing the size of their condensing heat exchangers, while 
assuming other components generally do not change, as described in 
detail in chapter 5 of the NOPR TSD.
    Finally, DOE notes that its analysis does not consider labor to be 
a fixed cost and instead determines the labor hours required for 
production separately

[[Page 30650]]

for each efficiency level and each equipment category. Therefore, DOE's 
analysis takes into account the costs for any additional labor required 
for producing more efficient equipment.
    For the reasons previously mentioned, DOE has tentatively concluded 
that its methodology for developing MPC estimates initially presented 
in the May 2016 CWH ECS NOPR is sound and has maintained the same 
methodology for this NOPR. In addition, as noted previously, this NOPR 
analysis includes results from 11 additional physical teardowns of 
water heaters and hot water supply boilers (in addition to the physical 
teardowns performed for the previous (withdrawn) NOPR analysis of 
models still available on the market), which replaced several of the 
virtual teardowns conducted for the previous NOPR analysis. These 
additional physical teardowns were performed to ensure that the MPC 
estimates better reflect designs of models on the market by including 
physical teardowns of models from additional manufacturers at numerous 
efficiency levels. Additionally, DOE revised inputs to the development 
of MPC estimates based on updated pricing information (for raw 
materials and purchased parts). These changes resulted in refined MPCs 
and production cost percentages. Table IV.16, Table IV.17, and Table 
IV.18 of this document show the MPC for each combination of thermal 
efficiency and standby loss levels for each equipment category.

   Table IV.16--Manufacturer Production Costs for Commercial Gas-Fired
  Storage Water Heaters, 100-Gallon Rated Storage Volume, 199,000 Btu/h
                             Input Capacity
------------------------------------------------------------------------
                                              Thermal
       Thermal  efficiency  level           efficiency      MPC (2020$)
------------------------------------------------------------------------
Et EL0..................................              80       $1,180.42
Et EL1..................................              82        1,200.45
Et EL2..................................              90        1,306.87
Et EL3..................................              92        1,317.83
Et EL4..................................              95        1,338.92
Et EL5..................................              99        1,377.83
------------------------------------------------------------------------


  Table IV.17--Manufacturer Production Costs for Residential-Duty Gas-
Fired Storage Water Heaters, 75-Gallon Rated Storage Volume, 76,000 Btu/
                            h Input Capacity
------------------------------------------------------------------------
                                       UEF (high draw pattern)     MPC
          Efficiency  level                       *              (2020$)
------------------------------------------------------------------------
EL0..................................  0.6597-(0.0009 x Vr)...   $318.64
EL1..................................  0.6797-(0.0009 x Vr)...    323.35
EL2..................................  0.7497-(0.0009 x Vr)...    411.16
EL3..................................  0.8397-(0.0009 x Vr)...    474.64
EL4..................................  0.9297-(0.0009 x Vr)...    645.18
EL5..................................  0.9997-(0.0009 x Vr)...    663.47
------------------------------------------------------------------------
* UEF standards vary based on the test procedure draw pattern that is
  used to determine the UEF rating. For simplicity and because all
  residential-duty gas-fired storage water heaters on the market are in
  the high draw pattern, only the high draw pattern efficiency levels
  are shown.


    Table IV.18--Manufacturer Production Costs for Gas-Fired Instantaneous Water Heaters and Hot Water Supply
                                                     Boilers
----------------------------------------------------------------------------------------------------------------
                                                                                            MPC (2020$)
                                                                                 -------------------------------
                                                                                     Gas-fired       Gas-fired
                                                                                  tankless water    circulating
                    Thermal efficiency level                          Thermal         heaters      water heaters
                                                                  efficiency (%) ----------------  and hot water
                                                                                                  supply boilers
                                                                                   250,000 Btu/h ---------------
                                                                                                   399,000 Btu/h
----------------------------------------------------------------------------------------------------------------
Et EL0..........................................................              80         $517.86       $1,006.19
Et EL1..........................................................              82          525.79        1,015.39
Et EL2..........................................................              84          533.55        1,097.04
Et EL3..........................................................              92          608.08        2,655.89
Et EL4..........................................................              94          624.08        2,811.34
Et EL5..........................................................              96          647.19        2,966.78
----------------------------------------------------------------------------------------------------------------

8. Manufacturer Markup and Manufacturer Selling Price
    To account for manufacturers' non-production costs and profit 
margin, DOE applies a non-production cost multiplier (the manufacturer 
markup) to the full MPC. The resulting MSP is the price at which the 
manufacturer can recover all production and non-production costs and 
earn a profit. To calculate the manufacturer markups, DOE used data 
from 10-K reports \40\ submitted to the U.S. Securities and Exchange 
Commission (``SEC'') by the three publicly-owned companies that 
manufacture CWH equipment. DOE averaged the financial figures spanning 
the years 2008 to 2013 in order to calculate the initial estimate of 
markups for CWH equipment for this proposed rulemaking. During 
interviews conducted ahead of the withdrawn May 2016 CWH ECS NOPR, DOE 
discussed the manufacturer markup with manufacturers and used the 
feedback to modify the manufacturer markup calculated through review of 
SEC 10-K reports. DOE considers the manufacturer markup published in 
the May 2016 CWH ECS NOPR to be the best publicly available 
information. In this NOPR, DOE is maintaining the manufacturer markups 
used previously in the May 2016 CWH ECS NOPR, as DOE has not received 
any additional information or data to indicate that a change would be 
warranted.
---------------------------------------------------------------------------

    \40\ U.S. Securities and Exchange Commission, Annual 10-K 
Reports (Various Years) (Available at sec.gov).
---------------------------------------------------------------------------

    To calculate the MSP for CWH equipment, DOE multiplied the 
calculated MPC at each efficiency level by the manufacturer markup. See 
chapter 12 of the NOPR TSD for more details about the manufacturer 
markup calculation and the MSP calculations.
9. Shipping Costs
    Manufacturers of CWH equipment typically pay for shipping to the 
first step in the distribution chain. Freight is not a manufacturing 
cost, but it is a substantial cost incurred by the manufacturer that is 
passed through to

[[Page 30651]]

consumers. Therefore, DOE accounted for shipping costs of CWH equipment 
separately from other non-production costs.
    In the May 2016 CWH ECS NOPR, shipping costs for all classes of CWH 
equipment were determined based on the area of floor space occupied by 
the unit. In response, Bradford White stated that while consumer water 
heaters are mostly shipped in semi-trailers, it is more common for 
commercial water heaters to be shipped via less than truckload 
(``LTL''), when either lower quantities are being shipped, potentially 
in an emergency situation, or when a semi-trailer is not going to the 
area to which the commercial water heater is being delivered. Bradford 
White stated that DOE's analysis should be weighted more to LTL 
shipping, which is based on weight. Per Bradford White, condensing 
water heaters are heavier than non-condensing models and hence would 
cost more to ship on an LTL basis. Bradford White also commented that 
commercial and residential-duty storage water heaters are typically 
shipped with consumer water heaters for distributors stocking 
inventory, rather than being segregated. (Bradford White, No. 42 at p. 
12) Bradford White also disagreed with DOE's statement in the May 2016 
CWH ECS NOPR that an increase of height of storage water heaters would 
not affect shipping costs because commercial storage water heaters 
cannot be double-stacked. Bradford White argued that when commercial 
storage water heaters are shipped via semi-trailers, it is very common 
for the space above them to be used for smaller products. (Bradford 
White, No. 42 at pp. 12-13)
    DOE research suggests that trailers either cube-out (i.e., run out 
of floor space or storage volume) or weigh-out (i.e., reach their 
allowed weight limits). Because storage water heaters are filled with 
air during shipping and instantaneous water heaters and hot water 
supply boilers are typically lighter than commercial storage water 
heaters, DOE research suggests that trailers filled with CWH equipment 
will typically cube-out before they weigh-out. Additionally, because 
the space above and around the CWH equipment can be filled with smaller 
and/or lighter products, DOE understands that trailers are typically 
filled in a way that maximizes the available storage space. As a 
result, changes to the cubic volume of the product are just as critical 
as changes to the footprint in determining the change to the shipping 
cost as unit size increases. DOE's shipping cost analysis only includes 
estimates of the shipping costs for CWH equipment, not for other 
products that may be included in the same truckload, although CWH 
equipment is likely to be shipped alongside other products, presumably 
to make efficient use of the space in shipping trailers. DOE notes that 
this is supported by Bradford White's comment that CWH equipment is 
often shipped with consumer water heaters.
    Therefore, in this proposed rulemaking, shipping costs for all 
classes of CWH equipment were determined based on the cubic volume 
occupied by the representative units. DOE first calculated the cost per 
usable unit volume of a trailer, using the standard dimensions of a 
volume of a 53-foot trailer and an estimated 5-year average cost per 
shipping load that approximates the cost of shipping the equipment from 
the middle of the country to either coast. Based on its experience with 
other rulemakings, DOE recognizes that trailers are rarely shipped 
completely full and, in calculating the cost per cubic foot, assumed 
that shipping loads would be optimized such that on average 80 percent 
of the volume of a shipping container would be filled with cargo. DOE 
seeks feedback on its assumption about the typical percent of a 
shipping trailer volume that is filled. The calculated cost to ship 
each unit was the ratio of the unit's total volume (including 
packaging) divided by the volume of the shipping container expected to 
be filled with cargo and multiplied by the total cost of shipping the 
trailer. DOE recognizes that its shipping costs do not necessarily 
reflect how every unit of CWH equipment is shipped, that it is possible 
that a units are shipped differently, and that the corresponding 
shipping costs may differ from DOE's estimates based on a variety of 
factors such as composition of the units in a given shipping load and 
the actual manufacturing location and shipment destination. However, 
DOE's analysis is intended to provide an estimate of the shipping cost 
that is representative of the cost to ship the majority of CWH 
equipment shipments and cannot feasibly account for the shipping costs 
of every individual unit shipped. Chapter 5 of the NOPR TSD contains 
additional details about DOE's shipping cost assumptions and DOE's 
shipping cost estimates.

D. Markups Analysis

    The markups analysis develops appropriate markups in the 
distribution chain (e.g., retailer markups, distributer markups, 
contractor markups, and sales taxes) to convert the estimates of 
manufacturer selling price derived in the engineering analysis to 
consumer prices, which are then used in the LCC and PBP analysis and in 
the manufacturer impact analysis. At each step in the distribution 
channel, companies mark up the price of the product to cover business 
costs and profit margin.
    DOE developed baseline and incremental markups for each actor in 
the distribution chain. DOE developed supply chain markups in the form 
of multipliers that represent increases above equipment purchase costs 
for key market participants, including CWH equipment wholesalers/
distributors, retailers, and mechanical contractors and general 
contractors working on behalf of commercial consumers. Baseline markups 
are applied to the price of products with baseline efficiency, while 
incremental markups are applied to the difference in price between 
baseline and higher-efficiency models (the incremental cost increase). 
The incremental markup is typically less than the baseline markup and 
is designed to maintain similar per-unit operating profit before and 
after amended standards.\41\
---------------------------------------------------------------------------

    \41\ Because the projected price of standards-compliant products 
is typically higher than the price of baseline products, using the 
same markup for the incremental cost and the baseline cost would 
result in higher per-unit operating profit. While such an outcome is 
possible, DOE maintains that in markets that are reasonably 
competitive it is unlikely that standards would lead to a 
sustainable increase in profitability in the long run.
---------------------------------------------------------------------------

1. Distribution Channels
    Four different markets exist for CWH equipment: (1) New 
construction in the residential buildings sector, (2) new construction 
in the commercial buildings sector, (3) replacements in the residential 
buildings sector, and (4) replacements in the commercial buildings 
sector. DOE developed eight distribution channels to address these four 
markets.
    For the residential and commercial buildings sectors, DOE 
characterizes the replacement distribution channels as follows:

 Manufacturer [rarr] Wholesaler [rarr] Mechanical Contractor 
[rarr] Consumer
 Manufacturer [rarr] Manufacturer Representative [rarr] 
Mechanical Contractor [rarr] Consumer
 Manufacturer [rarr] Retailer [rarr] Mechanical Contractor 
[rarr] Consumer

    DOE characterizes the new construction distribution channels for 
the residential and commercial buildings sectors as follows:

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

[[Page 30652]]

 Manufacturer [rarr] Manufacturer Representative [rarr] 
Mechanical Contractor [rarr] General Contractor [rarr] Consumer
 Manufacturer [rarr] Retailer [rarr] General Contractor [rarr] 
Consumer

    In addition to these distribution channels, there are scenarios in 
which manufacturers sell CWH equipment directly to a consumer through a 
national account, or a consumer purchases the equipment directly from a 
retailer. These scenarios occur in both new construction and 
replacements markets and in both the residential and commercial 
sectors. In these instances, installation is typically accomplished by 
site personnel. These distribution channels are depicted as follows:

 Manufacturer [rarr] Consumer
 Manufacturer [rarr] Retailer [rarr] Consumer
2. Comments on Withdrawn May 2016 CWH ECS NOPR
    In response to the withdrawn NOPR, Rheem challenged DOE's use of 
the 2005 the Air Conditioning Contractors of America (``ACCA'') 
financial analysis in the development of markups on the basis that it 
is outdated. (Rheem, No. 43 at p. 21) DOE develops its mechanical 
contractor markups using the most current data available. For this 
NOPR, DOE updated from the 2012 Economic Census to use data from the 
2017 Economic Census. However, the 2017 Economic Census does not 
separate the mechanical contractor segment into replacement and new 
construction markets. To calculate markups for these two markets for 
the withdrawn NOPR, DOE utilized the 2005 ACCA financial data, which 
reported gross margin data for the entire mechanical contractor market, 
as well as for both the replacement and new construction markets. For 
this NOPR, DOE used more current data from the 2020 ACCA Cool Insights 
document. Using these data, DOE calculated that the baseline markups 
for the replacement and new construction markets are 1.7 and 15.5 
percent lower, respectively, than for all mechanical contractors 
serving all markets. The markup deviations were applied to the baseline 
and incremental markups developed from the 2017 Economic Census data.
    In the withdrawn NOPR, DOE sought comments on the percentages of 
shipments allocated to the distribution channels relevant to each 
equipment class. 81 FR 34440, 34479 (May 31, 2016). In response, three 
manufacturers commented that wholesalers and manufacturer's 
representatives were underrepresented in DOE's channel shares, whereas 
retailers were overrepresented. (A.O. Smith, No. 39 at pp. 11-12; 
Bradford White, No. 42 at p. 8; Lochinvar, Public Meeting Transcript, 
No. 20 at p. 52) In addition, Rheem commented that it was reiterating 
its response to the October 2014 RFI regarding the percentage of 
shipments allocated to distribution channels. (Rheem, No. 43 at p. 21) 
In this response, Rheem stated that the majority of shipments are 
distributed through the wholesale channel. (Rheem, No. 10, at p. 4)
    Based on these comments and DOE's additional research, DOE has 
decreased the percentage of shipments allocated to retail distribution 
channels and increased the percentage of shipments allocated to 
wholesaler and manufacturer's representative channels in the markups 
analysis. For circulating water heater and hot water supply boiler 
equipment, the percentage of shipments allocated to retailers was 
decreased from 5 percent to zero, whereas the allocation to wholesalers 
was increased from 70 percent to 75 percent. For commercial gas-fired 
storage water heater equipment, the percentage of shipments allocated 
to retailers was decreased from 15 percent to 5 percent in the new 
construction market and from 20 percent to 5 percent in the replacement 
market, whereas the allocation to wholesalers was increased from 80 
percent to 90 percent in the new construction market and from 75 
percent to 90 percent in the replacement market. For the residential-
duty gas-fired storage water heater equipment class, the percentage of 
shipments allocated to retailers was decreased from 20 percent to 10 
percent in the new construction market, from 25 percent to 15 percent 
in the replacement market for the commercial sector, and from 30 
percent to 15 percent in the replacement market for the residential 
sector. The percentage of shipments allocated to wholesalers was 
increased from 75 percent to 85 percent in the new construction market, 
from 70 percent to 80 percent in the replacement market for the 
commercial sector, and from 67.5 percent to 80 percent in the 
replacement market for the residential sector. In addition, the 
percentage of shipments allocated to national accounts was increased 
from 2.5 percent to 5 percent. These adjustments address the overall 
assertion of the commenters and that the resulting channel shares 
reflect the market distribution, although A.O. Smith called for even 
greater reductions in shipments allocated to retail distribution 
channels. Appendix 6A of the NOPR TSD provides detail on the percentage 
of shipments allocated to each distribution channel by equipment 
category.
    During the public meeting for the withdrawn NOPR, Raypak commented 
that manufacturer's representatives do not markup equipment in the same 
way as wholesalers, since manufacturer's representatives make sales 
based on the expertise they provide to consumers. (Raypak, Public 
Meeting Transcript, No. 20 at p. 53-56) NEEA stated during the public 
meeting that the expertise of manufacturer's representatives is 
utilized more in the replacement market, and in this market, a consumer 
receives an equipment price quote from a manufacturer's representative 
and then will shop the equipment price to other competitors in the 
market, such as wholesalers. This forces manufacturer's representatives 
to maintain competitive markups with wholesalers. (NEEA, Public Meeting 
Transcript, No. 20 at p. 55) DOE appreciates Raypak and NEEA's comments 
on this issue and plans to continue researching manufacturer's 
representative markups. Neither Raypak nor NEEA provided information or 
data to update the estimated manufacturer's representative markups. 
Since DOE does not have enough information at this point to estimate 
separate markups for manufacturer's representatives, DOE assumes that 
the manufacturer's representative markup is the same as the wholesaler 
markup.
3. Markups Used in This NOPR
    To develop markups for this NOPR, DOE utilized several sources, 
including the following: (1) The Heating, Air-Conditioning & 
Refrigeration Distributors International (``HARDI'') 2013 Profit Report 
\42\ to develop wholesaler markups; (2) the 2020 ACCA Cool Insights 
document containing financial analysis for the heating, ventilation, 
air-conditioning, and refrigeration (``HVACR'') contracting industry 
\43\ to develop mechanical contractor markups; (3) the U.S. Census 
Bureau's 2017 Economic Census data \44\ for the commercial and 
institutional building construction industry to develop mechanical and 
general contractor markups; and (4) the U.S. Census Bureau's 2017 
Annual Retail

[[Page 30653]]

Trade Survey \45\ data to develop retail markups.
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    \42\ Heating Air-conditioning & Refrigeration Distributors 
International. Heating, Air-Conditioning & Refrigeration 
Distributors International 2013 Profit Report.
    \43\ Air Conditioning Contractors of America (ACCA). Cool 
Insights 2020: ACCA's Contractor Financial & Operating Performance 
Report (Based on 2018 Operations). 2020.
    \44\ U.S. Census Bureau. 2017 Economic Census Data. 2020. 
Available at www.census.gov/programs-surveys/economic-census.html.
    \45\ U.S. Census Bureau. 2017 Annual Retail Trade Survey. 2019. 
Available at www.census.gov/retail/.
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    In addition to markups of distribution channel costs, DOE derived 
State and local taxes from data provided by the Sales Tax 
Clearinghouse.\46\ Because both distribution channel costs and sales 
tax vary by State, DOE developed its markups to vary by State. Chapter 
6 of the NOPR TSD provides additional detail on markups.
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    \46\ The Sales Tax Clearing House. 2021. Available at 
www.thestc.com/STrates.stm. Last accessed March 21, 2021.
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E. Energy Use Analysis

    The purpose of the energy use analysis is to assess the energy 
requirements (i.e., annual energy consumption) of CWH equipment 
described in the engineering analysis for a representative sample of 
building types that utilize the equipment, and to assess the energy-
savings potential of increased equipment efficiencies. DOE uses the 
annual energy consumption in the LCC and PBP analysis to establish the 
operating cost savings at various equipment efficiency levels.\47\ DOE 
estimated the annual energy consumption of CWH equipment at specified 
energy efficiency levels across a range of commercial and multifamily 
residential buildings in different climate zones, with different 
building characteristics, and including different water heating 
applications. The annual energy consumption includes use of natural gas 
(or liquefied petroleum gas (``LPG'')) as well as use of electricity 
for auxiliary components.
---------------------------------------------------------------------------

    \47\ In this case, these efficiency levels comprise combinations 
of thermal efficiency and standby mode performance.
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    In the October 2014 RFI, DOE indicated that it would estimate the 
annual energy consumption of CWH equipment at specified energy 
efficiency levels across a range of applications, building types, and 
climate zones. 79 FR 62899, 62906-62907 (Oct. 21, 2014). DOE developed 
representative hot water volumetric loads and water heating energy 
usage for the selected representative products for each equipment 
category and building type combination analyzed. This approach captures 
the variability in CWH equipment use due to factors such as building 
activity, schedule, occupancy, tank losses, and distribution system 
piping losses.
    For commercial building types, DOE used the daily load schedules 
and normalized peaks from the 2013 DOE Commercial Prototype Building 
Models \48\ to develop gallons-per-day hot water loads for the analyzed 
commercial building types.\49\ DOE assigned these hot water loads on a 
square-foot basis to associated commercial building records in the 
EIA's 2012 CBECS \50\ in accordance with their principal building 
activity subcategories. For residential building types, DOE used the 
hot water loads model developed by Lawrence Berkeley National 
Laboratory (``LBNL'') for the 2010 rulemaking for ``Energy Conservation 
Standards for Residential Water Heaters, Direct Heating Equipment, and 
Pool Heaters.'' \51\ DOE applied this model to the residential building 
records in the EIA's 2009 Residential Energy Consumption Survey 
(``RECS'').52 53 For RECS housing records in multi-family 
buildings, DOE focused only on apartment units that share water heaters 
with other units in the building. Since the LBNL model was developed to 
analyze individual apartment hot water loads, DOE had to modify it for 
the analysis of whole building loads. DOE established statistical 
average occupancy of RECS apartment unit records when determining the 
individual apartment unit's load. DOE also developed individual 
apartment loads as if each were equipped with a storage water heater in 
accordance with LBNL's methodology. Then, DOE multiplied the apartment 
unit's load by the number of representative units in the building to 
determine the building's total hot water load.
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    \48\ U.S. Department of Energy--Office of Energy Efficiency and 
Renewable Energy. Commercial Prototype Building Models. 2013. 
Available at www.energycodes.gov/commercial-prototype-building-models.
    \49\ Such commercial building types included the following: 
Small office, medium office, large office, stand-alone retail, strip 
mall, primary school, secondary school, outpatient healthcare, 
hospital, small hotel, large hotel, warehouse, quick service 
restaurant, and full service restaurant.
    \50\ U.S. Energy Information Administration (EIA). 2012 
Commercial Building Energy Consumption Survey (CBECS) Data. 2012. 
Available at www.eia.gov/consumption/commercial/data/2012/.
    \51\ U.S. Department of Energy--Office of Energy Efficiency and 
Renewable Energy. Final Rule Technical Support Document: Energy 
Conservation Standards for Residential Water Heaters, Direct Heating 
Equipment, and Pool Heaters. April 8, 2010. EERE-2006-STD-0129-0149. 
Available at www.regulations.gov/#!documentDetail;D=EERE-2006-STD-
0129-0149.
    \52\ U.S. Energy Information Administration (EIA). 2009 
Residential Energy Consumption Survey (RECS) Data. 2009. Available 
at www.eia.gov/consumption/residential/data/2009/.
    \53\ DOE is aware that a new version of CBECS will likely be 
available for the next rulemaking phase, and DOE will evaluate its 
applicability for the commercial water heater energy analysis in 
that phase. As discussed in section IV.F, the 2009 RECS contained 
information specific to multifamily buildings that was not available 
in the 2015 RECS analysis. EIA plans to release the characteristics 
data for the 2020 RECS in late 2021, and DOE will also evaluate its 
applicability for the commercial water heater energy analysis in the 
next rulemaking phase.
---------------------------------------------------------------------------

    DOE converted daily volumetric hot water loads into daily Btu 
energy loads by using an equation that multiplies a building's gallons-
per-day consumption of hot water by the density of water,\54\ specific 
heat of water,\55\ and the hot water temperature rise. To calculate 
temperature rise, DOE developed monthly dry bulb temperature estimates 
for each U.S. State using typical mean year (``TMY'') temperature data 
as captured in location files provided for use with the DOE EnergyPlus 
Energy Simulation Software.\56\ Then, these dry bulb temperatures were 
used to develop inlet water temperatures using an equation and 
methodology developed by the National Renewable Energy Laboratory 
(``NREL'').\57\ DOE took the difference between the building's water 
heater set point temperature and inlet temperature to determine 
temperature rise (see chapter 7 of the NOPR TSD for more details). In 
addition, DOE developed building-specific Btu load adders to account 
for the heat losses of building types that typically use recirculation 
loops to distribute hot water to end uses. DOE converted daily hot 
water building loads (calculated for each month using monthly inlet 
water temperatures) to annual water heater Btu loads for use in 
determining annual energy use of water heaters at each efficiency 
level.
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    \54\ DOE used 8.29 gallons per pound.
    \55\ DOE used 1.000743 Btu per pound per degree Fahrenheit.
    \56\ U.S. Department of Energy--Office of Energy Efficiency and 
Renewable Energy. EnergyPlus Energy Simulation Software. TMY3 data. 
Available at apps1.eere.energy.gov/buildings/energyplus/cfm/weather_data3.cfm/region=4_north_and_central_america_wmo_region_4/country=1_usa/cname=USA. Last accessed October 2014.
    \57\ Hendron, R. Building America Research Benchmark Definition, 
Updated December 15, 2006. January 2007. National Renewable Energy 
Laboratory: Golden, CO. Report No. TP-550-40968. Available at 
www.nrel.gov/docs/fy07osti/40968.pdf.
---------------------------------------------------------------------------

    DOE developed a maximum hot water loads methodology for buildings 
for determining the number of representative equipment needed using the 
data and calculations from a major water heater manufacturer's sizing 
calculator.\58\ DOE notes that the sizing calculator used was generally 
more comprehensive and transparent in its maximum hot water load 
calculations than other publicly-available sizing calculators 
identified. This methodology was applied to commercial building records 
in 2012 CBECS and residential building records in 2009 RECS to

[[Page 30654]]

determine their maximum gallons-per-hour requirements, assuming a 
temperature rise specific to the building. DOE divided these maximum 
building loads by the first-hour capability of the baseline 
representative model of each equipment category to determine the number 
of representative water heater units required to service the maximum 
load, but for buildings with maximum load durations of 2 or 3 hours, 
DOE divided maximum loads by the 2- or 3-hour delivery capability of 
the baseline representative model. For each equipment category, DOE 
sampled CBECS and RECS building loads in need of at least 0.9 water 
heaters, based on the representative model analyzed, to fulfill their 
maximum load requirements. Due to the maximum input capacity and 
storage specifications of residential-duty commercial gas-fired storage 
water heaters, DOE limited the buildings sample of this equipment class 
to building records requiring four or fewer representative water 
heaters to fulfill maximum load since larger maximum load requirements 
are more likely served by larger capacity equipment. For gas-fired 
tankless water heaters, an adjustment factor was applied to the first-
hour capability to account for the shorter time duration for sizing 
this equipment, given its minimal stored water volume. DOE used the 
Modified Hunter's Curve method \59\ for sizing of gas-fired 
instantaneous water heaters to develop the adjustment factors for 
tankless water heaters. Gas-fired circulating water heaters and hot 
water supply boilers were teamed with unfired storage tanks to 
determine their first-hour capabilities since this is the predominant 
installation approach for this equipment.
---------------------------------------------------------------------------

    \58\ A.O. Smith. Pro-Size Water Heater Sizing Program. Available 
at www.hotwatersizing.com/. Last accessed in March 2015.
    \59\ PVI Industries Inc. ``Water Heater Sizing Guide for 
Engineers,'' Section X, pp. 18-19. Available at oldsizing.pvi.com/pv592%20sizing%20guide%2011-2011.pdf.
---------------------------------------------------------------------------

    To the extent that there are concerns that the annual energy use 
for commercial gas instantaneous tankless water heaters is 
significantly lower than commercial gas-fired storage water heaters 
even where thermal efficiency input rates are similar, DOE notes that 
the applied adjustment factor modifies the first hour delivery 
capability calculations of commercial gas-fired tankless water heaters 
to account for the shorter time duration used to size for a very short 
``instantaneous'' peak for this equipment, given the minimal volume of 
stored water to buffer meeting short duration peaks during the one hour 
maximum load period used for the first hour rating. DOE used the 
Modified Hunter's Curve method to develop the adjustment factors, or 
divisors, based on residential or commercial building type (as shown in 
appendix 7B of the NOPR TSD). These adjustment factors adapt the sizing 
methodology for water heaters with storage to a methodology suitable 
for sizing water heaters or water heating systems without storage. The 
result of this adjustment is that the tankless water heater 
representative model, relative to the commercial gas-fired storage 
water heater representative model with a similar input rate, is sized 
to meet a significantly smaller overall maximum hot water load. This 
results in the lower annual energy use across all efficiency levels, 
since for a given end use or building, the smaller maximum load being 
serviced per unit also proportionally correlates with the lower average 
daily loads serviced by the tankless water heater.
    Given the hot water load requirements as well as the equipment 
needs of the sampled buildings, DOE was able to calculate the hours of 
operation to serve hot water loads and the hours of standby mode for 
the representative model of each equipment category to service each 
sampled building. Since the number of water heaters allocated to a 
specific building was held constant at the baseline efficiency level, a 
water heater's hours of operation decreased as its thermal efficiency 
improved. This decrease in operation, in combination with standby loss 
performance, led to the energy savings achieved at each efficiency 
level above the baseline. For commercial gas-fired storage water 
heaters, DOE used the standby loss levels identified in the engineering 
analysis to estimate energy savings from more-stringent standby loss 
levels. For residential-duty gas-fired storage water heaters, DOE 
estimated standby loss levels for each UEF level developed in the 
Engineering Analysis. To estimate standby loss levels DOE first 
estimated recovery efficiency. DOE developed a regression between the 
measured recovery efficiency and the increase in UEF over the minimum 
UEF specified by current standards for equipment in DOE's CCMS 
database. Recovery efficiency was assumed to be equivalent to thermal 
efficiency, and the regression results were in turn used to translate 
UEF at different analyzed efficiency levels analyzed to thermal 
efficiency. DOE used the Water Heater Analysis Model (``WHAM'') 
equation as modified for the daily energy consumption in the current 
UEF test procedure (based on the high usage draw profile), the analyzed 
UEF from the engineering analysis, and the regression based recovery 
efficiency to calculate the standby energy loss (Btu/hr [deg]F) at each 
UEF efficiency level. This conversion is discussed in Chapter 7 of the 
NOPR TSD. Section IV.C.4 of this NOPR and chapter 5 of the NOPR TSD 
include additional details on the thermal efficiency, standby loss, and 
UEF levels identified in the engineering analysis.
    For this NOPR, DOE also further consulted ASHRAE \60\ and Electric 
Power Research Institute (``EPRI'') \61\ handbooks. These resources 
contain data on distribution losses and maximum load requirements of 
different building types and applications, which were used to compare 
and corroborate analyses of the average and peak loads derived from the 
CBECS and RECS data.
---------------------------------------------------------------------------

    \60\ American Society of Heating, Refrigerating and Air-
Conditioning Engineers, Inc. (ASHRAE). ASHRAE Handbook of HVAC 
Applications: Chapter 51 (Service Water Heating. 2019. pp. 51.1-
51.37. Available at www.ashrae.org/resources--publications/handbook.
    \61\ Electric Power Research Institute (EPRI). Commercial Water 
Heating Applications Handbook. 1992. Electric Power Research 
Institute: Palo Alto, CA. Report No. TR-100212. Available at 
www.epri.com/abstracts/Pages/ProductAbstract.aspx?ProductId=TR-100212.
---------------------------------------------------------------------------

    To be clear, while DOE described calculations above relating to the 
number of units required to meet a building load, the LCC analysis 
calculates results for individual pieces of equipment. The energy usage 
analyses discussed in this section of this NOPR provide key inputs to 
the LCC analysis, namely monthly and annual energy consumption at each 
efficiency level for each sampled building as well as the hours of 
burner operation at rated input rate and the hours in standby mode per 
unit for water heaters to examine relative energy savings from thermal 
efficiency and standby loss changes. The energy analysis also helps DOE 
identify buildings for which each specific water heater might be suited 
(i.e., if the building load is too low to require 0.9 units of a 
defined representative unit or so large the building requires more than 
4 residential duty units, DOE excludes that building from sampling for 
that equipment).
    DOE received multiple comments on its energy use analysis presented 
in the withdrawn 2016 NOPR. There was discussion of the need or lack 
thereof of incorporating backup or redundant water heaters into the 
energy and life cycle cost analysis as well as a concern that 
manufacturing engineering guidelines tend to oversize equipment.
    DOE agrees that manufacturing engineering guidelines are likely to 
result in oversizing hot water equipment in many applications, and that 
the level

[[Page 30655]]

of built-in oversizing using such guidelines in this regard likely also 
results in the LCC analysis providing conservative estimates of 
economic benefits than might otherwise be the case. DOE did not include 
redundant units in the LCC analysis. Although redundant units may exist 
in certain buildings, DOE was not able to identify any information or 
data on this topic, nor have commenters in the course of this 
rulemaking provided information or detail as to the type of water 
heater plants where installation of a redundant unit would be 
considered common practice; therefore, DOE assumed that fully redundant 
units would be the exception in most installations. DOE considered how 
such a unit would be integrated into a system, but it is not clear if a 
redundant unit is piped into the system and actively part of the 
operating service hot water system (such that a hot water ``plant'' 
serving the building is further oversized from sizing guidelines), or 
if it is purchased and not utilized, in the latter case effectively a 
pre-purchase available for a subsequent installation or use. DOE also 
notes that increases in efficiency increase the overall hot water 
delivery capacity for similar input capacity water heaters in either 
single- or multiple-service water heater unit ``plants'' in a building. 
DOE's analysis has not considered increased purchase costs for fully 
redundant units when they may occur, however it has also not included 
the potential cost savings for downsizing the input rating of the water 
heaters that would be needed to service a building's known hot water 
load and any subsequent benefit from downsizing of a venting system, 
providing in this regard a conservative assessment of the costs to 
install the water heating system. DOE also considered that 
incorporation of redundant units, which might be expected to exist at 
all efficiency levels anyway, would add unnecessary complication given 
the lack of available information on how likely and in what building 
types a redundant unit would be purchased and whether such a unit is 
piped into the domestic water system and utilized directly or simply 
pre-purchased, to be installed at a later date for immediate 
replacement when necessary. In the latter case, the earlier purchase 
does not affect the eventual life of the equipment or additional 
installation costs not already captured. Given that DOE's current 
analysis does not reflect the benefits of downsizing that would occur 
for all CWH consumers, and its understanding that manufacturer sizing 
guidelines may already allow for CWH systems to be conservatively 
sized, incorporation of redundant units would be overly conservative in 
establishing the first-cost impact to the average consumer.
    To the extent that parties may be concerned that DOE's commercial 
packaged boiler analysis also included commercial water heating loads 
in some portion of buildings that uses space heating boilers to meet 
both space and service water heating loads and that DOE is double 
counting those loads, DOE clarifies that its analysis does not double 
count the national energy savings from service hot water loads included 
in the commercial packaged boiler final rule in this CWH equipment 
NOPR. The CBECS and RECS data are used in the CWH equipment analysis to 
develop a representative hot water load profile (i.e., how much hot 
water is supplied to the buildings), which in turn is used to develop 
estimates of the operating hours and energy use for representative CWH 
equipment when they are installed. This is distinct from the shipments 
data, which are used to determine the number of units introduced into 
the market. However, the shipments data do not specify the type of 
building in which the equipment is actually installed, and such data 
are not available. The energy use analysis provides an estimate of how 
the shipped equipment is distributed across the various applications 
and the associated operating hours. The boiler loads in the commercial 
packaged boiler analysis included an assumption that some buildings use 
space heating boilers to provide for service hot water, however that 
assumption was used to develop representative loads for the boiler 
equipment where space heating boilers were used in place of commercial 
water heaters (i.e., in accounting for the hot water load of buildings 
that use the same fuel for water and space heating in the overall 
energy use analysis, 20 percent of those boiler installations were 
assumed to use a commercial packaged boiler for both space and water 
heating based on other reviewed data). The boiler representative energy 
consumption numbers were drawn from CBECS and RECS data and are 
separately applied to the shipments of commercial space heating boiler. 
85 FR 1592 (January 10, 2020) The CWH analysis, which did not rely 
directly on hot water load estimates from CBECS, did not separately 
make such an allowance since it would simply have reduced the building 
count without impacting the hot water load profiles used in the CWH 
analysis.
    In this NOPR, the energy use analysis develops a typical energy 
usage for installations of the representative CWH equipment in 
buildings that are appropriate for using this equipment but relies on 
characteristics data rather than CBECS or RECS estimates for water 
heating energy consumption in the buildings. The shipments analysis is 
separate from the energy use analysis and uses AHRI CWH equipment 
shipment data where available. DOE applies the CWH energy use analysis 
to the shipments analysis to calculate the national energy savings 
achieved by this NOPR. Thus, the shipment analysis for the CWH rule 
does not rely on CBECs and RECs energy estimates directly, so the 
national energy impact is not affected if, in fact, a particular 
building may have served its domestic water heating load with a boiler 
in place of a water heater.
    Because DOE models a diverse set of buildings with differing loads 
and usage schedules, following is additional information explaining how 
the statistical analysis results in a single estimated average energy 
usage for CWH equipment. DOE conducted its energy use analysis using a 
Monte Carlo approach, selecting from thousands of commercial building 
records in 2012 CBECS and thousands of residential housing records from 
2009 RECS, including the impact of the building weight from CBECS and 
RECS, for those buildings that are appropriate uses of CWH equipment. 
Based on the characteristics data provided in each CBECS and RECS 
record, DOE determined maximum hot water loads for sizing equipment and 
daily hot water loads to determine equipment operation. Energy use was 
based on the equipment operation to meet the daily hot water loads, 
including recirculation loop losses for buildings which typically have 
this system design. The Monte Carlo approach (using the Crystal Ball 
Excel add-in) develops a distribution of inputs, as well as 
distributions of energy and energy savings as results which provides 
for calculating a statistical, weighted average of key model outputs, 
including average energy use, for all CWH equipment categories at each 
efficiency level. The calculated average CWH equipment utilization 
rates in terms of operating hours to meet the hot water loads are 
provided for each equipment type and efficiency level, which are 
available in appendix 7B of the NOPR TSD. Appendix 7B of the NOPR TSD 
also provides a table of building types that DOE assumed to use 
recirculation loops, as well as the operation hours of the 
recirculation loops. DOE estimates that commercial building records 
assigned recirculation loops comprised

[[Page 30656]]

29 percent of sampled commercial buildings from CBECS 2012. In 
addition, residential building records assigned recirculation loops 
comprised 68 percent of sampled residential buildings from RECS 2009. 
However, DOE notes that the economics for each individual commercial 
consumer modeled in the LCC are based on the energy usage attributed to 
that consumer, and do not rely on the statistical weighted-average 
energy use or utilization rates. Additional detail about the energy use 
analysis methodology is explained in detail in chapter 7 of the NOPR 
TSD. Additional detail about the LCC analysis is explained in detail in 
chapter 8 of the NOPR TSD.
    DOE notes that the analysis accounts for recirculation loop losses 
in average daily hot water loads. In its NOPR analysis, DOE assigned 
insulated supply, return, and riser recirculation loop piping to 
sampled buildings with a year of construction of 1970 or later. For 
buildings constructed prior to 1970, DOE assigned uninsulated supply 
piping to 25 percent of sampled buildings and uninsulated return piping 
to 25 percent of sampled buildings. DOE acknowledges that its energy 
use analysis may not account for the extent of all possible heat losses 
that occur in the field. These losses can result from poor control of 
circulating system flow, uninsulated or poorly insulated piping, leaks 
or other higher than expected tap flows, and poor water heater 
performance due to aging. These issues may result in higher hot water 
energy use than predicted by DOE's models. Due to the lack of field 
data on the magnitude of these energy losses across building 
applications, vintage, and location, DOE did not further attempt to 
include them into its analysis. DOE develops daily hot water loads for 
each building analyzed and normalizes building hot water loads to the 
hot water service capacity of the representative products using 
industry sizing tools and methodologies. DOE acknowledges that its 
approach for a given building loads treats multiple units for CWH 
equipment as equally sharing the hot water load.
    To the extent that commenters may be concerned whether the analysis 
fairly represents individual water heater operation for water heaters 
in buildings in which multiple representative model units operate to 
meet the building's load, DOE notes that this would be system and 
building specific and its analysis may not capture the extremes of hot 
water loading on an individual water in all applications but would 
capture the average hot water loads on the equipment in those building. 
DOE notes that its analysis examines maximum sizing hot water loads and 
average daily hot water loads of 17 commercial building applications 
and 4 residential building applications, with additional variability in 
terms of specific end uses where identified in the CBECS or RECS data 
including variability based on inputs such as occupants, water 
fixtures, clothes washers, dishwashers, and food service as well as 
water mains inlet and outlet temperatures for estimating hot water 
loads. It also includes estimates of piping losses in circulating 
systems. Chapter 7 and appendix 7B in the NOPR TSD describe the 
calculation of hot water loads in the building. Appendix 7B also 
provides a table of building types that DOE assumed to use 
recirculation loops, as well as the operation hours of the 
recirculation loops. DOE estimates that commercial building records 
assigned recirculation loops comprised 29 percent of sampled commercial 
buildings from CBECS 2012. In addition, residential building records 
assigned recirculation loops comprised 68 percent of sampled 
residential buildings from RECS 2009.
    All of this variability is accounted for in the weighted results of 
the Monte Carlo analysis. While there may be further variability in hot 
water loads between multiple, individual water heaters operating in 
unison to meet a building's hot water load, DOE's analysis focuses on 
equipment operation over longer timeframes and developing 
representative loads for the equipment in the building. Equipment 
operated in unison in a building will experience, on average and over 
large populations represented, energy use reflecting the per-unit 
averaged building hot water load. As such, DOE did not directly account 
for the variability in operation of individual equipment when multiple 
units are installed and operated in tandem. DOE notes that with 
condensing equipment in particular, operation in parallel under part-
load conditions can result in higher thermal efficiencies than those 
obtained under rated conditions, which reflect peak load thermal 
efficiencies. However, due to lack of detail of actual multiple water 
heaters installations exist the sampled buildings, DOE did not take 
this potential increase in field-efficiency into account and DOE.
    DOE notes that its sizing methodology was based on industry sizing 
tools and guideline and was used to establish peak water heat loads 
that would reflect the anticipated peak in the buildings based on those 
guidelines and known or estimated building characteristics. These peaks 
were then used to establish the number of representative units (by CWH 
type) that would be installed to meet the anticipated peak loads, with 
the hot water load apportioned across the estimated number of 
representative units needed. DOE notes that its sizing methodology was 
customized to the building application, size, and accounted for 
building size, occupancy, and specific end uses. For the hot water 
delivery capability of each equipment category, DOE uses representative 
equipment designs. The representative design of each equipment category 
has a specific input capacity and volume as shown in Table IV.5 of this 
document. These representative specifications are used in a calculation 
of hot water delivery capability. For each equipment category, DOE 
sampled CBECS and RECS building loads in need of at least 0.9 water 
heaters of the representative capacity, based on the representative 
model analyzed, to fulfill their maximum load requirements, and allows 
multiple representative units to serve the building load. As a result, 
DOE does not adjust input capacity and volume of equipment for a given 
building application. This individual building level of detail would 
complicate the engineering analysis requirements since every building 
record could potentially call for distinct equipment size or 
combination of equipment sizes, or combination of different storage 
volumes and input ratings in its specifications based on a wide variety 
of purchaser preferences.
    In addition, DOE assumed the circulating water heater equipment 
class is equipped with a storage tank since this is the predominant 
installation configuration for this equipment. For this equipment class 
and representative input capacity, the analysis used a variable storage 
tank size of 250 to 350 gallons in volume, based on a triangle 
distribution consistent with manufacturer literature guidance as to 
typical storage tanks for the representative equipment input rating. 
However, DOE recognizes that for this equipment class as well, further 
variation in the storage tank sized with the equipment might also occur 
based on each individual building owner's preferences. DOE received no 
comment on its sizing of storage tanks in conjunction with circulating 
water heaters and boilers. DOE therefore retained this use of 
representative installation practices for the NOPR analysis. Chapter 7 
of the NOPR TSD provides more information on the hot water delivery 
calculations for circulating water heaters.

[[Page 30657]]

    DOE's energy use analysis used the A.O. Smith Pro Size Water 
Heating Sizing Program as a primary resource in determining the type, 
size, and number of water heaters needed to meet the hot water demand 
load applications. DOE did not identify a universal industry sizing 
methodology and reviewed a number of online sizing tools prior to its 
decision to use A.O. Smith's online sizing tool as the basis for its 
water heater sizing methodology. Based on DOE's initial review, the 
chosen sizing tool was most appropriate because of its transparency 
allowing it to be evaluated for fixture flow assumptions and other 
industry-accepted sizing methodologies. This tool provided peak-hour 
delivery in its sizing output, whereas several others manufacturing 
sizing tools reviewed provided equipment recommendations and/or 
equipment sizes only in their outputs. This made the chosen sizing tool 
easier to understand and allowed DOE to reverse engineer the 
methodology in detail. In addition, of the tools reviewed this tool was 
the most comprehensive and straightforward in its inputs. DOE reviewed 
the relationships between input data and outputs for this tool in 
detail for use in establishing the basis for its sizing calculations 
and made certain adjustments to improve the accuracy of its maximum 
load determinations, as shown in detail in appendix 7B.
    DOE utilized the Modified Hunter's Curve approach for developing 
hot water delivery adjustment factors, or divisors, to adapt the sizing 
methodology for water heaters with storage to a methodology suitable 
for sizing water heaters without storage. DOE used the PVI Industries 
``Water Heater Sizing Guide for Engineers'' which implements the 
Modified Hunter's Curve approach to develop the adjustment factors for 
sizing tankless water heaters. This guide provided a clear and thorough 
methodology for how to apply the Modified Hunter's curve to determine 
tankless water heater sizing. DOE's research indicates that mechanical 
contractors and design engineers commonly rely on this general sizing 
methodology for determining appropriately-sized equipment to install in 
commercial and residential buildings, and the PVI tool captures the 
need and general industry methodology required to size tankless water 
heating equipment to address short-duration loads peaks. In addition, 
DOE consulted the ASHRAE Handbook of HVAC Applications,\62\ which 
provides guidance for sizing tankless and instantaneous water heaters. 
While the ASHRAE guidance also illustrates the Modified Hunter's Curve 
methodology, it was not as clear in application as the guidance 
provided by PVI tool. In this area of CWH equipment selection, DOE 
research indicates that manufacturer sizing tools are more commonly 
used than ASHRAE handbooks. Because of the lack of storage and the need 
to meet instantaneous building loads at sub-hour intervals, the sizing 
strategy for instantaneous water heaters results in a lower hot water 
service and lower energy consumption per unit of input capacity than is 
the case for either storage water heaters, or equipment like 
circulating water heaters and boilers where separate storage tanks are 
typically used. DOE received comment on the withdrawn 2016 NOPR noting 
that there were applications that used set point temperatures greater 
than the 140 [deg]F high temperature used in that analysis, including 
specifically certain food service and restaurant applications. (AHRI, 
Public Meeting Transcript, No. 20 at p. 69; Raypak, No. 41 at pp. 3-4) 
It was also noted that in these higher water temperature applications, 
condensing technology performs less efficiently for any stainless steel 
heat exchanger. (Raypak, No. 41 at pp. 3-4) For this NOPR, DOE reviewed 
the set point temperatures in the 2013 DOE commercial prototype 
building models and determined that the hospital and nursing home set 
point temperatures should be 140 [deg]F. These building applications 
would need set point temperatures greater than 120 [deg]F to prevent 
outbreaks of Legionella, and they would have mixing valves installed to 
prevent scalding.
---------------------------------------------------------------------------

    \62\ American Society of Heating, Refrigerating and Air-
Conditioning Engineers, Inc. (ASHRAE). ASHRAE Handbook of HVAC 
Applications: Chapter 51 (Service Water Heating). 2019. pp. 51.1-
51.37. Available at www.ashrae.org/resources--publications/handbook.
---------------------------------------------------------------------------

    While DOE agrees that often food service and restaurant 
applications often have end uses requiring set point temperatures 
greater than 140 [deg]F, these applications commonly use booster water 
heaters to increase hot water temperature for specific uses. Thus, DOE 
did not change the set point temperature universally for these 
applications in its analysis. The 2012 CBECS building record data 
included a data field for certain building applications, notably food 
service, that indicated whether the building used a booster water 
heater. Given this data field, DOE updated its analysis for the fast 
food restaurant, full-service restaurant/cafeteria, and bar/pub/lounge 
building applications. If these building records contained one or more 
booster water heaters, DOE assigned a set point temperature of 140 
[deg]F for determining maximum and average daily hot water loads. In 
these instances, DOE assumed the booster water heater would receive hot 
water from the main water heater and increase the temperature to 180 
[deg]F for purposes of dishwashing. If the CBECS building record did 
not contain a booster water heater, DOE assigned a set point 
temperature of 150 [deg]F for determining maximum hot water loads. The 
set point temperature of 150 [deg]F is a weighted average based on 
shipment data of low-temperature and high-temperature commercial 
dishwashers.\63\ DOE assumed a food service building application that 
does not have a booster water heater uses either a low-temperature or 
high-temperature commercial dishwasher to clean dishes. Low-temperature 
commercial dishwashers typically call for an inlet water temperature of 
around 140 [deg]F,\64\ whereas high-temperature commercial dishwashers 
call for an inlet water temperature of 180 [deg]F. This set point 
temperature assignment for food service building applications addresses 
higher delivery temperature in that market.
---------------------------------------------------------------------------

    \63\ Koeller and Company, and H.W. Hoffman & Associates. A 
Report on Potential Best Management Practices--Commercial 
Dishwashers. June 2010. Prepared for The California Urban Water 
Conservation Council. Available at p2infohouse.org/ref/53/52002.pdf. 
Last accessed May 1, 2020.
    \64\ Lim, E. Low-Temp Dish Machine Water Temperature. March 21, 
2016. On Cleaner Solutions website. Available at 
cleanersolutions.net/low-temp-dish-machine-water-temperature/. Last 
accessed: November 2016.
---------------------------------------------------------------------------

    DOE reviewed data submitted on the withdrawn 2016 NOPR in Raypak 
comment to support its assertion that a set point temperature of 160 
[deg]F decreases the efficiency of condensing equipment. These data 
refer to decreases in condensing equipment efficiency; however, DOE's 
review of the data found that the decreased efficiency shown is likely 
primarily the result of the increased inlet water temperature 
referenced in the literature, not the increased set point or delivery 
temperature. Thus, DOE did not use the referenced data to adjust the 
thermal efficiency in the NOPR analysis.
    To clarify how DOE developed the inlet water temperature, DOE 
conducted its energy use analysis using a Monte Carlo approach, 
selecting commercial building records from 2012 CBECS and residential 
building records from 2009 RECS in the development of maximum and daily 
hot water loads. Daily hot water loads were converted to energy use 
based on the equipment operation necessary to meet the load. Each

[[Page 30658]]

building record's location is associated with a U.S. State. Using this 
State location, DOE assigned an average monthly inlet temperature for 
the CBECS Census Division or RECS Reportable Domain that the building 
resided in using monthly dry bulb temperature estimates for each State 
based on the TMY temperature data as captured in location files 
provided for use with the DOE EnergyPlus energy simulation 
software,\65\ along with an equation and methodology developed by 
NREL.\66\ DOE then summed the daily hot water loads of each month to 
determine the monthly hot water loads. DOE then summed the monthly hot 
water loads to determine annual hot water loads. The relationship 
between inlet temperature and energy use is for a given hot water 
usage, as inlet temperature is colder, energy use increases, since the 
water heater impart more heat to bring the inlet temperature to the set 
point temperature. Chapter 7 of the NOPR TSD provides detailed 
information on how energy use was calculated using inlet water 
temperature.
---------------------------------------------------------------------------

    \65\ U.S. Department of Energy--Office of Energy Efficiency and 
Renewable Energy. EnergyPlus Energy Simulation Software. TMY3 data. 
Available at apps1.eere.energy.gov/buildings/energyplus/cfm/weather_data3.cfm/region=4_north_and_central_america_wmo_region_4/country=1_usa/cname=USA. Last accessed October 2014.
    \66\ Hendron, R. Building America Research Benchmark Definition, 
Updated December 15, 2006. January 2007. National Renewable Energy 
Laboratory: Golden, CO. Report No. TP-550-40968. Available at 
www.nrel.gov/docs/fy07osti/40968.pdf.
---------------------------------------------------------------------------

    DOE developed daily hot water loads for building applications using 
the building service water heating schedules in the 2013 DOE commercial 
prototype building models. These schedules reflect typical building 
operation hours with different schedules for weekdays, Saturdays, 
Sundays, and holidays. While there may be greater variation of 
individual usage schedules in the general population even within a 
building type, DOE's use of these typical schedules and weighting by 
the relative frequency of the buildings in the general population is 
appropriate for the energy use analysis.
    DOE notes that there is limited actual data on commercial hot water 
usage in the field. To the extent that stakeholders feel that DOE's 
analysis may under or overstate hot water usage, DOE notes that the 
analysis reflects both variation in direct hot water loads, inlet and 
outlet temperatures and piping/recirculation losses with a referenced 
estimating procedure. In the latter case, DOE assigned insulated 
supply, return, and riser recirculation loop piping to sampled 
buildings with a year of construction of 1970 or later. For buildings 
constructed prior to 1970, DOE assigned uninsulated supply piping to 25 
percent of sampled buildings and uninsulated return piping to 25 
percent of sampled buildings. DOE acknowledges that its energy use 
analysis may not account for the extent of all possible heat losses 
that occur in the field. These losses can result from poor control of 
circulating system flow, uninsulated or poorly insulated piping, leaks 
or other higher than expected tap flows, and poor water heater 
performance due to aging. These issues may result in higher hot water 
energy use than predicted by DOE's models. Due to the lack of field 
data on the magnitude of these energy losses across building 
applications, vintage, and location, DOE did not further attempt to 
include them into its analysis. While DOE recognizes that additional 
energy losses can occur in the field, to the extent that these losses 
occur, it suggests that the results of DOE's energy use analysis are 
conservative. In the withdrawn 2016 NOPR analysis, DOE received comment 
that the United States has reduced hot water use through DOE appliance 
and commercial equipment standards, as well as the ENERGY STAR program. 
(EEI, Public Meeting Transcript, No. 20 at p. 118; AHRI, Public Meeting 
Transcript. No. 20 at pp. 117-118) In this NOPR, DOE used schedules and 
loads from ASHRAE prototype models with augmented data reflecting 
recent standards affecting water heater used by commercial appliances 
and equipment. Specifically, DOE developed commercial building hot 
water loads using the daily schedules and square footage from the 
scorecards of the 2013 DOE commercial prototype building models and 
corresponding normalized peak water heater loads from the DOE 
EnergyPlus energy simulation input decks for these prototypes, both of 
which were vetted by the ASHRAE 90.1 Committee. DOE developed 
residential building hot water loads using the hot water loads model 
created by the LBNL for the 2010 final rule for Energy Conservation 
Standards for Residential Water Heaters, Direct Heating Equipment, and 
Pool Heaters. 75 FR 20112 (April 16, 2010). These data sources reflect 
expected hot water use at the time of their publication, including 
reductions of typical hot water use for certain appliances and 
commercial equipment based upon amended Federal standards and certain 
voluntary programs where those appliances are identified as part of the 
end use. DOE notes that its analysis and any eventual CWH standards are 
dominated by existing buildings and influenced by a lesser extent by 
shipments to new construction. Furthermore, DOE notes that to the 
extent that regulatory standards have or will reduce water loads, 
manufacturer sizing tools (as used in DOE's analysis for sizing water 
heaters in different applications) should also reflect the reduction in 
water usage for sizing purposes, thereby minimizing the impact of 
reduced hot water loads resulting from DOE regulation on the overall 
economic evaluation of higher standards.
    With regards to the use of CWH equipment in residential buildings, 
DOE clarifies here that the only residential building type excluded 
from the analysis of CWH equipment was manufactured housing, since DOE 
determined that manufactured housing is not suitable for CWH equipment 
installation or use. Otherwise, for all other residential and 
commercial building types, if the estimated maximum sizing load of a 
sampled building was not at least 90 percent of the hot water delivery 
capability of the baseline representative model for any analyzed 
equipment category, then the building was not sampled since the 
building's maximum load is deemed not large enough to warrant the 
installation of the specific CWH equipment to service the load. When a 
residential building does not have a maximum sizing load that is large 
enough to justify the type of commercial water heater being analyzed, 
DOE assumes the residential building will use residential water heating 
equipment to service its load. In such a case, DOE did not sample the 
building in its energy use analysis. In particular, residential-duty 
gas-fired storage water heaters were modeled for energy use using a 
sample of 494 applicable CBECS records and 471 applicable RECS records. 
Single-family homes represented a small percentage of building records 
in the weighted Monte Carlo results of the energy use analysis. 
Multifamily 2-4 unit and 5+ unit apartment buildings were the primary 
building applications sampled in the residential sector. While the 
input rating for the representative residential-duty gas-fired storage 
water heaters is at the bottom of the range for that equipment, these 
units are still capable of delivering a significant amount of hot 
water. Based on the residential hot water loads analysis, the vast 
majority of single-family home records examined for sizing did not need 
a water heater with this much hot water delivery capability, given 
their maximum calculated hot water loads.

[[Page 30659]]

Chapter 7 of the NOPR TSD provides details of DOE's energy use analysis 
and sizing.

F. Life-Cycle Cost and Payback Period Analysis

    The purpose of the LCC and PBP analysis is to analyze the effects 
of potential amended energy conservation standards on consumers of CWH 
equipment by determining how a potential amended standard affects their 
operating expenses (usually decreased) and their total installed costs 
(usually increased). DOE used the following two metrics to measure 
consumer impacts:
     The LCC is the total consumer expense of equipment over 
the life of the equipment, consisting of total installed cost 
(manufacturer selling price, distribution chain markups, sales tax, and 
installation costs) plus operating costs (expenses for energy use, 
repair, and maintenance). To compute the operating costs, DOE discounts 
future operating costs to the time of purchase and sums them over the 
lifetime of the equipment.
     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 type of equipment 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 CWH equipment 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.
    DOE conducted the LCC and PBP analyses using a commercially-
available spreadsheet tool and a purpose-built spreadsheet model, 
available on DOE's website.\67\ This spreadsheet model developed by DOE 
accounts for variability in energy use and prices, installation costs, 
repair and maintenance costs, and energy costs. As a result, the LCC 
results are also displayed as distributions of impacts compared to the 
no-new-standards-case (without amended standards) conditions. The 
results of DOE's LCC and PBP analysis are summarized in section V.B.1.a 
of this NOPR and described in detail in chapter 8 of the NOPR TSD.
---------------------------------------------------------------------------

    \67\ DOE's web page for commercial water heating equipment is 
available at www1.eere.energy.gov/buildings/appliance_standards/standards.aspx?productid=36. Last accessed on July 7, 2021.
---------------------------------------------------------------------------

    As previously noted, DOE's LCC and PBP analyses generate values 
that calculate the PBP for commercial consumers of potential energy 
conservation standards, which includes, but is not limited to, the 3-
year PBP contemplated under the rebuttable presumption test. However, 
DOE routinely conducts a full economic analysis that considers the full 
range of impacts, including those to the consumer, manufacturer, 
Nation, and environment, as required under 42 U.S.C. 6313(a)(6)(ii). 
The results of this analysis serve as the basis for DOE to definitively 
evaluate the economic justification for a potential standard level 
(thereby supporting or rebutting the results of any preliminary 
determination of economic justification).
    DOE expressed the LCC and PBP results for CWH equipment on a 
single, per-unit basis, and developed these results for each thermal 
efficiency and standby loss level, or UEF level, as appropriate. In 
addition, DOE reported the LCC results by the percentage of CWH 
equipment consumers experiencing negative economic impacts (i.e., LCC 
savings of less than 0, indicating net cost).
    DOE modeled uncertainty for specific inputs to the LCC and PBP 
analysis by using Monte Carlo simulation coupled with the corresponding 
probability distributions, including distributions describing 
efficiency of units shipped in the no-new-standards case. The Monte 
Carlo simulations randomly sample input values from the probability 
distributions and CWH equipment user samples. For this rulemaking, the 
Monte Carlo approach is implemented in MS Excel together with the 
Crystal Ball\TM\ add-on.\68\ Then, the model calculated the LCC and PBP 
for equipment at each efficiency level for the 10,000 simulations using 
the sampled inputs. More details on the incorporation of uncertainty 
and variability in the LCC are available in appendix 8B of the NOPR 
TSD.
---------------------------------------------------------------------------

    \68\ Crystal Ball\TM\ is commercially-available software tool to 
facilitate the creation of these types of models by generating 
probability distributions and summarizing results within Excel, 
available at www.oracle.com/middleware/technologies/crystalball/ 
(last accessed July 12, 2021).
---------------------------------------------------------------------------

    For the May 2016 CWH ECS NOPR, DOE analyzed the potential for 
variability by performing the LCC and PBP calculations on a nationally 
representative sample of individual commercial and residential 
buildings. This same general process was used for this NOPR analysis, 
however, with updates to the data set. One update was switching to 
CBECS 2012 consistent with DOE's general practice of relying on updated 
data sources to the extent practicable and appropriate.\69\ DOE notes 
that the CBECS 2012 microdata needed for its analysis were not 
available when DOE conducted the May 2016 CWH ECS NOPR analysis; hence, 
DOE used CBECS 2003 (the most recent available version at the time) for 
the NOPR analysis. In this NOPR, DOE updated its LCC model to use EIA's 
CBECS 2012 microdata that became available in May 2016.\70\ DOE 
investigated but did not update to the 2015 RECS. In reviewing the 2015 
RECS, DOE noted the absence of information on the number of apartments 
in buildings with an apartment reference in the database; the removal 
of the number of building floors for multifamily buildings with an 
apartment reference in the database; a reduction in the available 
occupant age data; and the removal of characteristics data describing 
whether an occupant directly pays for hot water usage--all of which 
were variables from the 2009 RECS database that DOE used to model water 
usage.
---------------------------------------------------------------------------

    \69\ DOE utilized the building types defined in CBECS 2012, as 
well as residential buildings defined in RECS 2009. More information 
on the types of buildings considered is discussed later in this 
section. CBECS: www.eia.gov/consumption/commercial/data/2012/ and 
RECS: www.eia.gov/consumption/residential/data/2009/. Both links 
last accessed on July 12, 2021.
    \70\ CBECS 2018 microdata were not available in early July 2021, 
when the analyses for this NOPR were completed.
---------------------------------------------------------------------------

    Following is a discussion of the development and validation of 
DOE's LCC model. Across its energy conservation standards rulemakings, 
DOE incorporates tools that enable stakeholders to reproduce DOE's 
published rulemaking results. DOE routinely utilizes Monte Carlo 
simulations using Crystal Ball for LCC model simulation purposes. More 
specifically, utilizing a spreadsheet program with Crystal Ball enables 
DOE to test the combined variability in different input parameters on 
the final life-cycle performance of the equipment. The CWH LCC model 
specifically includes macros to run the standards analysis with default 
settings that enable stakeholders to download the LCC model, run it on 
their own computers, and reproduce results published in this NOPR.\71\ 
To validate models, DOE develops models with

[[Page 30660]]

contractors familiar with Crystal Ball and Monte Carlo tools and other 
models generally, and regularly tests the models during development, 
both at average and atypical (extreme) conditions. DOE further notes 
that the LCC model using the Crystal Ball software can output the 
assumed values and results of each assumption and provide forecasted 
results for each iteration in the Monte Carlo simulation, if desired by 
stakeholders to review or trace the output. In addition, it is possible 
to directly modify the assumption cells in the model to examine impacts 
of changes to assumptions on the LCC, and, in fact, DOE relies on both 
of these techniques for model testing.\72\ DOE additionally seeks 
expert validation by going through a comprehensive stakeholder review 
of the assumptions and making its models and TSD publicly available 
during the comment period during each phase of its regulatory 
proceedings. DOE uses the Monte Carlo models for predicting the impact 
of future standards, a use different than many other uses that are 
envisioned generally for Monte Carlo tools (like industrial process 
examination), so direct validation against data demonstrating the 
impact of future standards is not possible. With regard to specifying 
correlations between inputs as part of modeling practices, DOE notes 
that while one can specify correlation parameters between two variables 
where such correlation and the data to provide for the level of 
correlation are known, specifying such correlations is not necessary to 
maintain the general integrity and accuracy of the analytical 
framework. Variable values may be selected based on other coding 
decisions unique to each iteration (e.g., correlation with building 
type or location or vintage) without specific reference to correlation 
variables, and DOE does this routinely. For instance, entering water 
temperature and fuel costs are effectively correlated based on data and 
the use of the geographic region, which impacts both through the 
available data or models. The use of explicit correlations between 
Crystal Ball variables, where data are available to determine or 
represent a degree of correlation, absent other influences, would be 
useful, but often, DOE's experience is that the data to express the 
degree of correlation are not available and are influenced by other 
factors already dealt with explicitly in the model framework.
---------------------------------------------------------------------------

    \71\ To reiterate, DOE's web page for commercial water heating 
equipment is available at www1.eere.energy.gov/buildings/appliance_standards/standards.aspx?productid=36.
    \72\ The model being discussed in this section, the LCC, has few 
if any locked cells, meaning most if not all cells are available for 
editing by users as stated in the text. DOE does in some cases lock 
cells and worksheets in order to protect proprietary data. Such is 
not the case with the LCC model used in this rulemaking, so users 
should be able to edit assumptions in this model.
---------------------------------------------------------------------------

    In response to the withdrawn 2016 NOPR, Spire commented that 
certain simulation trials may be unrealistic, citing an example of a 
storage water heater being replaced by multiple tankless units in a 
vintage 1960 multi-story building. Spire considers this scenario to be 
highly unlikely, describing tankless units as point-of-use water 
heaters and stating that multiple units may need to be installed to 
provide the same service as a single central commercial water heater 
and that the complexity goes far beyond a single one-for-one 
replacement scenario due to multiple runs of gas lines, venting, and 
electrical supply required, as well as the need for localized venting; 
Spire argued that while DOE's development and usage of CBECS N-Weights 
discounts the number of such scenarios in the data set used by DOE, it 
does not solve the problem caused by the inclusion of unreasonable 
scenarios. (Spire, No. 45 at p. 22)
    The unlikely scenario of replacing a storage water heater by 
multiple tankless units does not reflect a purposeful replacement 
scenario but results from using existing CBECS data to develop hot 
water load scenarios for newer water heating technologies (i.e., 
tankless units), the use of which is not identified specifically in 
CBECS data. However, to address potentially unlikely installation 
scenarios, DOE modified its energy use analysis for tankless water 
heaters for this NOPR to use only building stock with construction 
dates of 1980 or later, reflecting more recent construction, in its hot 
water load analysis.
    DOE calculated the LCC and PBP for all commercial consumers as if 
each would purchase a new CWH unit in the year that compliance with 
amended standards is required. As previously discussed, DOE is 
conducting this rulemaking pursuant to its 6-year-lookback authority 
under 42 U.S.C. 6313(a)(6)(C). At the time of preparation of the NOPR 
analyses, the expected issuance date was 2015, leading to an 
anticipated final rule publication in 2016. For this NOPR, DOE relied 
on 2023 as the expected publication date of a final rule. EPCA states 
that amended standards prescribed under this subsection shall apply to 
equipment manufactured after a date that is the later of (I) the date 
that is 3 years after publication of the final rule establishing a new 
standard or (II) the date that is 6 years after the effective date of 
the current standard for a covered equipment. (42 U.S.C. 
6313(a)(6)(C)(iv)) The date under clause (I), projected to be 2026, is 
later than the date under clause (II), which is 2009. Therefore, for 
the purposes of its analysis for this NOPR, DOE used January 1, 2026 as 
the beginning of compliance with potential amended standards for CWH 
equipment.
1. Approach
    Recognizing that each consumer that uses CWH equipment is unique, 
DOE analyzed variability and uncertainty by performing the LCC and PBP 
calculations on a nationally representative stock of commercial and 
residential buildings. Commercial buildings can be categorized based on 
their specific activity, and DOE considered commercial buildings such 
as offices (small, medium, and large), stand-alone retail and strip-
malls, schools (primary and secondary), hospitals and outpatient 
healthcare facilities, hotels (small and large), warehouses, 
restaurants (quick service and full service), assemblies, nursing 
homes, and dormitories. These encompass 89.4 percent of the total 
sample of commercial building stock in the United States. The 
residential buildings can be categorized based on the type of housing 
unit, and DOE considered single-family (attached and detached) and 
multi-family (with 2-4 units and 5+ units) buildings in its analysis. 
This encompassed 95.5 percent of the total sample of residential 
building stock in the United States, though not all of this sample 
would use CWH equipment. DOE developed financial data appropriate for 
the consumers in each business and building type. Each type of building 
has typical consumers who have different costs of financing because of 
the nature of the business. DOE derived the financing costs based on 
data from the Damodaran Online website.\73\ For residential 
applications, the entire population was categorized into six income 
bins, and DOE developed the probability distribution of real interest 
rates for each income bin by using data from the Federal Reserve 
Board's Survey of Consumer Finances.\74\
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    \73\ Damodaran Online. Commercial Applications. Available at 
pages.stern.nyu.edu/~adamodar/New_Home_Page/home.htm. Last accessed 
on July 8, 2021.
    \74\ The real interest rates data for the six income groups 
(residential sector) were estimated using data from the Federal 
Reserve Board's Survey of Consumer Finances (1989, 1992, 1995, 1998, 
2001, 2004, 2007, 2010, 2013, 2016, and 2019). Available at 
www.federalreserve.gov/pubs/oss/oss2/scfindex.html.
---------------------------------------------------------------------------

    The LCC analysis used the estimated annual energy use for every 
unit of CWH equipment described in section

[[Page 30661]]

IV.C of this NOPR. Aside from energy use, other important factors 
influencing the LCC and PBP analyses are energy prices, installation 
costs, and equipment distribution markups. At the national level, the 
LCC spreadsheets explicitly model both the uncertainty and the 
variability in the model's inputs, using probability distribution 
functions.
    As mentioned earlier, DOE generated LCC and PBP results for 
individual CWH consumers, using business type data aligned with 
building type and by geographic location, and DOE developed weighting 
factors to generate national average LCC savings and PBPs for each 
efficiency level. As there is a unique LCC and PBP for each calculated 
combination of building type and geographic location, the outcomes of 
the analysis can also be expressed as probability distributions with a 
range of LCC and PBP results. A distinct advantage of this type of 
approach is that DOE can identify the percentage of consumers achieving 
LCC savings or attaining certain PBP values due to an increased 
efficiency level, in addition to the average LCC savings or average PBP 
for that efficiency level.
2. Life-Cycle Cost Inputs
    For each efficiency level that DOE analyzed, the LCC analysis 
required input data for the total installed cost of the equipment, its 
operating cost, and the discount rate. Table IV.19 summarizes the 
inputs and key assumptions DOE used to calculate the consumer economic 
impacts of all energy efficiency levels analyzed in this rulemaking. A 
more detailed discussion of the inputs follows.

 Table IV.19--Summary of Inputs and Key Assumptions Used in the LCC and
                              PBP Analyses
------------------------------------------------------------------------
            Inputs                            Description
------------------------------------------------------------------------
                        Affecting Installed Costs
------------------------------------------------------------------------
Product Cost.................  Derived by multiplying manufacturer sales
                                price or MSP (calculated in the
                                engineering analysis) by distribution
                                channel markups, as needed, plus sales
                                tax from the markups analysis.
Installation Cost............  Installation cost includes installation
                                labor, installer overhead, and any
                                miscellaneous materials and parts,
                                derived principally from RS Means 2021
                                data books \A\ \B\ \C\ and converted to
                                2020$.
------------------------------------------------------------------------
                        Affecting Operating Costs
------------------------------------------------------------------------
Annual Energy Use............  Annual unit energy consumption for each
                                class of equipment at each efficiency
                                and standby loss level estimated at
                                different locations and by building type
                                using building-specific load models and
                                a population-based mapping of climate
                                locations. The geographic scale used for
                                commercial and residential applications
                                are Census Divisions and reportable
                                domains respectively.
Electricity Prices, Natural    DOE developed average residential and
 Gas Prices.                    commercial electricity prices based on
                                EIA Form 861M, using data for 2019.\D\
                                Future electricity prices are projected
                                based on AEO2021. DOE developed
                                residential and commercial natural gas
                                prices based on EIA State-level prices
                                in EIA Natural Gas Navigator, using data
                                for 2019.\E\ Future natural gas prices
                                are projected based on AEO2021.
Maintenance Cost.............  Annual maintenance cost did not vary as a
                                function of efficiency.
Repair Cost..................  DOE determined that the materials portion
                                of the repair costs for gas-fired
                                equipment changes with the efficiency
                                level for products. The different
                                combustion systems varied among
                                different efficiency levels, which
                                eventually led to different repair
                                costs.
------------------------------------------------------------------------
        Affecting Present Value of Annual Operating Cost Savings
------------------------------------------------------------------------
Product Lifetime.............  Table IV.21 provides lifetime estimates
                                by equipment category. DOE estimated
                                that the average CWH equipment lifetimes
                                range between 10 and 25 years, with the
                                average lifespan dependent on equipment
                                category based on estimates cited in
                                available literature.\F\
Discount Rate................  Mean real discount rates (weighted) for
                                all buildings range from 3.2% to 5.0%,
                                for the six income bins relevant to
                                residential applications. For commercial
                                applications, DOE considered mean real
                                discount rates (weighted) from 10
                                different commercial sectors, and the
                                rates ranged between 3.2% and 7.2%.
Analysis Start Year..........  Start year for LCC is 2026, which would
                                be the anticipated compliance date for
                                potential amended standards, if such
                                were to be adopted by a final rule of
                                this rulemaking.
------------------------------------------------------------------------
                       Analyzed Efficiency Levels
------------------------------------------------------------------------
Analyzed Efficiency Levels...  DOE analyzed baseline efficiency levels
                                and up to five higher thermal efficiency
                                levels. For Residential-Duty Gas-Fired
                                Storage DOE analyzed baseline and up to
                                five higher UEF levels which combine
                                thermal efficiency and standby loss
                                improvements. See the engineering
                                analysis for additional details on
                                selections of efficiency levels and
                                costs.
------------------------------------------------------------------------
\A\ RSMeans. 2021 Plumbing Costs with RSMeans Data. Available at
  www.rsmeans.com/products/books/2021-cost-data-books/2021-plumbing-costs-book.
\B\ RSMeans. 2021 Facilities Maintenance & Repair Costs with RSMeans
  Data. Available at www.rsmeans.com/products/books/2021-facilities-maintenance-repair-costs-book.
\C\ RSMeans. Estimating Costs with RSMeans Data, CostWorks CD,
  Mechanical Costs 2021. Available at www.rsmeans.com/products/books/2021-mechanical-costs-book. All RS Means links, last accessed on July
  8, 2021.
\D\ U.S. Energy Information Administration (EIA). Average Retail Price
  of Electricity (Form EIA-861). Available at www.eia.gov/electricity/data/browser/ data/browser/. Last accessed on February 21, 2021.
\E\ U.S. Energy Information Administration (EIA). Average Price of
  Natural Gas Sold to Commercial Consumers--by State. Available at
  www.eia.gov/dnav/ng/ng_pri_sum_a_EPG0_PCS_DMcf_a.htm. Prices for
  Residential Consumers are available at the same site using the Data
  Series menu. Last accessed on February 26, 2021.
\F\ American Society of Heating, Refrigerating, and Air-Conditioning
  Engineers. 2011 ASHRAE Handbook: Heating, Ventilating, and Air-
  Conditioning Applications. 2011. Available at www.ashrae.org/resources--publications. Last accessed on October 16, 2016.


[[Page 30662]]

    DOE calculates energy savings for the LCC and PBP analysis using 
only onsite electricity and natural gas usage. For determination of 
consumer cost savings, the onsite electricity and natural usage are 
estimated separately with appropriate electricity and natural gas 
prices, or marginal prices, applied to each. Primary and FFC energy 
savings are not used in the LCC analysis.
a. Equipment Cost
    To calculate equipment costs, DOE multiplied the MPCs developed in 
the engineering analysis by the markups described previously in section 
IV.D of this document (along with sales taxes). DOE used different 
markups for baseline products and higher-efficiency products, because 
DOE applies an incremental markup to the increase in MSP associated 
with higher-efficiency products. For each equipment category, the 
engineering analysis provided contractor costs for the baseline 
equipment and up to five higher equipment efficiencies. DOE examined 
whether equipment costs for CWH equipment would change over time. DOE 
determined that there is no clear historical price trend for CWH 
equipment. Therefore, DOE used costs established in the engineering 
analysis directly for determining 2026 equipment costs and future 
equipment costs (equipment is purchased by the consumer during the 
first year in 2026 at the estimated equipment price, after which the 
equipment price remains constant in real dollars). See section IV.H.4 
of this document and chapter 10 of the NOPR TSD for more details.
    The markup is the percentage increase in cost as the CWH equipment 
passes through distribution channels. As explained in section IV.D of 
this NOPR, CWH equipment is assumed to be delivered by the manufacturer 
through a variety of distribution channels. There are several 
distribution pathways that involve different combinations of the costs 
and markups of CWH equipment. The overall resulting markups in the LCC 
analysis are weighted averages of all of the relevant distribution 
channel markups.
b. Installation Costs
    The primary inputs for establishing the total installed cost are 
the retail cost of the CWH equipment and its corresponding installation 
costs, which includes labor, overhead, and any miscellaneous materials 
and parts needed to install the product. Installation costs vary by 
efficiency level, primarily due to venting costs. For new construction 
installations, the installation cost is added to the product cost to 
arrive at a total installed cost. For replacement installations, the 
costs to remove the previous equipment (including venting when 
necessary) and the installation costs for new equipment, including 
venting and additional expenses, are added to the product cost to 
arrive at the total replacement installation cost.
    DOE derived national average installation costs for commercial 
equipment from data provided in RS Means 2021 data books.\75\ RS Means 
provides estimates for installation costs for CWH units by equipment 
capacity, as well as cost indices that reflect the variation in 
installation costs for 295 cities in the United States. The RS Means 
data identify several cities in each of the 50 States, as well as the 
District of Columbia. DOE incorporated location-based cost indices into 
the analysis to capture variation in installation costs, depending on 
the location of the consumer. Based upon the RS Means data, 
relationships were developed for each product subcategory to relate the 
amount of labor to the size of the product--either the storage volume 
or the input rate. Generally, the RS Means data were in agreement with 
other national sources, such as the Whitestone Facility Maintenance and 
Repair Cost Reference.\76\
---------------------------------------------------------------------------

    \75\ DOE notes that RS Means publishes data books in one year 
for use the following year; hence, the 2021 data book has a 2020 
copyright date.
    \76\ Whitestone Research. The Whitestone Facility Maintenance 
and Repair Cost Reference 2012-2013 (17th Annual edition). 2012. 
Whitestone Research: Santa Barbara, CA.
---------------------------------------------------------------------------

    DOE calculated venting costs for each building in the CBECS and 
RECS. A variety of installation parameters impact venting costs; among 
these, DOE simulated the type of installation (new construction or 
retrofit), water heater type, draft type (atmospheric venting or power 
venting), building vintage, number of stories, and presence of a 
chimney. A combination of Crystal Ball variable distributions and MS 
Excel macros and logic are used to address the identified variables to 
determine the venting costs for each instance of equipment for each 
building within the Monte Carlo analysis. With regard to the venting 
material for condensing equipment, the primary assumptions used in this 
logic are listed below:
     25 percent of commercial buildings built prior to 1980 
were assumed to have a masonry chimney, and 25 percent of masonry 
chimneys required relining.
     Condensing equipment with vent diameters smaller than 5 
inches were modeled using PVC (polyvinyl chloride) as the vent 
material.
     Condensing equipment with vent diameters of 8 inches or 
greater were assigned AL29-4C (superferritic stainless steel) as the 
vent material.
     Condensing equipment with vent diameters of 5 inches and 
up to 8 inches were assigned vent material based on a random selection 
process in which, on average, 50 percent of installations received PVC 
as the vent material and the remaining received AL29-4C.
     5 percent of all condensing CWH equipment installations 
were modeled as direct vent installations. The intake air pipe material 
for condensing products was modeled as PVC.
    Additional details of the venting logic sequence are found in 
chapter 8 and Appendix 8D of the NOPR TSD.
1. Data Sources
    For this NOPR analysis, DOE used the most recent datasets available 
at the time the analysis was conducted. DOE makes its best attempt to 
update data to recent datasets available at its various rulemaking 
stages and has updated the CWH equipment LCC model with the most recent 
data estimates available for this NOPR, including use of the 2012 CBECs 
and 2021 RS Means data (including 2021 RS Means Plumbing Costs Data, 
2021 RS Means Mechanical Cost Data, and 2021 RS Means Facility 
Maintenance and Repair Costs).
2. Condensate Removal and Disposal
    In response to the withdrawn NOPR, Anonymous, Raypak and AHRI 
commented about the difficulty in installing condensing water heaters 
is challenging in buildings lacking floor drains or other ways to drain 
condensate. (Raypak, No. 41 at p. 7; AHRI, No. 40 at p. 5; Anonymous, 
No. 21 at p. 2) NEEA stated that the raw costs and application of costs 
for condensate removal appear high, specifically for the condensate 
pump, electrical receptacle for the pump, drain line, and heat tape. 
NEEA argued that since the International Plumbing Code \77\ calls for 
temperature and pressure relief valves to be piped to drain, non-
condensing CWH equipment should already have an existing drainage 
system. NEEA also stated that a condensate neutralizer is not required 
in certain jurisdictions, though it is good design practice. (NEEA, No. 
37 at p. 1)
---------------------------------------------------------------------------

    \77\ See www.iccsafe.org/content/international-plumbing-code-ipc-home-page/. The model International Plumbing Code has been 
adopted 35 states for state or local plumbing codes.
---------------------------------------------------------------------------

    In response, DOE's LCC analysis accounted for condensate disposal 
in its installation cost estimates for condensing CWH equipment. The

[[Page 30663]]

International Plumbing Code is widely used in the U.S. as the model for 
state and local plumbing codes. Given this fact and given NEEA's 
information on the International Plumbing Code requirement, DOE revised 
the assumption of 25 percent used in the withdrawn 2016 NOPR to the 
assumption for this NOPR of 10 percent of replacement installations 
requiring the installment and associated costs of a condensate pump and 
insulated condensate piping to dispose of condensate. For this NOPR 
analysis, a condensate neutralizer was assigned to 12.5 percent of 
replacement installations, which was unchanged from the assumption used 
in the withdrawn 2016 NOPR. For this NOPR, the cost of heat tape was 
assigned to 10 percent of replacement installations, which was 
unchanged from the withdrawn 2016 NOPR assumption. The cost of an 
electrical outlet specifically for heat tape was added for this NOPR in 
10 percent of instances in which heat tape was installed. For this 
NOPR, DOE also conducted research on the appropriate condensate pump 
size and associated cost for each equipment category, which resulted in 
an update to the condensate pump assignment for residential-duty and 
commercial gas-fired storage water heaters. For the withdrawn 2016 
NOPR, DOE used one condensate pump for all equipment types while for 
this NOPR DOE used two sizes of condensate pumps. The representative 
designs for these residential-duty and commercial gas-fired storage 
water heaters are met using a condensate pump with a lower volume 
capacity and gallons-per-hour performance. Chapter 8 of the TSD 
contains more information on the methodology, raw costs, and sources 
for the installation cost for condensate removal.
3. Vent Replacement
    In response to the withdrawn NOPR stakeholders submitted comments 
describing challenges building owners may have installing condensing 
equipment using sidewall venting, while other commenters noted sidewall 
venting provided a cheaper option in some cases. (AHRI, No. 40 at p. 
35; Spire, No. 45 at pp. 34, 35; Bradford White, No. 42 at p. 4; HTP, 
No. 44 at pp. 1-2; NEEA, No. 37 at p. 1) In both the withdrawn NOPR and 
in this NOPR DOE conducted its analysis under the assumption that 
condensing CWH equipment would use the same chase for the venting 
system as the non-condensing CWH equipment that it replaces. Condensing 
CWH equipment is not required to sidewall vent exclusively and presents 
no special limitations restricting vertical vent scenarios. In 
instances in which a building has a centrally-located mechanical room, 
relocation of this mechanical room should not be necessary to 
accommodate condensing CWH equipment. The local building codes that may 
limit or prohibit sidewall venting in certain buildings should not be a 
factor for vertical venting systems. To the extent that horizontal 
natural draft venting is used at a job site, it is indicative that 
horizontal venting is allowed by the jurisdiction and potentially that 
vent runs may be different than DOE's vertical venting assumption 
(shorter vertically, but with a horizontal length component). DOE 
received no information from commenters on the relative frequency of 
less-costly sidewall venting installations nor did DOE receive 
information or data suggesting that DOE's assumption of vertical 
venting using the existing chase is unsound. Therefore, DOE has 
maintained its venting methodology and associated venting costs for 
scenarios in which non-condensing CWH equipment is replaced by 
condensing CWH equipment.
    NEEA recommended that DOE account for the cost of a high and low 
sidewall air ducts (per mechanical code) to the installation cost of 
non-condensing CWH equipment. (NEEA, No. 37 at p. 2) In response, DOE 
acknowledges that all combustion appliances require adequate air for 
combustion and that in installations where adequate combustion air is 
not provided through infiltration alone, high and low sidewall air 
ducts providing ventilation air are an installation option alone, or in 
combination with infiltration. The requirement for adequate combustion 
air exists regardless of whether naturally-vented or fan-assisted vent 
systems are used, but is not required for direct vent systems where 
combustion air is provided through dedicated means per manufacturers 
specifications. While there are certain differences in the requirements 
for fan-assisted versus naturally-vented equipment, the cost of 
providing for combustion air is similar for non-condensing or 
condensing non-direct-vent CWH equipment, and in fact, minimum room 
volume requirements before requiring separate ventilation openings are 
larger for natural draft versus fan-assisted combustion appliances. 
Direct vent equipment provides another option where fan-assisted 
combustion equipment is used, and may provide better control of outside 
air into a building as well as providing combustion air that is free 
from indoor contaminants that can damage water heaters in certain 
circumstances (where necessary). Another option is to install a 
mechanical combustion air system (e.g., ``fan in a can'') in the room 
to ensure proper make-up air for the equipment. NEEA did not provide 
information or data indicating how common these situations are in 
buildings, and DOE was unable to find this information in its research, 
and the Department has concluded that the cost to provide adequate 
combustion air will be similar for non-condensing and condensing CWH 
equipment.
    In response to the withdrawn NOPR NEEA commented that sleeving of 
vents in replacement scenarios avoids the cost of removing the existing 
venting system while Spire asked for clarification as to whether DOE 
considers existing vent systems to be sleeved. (NEEA, No. 37 at p. 2; 
Spire, Public Meeting Transcript, No. 20 at p. 83) In response, DOE 
incorporated the sleeving of existing vent systems in its SNOPR 
analysis. For existing buildings with natural draft (B-vent type) 
venting systems that have no elbows and possess vent lengths less than 
or equal to 30 feet, DOE assigned sleeving of the existing vent with 
PVC venting to 50 percent of replacement scenarios. DOE's assumption of 
50 percent sleeving under these conditions presumes that sleeving of 
new vents can be done but that with plastic piping other limitations to 
sleeving, including access for joints, may present themselves. While 
DOE recognizes that with other venting systems, particularly 
polypropylene or stainless flexible venting, additional sleeving 
options are possible, DOE's existing analysis adequately accounts for 
the potential for sleeved venting.
    Stakeholders commented on the withdrawn NOPR that jurisdictions in 
certain parts of the country do not allow for non-metallic vents (an 
estimated 5 percent of installations), that many local municipalities 
disallow PVC usage when the vent diameter is greater than 4 inches, and 
that polypropylene as a venting material is an option available to 
consumers that is widely used due to the growing number of municipality 
building codes and contractor requests calling for the use of this vent 
material. (See (A.O. Smith, No. 39 at p. 12; Rheem, No. 43, at p. 22; 
Rheem, No. 43, at p. 22; Bradford White, No. 42 at p. 8) DOE conducted 
further research as to the local or regional jurisdictions that 
prohibit certain vent materials for CWH equipment installation. While 
DOE found that PVC vent material is

[[Page 30664]]

disallowed in certain jurisdictions (e.g., New York, NY), DOE did not 
identify jurisdictions in which non-metallic vents are disallowed, and 
comments on the withdrawn NOPR did not provide examples for DOE to 
investigate. DOE also reviewed manufacturer product literature and 
costs for polypropylene vents. DOE did not identify physical 
limitations for using polypropylene venting with condensing CWH 
equipment. Polypropylene material costs have decreased significantly 
with increasing demand, and fewer labor hours are required to install 
polypropylene venting systems, which are found as ``snap-together'' 
gasketed systems, than for PVC or CPVC venting. For jurisdictions 
prohibiting PVC venting, polypropylene venting is a viable alternative 
and if it becomes more commonly used DOE expects it will be an even 
more viable, cost-competitive alternative by 2026. While polypropylene 
venting has the potential in some cases to reduce installation costs, 
DOE did not modify its analysis for this NOPR to explicitly include 
polypropylene venting.
    PHCC argued that, in some cases, vent replacement can be physically 
impossible and prohibitively expensive due to the uniqueness of each 
replacement situation. (PHCC, No. 34 at p. 1) Spire stated that DOE's 
estimated installation and venting costs are too low in cases where 
installations are intrinsically difficult. (Spire, No. 45 at pp. 44-45) 
For this NOPR DOE's analysis accounts for installation costs in the 
commercial and residential sectors for both replacement and new 
construction markets, along with an appropriate set of installation 
scenarios within each market and sector combination. Equipment 
installation and removal costs are separate from venting system 
installation and removal costs. The equipment installation labor hours 
for representative CWH models ranged from 4 to 22.4 hours, depending on 
the equipment category. The labor hours to remove CWH equipment in 
replacement situations were determined to be an additional 37.5 percent 
of the installation labor hours on average, meaning they ranged from an 
additional 1.5 to 8.4 hours depending on the equipment category. These 
labor hour calculations were based on a linear regression formula using 
data from the RS Means Facilities Construction Cost Data, ENR 
Mechanical Cost book, and Whitestone Facility Maintenance and Repair 
Cost Reference. This formula escalated equipment installation labor 
hours based on the input capacity and/or volume of the CWH equipment, 
as expressed in the sources that DOE relied upon. DOE has found no 
information that suggests basic CWH equipment installation or removal 
cost varies based on thermal efficiency rather than input capacity and/
or volume. DOE accepts the methodologies of its sources that the 
activities required to install minimum-efficiency and high-efficiency 
equipment are inherently similar. This approach to developing costs for 
CWH equipment installation or removal was not changed from the 
withdrawn NOPR.
    In addition to equipment installation and removal, DOE accounted 
for the labor hours to install and remove venting, scaled to the vent 
length in linear feet and/or the number of components (e.g., elbows) in 
the venting system. These costs differed based on the vent material and 
diameter involved in the installation. For example, the labor to 
install PVC venting for condensing CWH equipment in the commercial 
sector ranged from 0.302 hours per linear foot for three-inch diameter 
vents to 0.333 hours per linear foot for 4-inch diameter vents. \78\ 
The labor to install Type-B vent in the commercial sector for non-
condensing CWH equipment ranged from 0.235 hours per linear foot for 4-
inch diameter vents to 0.286 hours per linear foot for 7-inch diameter 
vents.\79\ The labor rates in DOE's analysis depended on the crew type 
conducting the installation, region in which the installation occurred, 
and whether venting was installed in residential or commercial 
buildings. For the installation of Type-B venting for non-condensing 
CWH equipment, average labor rates (including overhead and profit) 
ranged from $65 per hour in the residential sector to $87 per hour in 
the commercial sector. \80\ For the installation of PVC venting for 
condensing CWH equipment, average labor rates used by DOE (including 
overhead and profit) ranged from $66 per hour in the residential sector 
to $89 per hour in the commercial sector.\81\ Regional adjustments to 
these labor rates called for multipliers ranging from 0.59 (South 
Carolina and North Carolina) to 1.68 (New York).\82\ For this NOPR, DOE 
did not further adjust labor rates for venting except to use the most 
up-to-date source data.
---------------------------------------------------------------------------

    \78\ RSMeans. Estimating Costs with RSMeans Data, CostWorks CD, 
Mechanical Costs 2021.
    \79\ Id.
    \80\ RSMeans. Estimating Costs with RSMeans Data, CostWorks CD, 
Mechanical Costs 2021.
    \81\ Id.
    \82\ Id.
---------------------------------------------------------------------------

    In addition to accounting for equipment installation and removal, 
and venting installation and removal, DOE also incorporated an 
appropriate set of installation cost additions and subtractions, which 
included labor and material, arising from unique circumstances in 
replacement scenarios. These installation costs included reusing 
existing vent systems (when replacing non-condensing CWH equipment with 
similar non-condensing CWH equipment), relining of chimneys, installing 
condensate drainage, and sleeving of existing vent systems with certain 
replacement venting systems, introduced in this NOPR analysis. DOE did 
not incorporate the costs of sealing off chases and roof vents or 
moving mechanical rooms because it is logical that condensing CWH 
equipment would reside in the same location and use the same chase as 
the non-condensing CWH equipment it replaced. DOE found this to be 
appropriate since there are no technological limitations preventing 
condensing CWH equipment from using vertical venting systems.
4. Extraordinary Venting Cost Adder
    In response to the withdrawn NOPR, PHCC and Spire argued that, in 
some cases, vent replacement can be physically impossible and/or 
prohibitively expensive in cases where installations are intrinsically 
difficult. (PHCC, No. 34 at p. 1; Spire, No. 45 at pp. 44-45) DOE 
acknowledges the possibility that its analysis of installation costs 
may not capture outlier installation scenarios that involve uncommon 
building conditions that may further reduce or increase installation 
costs. Neither PHCC nor Spire provided data or evidence to substantiate 
the extent that these unique, additional installation challenges occur 
for condensing CWH equipment in buildings, descriptions of what would 
be necessary to resolve these installations challenges, or amount of 
labor and materials required to perform the solution. DOE expects that 
these situations would be small in number and that it has captured an 
appropriate set of installation scenarios that are typical of 
residential and commercial buildings. For this NOPR, DOE researched the 
question of the prevalence and cost of extraordinarily costly 
installations. The one source identified that could be used to quantify 
extraordinary vent costs was the report submitted by NEEA in DOE Docket 
EERE-2018-BT-STD-0018.\83\ Using this

[[Page 30665]]

as a reference, DOE implemented an extraordinary venting cost adder, 
which was included in the SNOPR LCC model as a feature of the main 
case.
---------------------------------------------------------------------------

    \83\ NEEA, Northeast Energy Efficiency Partnerships, Pacific Gas 
& Electric, and National Grid. Joint comment response to the Notice 
of Petition for Rulemaking; request for comment (report attached--
Memo: Investigation of Installation Barriers and Costs for 
Condensing Gas Appliances). Docket EERE-2018-BT-STD-0018, document 
number 62. www.regulations.gov/comment/EERE-2018-BT-STD-0018-0062. 
Last accessed July 8, 2021.
---------------------------------------------------------------------------

    To account for the extraordinarily expensive venting installation 
costs hypothesized by stakeholders as discussed in section IV.F.2.b of 
this NOPR, DOE added an extraordinary vent cost adder. This is based on 
the report submitted by NEEA. Id. In that report it was stated that due 
to vent configurations, between 1 and 2 percent of replacements might 
experience extraordinary costs between 100 and 200 percent above the 
average installation cost. Because there is no clear linkage between 
specific situations and extraordinary costs, DOE implemented this by 
adding for each equipment category two additional variables. One is a 
probability of occurrence and the second is the multiplier. For 2 
percent of cases, DOE assumes a multiplier between 200 percent and 300 
percent. In all cases, the LCC model estimates the total installation 
cost, and multiplies it by the multiplier. In 98 percent of cases, the 
multiplier is equal to 1.00, or 100 percent. When the LCC model selects 
the extraordinary installation cost case, it also selects a multiplier 
between 200 and 300 percent to multiply the estimated installation 
cost.
    Issue 4: DOE seeks comments on the extraordinary venting cost 
adder. Specifically, DOE seeks data to estimate the fraction of 
consumers that might incur extraordinary costs, and the level of such 
extraordinary costs.
5. Common Venting
    Spire and AO Smith commented on issues related to common venting of 
non-condensing equipment including assets being potentially 
``stranded'' or needing to be prematurely retired and the cost of 
engineering a solution. (Spire, No. 45 at pp. 33, 34; AO Smith, No. 39 
at p. 12) AHRI commented that one way to replace common vented, non-
condensing CWH equipment is to replace all water heaters 
simultaneously. (AHRI, Public Meeting Transcript, No. 20 at pp. 89-90)
    DOE acknowledges that certain CWH equipment installations are 
commonly vented in certain building applications in which it is 
feasible. However, in these instances, the CWH equipment typically is 
not commonly vented with other, disparate gas-fired equipment (like 
furnaces). Instead, multiple units of CWH equipment are common vented 
together since the CWH equipment typically operates in unison, calling 
for a specific vent size. Common venting disparate gas-fired equipment 
complicates the design and sizing of the common vent, since it needs to 
accommodate exhaust of a wide range of flue gas volume due to the 
different operating profiles and flue capacities required for disparate 
equipment. When multiple units of CWH equipment are common vented, 
building engineers typically design the common vent system to suit a 
specific number of units of CWH equipment with certain specifications. 
The installation of these units typically occurs all at one time. As a 
result, each unit should have the similar expected lifetime and 
replacement cycle. Therefore, when one unit fails and requires 
replacement, the other units sharing the common vent should also be 
nearing the end of their lifetimes. In this scenario, building 
engineers will often replace all of the units at one time for sake of 
simplicity, time, cost, and risk avoidance. Thus, the stranded cost of 
any naturally-drafted, non-condensing CWH equipment due to this NOPR 
would have marginal residual value, which often would have been 
relinquished regardless of this NOPR. In addition, polypropylene common 
vent kits are available in the market to accommodate the common venting 
of condensing CWH equipment, and DOE is unaware of building codes 
issues to prevent such kits from being used widely. This means 
condensing CWH equipment could be installed in the same location as the 
naturally-vented, non-condensing CWH equipment that it replaces. Spire, 
AHRI, and A.O. Smith did not provide information supporting their claim 
that the building applications and circumstances that call for the 
design and installation of a common venting system. Moreover, 
commenters did not indicate how typical common venting is in the 
commercial and residential building stock, which would allow for an 
accounting of common venting where it has a substantial impact on the 
analysis. For all of these reasons, DOE determined that stranded gas-
fired equipment due to common venting circumstances would not have a 
substantial impact on the results of its analysis. The SNOPR retained 
the assumption embodied in the NOPR analysis that common venting does 
not impose specific costs that must be captured in the installation 
cost analysis.
6. Vent Sizing/Material Cost
    Raypak commented that the cost used by DOE for replacing venting 
systems is likely understated due to the selected input capacity for 
the representative designs of commercial gas-fired tankless water 
heaters and commercial gas-fired instantaneous circulating water 
heaters and hot water supply boilers. Raypak argues that higher-
capacity commercial CWH equipment calls for larger vent diameters that 
require more expensive vent material (i.e., AL29-4C) than the material 
currently used in DOE's analysis (i.e., PVC). (Raypak, No. 41 at p. 7) 
In response, DOE's analysis uses representative models for each CWH 
equipment category as described in IV.C.3.
    These representative models were determined through research of the 
most common specifications of models within the equipment category in 
the market. DOE acknowledges that CWH equipment with higher input 
capacities calls for vents with larger diameters, and, thus, requires 
AL29-4C as the venting material for condensing CWH equipment. An 
examination of the installed costs for vents from 4-10 inches in 
diameters based on straight vent pipe and national average labor rates 
suggests the AL29-4C double wall vent is approximately 50 percent more 
expensive per foot on average than PVC. However, as vent diameter 
increases linearly in size, the input capacity for the CWH equipment 
sized to the vent diameter increases roughly as the square of the vent 
diameter due to the volume of exhaust that can travel through the vent 
cross-sectional area at the same pressure. CWH equipment with such high 
input capacities will be installed in buildings with higher maximum and 
average daily loads, which will result in higher energy and monetized 
energy cost savings relative to the roughly linear cost increase in 
vent installation. Therefore, to the extent that CWH equipment 
requiring larger diameter venting is prevalent in the market, it 
suggests that DOE's LCC analysis results may be conservative in terms 
of such CWH equipment.
7. Masonry Chimney/Chimney Relining
    Bradford White questioned the validity of DOE's assumptions that 25 
percent of buildings built prior to 1980 have a masonry chimney, and 
that 25 percent of those chimneys need relining. (Bradford White, No. 
42 at p. 8)
    In the withdrawn NOPR, DOE assumed that 25 percent of pre-1980 
buildings have masonry chimneys and that 25 percent need relining. DOE 
asked for input on these and other primary assumptions used in the 
logic underlying the calculation of venting costs. While DOE 
acknowledges Bradford White's uncertainty about

[[Page 30666]]

these assumptions, DOE did not receive information or data on the 
percentage of buildings built prior to 1980 with a masonry chimney and 
the percentage of those chimneys that require relining. Because no 
information has been identified to cause DOE to alter the original 
assumptions, this NOPR continues to use the assumptions that 25 percent 
of buildings constructed prior to 1980 have masonry chimneys, and 25 
percent of those buildings need a relining of the chimney.
8. Downtime During Replacement
    In response to the withdrawn NOPR, several stakeholders asked for 
clarification as to whether the downtime to switch from a non-
condensing CWH equipment to condensing equipment was included in DOE's 
analysis, or encouraged DOE to include tangential factors like downtime 
in the analysis. (PVI, Public Meeting Transcript, No. 20 at pp. 85-86; 
AHRI, No. 40 at p. 5-6; Rheem, No. 43 at pp. 7, 15, 23; Raypak, No. 41 
at pp. 4-5; NPGA, No. 32 at p. 3) In response, DOE's research indicates 
that consumers sensitive to the downtime incurred during CWH equipment 
replacement, such as in hotel and restaurant building applications, 
already plan ahead to limit the downtime of equipment replacement.\84\ 
These consumers already must schedule planned replacements during off 
hours or low-use periods to limit the impact on business operation. 
Therefore, DOE did not account for the loss of business in its LCC 
analysis.
---------------------------------------------------------------------------

    \84\ For examples of the types of steps hotels take to avoid 
downtime and the planning performed to meet customer needs with 
minimum downtimes, see www.usatoday.com/story/travel/hotels/2018/12/03/hot-showers-hotels/2154259002/or 
continuingeducation.bnpmedia.com/courses/watts/water-safety-and-efficiency-in-hospitality-buildings/4/.
---------------------------------------------------------------------------

9. Fuel Switching, Cost Build-Up Versus Survey, Other Comments
    DOE's LCC analysis accounts for consumers who experience a net cost 
due to a payback that is longer than the equipment lifetime of the 
more-efficient CWH equipment (i.e., non-cost-effective scenario). The 
results of DOE's calculations of average lifetime cost and percent of 
consumers experiencing a net cost are presented for each equipment 
category in chapter 8 of the NOPR TSD. Table V.4 through Table V.12 of 
this NOPR present LCC savings and PBP results by TSL. DOE's review of 
fuel switching is available in section IV.H.2 of this NOPR.
    In comments on the withdrawn NOPR, two stakeholders claimed that 
using a cost build-up approach rather than surveys of contractor 
quotes, leads to systematically understated installation costs. (Spire, 
No. 45 at pp. 20, 21; AHRI, No. 40 at pp. 35, 36) In response, DOE 
relied primarily on data from RS Means, Whitestone, and ENR to develop 
its installation costs. These resources provided itemized data on the 
installation and removal costs of both equipment and venting systems, 
as well as the installation costs of condensate drainage systems, 
electrical outlets, and chimney relining. The itemization of these 
costs was at the component level for both labor and material, and in 
both the commercial and residential sectors, which allowed DOE to 
develop an appropriate set of installation scenarios to factor into the 
LCC analysis. The use of these resources also provided DOE with a 
consistent evaluation of costs with a consistent set of location 
adjustments for each residential and commercial region included in the 
analysis. DOE notes that surveys of existing contractor quotes may not 
adequately separate equipment costs from installation costs since 
installing contractors would commonly be selling and marking up 
equipment as well as installation labor. Thus, use of surveys would not 
provide the level of detailed information needed to assess installation 
costs. For these reasons, the sources relied upon were nationally 
representative and appropriate for the development of installation 
costs, as were the methodologies used in the withdrawn NOPR. For this 
NOPR, DOE continued to use a built-up cost approach to installed cost 
estimation.
    The Joint Advocates referred DOE to a commercial kitchens service 
center for information on installation costs. (Joint Advocates, Public 
Meeting Transcript, No. 20 at p. 87) DOE believes this reference is to 
the Fisher-Nickel Food Technology Service Center. DOE reviewed the 
Installation Considerations section of the Fisher-Nickel ``Design Guide 
for Improving Commercial Kitchen Hot Water System'' \85\ performance in 
its analysis. DOE's analysis accounts for the installation 
recommendations included in this resource, such as the installation of 
a condensate neutralizer for condensate drainage and use of PVC vent 
material for condensing CWH equipment. In addition, DOE relied on this 
resource for certain components of its energy use analysis. Thus, DOE 
has properly considered this resource in this NOPR analysis.
---------------------------------------------------------------------------

    \85\ Fisher-Nickel. Design Guide: Improving Commercial Kitchen 
Hot Water System: Energy Efficient Heating, Delivery and Use. March 
26, 2010.
---------------------------------------------------------------------------

    In response to the withdrawn NOPR four stakeholders mentioned the 
potential impacts of costs associated with asbestos treatment in 
venting retrofit cases and asked if asbestos was considered by DOE and/
or stated that the presence of asbestos could drive up the costs to 
change to a new vent system. (Bradford White, No. 42 at pp. 8-9; A.O. 
Smith, No. 39 at pp. 3, 13; NegaWatt, Public Meeting Transcript, No. 20 
at p. 90; CA IOUs, No. 28 at p. 3) In response to these comments, DOE 
researched the prevalence and vintage of asbestos insulation in venting 
systems. Asbestos-lined vents were installed in the 1970s to insulate 
single-wall vents as a safety precaution (i.e., prevent safety hazards 
resulting from hot vent temperatures). This practice was phased out in 
the 1980s due to the human health risks associated with asbestos 
material. In addition, EPAct 1992 mandated a minimum thermal efficiency 
of 78 percent for CWH equipment, which went into effect in 1994. As a 
result of this legislation, many consumers replacing CWH equipment also 
needed to replace the venting system due to the improper vent diameter 
of their existing system, at which time asbestos issues likely would 
have been addressed. Commenters seemed to agree this is an uncommon 
situation now and would be less common over time. DOE also notes that 
the deterioration of the asbestos-containing venting over time implies 
that this is a pre-existing building concern and that many of these 
vents would need to be replaced or circumvented regardless, which when 
it occurs, points to situations where an existing vent is no longer 
reusable. DOE agrees that incorporation of costs for asbestos removal 
would increase the cost of venting generally, but due to these 
historical circumstances and the need to replace deteriorating and 
unsafe existing vents, generally, it is unnecessary to account for the 
additional cost of removing asbestos-lined vents since they are 
uncommon and will be even less common by 2026. DOE notes that the 
approach taken for this NOPR analysis is unchanged from the withdrawn 
NOPR analysis in this regard.
c. Annual Energy Consumption
    DOE estimated the annual electricity and natural gas consumed by 
each category of CWH equipment, by efficiency and standby loss level, 
based on the energy use analysis described in section IV.E and in 
chapter 7 of the NOPR TSD.

[[Page 30667]]

d. Energy Prices
    Electricity and natural gas prices are used to convert changes in 
the energy consumption from higher-efficiency equipment into energy 
cost savings. It is important to consider regional differences in 
electricity and natural gas prices because the variation in those 
prices can impact electricity and natural gas consumption savings and 
equipment costs across the country. DOE determined average effective 
commercial electricity prices \86\ and commercial natural gas prices 
\87\ at the State level from EIA data for 2019. DOE used data from 
EIA's Form 861 \88\ to calculate commercial and residential sector 
electricity prices, and EIA's Natural Gas Navigator \89\ to calculate 
commercial and residential sector natural gas prices. Future energy 
prices were projected using trends from the EIA's AEO2021.\90\ This 
approach captured a wide range of commercial electricity and natural 
gas prices across the United States.
---------------------------------------------------------------------------

    \86\ U.S. Energy Information Administration (EIA). Form EIA-861M 
Database Monthly Electric Utility Sales and Revenue Data 
(aggregated: 1990-current). Available at www.eia.gov/electricity/data/eia861m/. Last accessed on April 16, 2021.
    \87\ U.S. Energy Information Administration (EIA). Natural Gas 
Prices. Available at www.eia.gov/dnav/ng/ng_pri_sum_a_EPG0_PCS_DMcf_a.htm. Last accessed on February 26, 
2021.
    \88\ U.S. Energy Information Administration (EIA). ``Average 
retail price of electricity;'' pre-generated report 5.6, average 
retail price of electricity to ultimate customers by end-use sector, 
by state. Available at www.eia.gov/electricity/data/browser/. Last 
accessed on February 21, 2021.
    \89\ U.S. Energy Information Administration (EIA). Natural Gas 
Navigator. Available at www.eia.gov/dnav/ng/ng_pri_sum_a_EPG0_FWA_DMcf_a.htm. Last accessed on February 26, 
2021.
    \90\ U.S. Energy Information Administration (EIA). Annual Energy 
Outlook 2021 with Projections to 2050: Narrative. February 2021. 
Available at www.eia.gov/outlooks/aeo/.
---------------------------------------------------------------------------

    CBECS and RECS report data based on different geographic scales. 
The various States in the United States are aggregated into different 
geographic scales such as Census Divisions (for CBECS) and reportable 
domains (for RECS). Hence, DOE weighted electricity and natural gas 
prices in each State based on the cumulative population in the cluster 
of one or more States that comprise each Census Division or reportable 
domain respectively. See appendix 8C of the NOPR TSD for further 
details.
    The electricity and natural gas price trends provide the relative 
change in electricity and natural gas costs for future years. DOE used 
the AEO2021 Reference case to provide the default electricity and 
natural gas price forecast scenarios. DOE extrapolated the trend in 
values at the Census Division level to establish prices beyond 2050.
    DOE developed the LCC analysis using a marginal fuel price approach 
to convert fuel savings into corresponding financial benefits for the 
different equipment categories. This approach was based on the 
development of marginal price factors for gas and electric fuels based 
on historical data relating monthly expenditures and consumption. For 
details of DOE's marginal fuel price approach, see chapter 8 of the 
NOPR TSD.
    DOE received comments on its marginal energy prices and marginal 
energy price factors, whether they represent the true marginal gas and 
electric energy costs, and the accuracy with which they represent the 
marginal energy costs paid by larger load consumers, in the withdrawn 
2016 NOPR. Spire commented that DOE's needs to consider how changes in 
energy consumption are reflected in consumer energy bills based upon 
actual tariffs. (AGA and APGA, No. 35 at pp. 5, 8-9; Spire, No. 45 at 
pp. 36, 40; EEI, No. 38 at pp. 3-5).
    Regarding the usage of EIA data for development of marginal energy 
costs and comparisons to tariff data, DOE emphasizes that the EIA data 
provide complete coverage of all utilities and all customers, including 
larger commercial and industrial utility customers that may have 
discounted energy prices. The actual rates paid by individual customers 
are captured and reflected in the EIA data and are averaged over all 
customers in a state. DOE has previously compared these two approaches 
for determining marginal energy price factors in the residential 
sector. In a September 2016 supplemental notice of proposed rulemaking 
for residential furnaces, DOE compared its marginal natural gas price 
approach using EIA data with marginal natural gas price factors 
determined from residential tariffs submitted by stakeholders. 81 FR 
65719, 65784 (Sept. 23, 2016). The submitted tariffs represented only a 
small subset of utilities and states and were not nationally 
representative, but DOE found that its marginal price factors were 
generally comparable to those computed from the tariff data (averaging 
across rate tiers).\91\ DOE noted that a full tariff-based analysis 
would require information on each household's total baseline gas 
consumption (to establish which rate tier is applicable) and how many 
customers are served by a utility on a given tariff. These data were 
not available in the public domain. By relying on EIA data, DOE noted, 
its marginal price factors represented all utilities and all states, 
averaging over all customers, and was therefore ``more representative 
of a large group of consumers with diverse baseline gas usage levels 
than an approach that uses only tariffs.'' 81 FR 65719, 65784. While 
the above comparative analysis was conducted for residential consumers, 
the general conclusions regarding the accuracy of EIA data relative to 
tariff data remain the same for commercial consumers. DOE uses EIA data 
for determining both residential and commercial electricity prices and 
the nature of the data is the same for both sectors. DOE further notes 
that not all operators of CWH equipment are larger load utility 
customers. As reflected in the building sample derived from CBECS 2012 
and RECS 2009 data, there are a range of buildings with varying 
characteristics, including multi-family residential buildings, that 
operate CWH equipment. The buildings in the LCC sample have varying hot 
water heating load, square footage, and water heater capacity. 
Operators of CWH equipment are varied, some large and some smaller, and 
thus the determination of the applicable marginal energy price should 
reflect the average CWH equipment operator.
---------------------------------------------------------------------------

    \91\ See appendix 8E of the TSD for the 2016 supplemental notice 
of proposed rulemaking for residential furnaces for a direct 
comparison, available at: www.regulations.gov/document/EERE-2014-BT-STD-0031-0217 (Last accessed January 25, 2022).
---------------------------------------------------------------------------

    DOE's approach is based on the largest, most comprehensive, most 
granular national data sets on commercial energy prices that are 
publicly available from EIA. The data from EIA are the highest quality 
energy price data available to DOE. The resulting estimated marginal 
energy prices do represent an average across all commercial customers 
in a given region (state or group of states for RECS, census division 
for CBECS). Some customers may have a lower marginal energy price, 
while others may have a higher marginal energy price. With respect to 
large customers who may pay a lower energy price, no tariffs were 
submitted to DOE during the rulemaking for analysis. Tariffs for 
individual non-residential customers can be very complex and generally 
depend on both total energy use and peak demand (especially for 
electricity). These tariffs vary significantly from one utility to 
another. While DOE was unable to identify data to provide a basis for 
determining a potentially lower price for larger commercial and 
industrial utility customers, either on a state-by-state basis or in a 
nationally representative manner, the historic data on which DOE did 
rely includes such

[[Page 30668]]

discounts. The EIA data include both large non-residential customers 
with a potentially lower rate as well as more typical non-residential 
customers with a potentially higher rate. Thus, to the extent larger 
consumers of energy pay lower marginal rates, those lower rates are 
already incorporated into the EIA data, which would drive down EIA's 
marginal rates for all consumers. If DOE were to adjust downward the 
marginal energy price for a small subset of individual customers in the 
LCC Monte Carlo, it would also have to adjust upward the marginal 
energy price for all other customers in the sample to maintain the same 
marginal energy price averaged over all customers. Even assuming DOE 
could accomplish those adjustments in a reliable or accurate way, this 
upward adjustment in marginal energy price would affect the majority of 
buildings in the LCC sample. Operational cost savings would therefore 
both decrease and increase for different buildings in the LCC sample, 
yielding substantially the same overall average LCC savings result as 
DOE's current estimate.
    In summary, DOE's current approach utilizes an estimate of marginal 
energy prices and captures the impact of actual utility rates paid by 
all customers in a State, including those that enjoy lower marginal 
rates for whatever reason, in an aggregated fashion. Adjustments to 
this methodology are unlikely to change the average LCC results.
    DOE uses EIA's forecasted energy prices to compute future energy 
prices indices (for this NOPR, DOE updated forecasts from data 
published in the AEO2021 Reference case), and combines those indices 
with monthly historical energy prices and seasonal marginal price 
factors in calculating future energy costs in the LCC analysis. For 
this NOPR, DOE used 2019 EIA energy price data as a starting point and 
notes that the 2019 historical average natural gas prices are lower 
than the historical prices used in the withdrawn NOPR. EIA historical 
price trends and calculated indices are developed in a reasonable 
manner using the best available data and models, and DOE uses these 
trends consistently across its regulatory analyses. DOE points out that 
this NOPR analyzes potential new standards for gas-fired equipment, and 
that electricity usage for such commercial equipment occurs both during 
standby and during firing periods (depending on equipment design) and 
can occur during periods of utility peak usage. While electricity usage 
and resultant expenditures are significantly lower than fuel (gas)-
related expenditures, they do impact the LCC analysis and have been 
included, using the calculated marginal electricity costs. DOE's use of 
marginal cost factors for electricity in this analysis, which is based 
on overall electric expenditures, including those associated with 
electricity demand, may result in somewhat higher electricity costs 
than cost figures which omit the impact of demand costs; however, this 
is appropriate for the current analysis, barring other information on 
commercial load profiles and demand-peak windows. After careful 
consideration during the preparation of this NOPR, DOE concluded that 
it is appropriate to use its existing approach to the development of 
electric and fuel costs for the LCC and PBP analysis that (1) considers 
marginal electric and natural gas costs in its economic analysis, (2) 
reflects seasonal variation in marginal costs, and (3) uses EIA-
recommended future energy price escalation rates. DOE maintained this 
approach for this NOPR.
e. Maintenance Costs
    Maintenance costs are the routine annual costs to the consumer of 
ensuring continued equipment operation. DOE utilized The Whitestone 
Facility Maintenance and Repair Cost Reference 2012-2013 
92 93 to determine the amount of labor and material costs 
required for maintenance of each of the relevant CWH equipment 
subcategories. Maintenance costs include services such as cleaning the 
burner and flue and changing anode rods. DOE estimated average annual 
routine maintenance costs for each class of CWH equipment based on 
equipment groupings. Table IV.20 presents various maintenance services 
identified and the amount of labor required to service the equipment 
covered in the NOPR analysis.
---------------------------------------------------------------------------

    \92\ Whitestone Research. The Whitestone Facility Maintenance 
and Repair Cost Reference 2012-2013 (17th Annual edition). 2012. 
Whitestone Research: Santa Barbara, CA.
    \93\ The Whitestone Research report is the most recent available 
from this source. The report was used in the determination of labor 
hours for maintenance and DOE has found no evidence indicating that 
maintenance tasks and labor hours have changed except as addressed 
in subsequent sections of this NOPR.

          Table IV.20--Summary of Maintenance Labor Hours and Schedule Used in the LCC and PBP Analyses
----------------------------------------------------------------------------------------------------------------
                                                                                                     Frequency
                   Equipment                               Description              Labor hours       (years)
----------------------------------------------------------------------------------------------------------------
Commercial gas-fired storage water heaters;     Clean (Volume <=275 gallons)....            2.67               1
 Residential-duty gas-fired storage water       Clean (Volume >275 gallons).....               8               2
 heaters.
                                                Overhaul........................            1.84               5
Gas-fired instantaneous tankless water heaters  Service.........................            0.75               1
Gas-fired instantaneous circulating water       Service.........................            7.12               1
 heaters and hot water supply boilers.
----------------------------------------------------------------------------------------------------------------

    Because data were not available to indicate how maintenance costs 
vary with equipment efficiency, DOE used preventive maintenance costs 
that remain constant as equipment efficiency increases. Additional 
information relating to maintenance of CWH equipment can be found in 
chapter 8 of the NOPR TSD.
    In response to the withdrawn NOPR, PHCC and Bradford White argued 
that maintenance of condensing equipment takes more labor time when 
compared to non-condensing equipment, i.e., that maintenance costs are 
not independent of thermal efficiency. (PHCC, No. 34 at p. 2; Bradford 
White, No. 42 at pp. 9-10) In preparing this NOPR, DOE reviewed the 
manuals of non-condensing and condensing CWH equipment for a number of 
major manufacturers (listed in NOPR TSD Appendix 8E). The maintenance 
sections of these manuals provide a detailed list of maintenance 
activities for the corresponding CWH model. Comparing non-condensing to 
condensing CWH equipment, DOE identified condensate line inspection as 
the distinct maintenance activity differentiating the two. This 
activity is neither sophisticated nor time consuming and not separately 
included. None of the manuals for condensing CWH equipment provided 
maintenance activities for controls, enclosures, access

[[Page 30669]]

panels, wiring or motors. This suggests that there may be a confusion 
between what regular maintenance activities are and what would be 
considered repair. Accordingly, DOE has decided to maintain its current 
methodology for assigning the maintenance costs for non-condensing and 
condensing CWH equipment, with one exception. DOE added an additional 
0.0833 labor hours per year \94\ for checking condensate neutralizers 
during annual maintenance work, and $10 per year \95\ for replacing the 
material within the neutralizers.
---------------------------------------------------------------------------

    \94\ U.S. Department of Energy, Technical Support Document: 
Energy Efficiency Program for Consumer Products and Commercial and 
Industrial Equipment: Commercial Warm Air Furnaces. 2015. Docket No. 
EERE-2013-BT-STD-0021. The Commercial Warm Air Furnaces NOPR TSD 
assumed 0.078 hours for replacing neutralizer filler every 3 years. 
For this NOPR, DOE used 5 minutes per year for checking and/or 
refilling neutralizers.
    \95\ The condensate neutralizer DOE included in installation 
costs weighs approximately 5 pounds. It is essentially a plastic 
tube with water inlet and outlet, and filled with calcium carbonate 
pellets, and DOE estimates the pellets comprise 3.5 to 4 pounds of 
the total. DOE found prices ranging from $0.25 per pound 
(phoenixphysique.com/ism-root-pvlsc/91da02-marble-chips-for-condensate-neutralizer) up to $3 per pound in smaller purpose 
products. DOE estimates $10 per year would be sufficient to replace 
the pellets.
---------------------------------------------------------------------------

    In response to the withdrawn NOPR PHCC and Rheem commented that 
DOE's assumption of 0.33 hours for tankless water heater maintenance as 
too low, with Rheem suggesting a minimum of 0.75 hour. (PHCC, No. 34 at 
p. 1; Rheem, No. 43 at p. 25) In response, DOE relied on Whitestone 
Facility Maintenance and Repair Cost Reference \96\ for the labor hours 
required for tankless water heater maintenance in the NOPR. Given the 
time needed to descale a tankless water heater annually, DOE increased 
the labor hours for tankless water heater maintenance to 0.75 hours per 
year, as recommended by Rheem. In addition, DOE conducted research on 
the maintenance labor activities and associated hours needed to 
maintain commercial gas-fired instantaneous circulating water heaters 
and hot water supply boilers. This research involved reviewing guidance 
in manufacturer product manuals in combination with the estimates in 
the Whitestone Facility Maintenance and Repair Cost Reference and the 
RS Means Facilities Maintenance and Repair Cost Data.\97\ Using these 
references, DOE updated the maintenance labor hours from 0.33 to 7.12 
for this equipment category. Appendix 8E of the NOPR TSD provides more 
detail on maintenance labor hours assigned to each equipment category 
of CWH.
---------------------------------------------------------------------------

    \96\ Whitestone Research. The Whitestone Facility Maintenance 
and Repair Cost Reference 2012-2013 (17th Annual edition). 2012. 
Whitestone Research: Santa Barbara, CA.
    \97\ RS Means Company. Facilities Maintenance and Repair Cost 
Data 2021. 28th Annual Edition. Available at https://www.rsmeans.com/products/books/2021-facilities-maintenance-repair-costs-book.
---------------------------------------------------------------------------

f. Repair Costs
    The repair cost is the cost to the consumer of replacing or 
repairing components that have failed in the CWH equipment.
    DOE calculated CWH repair costs based on an assumed typical failure 
rate for key CWH subsystems. DOE assumed a failure rate of 0.5 percent 
per year for combustion systems, 1 percent per year for controls, and 2 
percent per year for high efficiency controls applied with condensing 
equipment. This probability of repair is assumed to extend through the 
life of the equipment, but only one major repair in the life of the 
equipment was considered.
    The labor required to repair a subsystem was estimated as 2 hours 
for combustion systems and 1 hour for combustion controls. Labor costs 
are based upon servicing by one plumber with overhead and profit 
included and are based on RSMeans data.\98\ Because a repair may not 
require the complete subsystem replacement, but rather separate 
components, DOE estimated a typical repair would have material costs of 
one-half the subsystem total cost, but would require the equivalent 
labor hours for total subsystem replacement. DOE calculated a cost for 
repair over the life of a CWH unit with these assumptions, and used 
that cost or repair in the analysis. A repair year was selected at 
random over the life for each unit selected in the LCC and the repair 
cost occurring in that year was discounted to present value for the LCC 
analysis.
---------------------------------------------------------------------------

    \98\ RSMeans. RSMeans Mechanical Costs Book 2021. Available at 
www.rsmeans.com/products/books.
---------------------------------------------------------------------------

    Heat exchanger failure is a unique repair scenario for certain 
commercial gas-fired instantaneous circulating water heaters and hot 
water supply boilers and was included in DOE's repair cost analysis. 
The use of condensing or non-condensing technology determines the rate 
and timing of heat exchanger failure as well as the cost of repair with 
an approximately three times greater probability of repair for 
condensing equipment. DOE's assumptions for the frequency of failure 
and the mean year of heat exchanger failure were based on a report from 
the Gas Research Institute (``GRI'') for boilers.\99\ The cost of heat 
exchanger replacement is assumed to be a third of the total water 
heater replacement cost.
---------------------------------------------------------------------------

    \99\ 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, 1994. Gas 
Research Institute. AGA Laboratories: Chicago, IL. Report No. GRI-
94/0175.
---------------------------------------------------------------------------

    In the October 2014 RFI, DOE asked if repair costs vary as a 
function of equipment efficiency. 79 FR 62899, 62908 (Oct. 21, 2014). 
Four stakeholders commented on the relationship between equipment 
efficiency and repair costs, with emphasis that higher-efficiency 
equipment incorporates additional components and more complex controls. 
(Bradford White, No. 3 at p. 3; A.O. Smith, No. 2 at p.4; AHRI, No. 5 
at p. 5; Rheem, No. 10 at p.7) DOE considered the feedback from the 
stakeholders and undertook further research to identify components and 
subsystems commonly replaced in order to evaluate differences in repair 
costs relative to efficiency levels.
    As a result of its research, DOE learned that the combustion 
systems and controls used in gas-fired CWH equipment have different 
costs related to the efficiency levels of these products, a finding in 
agreement with comments provided on the RFI. For the combustion 
systems, these differences relate predominately to atmospheric 
combustion, powered atmospheric combustion, and pre-mixed modulating 
combustion systems used on baseline-efficiency, moderate-efficiency, 
and high-efficiency products respectively. The control systems employed 
on atmospheric combustion systems were found to be significantly less 
expensive than the controller used on powered combustion systems, which 
was observed to include a microprocessor in some products.
    Where similar component parts and costs were identified that 
reflected the equipment category and efficiency, DOE's component cost 
was estimated as the average cost of those replacement components 
identified. This cost was applied at the frequency identified earlier 
in this section. DOE understands that this approach may conservatively 
estimate the total cost of repair for purposes of DOE's analysis, but 
the percentage of total repair cost remains small compared to the 
consumer cost and the total installation cost. Additionally, DOE 
prefers to use this component-level approach to understand the 
incremental repair cost difference between efficiency levels of 
equipment. Additional details of this analysis and source references 
for the subsystem and component costs are found in chapter 8 of the 
NOPR TSD

[[Page 30670]]

and Appendix 8E of the NOPR TSD. DOE's incorporation and approach to 
repair costs in the LCC did not change from the NOPR implementation.
    Anonymous commented that condensing technology combined with 
electronic ignition is less reliable. (Anonymous, No. 21 at p. 1) Rheem 
commented that repair costs increase as a function of thermal 
efficiency, and asked that DOE present a tailored repair analysis for 
all TSLs considered. (Rheem, Public Meeting Transcript, No. 20 at p. 
127). In response, DOE acknowledges the point and again clarifies that 
in the LCC model, repair costs do vary as a function of thermal 
efficiency and are comparatively higher for condensing equipment. DOE 
did not perform an explicit repair/replace type analysis for CWH 
equipment, and this is documented in appendix 8E. The largest shipments 
of CWH equipment are storage water heaters and all commercial water 
heaters are high cost equipment; therefore, minor repairs that can be 
addressed with a part exchange (e.g., thermostat repair) are assumed to 
be done as part of regular repair and maintenance operation during the 
early life of the equipment. Thus, DOE assumed that most failures 
leading to replacement in non-condensing equipment are tied to storage-
tank leakage, which is not considered a long-term repairable situation 
given the typical glass-lined steel tanks used. Other repairs, such as 
combustion system repairs, will be made or not based on the assessment 
of the remaining tank life. Because this is such a fundamental 
limitation to the equipment life, DOE tentatively concluded that any 
repair or replacement consideration will have only a minimal effect on 
the equipment life and the subsequent LCC and NIA analysis.
g. Product Lifetime
    Product lifetime is the age when a unit of CWH equipment is retired 
from service. DOE used a distribution of lifetimes, with the weighted 
averages ranging between 10 years and 25 years as shown in Table IV.21, 
which are based on a review of CWH equipment lifetime estimates found 
in published studies and online documents. Sources include documents 
from prior DOE efficiency standards rulemaking processes, LBNL, NREL, 
the EIA, Federal Energy Management Program, Building Owner and Managers 
Association, Gas Foodservice Equipment Network, San Francisco Apartment 
Association, and National Grid.\100\ Specific document titles and 
references are provided in Appendix 8F of the NOPR TSD. DOE applied a 
distribution to all classes of CWH equipment analyzed. Chapter 8 of the 
NOPR TSD contains a detailed discussion of CWH equipment lifetimes.
---------------------------------------------------------------------------

    \100\ DOE attempted to only include only unique sources, as 
opposed to documents citing other sources already included in DOE's 
reference list.

         Table IV.21--Average CWH Lifetime Used in NOPR Analyses
------------------------------------------------------------------------
                                                               Average
                       CWH equipment                           lifetime
                                                               (years)
------------------------------------------------------------------------
Commercial gas-fired storage water heaters and storage-type           10
 instantaneous.............................................
Residential-duty gas-fired storage water heaters...........           12
Gas-fired instantaneous water heaters and hot water supply
 boilers:
  Tankless water heaters...................................           17
  Circulating water heaters and hot water supply boilers...           25
------------------------------------------------------------------------

    DOE notes that the average lifetime of all equipment covered by 
this proposed rulemaking is the same for baseline and max-tech thermal 
efficiency levels. The lifetime selected for each simulation run 
varies, but the weighted-average lifetime is the same across all 
thermal efficiency levels. DOE does not have data to suggest that the 
lifetime of condensing CWH equipment is lower than that of non-
condensing equipment, despite the comments from industry purporting 
this viewpoint. DOE does have and has incorporated data regarding 
increased repair costs for individual component failures that may occur 
in higher-efficiency equipment, as discussed in section IV.F.2.f of 
this document. DOE considered basing lifetime on warranty periods, but 
notes that warranty periods are based on individual business decisions 
for each manufacturer or entity that offers a warranty, decisions which 
likely reflect considerations other than expected lifetime. 
Accordingly, DOE has not used warranty periods to establish equipment 
lifetime in this NOPR. Additionally, DOE notes that lifetime used for 
hot water supply boilers in this proposed rulemaking is the same as the 
lifetime used in the space heating boilers rulemaking. (Docket No. 
EERE-2014-BT-STD-0030-0083 at p.8F-1)
h. Discount Rate
    In the calculation of LCC, DOE applies appropriate discount rates 
to estimate the present value of future operating costs. DOE determined 
the discount rate by estimating the cost of capital for purchasers of 
CWH equipment. Most purchasers use both debt and equity capital to fund 
investments. Therefore, for most purchasers, the discount rate is the 
weighted-average cost of debt and equity financing, or the weighted-
average cost of capital (``WACC''), less the expected inflation.
    DOE applies weighted average discount rates calculated from 
consumer debt and asset data, rather than marginal or implicit discount 
rates.\101\ DOE notes that the LCC does not analyze the appliance 
purchase decision, so the implicit discount rate is not relevant in 
this model. The LCC estimates net present value over the lifetime of 
the product, so the appropriate discount rate will reflect the general 
opportunity cost of household funds, taking this time scale into 
account. Given the long time horizon modeled in the LCC, the 
application of a marginal interest rate associated with an initial 
source of funds is inaccurate. Regardless of the method of purchase, 
consumers are expected to continue to rebalance their debt and asset 
holdings over the LCC analysis period, based on the restrictions 
consumers face in their debt payment requirements and the relative size 
of the interest rates available on debts and assets. DOE estimates the 
aggregate impact of this rebalancing using the historical distribution 
of debts and assets.
---------------------------------------------------------------------------

    \101\ The implicit discount rate is inferred from a consumer 
purchase decision between two otherwise identical goods with 
different first cost and operating cost. It is the interest rate 
that equates the increment of first cost to the difference in net 
present value of lifetime operating cost, incorporating the 
influence of several factors: Transaction costs; risk premiums and 
response to uncertainty; time preferences; interest rates at which a 
consumer is able to borrow or lend.
---------------------------------------------------------------------------

    To estimate the WACC of CWH equipment purchasers, DOE used a sample 
of detailed business sub-sector statistics, drawn from the database of 
U.S. companies presented on the Damodaran Online website.\102\ This 
database includes most of the publicly-traded companies in the United 
States. Using this database, Damodaran developed a historical series of 
sub-sector-level annual statistics for 100+ business sub-sectors. Using 
data for 1998-2019, inclusive, DOE developed sub-sector average WACC 
estimates, which were then assigned to aggregate categories. For 
commercial water heaters, the applicable aggregate categories include 
retail and service, property/real-estate investment trust (``REIT''), 
medical facilities, industrial,

[[Page 30671]]

hotel, food service, office, education, and other. The WACC approach 
for determining discount rates accounts for the applicable tax rates 
for each category. DOE did not evaluate the marginal effects of 
increased costs, and, thus, depreciation due to more expensive 
equipment, on the overall tax status.
---------------------------------------------------------------------------

    \102\ Damodaran Online. Damodaran financial data used for 
determining cost of capital. Available at pages.stern.nyu.edu/
~adamodar/. Last accessed on February 16, 2021.
---------------------------------------------------------------------------

    DOE used the sample of business sub-sectors to represent purchasers 
of CWH equipment. For each observation in the sample, DOE derived the 
cost of debt, percentage of debt financing, and cost of equity from 
industry-level data on the Damodaran Online website, from long-term 
nominal S&P 500 returns also developed by Damodaran, and risk-free 
interest rates based on nominal long-term Federal government bond 
rates. DOE then determined the weighted-average values for the cost of 
capital, and the range and distribution of values of WACC for each of 
the sample business sectors. Deducting expected inflation from the cost 
of capital provided estimates of the real discount rate by ownership 
category.
    For most educational buildings and a portion of the office 
buildings occupied by public schools, universities, and State and local 
government agencies, DOE estimated the cost of capital based on a 40-
year geometric mean of an index of long-term tax-exempt municipal bonds 
(>20 years).103 104 Federal office space was assumed to use 
the Federal bond rate, derived as the 40-year geometric average of 
long-term (>10 years) U.S. government securities.\105\
---------------------------------------------------------------------------

    \103\ Federal Reserve Bank of St. Louis. State and Local Bonds--
Bond Buyer Go 20-Bond Municipal Bond Index. Data available through 
2015 at research.stlouisfed.org/fred2/series/MSLB20/downloaddata?cid=32995. Last accessed April 3, 2020.
    \104\ Bartel Associates, LLC. Ba 2019-12-31 20 Year AA Municipal 
Bond Rates. Averaged quarterly municipal bond rates to develop 
annual averages for 2016-2020. bartel-associates.com/resources/select-gasb-67-68-discount-rate-indices. Last accessed on February 
18, 2021.
    \105\ Rate calculated with rolling 40-year data series for the 
years 1989-2020. Data source: U.S. Federal Reserve. Available at 
www.federalreserve.gov/releases/h15/data.htm. Last accessed on 
February 18, 2021.
---------------------------------------------------------------------------

    Based on this database, DOE calculated the weighted-average, after-
tax discount rate for CWH equipment purchases, adjusted for inflation, 
made by commercial users of the equipment.
    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. It estimated the average percentage shares of the 
various types of debt and equity by household income group using data 
from the Federal Reserve Board's Survey of Consumer Finances (SCF) 
\106\ for 1995, 1998, 2001, 2004, 2007, 2010, 2013, 2016, and 2019. 
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 standards would take 
effect. In the Crystal Ball\TM\ analyses, when an LCC model selects a 
residential observation, the model selects an income group and then 
selects a discount rate from the distribution for that group. Chapter 8 
of the NOPR TSD contains the detailed calculations related to discount 
rates.
---------------------------------------------------------------------------

    \106\ Board of Governors of the Federal Reserve System. Survey 
of Consumer Finances. Available at www.federalreserve.gov/PUBS/oss/
oss2/scfindex.html.
---------------------------------------------------------------------------

    Use of discount rates in each section of the analysis is specific 
to the affected parties and the impacts being examined (e.g., LCC: 
Consumers, MIA: Manufacturers; NIA: National impacts using OMB-
specified discount rates), consistent with the general need to examine 
these impacts independently. In addition, where factors indicate that a 
range or variability in discount rates is an important consideration 
and can be or is provided, DOE uses a range of discount rates in its 
various analyses.
    For this NOPR, DOE examined its established process for development 
and use of discount rates and has tentatively concluded that it 
sufficiently characterizes the discount rate facing consumers.
i. Energy 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 (market shares) of product efficiencies under the no-new-
standards case (i.e., the case without amended or new energy 
conservation standards).
    To estimate the energy efficiency distribution of CWH equipment for 
2026, DOE developed the no-new-standards distribution of equipment 
using data from DOE's Compliance Certification database and data 
submitted by AHRI regarding condensing versus non-condensing equipment.
    Each building in the sample was then assigned a water heater 
efficiency sampled from the no-new-standards case efficiency 
distribution for the appropriate equipment class, shown in Table IV.22. 
DOE was not able to assign a CWH efficiency to a building in the no-
new-standards case based on building characteristics, since CBECS 2012 
and RECS 2009 did not provide enough information to distinguish 
installed water heaters disaggregated by efficiency. The efficiency of 
a CWH was assigned based on the forecasted efficiency distribution 
(which is constrained by the shipment and model data collected by DOE 
and submitted by AHRI) and accounts for consumers that are already 
purchasing efficient CWHs.
    While DOE acknowledges that economic factors may play a role when 
building owners or builders decide on what type of CWH to install, 
assignment of CWH efficiency for a given installation, based solely on 
economic measures such as life-cycle cost or simple payback period, 
most likely would not fully and accurately reflect actual real-world 
installations. There are a number of commercial sector market failures 
discussed in the economics literature, including a number of case 
studies, that illustrate how purchasing decisions with respect to 
energy efficiency are likely to not be completely correlated with 
energy use, as described below.
    There are several market failures or barriers that affect energy 
decisions generally. Some of those that affect the commercial sector 
specifically are detailed below. However, more generally, there are 
several behavioral factors that can influence the purchasing decisions 
of complicated multi-attribute products, such as water heaters. For 
example, consumers (or decision makers in an organization) are highly 
influenced by choice architecture, defined as the framing of the 
decision, the surrounding circumstances of the purchase, the 
alternatives available, and how they're presented for any given choice 
scenario.\107\ The same consumer or decision maker may make different 
choices depending on the characteristics of the decision context (e.g., 
the timing of the purchase, competing demands for funds), which have 
nothing to do with the characteristics of the alternatives themselves 
or their prices. Consumers or decision makers also face a variety of 
other behavioral phenomena including loss aversion, sensitivity to 
information salience, and other forms of bounded rationality.\108\ 
Thaler, who won the

[[Page 30672]]

Nobel Prize in Economics in 2017 for his contributions to behavioral 
economics, and Sunstein point out that these behavioral factors are 
strongest when the decisions are complex and infrequent, when feedback 
on the decision is muted and slow, and when there is a high degree of 
information asymmetry.\109\ These characteristics describe almost all 
purchasing situations of appliances and equipment, including CWHs. The 
installation of a new or replacement CWH in a commercial building is a 
complex, technical decision involving many actors and is done very 
infrequently, as evidenced by the CWH mean lifetime of up to 25 
years.\110\ Additionally, it would take at multiple billing cycles for 
any impacts on operating costs to be fully apparent. Further, if the 
purchaser of the CWH is not the entity paying the energy costs (e.g., a 
building owner and tenant), there may be little to no feedback on the 
purchase. These behavioral factors are in addition to the more specific 
market failures described as follows.
---------------------------------------------------------------------------

    \107\ Thaler, R.H., Sunstein, C.R., and Balz, J.P. (2014). 
``Choice Architecture'' in The Behavioral Foundations of Public 
Policy, Eldar Shafir (ed).
    \108\ Thaler, R.H., and Bernartzi, S. (2004). ``Save More 
Tomorrow: Using Behavioral Economics in Increase Employee Savings,'' 
Journal of Political Economy 112(1), S164-S187. See also Klemick, 
H., et al. (2015) ``Heavy-Duty Trucking and the Energy Efficiency 
Paradox: Evidence from Focus Groups and Interviews,'' Transportation 
Research Part A: Policy & Practice, 77, 154-166. (providing evidence 
that loss aversion and other market failures can affect otherwise 
profit-maximizing firms).
    \109\ Thaler, R.H., and Sunstein, C.R. (2008). Nudge: Improving 
Decisions on Health, Wealth, and Happiness. New Haven, CT: Yale 
University Press.
    \110\ American Society of Heating, Refrigerating, and Air-
Conditioning Engineers. 2011 ASHRAE Handbook: Heating, Ventilating, 
and Air-Conditioning Applications. 2011. Available at 
www.ashrae.org/resources--publications. Last accessed on October 16, 
2016.
---------------------------------------------------------------------------

    It is often assumed that because commercial and industrial 
customers are businesses that have trained or experienced individuals 
making decisions regarding investments in cost-saving measures, some of 
the commonly observed market failures present in the general population 
of residential customers should not be as prevalent in a commercial 
setting. However, there are many characteristics of organizational 
structure and historic circumstance in commercial settings that can 
lead to underinvestment in energy efficiency.
    First, a recognized problem in commercial settings is the 
principal-agent problem, where the building owner (or building 
developer) selects the equipment and the tenant (or subsequent building 
owner) pays for energy costs.111 112 Indeed, a substantial 
fraction of commercial buildings with a CWH in the CBECS 2012 sample 
are occupied at least in part by a tenant, not the building owner 
(indicating that, in DOE's experience, the building owner likely is not 
responsible for paying energy costs). Additionally, some commercial 
buildings have multiple tenants. There are other similar misaligned 
incentives embedded in the organizational structure within a given firm 
or business that can impact the choice of a CWH. For example, if one 
department or individual within an organization is responsible for 
capital expenditures (and therefore equipment selection) while a 
separate department or individual is responsible for paying the energy 
bills, a market failure similar to the principal-agent problem can 
result.\113\ Additionally, managers may have other responsibilities and 
often have other incentives besides operating cost minimization, such 
as satisfying shareholder expectations, which can sometimes be focused 
on short-term returns.\114\ Decision-making related to commercial 
buildings is highly complex and involves gathering information from and 
for a variety of different market actors. It is common to see 
conflicting goals across various actors within the same organization as 
well as information asymmetries between market actors in the energy 
efficiency context in commercial building construction.\115\
---------------------------------------------------------------------------

    \111\ Vernon, D., and Meier, A. (2012). ``Identification and 
quantification of principal-agent problems affecting energy 
efficiency investments and use decisions in the trucking industry,'' 
Energy Policy, 49, 266-273.
    \112\ Blum, H. and Sathaye, J. (2010). ``Quantitative Analysis 
of the Principal-Agent Problem in Commercial Buildings in the U.S.: 
Focus on Central Space Heating and Cooling,'' Lawrence Berkeley 
National Laboratory, LBNL-3557E. (Available at: escholarship.org/uc/item/6p1525mg) (Last accessed January 20, 2022).
    \113\ Prindle, B., Sathaye, J., Murtishaw, S., Crossley, D., 
Watt, G., Hughes, J., and de Visser, E. (2007). ``Quantifying the 
effects of market failures in the end-use of energy,'' Final Draft 
Report Prepared for International Energy Agency. (Available from 
International Energy Agency, Head of Publications Service, 9 rue de 
la Federation, 75739 Paris, Cedex 15 France).
    \114\ Bushee, B.J. (1998). ``The influence of institutional 
investors on myopic R&D investment behavior,'' Accounting Review, 
305-333.
    DeCanio, S.J. (1993). ``Barriers Within Firms to Energy 
Efficient Investments,'' Energy Policy, 21(9), 906-914. (explaining 
the connection between short-termism and underinvestment in energy 
efficiency).
    \115\ International Energy Agency (IEA). (2007). Mind the Gap: 
Quantifying Principal-Agent Problems in Energy Efficiency. OECD Pub. 
(Available at: www.iea.org/reports/mind-the-gap) (Last accessed 
January 20, 2022).
---------------------------------------------------------------------------

    Second, the nature of the organizational structure and design can 
influence priorities for capital budgeting, resulting in choices that 
do not necessarily maximize profitability.\116\ Even factors as simple 
as unmotivated staff or lack of priority-setting and/or a lack of a 
long-term energy strategy can have a sizable effect on the likelihood 
that an energy efficient investment will be undertaken.\117\ U.S. tax 
rules for commercial buildings may incentivize lower capital 
expenditures, since capital costs must be depreciated over many years, 
whereas operating costs can be fully deducted from taxable income or 
passed through directly to building tenants.\118\
---------------------------------------------------------------------------

    \116\ DeCanio, S.J. (1994). ``Agency and control problems in US 
corporations: The case of energy-efficient investment projects,'' 
Journal of the Economics of Business, 1(1), 105-124.
    Stole, L.A., and Zwiebel, J. (1996). ``Organizational design and 
technology choice under intrafirm bargaining,'' The American 
Economic Review, 195-222.
    \117\ Rohdin, P., and Thollander, P. (2006). ``Barriers to and 
driving forces for energy efficiency in the non-energy intensive 
manufacturing industry in Sweden,'' Energy, 31(12), 1836-1844.
    Takahashi, M and Asano, H (2007). ``Energy Use Affected by 
Principal-Agent Problem in Japanese Commercial Office Space 
Leasing,'' In Quantifying the Effects of Market Failures in the End-
Use of Energy. American Council for an Energy-Efficient Economy. 
February 2007.
    Visser, E and Harmelink, M (2007). ``The Case of Energy Use in 
Commercial Offices in the Netherlands,'' In Quantifying the Effects 
of Market Failures in the End-Use of Energy. American Council for an 
Energy-Efficient Economy. February 2007.
    Bjorndalen, J. and Bugge, J. (2007). ``Market Barriers Related 
to Commercial Office Space Leasing in Norway,'' In Quantifying the 
Effects of Market Failures in the End-Use of Energy. American 
Council for an Energy-Efficient Economy. February 2007.
    Schleich, J. (2009). ``Barriers to energy efficiency: A 
comparison across the German commercial and services sector,'' 
Ecological Economics, 68(7), 2150-2159.
    Muthulingam, S., et al. (2013). ``Energy Efficiency in Small and 
Medium-Sized Manufacturing Firms,'' Manufacturing & Service 
Operations Management, 15(4), 596-612. (Finding that manager 
inattention contributed to the non-adoption of energy efficiency 
initiatives).
    Boyd, G.A., Curtis, E.M. (2014). ``Evidence of an `energy 
management gap' in US manufacturing: Spillovers from firm management 
practices to energy efficiency,'' Journal of Environmental Economics 
and Management, 68(3), 463-479.
    \118\ Lovins, A. (1992). Energy-Efficient Buildings: 
Institutional Barriers and Opportunities. (Available at: rmi.org/insight/energy-efficient-buildings-institutional-barriers-and-opportunities/) (Last accessed January 20, 2022).
---------------------------------------------------------------------------

    Third, there are asymmetric information and other potential market 
failures in financial markets in general, which can affect decisions by 
firms with regard to their choice among alternative investment options, 
with energy efficiency being one such option.\119\

[[Page 30673]]

Asymmetric information in financial markets is particularly pronounced 
with regard to energy efficiency investments.\120\ There is a dearth of 
information about risk and volatility related to energy efficiency 
investments, and energy efficiency investment metrics may not be as 
visible to investment managers,\121\ which can bias firms towards more 
certain or familiar options. This market failure results not because 
the returns from energy efficiency as an investment are inherently 
riskier, but because information about the risk itself tends not to be 
available in the same way it is for other types of investment, like 
stocks or bonds. In some cases energy efficiency is not a formal 
investment category used by financial managers, and if there is a 
formal category for energy efficiency within the investment portfolio 
options assessed by financial managers, they are seen as weakly 
strategic and not seen as likely to increase competitive 
advantage.\122\ This information asymmetry extends to commercial 
investors, lenders, and real-estate financing, which is biased against 
new and perhaps unfamiliar technology (even though it may be 
economically beneficial).\123\ Another market failure known as the 
first-mover disadvantage can exacerbate this bias against adopting new 
technologies, as the successful integration of new technology in a 
particular context by one actor generates information about cost-
savings, and other actors in the market can then benefit from that 
information by following suit; yet because the first to adopt a new 
technology bears the risk but cannot keep to themselves all the 
informational benefits, firms may inefficiently underinvest in new 
technologies.\124\
---------------------------------------------------------------------------

    \119\ Fazzari, S.M., Hubbard, R.G., Petersen, B.C., Blinder, 
A.S., and Poterba, J.M. (1988). ``Financing constraints and 
corporate investment,'' Brookings Papers on Economic Activity, 
1988(1), 141-206.
    Cummins, J.G., Hassett, K.A., Hubbard, R.G., Hall, R.E., and 
Caballero, R.J. (1994). ``A reconsideration of investment behavior 
using tax reforms as natural experiments,'' Brookings Papers on 
Economic Activity, 1994(2), 1-74.
    DeCanio, S.J., and Watkins, W.E. (1998). ``Investment in energy 
efficiency: do the characteristics of firms matter? '' Review of 
Economics and Statistics, 80(1), 95-107.
    Hubbard R.G. and Kashyap A. (1992). ``Internal Net Worth and the 
Investment Process: An Application to U.S. Agriculture,'' Journal of 
Political Economy, 100, 506-534.
    \120\ Mills, E., Kromer, S., Weiss, G., and Mathew, P.A. (2006). 
``From volatility to value: analysing and managing financial and 
performance risk in energy savings projects,'' Energy Policy, 34(2), 
188-199.
    Jollands, N., Waide, P., Ellis, M., Onoda, T., Laustsen, J., 
Tanaka, K., and Meier, A. (2010). ``The 25 IEA energy efficiency 
policy recommendations to the G8 Gleneagles Plan of Action,'' Energy 
Policy, 38(11), 6409-6418.
    \121\ Reed, J.H., Johnson, K., Riggert, J., and Oh, A. D. 
(2004). ``Who plays and who decides: The structure and operation of 
the commercial building market,'' U.S. Department of Energy Office 
of Building Technology, State and Community Programs. (Available at: 
www1.eere.energy.gov/buildings/publications/pdfs/commercial_initiative/who_plays_who_decides.pdf) (Last accessed 
January 20, 2022).
    \122\ Cooremans, C. (2012). ``Investment in energy efficiency: 
do the characteristics of investments matter? '' Energy Efficiency, 
5(4), 497-518.
    \123\ Lovins 1992, op. cit. The Atmospheric Fund. (2017). Money 
on the table: Why investors miss out on the energy efficiency 
market. (Available at: taf.ca/publications/money-table-investors-
energy-efficiency-market/) (Last accessed January 20, 2022).
    \124\ Blumstein, C. and Taylor, M. (2013). Rethinking the 
Energy-Efficiency Gap: Producers, Intermediaries, and Innovation. 
Energy Institute at Haas Working Paper 243. (Available at: 
haas.berkeley.edu/wp-content/uploads/WP243.pdf) (Last accessed April 
6, 2022).
---------------------------------------------------------------------------

    In sum, the commercial and industrial sectors face many market 
failures that can result in an under-investment in energy efficiency. 
This means that discount rates implied by hurdle rates \125\ and 
required payback periods of many firms are higher than the appropriate 
cost of capital for the investment.\126\ The preceding arguments for 
the existence of market failures in the commercial and industrial 
sectors are corroborated by empirical evidence. One study in particular 
showed evidence of substantial gains in energy efficiency that could 
have been achieved without negative repercussions on profitability, but 
the investments had not been undertaken by firms.\127\ The study found 
that multiple organizational and institutional factors caused firms to 
require shorter payback periods and higher returns than the cost of 
capital for alternative investments of similar risk. Another study 
demonstrated similar results with firms requiring very short payback 
periods of 1-2 years in order to adopt energy-saving projects, implying 
hurdle rates of 50 to 100 percent, despite the potential economic 
benefits.\128\ A number of other case studies similarly demonstrate the 
existence of market failures preventing the adoption of energy-
efficient technologies in a variety of commercial sectors around the 
world, including office buildings,\129\ supermarkets,\130\ and the 
electric motor market.\131\
---------------------------------------------------------------------------

    \125\ A hurdle rate is the minimum rate of return on a project 
or investment required by an organization or investor. It is 
determined by assessing capital costs, operating costs, and an 
estimate of risks and opportunities.
    \126\ DeCanio 1994, op. cit.
    \127\ DeCanio, S.J. (1998). ``The Efficiency Paradox: 
Bureaucratic and Organizational Barriers to Profitable Energy-Saving 
Investments,'' Energy Policy, 26(5), 441-454.
    \128\ Andersen, S.T., and Newell, R.G. (2004). ``Information 
programs for technology adoption: the case of energy-efficiency 
audits,'' Resource and Energy Economics, 26, 27-50.
    \129\ Prindle 2007, op. cit. Howarth, R.B., Haddad, B.M., and 
Paton, B. (2000). ``The economics of energy efficiency: insights 
from voluntary participation programs,'' Energy Policy, 28, 477-486.
    \130\ Klemick, H., Kopits, E., Wolverton, A. (2017). ``Potential 
Barriers to Improving Energy Efficiency in Commercial Buildings: The 
Case of Supermarket Refrigeration,'' Journal of Benefit-Cost 
Analysis, 8(1), 115-145.
    \131\ de Almeida, E.L.F. (1998). ``Energy efficiency and the 
limits of market forces: The example of the electric motor market in 
France'', Energy Policy, 26(8), 643-653. Xenergy, Inc. (1998). 
United States Industrial Electric Motor Systems Market Opportunity 
Assessment. (Available at: www.energy.gov/sites/default/files/2014/04/f15/mtrmkt.pdf) (Last accessed January 20, 2022).
---------------------------------------------------------------------------

    The existence of market failures in the commercial and industrial 
sectors is well supported by the economics literature and by a number 
of case studies. If DOE developed an efficiency distribution that 
assigned boiler efficiency in the no-new-standards case solely 
according to energy use or economic considerations such as life-cycle 
cost or payback period, the resulting distribution of efficiencies 
within the building sample would not reflect any of the market failures 
or behavioral factors above. DOE thus concludes such a distribution 
would not be representative of the CWH market. Further, even if a 
specific building/organization is not subject to the market failures 
above, the purchasing decision of CWH efficiency can be highly complex 
and influenced by a number of factors not captured by the building 
characteristics available in the CBECS or RECS samples. These factors 
can lead to building owners choosing a CWH efficiency that deviates 
from the efficiency predicted using only energy use or economic 
considerations such as life-cycle cost or payback period (as calculated 
using the information from CBECS 2012 or RECS 2009).
    DOE notes that EIA's Annual Energy Outlook \132\ (``AEO'') is 
another energy use model that implicitly includes market failures in 
the commercial sector. In particular, the commercial demand module 
\133\ includes behavioral rules regarding capital purchases such that 
in replacement and retrofit decisions, there is a strong bias in favor 
of equipment of the same technology (e.g., water heater efficiency) 
despite the potential economic benefit of choosing other technology 
options. Additionally, the module assumes a distribution of time 
preferences regarding current versus future expenditures. Approximately 
half of the total commercial floorspace is assigned one of the two 
highest time preference premiums. This translates into very high 
discount rates (and hurdle rates) and represents floorspace for which 
equipment with the lowest capital cost will almost always be purchased 
without consideration of operating costs. DOE's assumptions regarding 
market failures are therefore consistent

[[Page 30674]]

with other prominent energy consumption models.
---------------------------------------------------------------------------

    \132\ EIA, Annual Energy Outlook, www.eia.gov/outlooks/aeo/ 
(Last accessed January 25, 2022).
    \133\ For further details, see: www.eia.gov/outlooks/aeo/assumptions/pdf/commercial.pdf (Last accessed January 25, 2022).
---------------------------------------------------------------------------

    The estimated market shares for the no-new-standards case for CWH 
equipment are shown in Table IV.22. See chapter 8 of the NOPR TSD for 
further information on the derivation of the efficiency distributions.

                             Table IV.22--Market Shares for the No-New-Standards Case by Efficiency Level for CWH Equipment
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                          Gas-fired
                                                                  Commercial gas-fired  Residential-duty gas-       Gas-fired         circulating water
                               EL                                     storage water     fired storage  water      instantaneous        heaters and hot
                                                                       heaters (%)           heaters (%)         tankless water     water supply boilers
                                                                                                                   heaters (%)               (%)
--------------------------------------------------------------------------------------------------------------------------------------------------------
0...............................................................                  33.9                  17.9                  17.0                   4.3
1...............................................................                   3.2                  12.0                   0.0                  12.0
2...............................................................                   0.0                   7.2                   0.0                  15.1
3...............................................................                  12.3                  31.5                   0.0                   2.1
4...............................................................                  49.7                  27.0                  20.8                  15.8
5...............................................................                   0.9                   4.5                  62.3                  50.7
--------------------------------------------------------------------------------------------------------------------------------------------------------

3. Payback Period
    The PBP 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. PBPs are expressed in 
years. PBPs 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 previously, 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 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 \134\ by 
calculating the energy savings in accordance with the applicable DOE 
test procedure, and multiplying those savings by the average energy 
price projection for the year in which compliance with the amended 
standards would be required. Chapter 8 of the NOPR TSD provides 
additional details about the PBP.
---------------------------------------------------------------------------

    \134\ The DOE test procedure for CWH equipment at 10 CFR 431.106 
does not specify a calculation method for determining energy use. 
For the rebuttable presumption PBP calculation, DOE used average 
energy use estimates.
---------------------------------------------------------------------------

G. Shipments Analysis

    DOE uses projections of annual equipment shipments to calculate the 
national impacts of potential amended or new energy conservation 
standards on energy use, NPV, and future manufacturer cash flows.\135\ 
The shipments model, discussed in section IV.G.5 of this NOPR, takes an 
accounting approach, tracking market shares of each equipment category 
and the vintage of units in the stock. Stock accounting uses equipment 
shipments as inputs to estimate the age distribution of in-service 
equipment stocks for all years. The age distribution of in-service 
equipment 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.
---------------------------------------------------------------------------

    \135\ 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.
---------------------------------------------------------------------------

    As part of the analysis, DOE examined the possibility of fuel 
switching. DOE recognizes that some cities and states are passing 
legislation to eliminate fossil fuel use in new building construction, 
while other states have made moves to ban electrification legislation. 
Additionally, section 433 of the Energy Independence and Security Act 
of 2007 (``EISA 2007'') amendments to the Energy Conservation and 
Production Act requires that fossil fuel generated energy consumption 
be reduced to zero (as compared to a 2003 baseline) by 2030 for new 
construction and major renovations of Federal buildings. Depending on 
whether these various fossil fuel bans or electrification mandates 
allow for the purchase of renewable energy credits to offset natural 
gas usage, such bans could potentially result in a decrease in 
projected shipments of gas-fired CWH equipment. For 2026, DOE estimates 
that shipments of CWH equipment to new construction that are the 
subject of this rulemaking will comprise approximately 20 percent of 
total shipments. New Federal government construction is approximately 2 
percent of new commercial construction; therefore, it would be 
estimated to make up a very small percentage of these shipments. DOE's 
shipment projections do not adjust for the impacts of electrification 
laws and regulations explicitly, as DOE has no data with which to make 
such an adjustment. However, since DOE used regression techniques and 
historical shipments data for this NOPR analysis, as described in 
sections IV.G.1 and IV.G.2 of this document, some impact may be 
accounted for implicitly. Beyond this, DOE has no data with which to 
adjust shipments, and DOE has historically not speculated about 
legislation or its impacts. Section IV.H.2 discusses fuel switching in 
more detail.
1. Commercial Gas-Fired and Electric Storage Water Heaters
    To develop the shipments model, DOE started with known information 
on shipments of commercial electric and gas-fired storage water heaters 
collected for the years 1994-2020 from the AHRI website,\136\ and 
extended back to 1989 with data contained in a DOE rulemaking document 
published in 2000.\137\ The historical shipments of commercial electric 
and gas-fired storage water heaters are summarized in Table IV.23 of 
this NOPR. Given that the estimated average useful lifetimes of these 
two types of equipment are 12 and 10 years, respectively, the 
historical

[[Page 30675]]

shipments provided a basis for the development of a multi-year series 
of stock values. Using the stock values, a saturation rate was 
determined by dividing equipment stock by building stock, and this 
saturation rate was combined with annual building stock additions to 
estimate the shipments to new construction. With these data elements, a 
yearly accounting model was developed for the historical period to 
identify shipments deriving from new construction and from replacements 
of existing equipment. The accounting model also identified consumer 
migration into or out of the storage water heater equipment classes by 
calculating the difference between new plus replacement shipments and 
the actual historical shipments.
---------------------------------------------------------------------------

    \136\ Air Conditioning, Heating, and Refrigeration Institute. 
Commercial Storage Water Heaters Historical Data. Available at 
www.ahrinet.org/site/494/Resources/Statistics/Historical-Data/Commercial-Storage-Water-Heaters-Historical-Data. Last accessed May 
17, 2021.
    \137\ U.S. Department of Energy. Screening Analysis for EPACT-
Covered Commercial HVAC and Water-Heating Equipment. Volume 1--Main 
Report. 2000. EERE-2006-STD-0098-0015. Available at 
www.regulations.gov/#!documentDetail;D=EERE-2006-STD-0098-0015.

 Table IV.23--Historical Shipments of Commercial Gas-Fired and Electric
                          Storage Water Heaters
------------------------------------------------------------------------
                                                 Commercial   Commercial
                     Year                        gas-fired     electric
                                                  storage      storage
------------------------------------------------------------------------
1994..........................................       91,027       22,288
1995..........................................       96,913       23,905
1996..........................................      127,978       26,954
1997..........................................       96,501       30,339
1998..........................................       94,577       35,586
1999..........................................      100,701       39,845
2000..........................................       99,317       44,162
2001..........................................       93,969       46,508
2002..........................................       96,582       45,819
2003..........................................       90,292       48,137
2004..........................................       96,481       57,944
2005..........................................       82,521       56,178
2006..........................................       84,653       63,170
2007..........................................       90,345       67,985
2008..........................................       88,265       68,686
2009..........................................       75,487       55,625
2010..........................................       78,614       58,349
2011..........................................       84,705       60,257
2012..........................................       80,490       67,265
2013..........................................       88,539       69,160
2014..........................................       94,247       73,458
2015..........................................       98,095       88,251
2016..........................................       97,026      127,344
2017..........................................       93,677      152,330
2018..........................................       94,473      137,937
2019..........................................       88,548      150,667
2020..........................................       80,070      140,666
------------------------------------------------------------------------

    At the public meeting for the withdrawn NOPR, AHRI stated the 
shipment projections are based on the projections of building stock 
growth, but the commenter suggested that DOE should compare its 
assumptions to the historical data in CBECS 2012 to determine whether 
the trend in the proposal makes sense. (AHRI, NOPR Public Meeting 
Transcript, No. 20 at pp. 123-125) In written comments, AHRI restated 
its belief that the projection of shipments of gas-fired storage water 
heaters is too high when compared to the 25-year historical data set, 
suggesting that a more reasonable forecast of shipments might be a flat 
85,000 units per year. AHRI also stated its opinion that something 
systematic seems to be happening, such that the stock accounting 
approach used in the withdrawn NOPR might not be serving DOE well and 
that DOE should investigate other methods such as using actual 
historical data trends. (AHRI, No. 40 at p. 15)
    DOE agrees with AHRI that an alternative to the stock accounting 
method might better serve DOE's purposes. For this NOPR, DOE utilized 
regression techniques to develop the shipments forecast based on the 
assumption that shipments of gas-fired storage water heaters are a 
function of relative prices of natural gas and electricity, building 
stocks (i.e., the replacement market), and building stock additions 
(the new market). DOE investigated the use of variables that lead 
(e.g., building stock additions 1 or 2 years in the future) or lag 
(e.g., relative prices experienced 1 year in the past). Using 
historical data for the years 1994-2020, DOE investigated multiple 
model specifications to find the best trade-off between model 
statistics and making the most use of historical data. The result was a 
model yielding a forecast of shipments that increases 0.5 percent per 
year from 2021-2055, reaching just under 113,700 units by 2055. See 
chapter 9 of the NOPR TSD for further details. The resulting growth 
rate for shipments is less than the underlying growth in building 
stocks (1.0 percent between 2021-2055), a result that makes sense to 
DOE when combined with the forecast of continuing low natural gas 
prices well into the future. In summary, consistent with AHRI's 
suggestion, DOE investigated an alternative forecasting method--and the 
alternative DOE chose uses an econometric model to project commercial 
gas-fired storage unit shipments. For this NOPR, DOE used an 
econometric model that: (1) Makes use of all of the historical 
shipments data collected for the withdrawn NOPR, (2) projects shipments 
with embedded shifts that will rise and fall based on relative fuel 
prices and building stock projections, and (3) eliminates the need for 
DOE to make assumptions and adjustments to the level of apparent shifts 
when the expected shipments derived in the stock accounting framework 
exceeds or falls short of the actual shipments discussed in the 
withdrawn NOPR.
    For the withdrawn May 2016 NOPR and for this NOPR, no historical 
information was available that specifically identified shipments of 
gas-fired storage-type instantaneous water heaters. The AHRI online 
historical shipments data explicitly states residentially marketed 
equipment is excluded but does not explicitly state whether 
instantaneous storage equipment is included or excluded. Because of the 
similarities between the commercial storage gas water heaters and the 
gas-fired storage-type instantaneous water heaters, DOE has included 
both in downstream analyses in this NOPR. However, DOE recognizes that 
some or all of the storage-type instantaneous shipments may not be 
captured in the historical AHRI shipments data. The DOE shipments 
analysis is derived from AHRI historical shipments data and thus may 
underrepresent future shipments of gas-fired storage-type instantaneous 
water heaters.
2. Residential-Duty Gas-Fired Storage and Instantaneous Water Heaters
    For the withdrawn NOPR, no historical shipment information was 
available for residential-duty gas-fired storage water heaters, gas-
fired tankless water heaters, or gas-fired hot water supply boilers. 
Therefore, the NOPR and the NOPR TSD presented DOE's analysis, which 
estimated both past shipments and forecasts of future shipments for 
residential-duty gas-fired storage water heaters, gas-fired tankless 
waters, or gas-fired hot water supply boilers. DOE explained its 
shipments forecast methodology in some detail in the withdrawn NOPR, 
and the Department also requested feedback on the approaches used, 
actual historical data, or both. 81 FR 34440, 34488-34490 (May 31, 
2016).
    AHRI stated that shipments of instantaneous water heaters are 
significantly higher, and shipments of hot water supply boilers are 
significantly lower than DOE's estimates presented as part of the 
withdrawn NOPR. While AHRI conceded that they do not track hot water 
supply boiler shipments, they offered their opinion that DOE's estimate 
of shipments was overstated by an order of magnitude. AHRI stated that 
hot water supply boilers are a subset of commercial packaged boilers 
with changes to make them suitable for potable water. (AHRI, No. 40 at 
p. 15) AHRI and the water heater manufacturers also collected and 
submitted efficiency distribution data for gas-fired instantaneous 
equipment to DOE. (AHRI, No. 40 at p. 10) AHRI provided data from 
manufacturers on instantaneous water heater shipments to DOE's 
contractors under a confidentiality agreement and indicated that the 
data include shipments of gas-

[[Page 30676]]

fired instantaneous tankless and circulating water heating equipment. 
A.O. Smith's written comments stated that data were being provided 
which DOE interprets to be referring to the data being provided through 
AHRI. A.O. Smith urged DOE to use these data, arguing that doing so 
will improve the estimates of national energy savings and other 
critical items. (A.O. Smith, No. 39 at p. 3) A.O. Smith also singled 
out for reconsideration what it described as the erratic aggregate 
growth in DOE's forecasted total shipments, particularly the gas-fired 
instantaneous tankless water heaters. (A.O. Smith, No. 39 at p. 14) 
Bradford White called on DOE to revise the methodology used to estimate 
historical shipments for residential-duty gas-fired storage water 
heaters and hot water supply boilers. Bradford White stated its opinion 
that it was not fair to draw conclusions that the decline in commercial 
gas-fired storage unit shipments from 1994 to 2009 and that the 
resurgence of such shipments to 1994 levels by 2013 were related to or 
a result of increasing shipments of hot water supply boilers or 
residential-duty gas-fired storage water heaters. (Bradford White, No. 
42 at p. 10)
    DOE acknowledges the work of AHRI and water heater manufacturers in 
collecting and submitting instantaneous water heater shipment data. As 
suggested by A.O. Smith, DOE is using this information. For this NOPR, 
DOE developed an econometric model similar to that described for 
commercial gas-fired storage water heater shipments; DOE used the AHRI-
provided data to estimate an equation relating commercial instantaneous 
shipments to building stock additions and commercial electricity 
prices.\138\ Because the historical data did not provide sufficient 
detail to identify the percentages represented by tankless and 
circulating water heater shipments, DOE estimated that 50 percent of 
the shipments are instantaneous tankless shipments and the remainder 
are circulating water heaters. Because the actual information provided 
by AHRI is confidential and cannot be disclosed, the only information 
being made available in this NOPR is the econometric forecast made for 
use in the analysis.
---------------------------------------------------------------------------

    \138\ While the instantaneous units are gas-fired, natural gas 
variables consistently exhibited incorrect signs on the estimated 
coefficients. For example, the ratio of commercial electric price 
divided by commercial gas had a negative sign, meaning that higher 
ratios would lead to lower shipments. This is the opposite of what 
was expected. Higher electric prices relative to gas prices should 
lead to higher, not lower, shipments of the natural gas products. 
Thus, commercial natural gas price variables were omitted from the 
model.
---------------------------------------------------------------------------

    Since the equipment that DOE has been calling hot water supply 
boilers includes what AHRI calls circulators as well as a second type 
of equipment AHRI calls boilers, DOE clarifies that the new DOE 
forecast for hot water supply boilers includes both circulating water 
heating equipment and hot water supply boilers. The circulating water 
heater shipments were developed as described earlier. As noted in this 
shipments discussion, the withdrawn NOPR requested shipments data or 
information for projecting the number of hot water supply boilers. AHRI 
was the only stakeholder who responded to DOE's request for input 
related to shipments of hot water supply boilers. AHRI opined that the 
withdrawn NOPR forecast was an order of magnitude too high, and that 
hot water supply boilers are a subset of commercial packaged boilers 
with changes in headers and other factors that make them suitable for 
providing potable water. (AHRI, No. 40, p. 15) DOE clarifies that hot 
water supply boilers are considered ``packaged boilers'' within DOE's 
regulations, but are regulated as CWH equipment and do not meet DOE's 
definition of ``commercial packaged boiler,'' which specifically 
excludes hot water supply boilers.\139\ However, DOE acknowledges the 
similarities in design between hot water supply boilers and commercial 
packaged boilers. DOE notes that AHRI offered their opinion that the 
hot water supply boiler shipment value was too high by a factor of 10 
(an order of magnitude) in the context of having just collected 
shipments data on commercial gas-fired instantaneous water heaters and 
recently collected similar data on commercial packaged boilers. While 
AHRI provided an opinion as to the appropriateness of the hot water 
supply boiler shipment values used by DOE, this opinion is in the 
context of the collection of significant amounts of related data as 
indicated by AHRI. For this reason, DOE utilized AHRI's input to create 
a 2013 shipments estimate for hot water supply boilers by dividing the 
NOPR value for 2013 by 10. DOE then used the historical and forecasted 
growth rates in shipments of commercial small gas-fired packaged 
boilers to estimate historical and forecasted shipments of hot water 
supply boilers. This approach addresses the comments and information 
supplied by AHRI; it unlinks the hot water supply boiler forecast from 
the forecast of commercial gas-fired storage water heaters as suggested 
by Bradford White; it results in a smoother, less erratic forecast than 
the NOPR forecast that A.O. Smith asked DOE to reconsider; and it 
breaks the equivalency between hot water supply boilers and gas-fired 
commercial storage equipment types to which Spire objected. The hot 
water supply boiler shipments were combined with the aforementioned and 
described forecast of circulating water heater shipments to generate a 
forecast for the instantaneous products referred to in this notice as 
circulating water heaters and hot water supply boilers.
---------------------------------------------------------------------------

    \139\ See 10 CFR 431.82. Hot water supply boiler is defined at 
10 CFR 431.102.
---------------------------------------------------------------------------

    DOE was not able to identify additional information sources for 
residential-duty gas-fired shipments. DOE clarifies that residential-
duty gas-fired storage water heaters are not residential water heaters. 
Instead, they are a type of CWH equipment and DOE draws no conclusions 
about residential-duty gas-fired storage shipments replacing or being 
replaced by commercial gas-fired storage water heater shipments. 
Rather, the linkage used in the DOE model would essentially have 
shipments of both types of storage equipment going up or down in 
parallel. DOE retained the forecasting method used for the withdrawn 
NOPR. To maintain a shipments forecast that is roughly consistent in 
magnitude with the NOPR forecast, DOE used the same 20 percent factor 
used for the NOPR. In other words, DOE assumes residential-duty gas-
fired storage water heater shipments track with commercial gas-fired 
storage water heaters, and shipments of the former are assumed to be 20 
percent of the shipments of the latter.
    Issue 5: DOE seeks input on actual historical shipments for 
residential-duty gas-fired storage water heaters, gas-fired storage-
type instantaneous water heaters, and for hot water supply boilers.
    Issue 6: DOE seeks additional actual historical shipment 
information for commercial gas-fired instantaneous tankless water 
heaters covering the period between 2015 and 2020 to supplement the 
data provided in response to the withdrawn NOPR.
    See section VII.E of this document for a list of issues on which 
DOE seeks comment.
3. Available Products Database and Equipment Efficiency Trends
    In response to the withdrawn NOPR, AHRI, Bradford White, and Raypak 
objected to the use of the number of models listed in the AHRI 
directory as representative of the number of shipments by efficiency 
level. Bradford White, A.O. Smith, and Raypak stated

[[Page 30677]]

that DOE should rely instead on the shipments data collected and 
provided by AHRI. (AHRI, No. 40 at p. 13; Bradford White, No. 42 at pp. 
2-3; A.O. Smith, No. 39 at p. 3; Raypak, No. 41 at p. 5) Raypak further 
stated that DOE should have looked for alternative ways to fill in this 
information, and offered its opinion that DOE personnel are aware that 
the number of units listed in the AHRI directory do not correlate to 
shipments. (Raypak, No. 41 at p. 5) Bradford White provided examples of 
how counting models in the database may lead to inaccurate results and 
stated that sales of the older models listed in the AHRI database tend 
to decline over time. (Bradford White, No. 42 at p. 14) Rheem also 
disputed DOE's methodology to estimate historical shipments for all 
equipment classes, stating the number of certified models is inadequate 
for determining the number of shipments. (Rheem, No. 43 at p. 26) AHRI 
argued that available models are a lagging indicator, and similar to 
the Bradford White comment, stated that shipments of older models tend 
to decline as new units are introduced into the market. AHRI added that 
when DOE uses available models, it needs to find a methodology to 
adjust share to account for underlying growth in high-efficiency 
products. (AHRI, No. 40 at p. 13)
    Several stakeholders asserted that the assumption used for the 
analysis in the withdrawn NOPR of constant equipment efficiency over 
time was incorrect. PHCC commented that market evidence indicates 
growth in energy-efficient product uptake without new standards, 
pointing to manufacturers increasing their product offerings due to 
competitive pressures to differentiate themselves from competitors. 
(PHCC, No. 34 at p. 1) AHRI commented that the percentage of condensing 
products actually shipped is much higher than DOE projected in its 
analysis, and to support its point, the trade association provided 
historical data on the share of shipments represented by condensing 
equipment for commercial gas-fired storage and instantaneous products. 
(AHRI, No. 40 at pp. 10-13) AHRI recommended that DOE recalculate the 
NIA in order to ensure national energy savings reflect the market-
driven savings from the purchases of condensing equipment in the 
absence of such standards and as reflected in shipments-by-efficiency 
bin data provided. (AHRI, No. 40 at p. 14) Bock, A.O. Smith, and Spire 
pointed to AHRI's comments as evidence of the growth in equipment 
efficiency over the course of the currently effective standard, which 
they argue is occurring in absence of new standards. (Bock, No. 33 at 
p. 2; A.O. Smith, No. 39 at p. 5; Spire, No. 45 at p. 14) A.O. Smith 
added that its company sales data demonstrate annual growth of higher-
efficiency CWH equipment and urged DOE to reconcile its data set with 
the data compiled by AHRI. (A.O. Smith, No. 39 at p. 5) Rheem believes 
DOE's assumption of no growth in equipment efficiency is flawed based 
on an incorrect premise that the number of available models by 
efficiency level is directly proportional to the market penetration. 
Rheem added there is a much higher shipment rate of higher-efficiency 
CWH models by Rheem than the proportional number of higher-efficiency 
certified models, and that shipments of high-efficiency CWH equipment 
are increasing steadily and disproportionately to the number of 
certified models. (Rheem, No. 43 at pp. 7, 25)
    DOE acknowledges the efforts of AHRI and the water heater 
manufacturers in collecting and providing efficiency distribution data 
for commercial gas-fired storage water heater and for instantaneous 
gas-fired water heater shipments. DOE also acknowledges the anecdotal 
evidence provided by A.O. Smith and Rheem about shipments of efficient 
models. DOE, as suggested by AHRI, revised the shipments and other 
analyses to reflect this information. Thus, in response to the 
suggestions of A.O. Smith, Rheem, and others, DOE did reconcile the 
analyses to account for the AHRI data rather than relying heavily on 
the number of available models. In response to the parties that 
objected to the analyses not showing an increasing efficiency trend, 
DOE's NOPR analyses do now show such a trend.
    To the extent that there may be concerns about data availability, 
DOE notes that analyses are based to the largest extent possible on 
actual data. The available model database provided actual data 
illustrating a point in time, and DOE did not possess actual data from 
other points in time to provide evidence of a trend. While 
manufacturers may provide data during manufacturer interviews, such 
information is subject to non-disclosure agreements and is typically 
manufacturer-specific. It can become available for use in analyses such 
as the shipments analysis when sufficient data points are collected 
from multiple parties to enable the interview team to mask an 
individual party's data sufficiently; the use of the data provided by 
AHRI allows for inclusion of actual data at an aggregate level.
    With respect to potential concerns about the impact of federal, 
state, and local building energy codes on shipments of CWH equipment, 
DOE notes that under EPCA, State building codes are generally 
prohibited from requiring standards for CWH equipment that require 
energy efficiency levels more stringent than the applicable minimum 
energy efficiency requirement in the amended ASHRAE 90.1. (42 U.S.C. 
6316(b)(2)(A) & (B))
    Similarly, DOE also recognizes that there are businesses, 
government entities, educational institutions, health care facilities, 
and other institutional purchasers of CWH equipment that are already 
adopting environmental, sustainability, or climate plans in which they 
seek reduction in energy consumption and carbon emissions. These 
factors indicate a sizable share of the market will be purchasing 
efficient equipment. DOE notes that the ENERGY STAR CWH criteria became 
effective in March 2013, and a comparison of the first 2 years of 
ENERGY STAR results mirror the efficiency distribution data provided by 
AHRI and the water heater manufacturers. Additionally, Federal 
buildings are subject to Federal Energy Management Program (``FEMP'') 
purchasing requirements, and have been required to purchase condensing 
equipment since 2012. Currently, the FEMP requirement is to purchase 
ENERGY STAR-qualifying equipment or FEMP-designated equipment for 
commercial gas-fired storage and instantaneous tankless gas-fired 
commercial water heaters.\140\ In summary, DOE has tentatively 
concluded that these shipments are likely already reflected in the AHRI 
shipment statistics, which have been used to update DOE's analyses for 
this NOPR, and therefore no further adjustments are necessary.
---------------------------------------------------------------------------

    \140\ 42 U.S.C. 8259b; 10 CFR part 436, subpart C. For FEMP 
requirements for commercial gas-fired water heaters see the FEMP web 
page: energy.gov/eere/femp/purchasing-energy-efficient-commercial-gas-water-heaters.
---------------------------------------------------------------------------

    To the extent that there are concerns about the length of the 
analysis period, DOE recognizes that a 30-year study period is a long 
time, and much can happen in 30 years that would affect the results, 
but notes that this rulemaking includes circulating water heaters and 
hot water supply boilers with 25-year expected lives; therefore, a 
study period less than 30 years might not even cover the lifetime of 
the longest-lived piece of equipment shipped. DOE acknowledges that in 
the future, more-stringent efficiency standards are possibilities. 
However, the energy savings and other benefits accruing from standards 
set by

[[Page 30678]]

this rulemaking are analyzed and attributed to this standard. In future 
standards analyses, the standards set by this proposed rulemaking 
become part of the baseline.
    Issue 7: DOE seeks historical shipments data dividing shipments 
between condensing and non-condensing efficiencies, for all product 
types that comprise the subject of this proposed rulemaking.
4. Shipments to Residential Consumers
    DOE determined the fractions of commercial and residential 
applications for each equipment category based on the number of samples 
(in both CBECS and RECS) selected as relevant to be served by each 
equipment category considered in this rulemaking. With regard to what 
types of residential building starts are relevant to forecasting 
commercial equipment shipments, in response to the withdrawn NOPR, 
Bradford White stated that multi-family buildings are the only building 
stock where CWH shipments would be appropriate. Bradford White believes 
shipments of commercial water heaters to single-family homes are 
minimal, though the commenter has heard of some such use in really 
large single-family houses. (Bradford White, No. 42 at p. 10) Rheem's 
input was similar, with the additional detail that single-family homes 
greater than 5,000 square feet are more likely to use commercial water 
heaters. (Rheem, No. 43 at p. 27) A.O. Smith stated that in its 
experience, multi-family buildings were the only residential 
application for commercial water heaters. (A.O. Smith, No. 39 at p. 16) 
Based upon these comments, for this NOPR, DOE did not include 
residential single-family building stock growth and used only 
residential multi-family building stocks and building additions when 
considering the potential non-commercial consumer component in the 
development of the shipments forecasts.
5. NOPR Shipments Model
    To project shipments and equipment stocks for 2021 through the end 
of the 30-year analysis period (2055), DOE used the shipments 
forecasting models (described in sections IV.G.1 and IV.G.2 of this 
NOPR) and a stock accounting model. For each class of equipment, DOE 
forecasted shipments exogenously as described in the response to 
comments. The stock accounting model keeps track of shipments and 
calculates replacement shipments based on the historical shipments, the 
expected useful lifetime of each equipment class, and a Weibull 
distribution that identifies a percentage of units still in existence 
from a prior year that will fail and need to be replaced in the current 
year. In each year, DOE assumed a fraction of the replacement market 
will be retired rather than replaced due to the demolition of buildings 
in which this CWH equipment resides. This retirement fraction was 
derived from building stock data from the AEO2021.\141\
---------------------------------------------------------------------------

    \141\ U.S. Energy Information Administration (EIA). 2021 Annual 
Energy Outlook. January 2021. Available at www.eia.gov/forecasts/aeo/.
---------------------------------------------------------------------------

    To project shipments of CWH equipment for new construction, DOE 
relied on building stock data obtained from AEO2021. For this NOPR, DOE 
assumes CWH equipment is used in both commercial buildings and 
residential multi-family buildings. DOE estimated a saturation rate for 
each equipment type using building and equipment stock values. The 
saturation rate was applied to new building additions in each year, 
yielding shipments to new buildings. The building stock and additions 
projections from AEO2021 are shown in Table IV.24.

                                     Table IV.24--Building Stock Projections
----------------------------------------------------------------------------------------------------------------
                                                                                                  Multi-family
                                                             Commercial        Multi-family       residential
                                       Total commercial    building stock      residential          building
                Year                    building stock       additions        building stock       additions
                                      (million sq. ft.)  (million sq. ft.)     (millions of       (millions of
                                                                                  units)             units)
----------------------------------------------------------------------------------------------------------------
2021................................             92,494              2,015              32.23               0.42
2025................................             96,109              2,110              33.22               0.42
2026................................             97,087              2,117              33.47               0.42
2030................................            100,970              2,155              34.40               0.40
2035................................            106,060              2,277              35.46               0.38
2040................................            111,151              2,307              36.45               0.38
2045................................            116,359              2,418              37.45               0.39
2050................................            121,825              2,520              38.44               0.39
2055 *..............................            127,540              2,633              39.48               0.41
----------------------------------------------------------------------------------------------------------------
Source: EIA AEO2021 Reference case.
* Post-2050, the projections were extended using the average annual growth rate from 2040 to 2050.

    The final component in the stock accounting model is shifts to or 
away from particular equipment classes. For this NOPR, shipments were 
an input to the stock model. For both the historical and forecasted 
period, shifts to or away from a particular equipment class were 
calculated as a remainder. Using a saturation rate derived from 
historical equipment and building stocks, the model estimates shipments 
to new buildings. Using historical stock and retirement rates based on 
equipment life, the model estimates shipments for stock replacement. 
Shifts to or away from a particular equipment class equals total 
shipments less shipments for new buildings and shipments for 
replacements. While DOE refers to the remainders as ``shifts to or away 
from the equipment class,'' the remainders could be a result of 
numerous factors: Equipment lasting longer, which reduces the number of 
replacements; increased or decreased need for hot water generally due 
to greater efficiency in water usage; changing patterns of commercial 
activity; outside influences, such as ENERGY STAR and utility 
conservation or marketing programs; actual shifts between equipment 
classes caused by relative fuel prices, relative equipment costs and 
efficiencies, installation costs, repair and maintenance costs, and 
consumer preferences; and other factors.
    Based on the historic data, there is an apparent shift toward 
electric storage water heating equipment. The historical shipments 
summarized in Table IV.23 of this document show a steady growth in 
commercial electric storage water

[[Page 30679]]

heaters, with shipments growing from 22,288 in 1994 to 150,665 in 2019. 
Over the same time period, commercial gas-fired storage water heaters 
have seen a decline in shipments from 91,027 in 1994 to a low of 75,487 
in 2009. After 2009, gas-fired storage water heater shipments 
rebounded, reaching a shipment level of 88,548 in 2019 (and a peak of 
98,095 in 2015). During the period 2009 through 2015, there was a 
reduction in the apparent shift away from commercial gas-fired storage 
units compared to the earlier period; however, there appeared to be an 
increase in 2016-2017 before returning to a reduction in the shift in 
commercial gas-fired storage units. Because the forecasted shipments of 
residential-duty gas-fired storage water heaters are linked to 
commercial gas-fired storage units, there is a similar shift away from 
the residential-duty gas-fired storage equipment class in the shipment 
forecast. Gas-fired instantaneous equipment appears to have a positive 
shift pattern.
    Because the commercial gas-fired storage and gas-fired 
instantaneous CWH shipments forecasts were developed using econometric 
models based on historical data, these apparent shifts are captured in 
DOE's shipments model and embedded in the total forecast. For purposes 
of assigning equipment costs and energy usage in the NIA, DOE needs to 
know if the increased/decreased shipments are new or replacement 
shipments. For all equipment classes, DOE assumed that the apparent 
shift is most likely to occur in new installations rather than in the 
replacement installations. As described in chapter 9 of this NOPR TSD, 
DOE assumed that a shift is twice as likely to take place in a new 
installation as in a replacement installation. For example, if DOE 
estimated that in 2021, 20 percent of shipments for an equipment class 
went to new installations and 80 percent went for replacements in the 
absence of switching, DOE multiplied the 20 percent by 2 (40 percent) 
and added the 80 percent (which equals 120 percent). Both the 40 
percent for new and the 80 percent for replacement were then divided by 
120 percent to normalize to 100 percent, yielding revised shipment 
allocations of 33 percent for new and 67 percent for replacement.
    The resulting shipment projection is shown in Table IV.25.

                          Table IV.25--Shipments of Commercial Water Heating Equipment
----------------------------------------------------------------------------------------------------------------
                                      Commercial gas-
                                       fired storage                                               Gas-fired
                                     water heaters and   Residential-duty      Gas-fired       circulating water
               Year                 gas-fired storage-  gas-fired storage    tankless water     heaters and hot
                                    type instantaneous    water heaters     heaters (units)      water supply
                                       water heaters         (units)                            boilers (units)
                                          (units)
----------------------------------------------------------------------------------------------------------------
2021..............................              97,418             19,484              8,708              10,484
2025..............................              98,366             19,673             10,834              12,705
2026..............................              99,373             19,875             11,297              13,236
2030..............................             101,160             20,232             13,146              15,232
2035..............................             103,099             20,620             15,469              17,695
2040..............................             105,765             21,153             17,441              19,620
2045..............................             108,590             21,718             19,712              21,964
2050..............................             111,381             22,276             21,916              24,277
2055..............................             113,671             22,734             24,323              26,797
----------------------------------------------------------------------------------------------------------------
* The projected shipments are based on historical data for commercial gas-fired storage water heaters which may
  or may not include storage-type instantaneous shipments. For analysis purposes, DOE has grouped these
  categories but recognizes that future shipments for storage-type instantaneous may not be captured in the
  projection.

    Because the estimated energy usage of CWH equipment differs by 
commercial and residential settings, the NIA employs the same fractions 
of shipments (or sales) to commercial and to residential consumers used 
by the LCC analysis. The fractions of shipments by type of consumer are 
shown in Table IV.26.

            Table IV.26--Shipment Shares by Type of Consumer
------------------------------------------------------------------------
                Equipment                   Commercial      Residential
------------------------------------------------------------------------
Commercial gas-fired storage water                   79%             21%
 heaters and gas-fired storage-type
 instantaneous water heaters............
Residential-duty gas-fired storage water              56              44
 heaters................................
Gas-fired instantaneous water heaters
 and hot water supply boilers:
    Gas-fired tankless water heaters....              69              31
    Gas-fired circulating water heaters               79              21
     and hot water supply boilers.......
------------------------------------------------------------------------

    For the NIA model, shipments must be disaggregated by efficiency 
levels that correspond to the levels analyzed in the engineering and 
LCC analyses. To identify the percentage of shipments corresponding to 
each efficiency level, DOE combined the efficiency trends based on AHRI 
and manufacturer shipments data and information derived from a database 
of equipment currently produced and sold by manufacturers. The sources 
of information for this database included the DOE Compliance 
Certification and manufacturer catalogs and websites. DOE used the AHRI 
shipments data to project the percentage of shipments that are 
condensing and non-condensing, for the period from 2015 through the end 
of the analysis period. Starting with the last year of historical data 
from AHRI, shipments within the non-condensing and condensing 
efficiency ranges were distributed based on the available models 
database. Because the efficiency bins used in the AHRI shipments data 
did not exactly match the thermal efficiency bins studied by DOE, 
available models were used to re-distribute the historical shipment 
period

[[Page 30680]]

within the non-condensing and condensing efficiency ranges to match the 
DOE thermal efficiency levels. For each subsequent year in the NOPR 
analysis period, as the percentage of shipments that are in the 
condensing efficiency range increases, the shipments are distributed 
across the condensing thermal efficiency levels by increasing 
proportionally the percentage of shipments by efficiency level in the 
previous year. Similarly, as the percentage of non-condensing shipments 
decrease, DOE distributed shipments across thermal efficiency levels by 
proportionately decreasing the percentage of shipments in the prior 
year.

H. National Impact Analysis

    The NIA assesses the NES and the NPV from a national perspective of 
total consumer costs and savings that would be expected to result from 
amended standards at specific efficiency levels.\142\ (``Consumer'' in 
this context refers to consumers of the equipment being regulated.) DOE 
calculates the NES and NPV for the potential standard levels considered 
based on projections of annual equipment shipments, along with the 
annual energy consumption and total installed cost data from the energy 
use and LCC analyses. For this NOPR analysis, DOE projected the energy 
savings, operating cost savings, equipment costs, and NPV of consumer 
benefits for equipment shipped from 2026 through 2055, the year in 
which the last standards-compliant equipment would be shipped during 
the 30-year analysis period.
---------------------------------------------------------------------------

    \142\ The NIA accounts for impacts in the 50 states and the 
District of Columbia.
---------------------------------------------------------------------------

    DOE evaluates the impacts of amended 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 
equipment class in the absence of any 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 equipment 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 equipment with efficiencies greater than the 
standard.
    DOE uses a spreadsheet model to calculate the energy savings and 
the national consumer costs and savings from each TSL. Chapter 10 and 
appendix 10A of the NOPR TSD explains the model and how to use it. The 
model and documentation are available on DOE's website.\143\ Interested 
parties can review DOE's analyses by changing various input quantities 
within the spreadsheet.
---------------------------------------------------------------------------

    \143\ DOE's web page on commercial water heating equipment is 
available at www1.eere.energy.gov/buildings/appliance_standards/standards.aspx?productid=36.
---------------------------------------------------------------------------

    Unlike the LCC analysis, the NIA does not use distributions for 
inputs or outputs, but relies on inputs based on national average 
equipment costs and energy costs. DOE used the NIA spreadsheet to 
perform calculations of NES and NPV using the annual energy 
consumption, maintenance and repair costs, and total installed cost 
data from the LCC analysis. The NIA also uses energy prices and 
building stock and additions consistent with the projections from the 
AEO2021. NIA results are presented in chapter 10 of the NOPR TSD.
    Table IV.27 summarizes the inputs and methods DOE used for the NIA 
analysis for this NOPR. Discussion of these inputs and methods follows 
the table. See chapter 10 of the NOPR TSD for further details.

   Table IV.27--Summary of Inputs and Methods for the National Impact
                                Analysis
------------------------------------------------------------------------
            Inputs                               Method
------------------------------------------------------------------------
Shipments....................  Annual shipments from shipments model.
Compliance Date of Standard..  2026.
Efficiency Trends............  No-new-standards case, standards cases.
Annual Energy Consumption per  Annual weighted-average values are a
 Unit.                          function of energy use at each TSL.
Total Installed Cost per Unit  Annual weighted-average values are a
                                function of cost at each TSL.
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    Annual values do not change with
 per Unit.                      efficiency level.
Energy Price Trends..........  AEO2021 projections (to 2050) and
                                extrapolation thereafter.
Energy Site-to-Primary and     A time-series conversion factor based on
 FFC Conversion.                AEO2021.
Discount Rate................  3 percent and 7 percent.
Present Year.................  2021.
------------------------------------------------------------------------

1. Equipment 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. DOE uses a no-new-standards-case distribution of efficiency 
levels to project what the CWH equipment market would look like in the 
absence of potential standards. For the withdrawn NOPR, DOE developed 
the no-new-standards-case distribution of equipment by thermal 
efficiency levels, and by standby loss efficiency levels, for CWH 
equipment by analyzing a database \144\ of equipment currently 
available. 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 (2026). In this scenario, the market 
shares of equipment 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 equipment above the standard would 
remain unchanged. The approach is further described in chapter 10 of 
the NOPR TSD.
---------------------------------------------------------------------------

    \144\ This database was developed using model data from DOE's 
Compliance Certification database (available at 
www.regulations.doe.gov/certification-data/) and manufacturer 
websites and catalogs.
---------------------------------------------------------------------------

    In comments filed in response to the withdrawn NOPR, Spire 
criticized a random selection of standards-case efficiencies as leading 
to inaccurate forecasts of cost and energy savings. (Spire, No. 45 at 
pp. 24, 25) Spire also commented on the issue of consumers switching to 
more-efficient equipment regardless of regulatory standards. (Spire, 
No. 45 at pp. 25, 32, 33) AHRI

[[Page 30681]]

also brought up the issue of whether consumers would migrate to 
condensing options due to economic reasons, even without amended 
minimum energy efficiency standards. (AHRI, NOPR Public Meeting 
Transcript, No. 20 at pp. 104, 105)
    In response to Spire's comments, DOE notes it constructed the no-
new-standards efficiency distribution using its database as discussed 
in section IV.A.3. of this document. The selections in the LCC model, 
while random, are based on the distributions created from the best 
available data. The issue of the random assignment of equipment in the 
no-new standards case is discussed specifically in section IV.F.2.i. 
DOE uses this distribution in the LCC to model consumer choices that 
mirror the market and uses the mean values from the LCC analysis in the 
NIA. DOE stated at the NOPR public meeting that if data such as that 
provided by AHRI were available, the forecast of consumer costs and 
savings would be improved. (DOE, Public Meeting Transcript, No. 20, p. 
21) At the public meeting, DOE also stated that if manufacturers 
provide shipment data, DOE would use it in the analysis, and DOE has 
made use of the data provided by AHRI. DOE agrees with Spire's and 
AHRI's contention that some consumers will purchase higher-efficiency 
equipment even in the absence of amended standards. Consequently, for 
this NOPR, DOE developed the no-new-standards distribution of equipment 
by thermal efficiency levels for CWH equipment using data from DOE's 
Compliance Certification database and data submitted by AHRI regarding 
condensing versus non-condensing equipment. Using the data provided by 
AHRI, DOE has modeled a no-new-standards efficiency trend in which 75 
to 85 percent of consumers purchase condensing equipment by 2055 by 
using the historical AHRI data to develop a future trend, but the 
Department points out that at present, the adoption of equipment 
equivalent to the standards proposed herein is currently less than half 
of total shipments.\145\ Thus, this NOPR analysis assigns substantial 
credit to market-driven efficiency accomplishments. DOE further notes 
that new and replacement markets were modeled using the same efficiency 
distributions.
---------------------------------------------------------------------------

    \145\ U.S. EPA. ENERGY STAR Unit Shipment and Market Penetration 
Report Calendar Year 2019 Summary. Available at www.energystar.gov/sites/default/files/asset/document/2019%20Unit%20Shipment%20Data%20Summary%20Report.pdf (last accessed 
July 7, 2021).
---------------------------------------------------------------------------

    The shipments analysis section of this NOPR addresses comments 
received from stakeholders related to DOE's withdrawn NOPR shipment 
forecast that included constant equipment efficiency based on the 
available equipment database (see section IV.G.3). In comments about 
the NIA, Bock, A.O. Smith, Spire, and AHRI all reiterated their 
shipments comments concerning their belief that market shares by 
thermal efficiency derived from the available equipment database differ 
from the distribution that would be derived from actual shipments. The 
same stakeholders referenced data collected by AHRI, and stated that 
the sale of condensing gas-fired storage and/or instantaneous tankless 
gas-fired water heaters is higher than DOE assumed in the withdrawn 
NOPR, and called on DOE to use the shipments data provided by AHRI in 
the calculation of energy savings. AHRI and Bock highlighted the level 
of the condensing unit sales, with AHRI noting the market share was 
approaching 46 percent of total shipments in 2015 and with Bock arguing 
that given historical growth rates, the market share would be expected 
to achieve majority market share by 2020. Spire stated that DOE 
overestimated NOPR energy savings by using an efficiency distribution 
that underrepresents high-efficiency equipment, thereby stripping 
market-driven efficiency gains from the no-new-standards case and 
attributing these efficiency gains to the proposed standards. (Bock, 
No. 33 at p. 1; A.O. Smith, No. 39 at pp. 14-15; Spire, No. 45 at p. 
14; AHRI, No. 40 at p. 10)
    For this NOPR, DOE used the AHRI efficiency data to fit a Bass 
Diffusion curve, which shows continued market-driven efficiency 
improvements over the forecast period up to a point where 75 percent of 
commercial and residential-duty gas-fired storage and circulating water 
heaters and hot water supply boiler shipments are condensing in the no-
new-standards case. For instantaneous tankless shipments, DOE modeled 
up to 85 percent of shipments in the condensing efficiency levels 
because it appears that presently, the percentage is much higher than 
for the other equipment types. Thus, an increasing efficiency trend is 
now modeled over the 30-year analysis period in the NIA model. While 
numerous other changes to the engineering, installation costs, and 
energy use analyses prevent direct comparisons in terms of varying only 
the efficiency distribution, the NOPR national energy savings and net 
present value of consumer benefits for the TSLs evaluated are reduced 
because a significant percentage of both are now attributed to market 
forces.
    Bradford White cautioned that DOE should understand that AHRI data 
do not capture the entire industry, but only reporting members. 
(Bradford White, NOPR Public Meeting Transcript, No. 20 at p. 112) With 
respect to the shipments information provided by AHRI and 
manufacturers, DOE considers the data to be a significant improvement 
over the data available for the May 2016 CWH ESC NOPR phase. DOE uses 
the data with the caution, as it does with any data, and DOE does make 
adjustments when information becomes available to enable DOE to improve 
the quality of such data.
    Table IV.28 shows the starting distribution of equipment by 
efficiency level. In the no-new-standards case, the distributions 
represent the starting point for analyzing potential energy savings and 
cumulative consumer impacts of potential standards for each equipment 
category.

                                                Table IV.28--Market Shares by Efficiency Level in 2026 *
--------------------------------------------------------------------------------------------------------------------------------------------------------
                        Equipment                           EL 0 ** (%)       EL1 (%)         EL2 (%)         EL3 (%)         EL4 (%)         EL5 (%)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Commercial gas-fired storage water heaters and gas-fired              34               3               0              12              50               1
 storage-type instantaneous water heaters...............
Residential-duty gas-fired storage water heaters........              18              12               7              31              27               4
Gas-fired instantaneous water heaters and hot water
 supply boilers:

[[Page 30682]]

 
    Gas-fired tankless water heaters....................              17               0               0               0              21              62
    Gas-fired circulating water heaters and hot water                  4              12              15               2              16              51
     supply boilers.....................................
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Due to rounding, shares for each row might not add to 100 percent.
** For the Residential-duty equipment class, efficiency is in terms of UEF. Because minimum UEF under the existing efficiency standard varies by storage
  tank size, equipment is categorized not by absolute value of UEF but by percentage point increases over the minimum efficiency required on the basis
  of the equipment's tank size.

    For each efficiency level analyzed, DOE used a ``roll-up'' scenario 
to establish the market shares by efficiency level for the year that 
compliance would be required with potential standards. The analysis 
starts with the no-new-standards-case distributions wherein shipments 
are assumed to be distributed across efficiency levels as shown in 
Table IV.28. When potential standard levels above the base level are 
analyzed, as the name implies, the shipments in the no-new-standards 
case that did not meet the efficiency standard level being considered 
would roll up to meet the next higher standard level. The ``roll-up'' 
scenario also suggests that equipment efficiencies in the no-new-
standards case that were above the standard level under consideration 
would not be affected. The no-new-standards-case efficiency 
distributions for each equipment class are discussed more fully in 
chapter 10 of the NOPR TSD. The no-new-standards-case efficiency 
distributions for each equipment category are discussed more fully in 
chapter 10 of the NOPR TSD.
2. Fuel and Technology Switching
    For this NOPR, DOE analyzed whether amended standards would 
potentially create economic incentives for shifting between fuels, and 
specifically from natural gas to electricity, beyond any switching 
inherent in historical trends, as discussed in section IV.G. of this 
document.
    DOE conducted a high-level analysis by using average NIA inputs and 
equipment operating hour data from the energy analysis to examine 
consumer PBPs in situations where they might switch from gas-fired to 
electric water heaters in both new and replacement construction at the 
proposed standard level. As previously noted, DOE is not analyzing 
thermal efficiency standards for electric storage water heaters since 
the thermal efficiency of these units already approaches 100 percent; 
as such, the underlying technology has most likely not changed, so for 
comparison purposes in this NOPR, the installation, equipment, and 
maintenance and repair costs from the withdrawn 2016 NOPR have been 
adjusted to account for inflation.\146\ To make the costs comparable 
across equipment categories, DOE adjusted the average costs using 
ratios based on the first-hour ratings shown in Table IV.29.
---------------------------------------------------------------------------

    \146\ Electric storage water heater costs were escalated from 
2014$ to 2020$ using gross domestic product price deflators. First 
year electricity costs were recalculated using the AEO2021 prices 
for 2026, weighted by the percent of shipments to the commercial and 
residential markets for the comparison equipment class (commercial 
gas-fired or residential-duty).

                  Table IV.29--First-Hour Equipment Ratings Used in the Fuel Switching Analysis
----------------------------------------------------------------------------------------------------------------
                                                                                     Gas-fired
                                  Commercial gas-  Residential-      Gas-fired      circulating      Electric
              Year                 fired storage  duty gas-fired  tankless water   water heaters   storage water
                                   water heaters   storage water      heaters      and hot water      heaters
                                                      heaters                     supply boilers
----------------------------------------------------------------------------------------------------------------
First-Hour Rating (gal).........             283             134             268             664             165
Ratio to Commercial Gas-fired               1.00            0.47          * 0.32            2.34            0.58
 Storage........................
----------------------------------------------------------------------------------------------------------------
* The ratio of the number of installed commercial gas-fired storage water heaters to installed gas-fired
  tankless water heaters is not directly comparable using only first-hour ratings, here based on a 90 [deg]F
  temperature rise. The ratio shown reflects in-use delivery capability of the representative gas-fired tankless
  water heater model relative to the delivery capability of the representative commercial gas-fired storage
  water heater, and includes an estimated 3-to-1 delivery capability tradeoff for a tankless unit without
  storage compared to the representative gas-storage water heater with the same first-hour rating.

    DOE reviewed the installed cost of commercial electric and gas-
fired storage water heaters, both at the no-new-standards-case 
efficiency level and with the standard level proposed herein for 
commercial gas-fired water heaters. The analysis uses costs for the 
year 2026, the first year that an amended standard would be in effect. 
In new installations, the analysis assumes that the inflation-adjusted 
commercial electric storage water heater installed cost is $4,205 and 
the first year maintenance and repair cost is $48.\147\ In replacement 
installations, the analysis assumes that the inflation-adjusted 
commercial electric storage water heater installed cost is $3,950 and 
the first year maintenance and repair cost is $48. In further 
investigating the potential for fuel-switching, DOE first scaled the 
first costs and the maintenance and repair costs of the electric 
storage water in new and replacement installations linearly with first-
hour rating assuming that the consumer needs to meet the first hour 
capacity of the representative commercial gas-fired storage water 
heater. To better compare the electric energy use in a fuel switching 
scenario, DOE examined the average burner operating hours for the 
commercial gas water heater to meet the hot water load, as detailed in 
appendix 7B of the NOPR TSD. By multiplying the input rating of the gas 
storage water heater by the baseline thermal efficiency and the average 
2.60 hour of operation to meet

[[Page 30683]]

the water load including piping losses (and not included standby burner 
operation), the average daily hot water provided by the unit was 
estimated at 413,920 Btu/day. Assuming a 100% conversion efficiency for 
the electric energy to provide this load would be would 121.31 kWh/day 
or 44,279 kWh/yr with an energy cost of $4,852 in the first year. DOE 
notes that this value does not account for additional energy for 
electric water heater standby losses.
---------------------------------------------------------------------------

    \147\ Since the electric storage water heater was dropped from 
this NOPR, for this analysis the MPC from the withdrawn 2016 ECS 
NOPR standby loss level 0 was used to represent no-new-standards-
case electric storage water heaters.
---------------------------------------------------------------------------

    With the electric water heater costs thus scaled and corresponding 
energy cost calculated, within new construction installations the 
commercial gas storage water heater was estimated to be slightly more 
expensive to purchase and install than the electric storage unit in 
both the no-new-standards and standards cases, but significantly less 
costly to operate (see Table IV.30). In these cases, the up-front cost 
premium of the commercial gas-fired storage unit at the proposed 
standard level (TSL 3) relative to the scaled electric storage unit 
costs, divided by the annual operating savings for choosing the gas 
water heater, yields a PBP of 0.18 years, compared to a PBP of 0.15 
years in the no-new-standards case. In replacement markets, the total 
installed cost of a commercial gas-fired storage unit was compared to 
the first-hour-rating scaled cost estimate for the commercial electric 
water heater as a replacement unit from the withdrawn 2016 NOPR. The 
estimated total installed cost of the comparable electric storage unit 
exceeds the cost of the commercial gas-fired storage unit. As with new 
construction, the replacement electric storage unit is substantially 
more costly to operate.

  Table IV.30--Typical Unit Costs, Scaled for First-Hour Rating (Commercial Gas-Fired Storage = 1.0)--Electric
                                   Storage Versus Commercial Gas-Fired Storage
                                                     [2020$]
----------------------------------------------------------------------------------------------------------------
                                                      No-new-
                                                  standards case      No-new-     Standards case  Standards case
           Equipment                  Cost              new       standards case        new        replacement *
                                                   construction    replacement *   construction
----------------------------------------------------------------------------------------------------------------
Electric Storage..............  Installed Cost..          $7,212          $6,774          $7,212          $6,774
                                Energy,                    4,935           4,935           4,935           4,935
                                 Maintenance,
                                 and Repair Cost
                                 (First Year).
Commercial Gas-fired Storage..  Installed Cost..           7,645           4,723           7,789           6,056
                                Energy,                    1,963           1,961           1,733           1,727
                                 Maintenance,
                                 and Repair Cost
                                 (First Year).
----------------------------------------------------------------------------------------------------------------
* Installed costs for electric storage water heaters shown for the replacement case do not include cost of
  infrastructure alterations (e.g., upgraded wiring, removal or modification of gas infrastructure).

    DOE further notes that, depending on the specifics of the 
commercial building, significant additional costs could be incurred in 
switching to electric storage water heaters if the existing building 
lacks the electrical wiring and related infrastructure to handle the 
input rating of a scaled capacity commercial electric water heater. 
Thus, DOE has tentatively concluded that the proposed standard will not 
cause a noticeable increase in fuel switching from commercial gas-fired 
to electric storage water heaters.
    A similar analysis to that of the commercial gas storage water 
heater and electric equivalent was repeated separately for residential-
duty water heaters. The first costs and maintenance and repair costs 
were scaled by first hour rating to that equivalent to the 
representative residential-duty water heater. The hot water load for 
the electric equivalent unit was estimated based on the burner 
operating hours from Appendix 7B of the TSD and the electric water 
heater energy costs were estimated assume 100% conversion efficiency of 
the electric input to hot water load. For an electric water heater 
equivalent to a residential-duty gas water heater, the estimated energy 
consumption was 19,492 kWh/yr, equating to an energy cost of $2,218 in 
the first year. This value does not account for additional energy for 
electric water heater standby losses. The appropriately scaled first 
costs and operating cost estimates are shown in Table IV.31. In all but 
the no-new-standards replacement case, the residential-duty water 
heater is more expensive to install than the electric storage water 
heater; however, it was less costly to operate in all cases. For the 
cases in which the electric storage water heater was less expensive to 
install, the up-front cost premium of the gas-fired residential-duty 
unit relative to the electric storage unit, divided by the annual 
operating savings from using the gas water heater, yields a PBP of 0.16 
years in the no-new-standards new installation case, of 0.22 years at 
the proposed standard level (TSL 3) replacement case, and of 0.57 years 
at the proposed standard level new installation case. Based on the 
comparison of costs for equivalent electric water heating, DOE has 
tentatively concluded that amended standards would not introduce 
additional economic incentives for fuel switching from residential-duty 
to electric storage water heaters.

 Table IV.31--Typical Unit Costs, Scaled for First-Hour Rating (Residential-Duty = 1.0)--Electric Storage Versus
                                                Residential-Duty
                                                     [2020$]
----------------------------------------------------------------------------------------------------------------
                                                      No-new-
                                                  standards case      No-new-     Standards case  Standards case
           Equipment                  Cost              new       standards case        new        replacement *
                                                   construction    replacement *   construction
----------------------------------------------------------------------------------------------------------------
Electric Storage..............  Installed Cost..          $3,415          $3,208          $3,415          $3,208
                                Energy,                    2,257           2,257           2,257           2,257
                                 Maintenance,
                                 and Repair Cost
                                 (First Year).
Residential-duty Storage......  Installed Cost..           3,589           1,941           4,134           3,486

[[Page 30684]]

 
                                Energy,                    1,182           1,164             999             984
                                 Maintenance,
                                 and Repair Cost
                                 (First Year).
----------------------------------------------------------------------------------------------------------------
* Installed costs for electric storage water heaters shown for the replacement case do not include cost of
  infrastructure alterations (e.g., upgraded wiring, removal or modification of gas infrastructure).

    DOE did not consider instantaneous gas-fired equipment and electric 
storage water heaters to be likely objects of gas-to-electric fuel 
switching, largely due to the disparity in hot water delivery capacity 
between the instantaneous gas-fired equipment and commercial electric 
storage equipment. However, DOE understands that systems can be built 
by plumbing multiple individual water heaters together to achieve the 
same level of hot water delivery capacity. DOE seeks comment as to the 
extent that this phenomenon exists in either the no-standards case or 
the standards case. While technically feasible for consumers not facing 
space constraints, DOE considered it unlikely that these consumers 
would choose upon replacement to swap one or more high-output, 
typically wall-mounted tankless units with physically larger, floor-
mounted electric storage water heaters for economic reasons, given the 
relatively low incremental operating cost for installing condensing 
tankless units and the much higher operational cost of the electric 
units. Commercial tankless water heaters could in theory be replaced 
with one or more electric tankless units. DOE also has tentatively 
concluded that this would be an unlikely scenario for the same reasons 
cited for switching to electric storage, however DOE also notes that 
without hot water storage in such a system the instantaneous electric 
heating load could disproportionally impact a commercial buildings 
electric demand in many applications relative to the equivalent 
electric storage water heater, requiring greater electrical 
infrastructure upgrades as well as potentially higher and less 
predictable ongoing electric demand costs. DOE has tentatively 
concluded that amended standards would not introduce additional 
economic incentives for fuel switching from gas-fired instantaneous 
tankless to electric storage or electric tankless water heaters. 
Similarly, replacement of gas fired circulating water heaters or 
boilers with an electric equivalent would be expected to require 
substantial electric capacity upgrades expected as well as much higher 
operating cost of the electric equipment. The representative 399 kBtu/h 
baseline gas-fired hot water boiler represents an approximately 94 kW 
electric instantaneous equivalent, anticipated to be a significant load 
increase to most commercial buildings that might otherwise use the gas-
fired hot water boiler.
    In summary, based upon the reasoning mentioned previously, DOE did 
not explicitly include fuel or technology switching in this NOPR beyond 
the continuation of historical trends discussed in section IV.G of this 
document.
    Issue 8: DOE seeks comment on the availability of systems that can 
be built by plumbing multiple individual water heaters together to 
achieve the same level of hot water delivery capacity.
3. National Energy Savings
    The NES analysis involves a comparison of national energy 
consumption of the considered equipment 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 standard case. DOE estimated energy consumption and savings 
based on site energy and converted the electricity consumption and 
savings to primary energy (i.e., the energy consumed by power plants to 
generate site electricity) using annual conversion factors derived from 
AEO2021. Cumulative energy savings are the sum of the NES for each year 
over the timeframe of the analysis.
    In 2011, in response to the recommendations of a committee on 
``Point-of-Use and Full-Fuel-Cycle Measurement Approaches to Energy 
Efficiency Standards'' appointed by the National Academy of Sciences, 
DOE announced its intention to use 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 which DOE explained its determination 
that EIA's 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 \148\ that EIA uses to prepare its AEO. 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 10D of the NOPR TSD.
---------------------------------------------------------------------------

    \148\ For more information on NEMS, refer to The National Energy 
Modeling System: An Overview 2018, DOE/EIA-0581(2018). April 2019. 
Available at www.eia.gov/outlooks/aeo/nems/overview/pdf/0581(2018).pdf (last accessed July 7, 2021).
---------------------------------------------------------------------------

    DOE calculated the NES associated with the difference between the 
per-unit energy use under a standards-case scenario and the per-unit 
energy use in the no-new-standards case. The average energy per unit 
used by the CWH equipment stock gradually decreases in the standards 
case relative to the no-new-standards case as more-efficient CWH units 
gradually replaces less-efficient units.
    Unit energy consumption values for each equipment category are 
taken from the LCC spreadsheet for each efficiency level and weighted 
based on market efficiency distributions. To estimate the total energy 
savings for each efficiency level, DOE first calculated the per-unit 
energy reduction (i.e., the difference between the energy directly 
consumed

[[Page 30685]]

by a unit of equipment in operation in the no-new-standards case and 
the standards case) for each class of CWH equipment for each year of 
the analysis period. The electricity and natural gas savings or 
increases (in the case of electricity used for condensing natural gas-
fired water heaters) are accounted separately. Second, DOE determined 
the annual site energy savings by multiplying the stock of each 
equipment category by vintage (i.e., year of shipment) by the per-unit 
energy reduction for each vintage (from step one). This second step 
adds to the electricity impacts an amount of energy savings/increase to 
account for the losses and inefficiencies in the generation, 
transmission, and distribution systems. The result of the second step 
yields primary electricity impacts at the generation source. The second 
step applies only to electricity; there is no analogous adjustment made 
to natural gas savings. Third, DOE converted the annual site 
electricity savings into the annual amount of energy saved at the 
source of electricity generation (the source or primary energy), using 
a time series of conversion factors derived from the latest version of 
EIA's NEMS. This third step accounts for the energy used to extract and 
transport fuel from mines or wells to the electric generation 
facilities, and accounts for the natural gas NES for drilling and 
pipeline energy usage. The third step yields the total FFC impacts. DOE 
accounts for the natural gas savings separately from the electricity 
impacts, so the factors used at each step are appropriate for the 
specific fuel. The coefficients developed for the analysis are mutually 
exclusive, so there should be no double-counting of impacts. Finally, 
DOE summed the annual primary energy savings for the lifetime of units 
shipped over a 30-year period to calculate the total NES. DOE performed 
these calculations for each efficiency level considered for CWH 
equipment in this rulemaking. DOE notes that for the LCC and PBP 
analyses, only site energy impacts are used. The only steps in the 
analysis wherein FFC savings are used are the calculation of NES. DOE 
notes that the development of data for site-to-source and other factors 
is accomplished by running the EIA's model used to generate the AEO. 
DOE has included with this NOPR TSD the previously mentioned chapter 10 
and appendix 10D, which reference the development of the FFC factors 
and provide some of the underlying data.
    Regarding the fossil fuel site-to-source values used in the NOPR 
analysis, DOE used the AEO2021 Reference case, which reflects the most 
up-to-date information on resource and fuel costs, but excludes Clean 
Power Plan (CPP) \149\ impacts. Use of the AEO2021 also incorporates 
all Federal legislation and regulations in place when EIA prepared the 
analyses. The growing penetration of renewable electricity generation 
would have little effect on the trend in site-to-source energy factors 
because EIA uses an average fossil fuel heat to characterize the 
primary energy associated with renewable generation. At this time, DOE 
is continuing to use the ``fossil fuel equivalency'' accounting 
convention used by EIA. DOE notes the AEO projections stop in 2050. 
Because the trends were relatively flat, DOE maintained the 2050 value 
for the remainder of the forecast period. When DOE develops the site-
to-source and FFC-factors, it models resource mixes representative of 
the load profile of the equipment covered in the rulemaking that vary 
by end-use. For this NOPR, DOE has used an average of resources 
compatible with the general load profile of CWH equipment, and the data 
used are the most current available.
---------------------------------------------------------------------------

    \149\ The CPP was repealed in June 2019 as part of EPA's final 
Affordable Clean Energy (``ACE'') Rule, but the ACE Rule was vacated 
in January 2021 by the United States Court of Appeals for the 
District of Columbia Circuit, who also remanded EPA to consider a 
new regulatory framework to replace the ACE Rule.
---------------------------------------------------------------------------

    DOE also considered whether a rebound effect is applicable in its 
NES analysis for CWH equipment. A rebound effect occurs when an 
increase in equipment efficiency leads to increased demand for its 
service. For example, when a consumer realizes that a more-efficient 
water heating device will lower the energy bill, that person may opt to 
increase his or her amenity level by taking longer showers and thereby 
consuming more hot water. In this way, the consumer gives up a portion 
of the energy cost savings in favor of the increased amenity. For the 
CWH equipment market, there are two ways that a rebound effect could 
occur: (1) Increased use of hot water within the buildings in which 
such units are installed and (2) additional hot water outlets that were 
not previously installed. Because the CWH equipment addressed in this 
proposed rule is commercial equipment, the person owning the equipment 
(i.e., the apartment or commercial building owner) is usually not the 
person operating the equipment (e.g., the apartment renter, or the 
restaurant employee using hot water to wash dishes). Because the 
operator usually does not own the equipment, that person will not have 
the operating cost information necessary to influence his or her 
operation of the equipment. Therefore, the first type of rebound is 
unlikely to occur at levels that could be considered significant. 
Similarly, the second type of rebound is unlikely because a small 
change in efficiency is insignificant among the factors that determine 
whether a company will invest the money required to pipe hot water to 
additional outlets.
    In the October 2014 RFI, DOE sought comments and data on any 
rebound effect that may be associated with more-efficient commercial 
water heaters. 79 FR 62908 (Oct. 21, 2014). DOE received two comments. 
Both A.O. Smith and Joint Advocates did not believe a rebound effect 
would be significant. A.O. Smith commented that water usage is based on 
demand and more efficient water heaters would not change the demand. 
(A.O. Smith, No. 2 at p. 4) Joint Advocates commented that with the 
marginal change in energy bill for small business owners, they would 
expect little increased hot water usage, and that for tenant-occupied 
buildings, it would be ``difficult to infer that more tenants will wash 
their hands longer because the hot water costs the building owner 
less.'' Thus, Joint Advocates thought the likelihood of a strong 
rebound effect is very low. (Joint Advocates, No. 7 at p. 5) As DOE did 
not receive any comments suggesting the contrary in response to the 
withdrawn NOPR, DOE has retained its position that rebound effect is 
unlikely to occur for the CWH that are the subject of this NOPR.
4. 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 projection period. DOE determined the difference 
between the equipment costs under the standard case and the no-new-
standards case in order to obtain the net equipment cost increase 
resulting from the higher standard level. As noted in section IV.F.2.a 
of this document, DOE used a constant real price assumption as the 
default price projection; the cost to manufacture a given unit of 
higher efficiency neither increases nor

[[Page 30686]]

decreases over time. The analysis of the price trends is described in 
chapter 10 of the NOPR 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 projection of annual national-average commercial energy 
price changes in the Reference case from AEO2021, which has an end year 
of 2050. To estimate price trends after 2050, DOE used the average 
annual rate of change in prices from 2020 through 2050. As part of the 
NIA, DOE also analyzed scenarios that used inputs from variants of the 
AEO2021 Reference case that have lower and higher economic growth. 
Those cases have lower and higher energy price trends compared to the 
Reference case. NIA results based on these cases are presented in 
appendix 10B of the NOPR TSD.
    DOE then determined the difference between the net operating cost 
savings and the net equipment cost increase in order to obtain the net 
savings (or expense) for each year. DOE then discounted the annual net 
savings (or expenses) to 2021 for CWH equipment bought on or after 2026 
and summed the discounted values to provide the NPV for an efficiency 
level.
    In calculating the NPV, DOE multiplies the net savings in future 
years by a discount factor to determine their present value. For this 
NOPR, DOE estimated the NPV of consumer benefits using both a 3-percent 
and a 7-percent real discount rate. DOE uses these discount rates in 
accordance with guidance provided by the OMB to Federal agencies on the 
development of regulatory analysis.\150\ The discount rates for the 
determination of NPV are in contrast to the discount rates used in the 
LCC analysis, which are designed to reflect a consumer's perspective. 
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.
---------------------------------------------------------------------------

    \150\ United States Office of Management and Budget. Circular A-
4: Regulatory Analysis. September 17, 2003. Section E. Available at 
www.whitehouse.gov/sites/whitehouse.gov/files/omb/circulars/A4/a-4.pdf (last accessed July 7, 2021).
---------------------------------------------------------------------------

    DOE considered the possibility that consumers make purchase 
decisions based on first cost instead of LCC. DOE projects that new 
installations meeting a potential standard would not cause the 
commercial gas-fired storage water heaters to be significantly more 
expensive than electric storage water heaters of comparable first-hour 
capacity, as detailed in section IV.H.2. of this document. DOE further 
notes that only the relative costs of purchasing, installing, and 
operating equipment were considered in its analysis, and did not 
consider unrelated issues such as current trends toward electrification 
of customer loads, as DOE cannot speculate about consumer 
electrification or other (see sections IV.G and IV.H.2 of this 
document).
    DOE notes that governmental and corporate purchasing policies are 
increasingly resulting in purchases of more-efficient equipment. 
However, DOE does not infer anything with respect to the remaining 
market for efficient water heaters simply because of a purchase by one 
consumer or even by one segment of the consumer base, such as purchases 
by government consumers. In other words, if all Federal government 
agencies purchase ENERGY STAR-compliant water heaters, that tells us 
nothing about the installation costs experienced by any other 
consumers. DOE assumes the purchases reveal more about the underlying 
consumer discount rate premiums than about a distribution of 
installation costs. It is possible that corporate commitment to green 
purchasing policies might result in situations where, in their rational 
decision-making process, the consumer gives green purchase alternatives 
an explicit advantage. As an example, a purchasing policy may specify 
that that a ``non-green'' alternative must have a PBP of 3 years or 
less while a ``green'' alternative can have a PBP up to 5 years. This 
type of corporate decision making would have the outward appearance of 
providing an apparent discount rate advantage to the ``green'' 
alternative, or perhaps, an appearance of assessing a lower discount 
rate premium on the ``green'' alternative than is assessed on all other 
alternatives. Thus, while significant numbers of purchases are taking 
place in the market, DOE contends that such purchases reveal an 
underlying distribution of discount rate premiums rather than an 
underlying distribution of installation costs. Green policies and 
programs such as FEMP-designated equipment and ENERGY STAR will 
continue to effectively reduce even more consumers' discount rate 
premiums, leading to more green purchases. This assumption underlies 
DOE's decision to take the efficiency trends data provided by 
manufacturers and extend the trends into the future rather than holding 
efficiency constant at current rates.
    To the extent that there may be concerns regarding the 
inconvenience and disruptions caused by installing new venting, DOE 
would note that installing commercial electric water heaters is not 
simply a matter of hauling the water heater into the building and 
plugging it into an existing power outlet. The typical unit DOE 
analyzed for this NOPR included 18 kilowatt (``kW'') heating elements, 
and in a setting where the electrical system cannot support a new load 
of this magnitude (or higher) without being upgraded, installation of 
an electric water heater might be no less disruptive and just as costly 
as the venting upgrade for a condensing gas-fired water heater. Within 
this NOPR analysis, DOE has considered the range of possible repairs 
and determined that there likely were few if any life-extending repairs 
that could be made beyond those included by DOE in the LCC and NIA 
analyses. For some equipment failures, such as tanks leaking, DOE knows 
of no good way to repair the equipment to extend the equipment's life, 
so life-extending repair is likely extremely limited beyond the repairs 
already included by DOE.

I. Consumer Subgroup Analysis

    In analyzing the potential impact of new or amended standards on 
commercial consumers, DOE evaluates the impact on identifiable groups 
(i.e., subgroups) of consumers, such as residential consumers at 
comparatively lower income levels that may be disproportionately 
affected by a new or revised national energy conservation standard 
level. The purpose of the subgroup analysis is to determine the extent 
of any such disproportionate impacts. For this rulemaking, DOE 
identified consumers at the lowest income bracket in the residential 
sector and only included them for a residential sector subgroup 
analysis. The following provides further detail regarding DOE's 
consumer subgroup analysis. Chapter 11 in the NOPR TSD describes the 
consumer subgroup analysis.
1. Residential Sector Subgroup Analysis
    The RECS database divides the residential samples into 24 income 
bins. The income bins represent total gross annual household income. As 
far as discount rates are concerned, the survey of consumer finances 
divides the residential population into six different income bins: 
Income bin 1 (0-20 percent income percentile), income bin 2 (20-40 
percent income percentile),

[[Page 30687]]

income bin 3 (40-60 percent income percentile), income bin 4 (60-80 
percent income percentile), income bin 5 (80-90 percent income 
percentile), and income bin 6 (90-100 percent income percentile). In 
general, consumers in the lower income groups tend to discount future 
streams of benefits at a higher rate when compared to consumers in the 
higher income groups.
    Hence, to analyze the influence of a national standard on the low-
income group population, DOE conducted a (residential) subgroup 
analysis where only the 0-20 percent income percentile samples were 
included for the entire simulation run. Subsequently, the results of 
the subgroup analysis are compared to the results from all consumers.
    The results of DOE's LCC subgroup analysis are summarized in 
section V.B.1.b of this NOPR and described in detail in chapter 11 of 
the NOPR TSD.

J. Manufacturer Impact Analysis

1. Overview
    DOE performed an MIA to estimate the financial impacts of amended 
energy conservation standards on manufacturers of CWH equipment and to 
estimate the potential impacts of such standards on employment and 
manufacturing capacity. The MIA has both quantitative and qualitative 
aspects and includes analyses of projected industry cash flows, the 
INPV, investments in research and development (``R&D'') and 
manufacturing capital, and domestic manufacturing employment. 
Additionally, the MIA seeks to determine how amended energy 
conservation standards might affect manufacturing employment, capacity, 
and competition, as well as how standards contribute to 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 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 the INPV, which is the sum 
of industry annual cash flows over the analysis period, discounted 
using the industry-weighted average cost of capital, and the impact to 
domestic manufacturing employment. The model uses standard accounting 
principles to estimate the impacts of more-stringent energy 
conservation standards on a given industry by comparing changes in INPV 
and domestic manufacturing employment between a no-new-standards case 
and the various standards cases (i.e., TSLs). To capture the 
uncertainty relating to manufacturer pricing strategies following 
amended standards, the GRIM estimates a range of possible impacts under 
different markup scenarios.
    The qualitative part of the MIA addresses manufacturer 
characteristics and market trends. Specifically, the MIA considers such 
factors as a potential standard's impact on manufacturing capacity, 
competition within the industry, the cumulative impact of other DOE and 
non-DOE regulations, and impacts on manufacturer subgroups. The 
complete MIA is outlined in chapter 12 of the NOPR TSD.
    DOE conducted the MIA for this proposed rulemaking in three phases. 
In Phase 1 of the MIA, DOE prepared a profile of the CWH equipment 
manufacturing industry based on the market and technology assessment, 
preliminary manufacturer interviews, and publicly-available 
information. This included a top-down analysis of CWH equipment 
manufacturers that DOE used to derive preliminary financial inputs for 
the GRIM (e.g., revenues; materials, labor, overhead, and depreciation 
expenses; selling, general, and administrative (``SG&A'') expenses; and 
R&D expenses). DOE also used public sources of information to further 
calibrate its initial characterization of the CWH equipment 
manufacturing industry, including company filings of form 10-K from the 
SEC,\151\ corporate annual reports, the U.S. Census Bureau's Economic 
Census,\152\ and reports from Dunn & Bradstreet.\153\
---------------------------------------------------------------------------

    \151\ U.S. Securities and Exchange Commission, Annual 10-K 
Reports (Various Years) (Available at www.sec.gov/edgar/searchedgar/companysearch.html).
    \152\ U.S. Census Bureau, Annual Survey of Manufacturers: 
General Statistics: Statistics for Industry Groups and Industries 
(2018). Available at www.census.gov/data/tables/time-series/econ/asm/2018-2019-asm.html.
    \153\ Dunn & Bradstreet Company Profiles, Various Companies. 
Available at app.dnbhoovers.com.
---------------------------------------------------------------------------

    In Phase 2 of the MIA, DOE prepared a framework industry cash-flow 
analysis to quantify the potential impacts of amended energy 
conservation standards. The GRIM uses several factors to determine a 
series of annual cash flows starting with the announcement of the 
standard and extending over a 30-year period following the compliance 
date of the standard. 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) Creating a need for increased 
investment, (2) raising production costs per unit, and (3) altering 
revenue due to higher per-unit prices and changes in sales volumes.
    In addition, during Phase 2, DOE developed interview guides to 
distribute to manufacturers of CWH equipment in order to develop other 
key GRIM inputs, including product and capital conversion costs, and to 
gather additional information on the anticipated effects of energy 
conservation standards on revenues, direct employment, capital assets, 
industry competitiveness, and subgroup impacts.
    In Phase 3 of the MIA, DOE conducted structured, detailed 
interviews with representative manufacturers. During these interviews, 
DOE discussed engineering, manufacturing, procurement, and financial 
topics to validate assumptions used in the GRIM and to identify key 
issues or concerns. As part of Phase 3, DOE also evaluated subgroups of 
manufacturers that may be disproportionately impacted by amended 
standards or that may not be accurately represented by the average cost 
assumptions used to develop the industry cash flow analysis. Such 
manufacturer subgroups may include small business manufacturers, low-
volume manufacturers, niche players, and/or manufacturers exhibiting a 
cost structure that largely differs from the industry average. DOE 
identified one subgroup for a separate impact analysis: Small business 
manufacturers. The small business subgroup is discussed in section VI.B 
``Review under the Regulatory Flexibility Act'' of this document and in 
chapter 12 of the NOPR TSD.
2. Government Regulatory Impact Model and Key Inputs
    DOE uses the GRIM to quantify the changes in cash flow due to 
amended standards that result in a higher or lower industry value. The 
GRIM uses a standard, annual discounted cash-flow analysis that 
incorporates manufacturer costs, markups, shipments, and industry 
financial information as inputs. The GRIM models changes in costs, 
distribution of shipments, investments, and manufacturer margins that 
could result from an amended energy conservation standard. The GRIM 
spreadsheet uses the inputs to arrive at a series of annual cash flows, 
beginning in 2020 (the base year of the analysis)

[[Page 30688]]

and continuing to 2055. DOE calculated INPVs by summing the stream of 
annual discounted cash flows during this period. For manufacturers of 
CWH equipment, DOE used a real discount rate of 9.1 percent, which was 
derived from industry financials and then modified according to 
feedback received during manufacturer interviews.
    The GRIM calculates cash flows using standard accounting principles 
and compares changes in INPV between the no-new-standards case and each 
standards case. The difference in INPV between the no-new-standards 
case and a standards case represents the financial impact of the 
amended energy conservation standard on manufacturers. As discussed 
previously, DOE developed critical GRIM inputs using a number of 
sources, including publicly-available data, results of the engineering 
analysis, and information gathered from industry stakeholders during 
the course of manufacturer interviews and through written comments. The 
GRIM results are presented in section V.B.2. Additional details about 
the GRIM, the discount rate, and other financial parameters can be 
found in chapter 12 of the NOPR TSD.
a. Manufacturer Production Costs
    Manufacturing more efficient equipment is typically more expensive 
than manufacturing baseline equipment due to the use of more complex 
components, which are typically more costly than baseline components. 
The changes in the MPCs of covered products can affect the revenues, 
gross margins, and cash flow of the industry. MPCs were derived in the 
engineering analysis, using methods discussed in section IV.C. of this 
document. For a complete description of the MPCs, see chapter 5 of the 
NOPR TSD.
b. Shipments Projections
    The GRIM estimates manufacturer revenues based on total unit 
shipment projections and the distribution of those shipments by 
efficiency level. Changes in sales volumes and efficiency mix over time 
can significantly affect manufacturer finances. For this analysis, the 
GRIM uses the NIA's annual shipment projections derived from the 
shipments analysis from 2020 (the base year) to 2055 (the end year of 
the analysis period). See chapter 9 of the NOPR TSD for additional 
details.
c. Product and Capital Conversion Costs
    Amended energy conservation standards could cause manufacturers to 
incur conversion costs to bring their production facilities and 
equipment designs into compliance. DOE evaluated the level of 
conversion-related expenditures that would be needed to comply with 
each considered efficiency level in each equipment category. For the 
MIA, DOE classified these conversion costs into two major groups: (1) 
Product conversion costs; and (2) capital conversion costs.
    Product conversion costs are investments in research, development, 
testing, marketing, and other non-capitalized costs necessary to make 
product designs comply with amended energy conservation standards. 
Capital conversion costs are 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.
    To evaluate potential product conversion costs, DOE estimated the 
number of platforms manufacturers would have to modify to move their 
equipment lines to each incremental efficiency level. DOE developed the 
product conversion costs by estimating the amount of labor per platform 
manufacturers would need for research and development to raise the 
efficiency of models to each incremental efficiency level. DOE also 
assumed manufacturers would incur safety certification costs (including 
costs for updating safety certification records and for safety testing) 
associated with modifying their current product offerings to comply 
with amended standards.
    To evaluate the level of capital conversion expenditures 
manufacturers would likely incur to comply with amended standards, DOE 
used information derived from the engineering analysis, equipment 
teardowns, and manufacturer interviews. DOE used the information to 
estimate the additional investments in property, plant, and equipment 
that are necessary to meet amended energy conservation standards. In 
the engineering analysis evaluation of higher efficiency equipment from 
leading manufacturers of commercial water heaters (both commercial duty 
and residential duty), DOE found a range of designs and manufacturing 
approaches. DOE attempted to account for both the range of 
manufacturing pathways and the current efficiency distribution of 
shipments in the modeling of industry capital conversion costs.
    The capital conversion cost estimates for gas-fired storage water 
heaters are driven by the cost for industry to double production 
capacity at condensing ELs. Those costs included, but were not limited 
to, capital investments in tube bending, press dies, machining, 
enameling, MIG welding, leak testing, quality assurance stations, 
conveyer, and additional space requirements.
    For gas-fired instantaneous water heaters capital conversion costs, 
DOE understands that manufacturers produce commercial models on the 
same production lines as residential models, which have much higher 
shipment volumes. As such, DOE modeled the scenario in which gas-fired 
instantaneous water heater manufacturers make incremental investments 
to increase production capacity, but do not need to setup entirely new 
production lines or new facilities to accommodate an amended standard 
requiring condensing technology for gas-fired instantaneous water 
heaters.
    For gas-fired instantaneous circulating water heaters and hot water 
supply boilers, the design changes to reach condensing efficiency 
levels were driven by purchased parts (i.e., condensing heat exchanger, 
burner tube, blower, gas valve). The capital conversion costs for this 
equipment class are based on incremental warehouse space needed to 
house additional purchased parts.
    DOE assumes all conversion-related investments occur between the 
year of publication of the final rule and the year by which 
manufacturers must comply with the new standard. The conversion cost 
figures used in the GRIM can be found in section V.B.2 of this 
document. For additional information on the estimated capital and 
product conversion costs and estimates by equipment category, see 
chapter 12 of the NOPR TSD.
    Issue 9: DOE seeks input on the production facility and 
manufacturing process changes required as a result of potential amended 
standards for each equipment category. DOE also requests input on the 
costs associated with those facility and manufacturing changes.
d. Manufacturer Markup Scenarios
    MSPs include 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 a manufacturer markups to the MPCs 
estimated in the engineering analysis for each equipment category and 
efficiency level. Modifying these manufacturer markups in the standards 
case yields different sets of impacts on manufacturers. For the MIA, 
DOE modeled two standards-case markup scenarios to represent 
uncertainty regarding the potential

[[Page 30689]]

impacts on prices and profitability for manufacturers following the 
implementation of amended energy conservation standards: (1) A 
preservation of gross margin percentage markup scenario and (2) a 
preservation of per-unit operating profit markup scenario. These 
scenarios lead to different manufacturer markup values that, when 
applied to the MPCs, result in varying revenue and cash flow impacts.
    Under the preservation of gross margin percentage scenario, DOE 
applied a single uniform ``gross margin percentage'' markup across all 
efficiency levels, which assumes that manufacturers would be able to 
maintain the same amount of profit as a percentage of revenues at all 
efficiency levels within an equipment category. As manufacturer 
production costs increase with efficiency, this scenario implies that 
the absolute dollar markup will increase.
    To estimate the average manufacturer markup used in the 
preservation of gross margin percentage markup scenario, DOE analyzed 
publicly-available financial information for manufacturers of CWH 
equipment. DOE then requested feedback on its initial markup estimates 
during manufacturer interviews. The revised markups, which are used in 
DOE's quantitative analysis of industry financial impacts, are 
presented in Table IV.32 of this NOPR. These markups capture all non-
production costs, including SG&A expenses, R&D expenses, interest 
expenses, and profit.

   Table IV.32--Manufacturer Markups for Preservation of Gross Margin
                       Percentage Markup Scenario
------------------------------------------------------------------------
                        Equipment                             Markup
------------------------------------------------------------------------
Commercial gas-fired storage and gas-fired storage-type             1.45
 instantaneous water heaters............................
Residential-duty gas-fired storage water heaters........            1.45
Gas-fired instantaneous water heaters and hot water
 supply boilers:
    Tankless water heaters..............................            1.43
    Circulating water heaters and hot water supply                  1.43
     boilers............................................
------------------------------------------------------------------------

    DOE also models the preservation of per-unit operating profit 
scenario because manufacturers stated that they do not expect to be 
able to mark up the full cost of production in the standards case, 
given the highly competitive nature of the CWH market. In this 
scenario, manufacturer markups are set so that operating profit one 
year after the compliance date of amended energy conservation standards 
is the same as in the no-new-standards case on a per-unit basis. In 
other words, manufacturers are not able to garner additional operating 
profit from the higher production costs and the investments that are 
required to comply with the amended standards; however, they are able 
to maintain the same per-unit operating profit in the standards case 
that was earned in the no-new-standards case. Therefore, operating 
margin in percentage terms is reduced between the no-new-standards case 
and standards case.
    DOE adjusted the manufacturer markups in the GRIM at each TSL to 
yield approximately the same per-unit earnings before interest and 
taxes in the standards case as in the no-new-standards case. The 
preservation of per-unit operating profit markup scenario represents 
the lower bound of industry profitability in the standards case. This 
is because manufacturers are not able to fully pass through to 
commercial consumers the additional costs necessitated by amended 
standards for CWH equipment.
    A comparison of industry financial impacts under the two markup 
scenarios is presented in section V.B.2.a of this document.

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 other gases 
due to ``upstream'' activities in the fuel production chain. These 
upstream activities comprise extraction, processing, and transporting 
fuels to the site of combustion.
    The analysis of power sector emissions of CO2, 
NOX, SO2, and Hg uses marginal emissions factors 
that were derived from data in AEO2021, as described in section IV.M of 
this document. Details of the methodology are described in the 
appendices to chapters 13 and 15 of the NOPR TSD.
    Power sector emissions of CO2, CH4, and 
N2O are estimated using Emission Factors for Greenhouse Gas 
Inventories published by the EPA.\154\ The FFC upstream emissions are 
estimated based on the methodology described in chapter 15 of the NOPR 
TSD. The upstream emissions include both emissions from extraction, 
processing, and transportation of fuel, and ``fugitive'' emissions 
(direct leakage to the atmosphere) of CH4 and 
CO2.
---------------------------------------------------------------------------

    \154\ Available www.epa.gov/sites/production/files/2021-04/documents/emission-factors_apr2021.pdf (last accessed July 12, 
2021).
---------------------------------------------------------------------------

    The onsite operation of CWH equipment requires combustion of fossil 
fuels and results in emissions of CO2, NOX, 
SO2, CH4 and N2O at the sites where 
these products are used. DOE accounted for the reduction in these site 
emissions and the associated FFC upstream emissions due to potential 
standards. Site emissions of these gases were estimated using Emission 
Factors for Greenhouse Gas Inventories and emissions intensity factors 
from an EPA publication.\155\
---------------------------------------------------------------------------

    \155\ U.S. Environmental Protection Agency. External Combustion 
Sources. In Compilation of Air Pollutant Emission Factors. AP-42. 
Fifth Edition. Volume I: Stationary Point and Area Sources. Chapter 
1. Available at www.epa.gov/air-emissions-factors-and-quantification/ap-42-compilation-air-emissions-factors (last 
accessed July 1, 2021).
---------------------------------------------------------------------------

    The emissions intensity factors are expressed in terms of physical 
units per megawatt-hour (MWh) or million British thermal units (MMBtu) 
of site energy savings. Total emissions reductions are estimated using 
the energy savings calculated in the national impact analysis.
1. Air Quality Regulations Incorporated in DOE's Analysis
    DOE's no-new-standards case for the electric power sector reflects 
the AEO2021, which incorporates the projected impacts of existing air 
quality regulations on emissions. AEO2021 generally represents current 
legislation and environmental regulations, including recent government 
actions, that were in place at the time of preparation of AEO2021, 
including the emissions control programs discussed in the following 
paragraphs.\156\
---------------------------------------------------------------------------

    \156\ For further information, see the Assumptions to AEO2021 
report that sets forth the major assumptions used to generate the 
projections in the Annual Energy Outlook. Available at www.eia.gov/outlooks/aeo/assumptions/ (last accessed July 1, 2021).

---------------------------------------------------------------------------

[[Page 30690]]

    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 (``CAA'') sets an annual 
emissions cap on SO2 for affected EGUs in the 48 contiguous 
States and the District of Columbia (``D.C.''). (42 U.S.C. 7651 et 
seq.) SO2 emissions from numerous States in the eastern half 
of the United States are also limited under the Cross-State Air 
Pollution Rule (``CSAPR''). 76 FR 48208 (Aug. 8, 2011). CSAPR requires 
these States to reduce certain emissions, including annual 
SO2 emissions, and went into effect as of January 1, 
2015.\157\ AEO2021 incorporates implementation of CSAPR, including the 
update to the CSAPR ozone season program emission budgets and target 
dates issued in 2016. 81 FR 74504 (Oct. 26, 2016). Compliance with 
CSAPR is flexible among EGUs and is enforced through the use of 
tradable emissions allowances. 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 another regulated EGU.
---------------------------------------------------------------------------

    \157\ CSAPR requires states to address annual emissions of 
SO2 and NOX, precursors to the formation of 
fine particulate matter (PM2.5) pollution, in order to 
address the interstate transport of pollution with respect to the 
1997 and 2006 PM2.5 National Ambient Air Quality 
Standards (``NAAQS''). CSAPR also requires certain states to address 
the ozone season (May-September) emissions of NOX, a 
precursor to the formation of ozone pollution, in order to address 
the interstate transport of ozone pollution with respect to the 1997 
ozone NAAQS. 76 FR 48208 (Aug. 8, 2011). EPA subsequently issued a 
supplemental rule that included an additional five states in the 
CSAPR ozone season program; 76 FR 80760 (Dec. 27, 2011) 
(Supplemental Rule).
---------------------------------------------------------------------------

    However, beginning in 2016, SO2 emissions began to fall 
as a result of the Mercury and Air Toxics Standards (``MATS'') for 
power plants. 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 are 
being reduced as a result of the control technologies installed on 
coal-fired power plants to comply with the MATS requirements for acid 
gas. To continue operating, coal power plants must have either flue gas 
desulfurization or dry sorbent injection systems installed. Both 
technologies, which are used to reduce acid gas emissions, also reduce 
SO2 emissions. Because of the emissions reductions under the 
MATS, 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 another 
regulated EGU. Therefore, energy conservation standards that decrease 
electricity generation would generally reduce SO2 emissions. 
DOE estimated SO2 emissions reduction using emissions 
factors based on AEO2021.
    CSAPR also established limits on NOX emissions for 
numerous States in the eastern half of the United States. Energy 
conservation standards would have little effect on NOX 
emissions in those States covered by CSAPR emissions limits if excess 
NOX emissions allowances resulting from the lower 
electricity demand could be used to permit offsetting increases in 
NOX emissions from other EGUs. In such case, NOX 
emissions would remain near the limit even if electricity generation 
goes down. A different case could possibly result, depending on the 
configuration of the power sector in the different regions and the need 
for allowances, such that NOX emissions might not remain at 
the limit in the case of lower electricity demand. In this case, energy 
conservation standards might reduce NOX emissions in covered 
States. Despite this possibility, DOE has chosen to be conservative in 
its analysis and has maintained the assumption that standards will not 
reduce NOX emissions in States covered by CSAPR. Energy 
conservation standards would be expected to reduce NOX 
emissions in the States not covered by CSAPR. DOE used AEO2021 data to 
derive NOX emissions factors for the group of States not 
covered by CSAPR. DOE used AEO2021 data to derive NOX 
emissions factors for the group of States not covered by CSAPR.
    The MATS limit mercury emissions from power plants, but they do not 
include emissions caps and, as such, DOE's energy conservation 
standards would be expected to slightly reduce Hg emissions. DOE 
estimated mercury emissions reduction using emissions factors based on 
AEO2021, which incorporates the MATS.

L. Monetizing Emissions Impacts

    As part of the development of this proposed rule, for the purpose 
of complying with the requirements of Executive Order 12866, DOE 
considered the estimated monetary benefits from the reduced emissions 
of CO2, CH4, N2O, NOX, and 
SO2 that are expected to result from each of the TSLs 
considered. In order 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 projection period for each TSL. This section summarizes the basis 
for the values used for monetizing the emissions benefits and presents 
the values considered in this NOPR.
    On March 16, 2022, the Fifth Circuit Court of Appeals (No. 22-
30087) granted the federal government's emergency motion for stay 
pending appeal of the February 11, 2022, preliminary injunction issued 
in Louisiana v. Biden, No. 21-cv-1074-JDC-KK (W.D. La.). As a result of 
the Fifth Circuit's order, the preliminary injunction is no longer in 
effect, pending resolution of the federal government's appeal of that 
injunction or a further court order. Among other things, the 
preliminary injunction enjoined the defendants in that case from 
``adopting, employing, treating as binding, or relying upon'' the 
interim estimates of the social cost of greenhouse gases--which were 
issued by the Interagency Working Group on the Social Cost of 
Greenhouse Gases on February 26, 2021--to monetize the benefits of 
reducing greenhouse gas emissions. In the absence of further 
intervening court orders, DOE will revert to its approach prior to the 
injunction and present monetized benefits where appropriate and 
permissible under law. DOE requests comment on how to address the 
climate benefits and other non-monetized effects of the proposal.
1. Monetization of Greenhouse Gas Emissions
    For the purpose of complying with the requirements of Executive 
Order 12866, DOE estimates the monetized benefits of the reductions in 
emissions of CO2, CH4, and N2O by 
using a measure of the social cost (``SC'') of each pollutant (e.g., 
SC-GHGs). These estimates represent the monetary value of the net harm 
to society associated with a marginal increase in emissions of these 
pollutants in a given year, or the benefit of avoiding that increase. 
These estimates are intended to include (but are not limited to) 
climate-change-related changes in net agricultural productivity, human 
health, property damages from increased flood risk, disruption of 
energy systems, risk of conflict, environmental migration, and the 
value of ecosystem services. DOE exercises its own judgment in

[[Page 30691]]

presenting monetized climate benefits as recommended by applicable 
Executive Orders and guidance, and DOE would reach the same conclusion 
presented in this notice in the absence of the social cost of 
greenhouse gases, including the February 2021 Interim Estimates 
presented by the Interagency Working Group on the Social Cost of 
Greenhouse Gases.
    DOE estimated the global social benefits of CO2, 
CH4, and N2O reductions (``SC-GHG'') using the 
estimates presented in the ``Technical Support Document: Social Cost of 
Carbon, Methane, and Nitrous Oxide Interim Estimates under Executive 
Order 13990'' published in February 2021 by the Interagency Working 
Group on Social Cost of Greenhouse Gases, United States Government 
(IWG) (IWG, 2021). The SC-GHGs is the monetary value of the net harm to 
society associated with a marginal increase in emissions in a given 
year, or the benefit of avoiding that increase. In principle, SC-GHGs 
includes the value of all climate change impacts, including (but not 
limited to) changes in net agricultural productivity, human health 
effects, property damage from increased flood risk and natural 
disasters, disruption of energy systems, risk of conflict, 
environmental migration, and the value of ecosystem services. The SC-
GHGs therefore, reflects the societal value of reducing emissions of 
the gas in question by one metric ton. The SC-GHGs is the theoretically 
appropriate value to use in conducting benefit-cost analyses of 
policies that affect CO2, N2O and CH4 
emissions. As a member of the IWG involved in the development of the 
February 2021 SC-GHG TSD, the DOE agrees that the interim SC-GHG 
estimates represent the most appropriate estimate of the SC-GHG until 
revised estimates have been developed reflecting the latest, peer-
reviewed science.
    The SC-GHG estimates presented here were developed over many years, 
using transparent process, peer-reviewed methodologies, the best 
science available at the time of that process, and with input from the 
public. Specifically, in 2009, an interagency working group (IWG) that 
included DOE and other executive branch agencies and offices was 
established to ensure that agencies were using the best available 
science and to promote consistency in the social cost of carbon (SC-
CO2) values used across agencies. The IWG published SC-
CO2 estimates in 2010 that were developed from an ensemble 
of three widely cited integrated assessment models (IAMs) that estimate 
global climate damages using highly aggregated representations of 
climate processes and the global economy combined into a single 
modeling framework. The three IAMs were run using a common set of input 
assumptions in each model for future population, economic, and 
CO2 emissions growth, as well as equilibrium climate 
sensitivity (ECS)--a measure of the globally averaged temperature 
response to increased atmospheric CO2 concentrations. These 
estimates were updated in 2013 based on new versions of each IAM. In 
August 2016 the IWG published estimates of the social cost of methane 
(SC-CH4) and nitrous oxide (SC-N2O) using 
methodologies that are consistent with the methodology underlying the 
SC-CO2 estimates. The modeling approach that extends the IWG 
SC-CO2 methodology to non-CO2 GHGs has undergone 
multiple stages of peer review. The SC-CH4 and SC-
N2O estimates were developed by Marten et al. (2015) and 
underwent a standard double-blind peer review process prior to journal 
publication. In 2015, as part of the response to public comments 
received to a 2013 solicitation for comments on the SC-CO2 
estimates, the IWG announced a National Academies of Sciences, 
Engineering, and Medicine review of the SC-CO2 estimates to 
offer advice on how to approach future updates to ensure that the 
estimates continue to reflect the best available science and 
methodologies. In January 2017, the National Academies released their 
final report, Valuing Climate Damages: Updating Estimation of the 
Social Cost of Carbon Dioxide, and recommended specific criteria for 
future updates to the SC-CO2 estimates, a modeling framework 
to satisfy the specified criteria, and both near-term updates and 
longer-term research needs pertaining to various components of the 
estimation process (National Academies, 2017). Shortly thereafter, in 
March 2017, President Trump issued Executive Order 13783, which 
disbanded the IWG, withdrew the previous TSDs, and directed agencies to 
ensure SC-CO2 estimates used in regulatory analyses are 
consistent with the guidance contained in OMB's Circular A-4, 
``including with respect to the consideration of domestic versus 
international impacts and the consideration of appropriate discount 
rates'' (E.O. 13783, Section 5(c)).
    On January 20, 2021, President Biden issued Executive Order 13990, 
which re-established the IWG and directed it to ensure that the U.S. 
Government's estimates of the social cost of carbon and other 
greenhouse gases reflect the best available science and the 
recommendations of the National Academies (2017). The IWG was tasked 
with first reviewing the SC-GHG estimates currently used in Federal 
analyses and publishing interim estimates within 30 days of the E.O. 
that reflect the full impact of GHG emissions, including by taking 
global damages into account. The interim SC-GHG estimates published in 
February 2021, specifically the SC-CH4 estimates, are used 
here to estimate the climate benefits for this proposed rule. The E.O. 
instructs the IWG to undertake a fuller update of the SC-GHG estimates 
by January 2022 that takes into consideration the advice of the 
National Academies (2017) and other recent scientific literature.
    The February 2021 SC-GHG TSD provides a complete discussion of the 
IWG's initial review conducted under E.O. 13990. In particular, the IWG 
found that the SC-GHG estimates used under E.O. 13783 fail to reflect 
the full impact of GHG emissions in multiple ways. First, the IWG found 
that a global perspective is essential for SC-GHG estimates because it 
fully captures climate impacts that affect the United States and which 
have been omitted from prior U.S.-specific estimates due to 
methodological constraints. Examples of omitted effects include direct 
effects on U.S. citizens, assets, and investments located abroad, 
supply chains, and tourism, and spillover pathways such as economic and 
political destabilization and global migration. In addition, assessing 
the benefits of U.S. GHG mitigation activities requires consideration 
of how those actions may affect mitigation activities by other 
countries, as those international mitigation actions will provide a 
benefit to U.S. citizens and residents by mitigating climate impacts 
that affect U.S. citizens and residents. If the United States does not 
consider impacts on other countries, it is difficult to convince other 
countries to consider the impacts of their emissions on the United 
States. As a member of the IWG involved in the development of the 
February 2021 SC-GHG TSD, DOE agrees with this assessment and, 
therefore, in this proposed rule DOE centers attention on a global 
measure of SC-GHG. This approach is the same as that taken in DOE 
regulatory analyses from 2012 through 2016. Prior to that, in 2008 DOE 
presented Social Cost of Carbon (SCC) estimates based on values the 
Intergovernmental Panel on Climate Change (IPCC) identified in 
literature at that time. As noted in the February 2021 SC-GHG TSD, the 
IWG will continue to

[[Page 30692]]

review developments in the literature, including more robust 
methodologies for estimating a U.S.-specific SC-GHG value, and explore 
ways to better inform the public of the full range of carbon impacts. 
As a member of the IWG, DOE will continue to follow developments in the 
literature pertaining to this issue.
    Second, the IWG found that the use of the social rate of return on 
capital (7 percent under current OMB Circular A-4 guidance) to discount 
the future benefits of reducing GHG emissions inappropriately 
underestimates the impacts of climate change for the purposes of 
estimating the SC-GHG. Consistent with the findings of the National 
Academies (2017) and the economic literature, the IWG continued to 
conclude that the consumption rate of interest is the theoretically 
appropriate discount rate in an intergenerational context (IWG 2010, 
2013, 2016a, 2016b), and recommended that discount rate uncertainty and 
relevant aspects of intergenerational ethical considerations be 
accounted for in selecting future discount rates. As a member of the 
IWG involved in the development of the February 2021 SC-GHG TSD, DOE 
agrees with this assessment and will continue to follow developments in 
the literature pertaining to this issue.
    While the IWG works to assess how best to incorporate the latest, 
peer reviewed science to develop an updated set of SC-GHG estimates, it 
set the interim estimates to be the most recent estimates developed by 
the IWG prior to the group being disbanded in 2017. The estimates rely 
on the same models and harmonized inputs and are calculated using a 
range of discount rates. As explained in the February 2021 SC-GHG TSD, 
the IWG has recommended that agencies revert to the same set of four 
values drawn from the SC-GHG distributions based on three discount 
rates as were used in regulatory analyses between 2010 and 2016 and 
subject to public comment. For each discount rate, the IWG combined the 
distributions across models and socioeconomic emissions scenarios 
(applying equal weight to each) and then selected a set of four values 
recommended for use in benefit-cost analyses: An average value 
resulting from the model runs for each of three discount rates (2.5 
percent, 3 percent, and 5 percent), plus a fourth value, selected as 
the 95th percentile of estimates based on a 3 percent discount rate. 
The fourth value was included to provide information on potentially 
higher-than-expected economic impacts from climate change. As explained 
in the February 2021 SC-GHG TSD, and DOE agrees, this update reflects 
the immediate need to have an operational SC-GHG for use in regulatory 
benefit-cost analyses and other applications that was developed using a 
transparent process, peer-reviewed methodologies, and the science 
available at the time of that process. Those estimates were subject to 
public comment in the context of dozens of proposed rulemakings as well 
as in a dedicated public comment period in 2013.
    DOE's derivations of the SC-GHGs (i.e., SC-CO2, SC-
N2O, and SC-CH4) values used for this NOPR are 
discussed in the following sections, and the results of DOE's analyses 
estimating the benefits of the reductions in emissions of these 
pollutants are presented in section V.B.6.
a. Social Cost of Carbon
    The SC-CO2 values used for this NOPR were generated 
using the values presented in the 2021 update from the IWG's February 
2021 TSD. Table IV.33 shows the updated sets of SC-CO2 
estimates from the latest interagency update in 5-year increments from 
2020 to 2050. The full set of annual values used is presented in 
Appendix 14A of the NOPR TSD. For purposes of capturing the 
uncertainties involved in regulatory impact analysis, DOE has 
determined it is appropriate to include all four sets of SC-
CO2 values, as recommended by the IWG.\158\
---------------------------------------------------------------------------

    \158\ For example, the February 2021 TSD discusses how the 
understanding of discounting approaches suggests that discount rates 
appropriate for intergenerational analysis in the context of climate 
change may be lower than 3 percent.

                    Table IV.33--Annual SC-CO2 Values From 2021 Interagency Update, 2020-2050
                                           [2020$ per metric ton CO2]
----------------------------------------------------------------------------------------------------------------
                                                                       Discount rate
                                         -----------------------------------------------------------------------
                  Year                           5%                3%               2.5%               3%
                                         -----------------------------------------------------------------------
                                               Average           Average           Average       95th percentile
----------------------------------------------------------------------------------------------------------------
2020....................................                14                51                76               152
2025....................................                17                56                83               169
2030....................................                19                62                89               187
2035....................................                22                67                96               206
2040....................................                25                73               103               225
2045....................................                28                79               110               242
2050....................................                32                85               116               260
----------------------------------------------------------------------------------------------------------------

    In calculating the potential global benefits resulting from reduced 
CO2 emissions, DOE used the values from the 2021 interagency 
report, adjusted to 2020$ using the implicit price deflator for gross 
domestic product (``GDP'') from the Bureau of Economic Analysis. For 
each of the four sets of SC-CO2 cases specified, the values 
for emissions in 2020 were $14, $51, $76, and $152 per metric ton 
avoided (values expressed in 2020$). DOE derived values from 2051 to 
2070 based on estimates published by EPA.\159\ These estimates are 
based on methods, assumptions, and parameters identical to the 2020-
2050 estimates published by the IWG. DOE derived values after 2070 
based on the trend in 2060-2070 in each of the four cases in the IWG 
update.
---------------------------------------------------------------------------

    \159\ See EPA, Revised 2023 and Later Model Year Light-Duty 
Vehicle GHG Emissions Standards: Regulatory Impact Analysis, 
Washington, DC, December 2021. Available at: https://www.epa.gov/system/files/documents/2021-12/420r21028.pdf (last accessed January 
13, 2022).
---------------------------------------------------------------------------

    DOE multiplied the CO2 emissions reduction estimated for 
each year by the SC-CO2 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 SC-
CO2 values in each case. See chapter 13 for the annual 
emissions

[[Page 30693]]

reduction. See appendix 14A of the TSD for the annual SC-CO2 
values.
b. Social Cost of Methane and Nitrous Oxide
    The SC-CH4 and SC-N2O values used for this 
NOPR were generated using the values presented in the February 2021 
update from the IWG.\160\ Table IV.34 shows the updated sets of SC-
CH4 and SC-N2O estimates from the latest 
interagency update in 5-year increments from 2020 to 2050. The full set 
of annual values used is presented in Appendix 14A of the NOPR TSD. To 
capture the uncertainties involved in regulatory impact analysis, DOE 
has determined it is appropriate to include all four sets of SC-
CH4 and SC-N2O values, as recommended by the IWG.
---------------------------------------------------------------------------

    \160\ See Interagency Working Group on Social Cost of Greenhouse 
Gases, Technical Support Document: Social Cost of Carbon, Methane, 
and Nitrous Oxide. Interim Estimates Under Executive Order 13990, 
Washington, DC, February 2021. www.whitehouse.gov/wp-content/uploads/2021/02/TechnicalSupportDocument_SocialCostofCarbonMethaneNitrousOxide.pdf.

                                                      Table IV.34--Annual SC-CH4 and SC-N2O Values From 2021 Interagency Update, 2020-2050
                                                                                     [2020$ per metric ton]
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                              SC-CH4                                                          SC-N2O
                                                                 -------------------------------------------------------------------------------------------------------------------------------
                                                                                    Discount rate and statistic                                     Discount rate and statistic
                                                                 -------------------------------------------------------------------------------------------------------------------------------
                              Year                                      5%              3%             2.5%             3%              5%              3%             2.5%             3%
                                                                 -------------------------------------------------------------------------------------------------------------------------------
                                                                                                                       95th                                                            95th
                                                                      Average         Average         Average       percentile        Average         Average         Average       percentile
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2020............................................................             670           1,500           2,000           3,900           5,800          18,000          27,000          48,000
2025............................................................             800           1,700           2,200           4,500           6,800          21,000          30,000          54,000
2030............................................................             940           2,000           2,500           5,200           7,800          23,000          33,000          60,000
2035............................................................           1,100           2,200           2,800           6,000           9,000          25,000          36,000          67,000
2040............................................................           1,300           2,500           3,100           6,700          10,000          28,000          39,000          74,000
2045............................................................           1,500           2,800           3,500           7,500          12,000          30,000          42,000          81,000
2050............................................................           1,700           3,100           3,800           8,200          13,000          33,000          45,000          88,000
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

    DOE multiplied the CH4 and N2O emissions 
reduction estimated for each year by the SC-CH4 and SC-
N2O estimates for that year in each of the cases. To 
calculate a present value of the stream of monetary values, DOE 
discounted the values in each of the cases using the specific discount 
rate that had been used to obtain the SC-CH4 and SC-
N2O estimates in each case. See chapter 13 for the annual 
emissions reduction. See appendix 14A for the annual SC-CH4 
and SC_N2O values.
2. Monetization of Other Air Pollutants
    DOE estimated the monetized value of NOX and 
SO2 emissions reductions from electricity generation using 
benefit per ton estimates based on air quality modeling and 
concentration-response functions conducted by EPA for the Clean Power 
Plan final rule. 84 FR 32520. DOE used EPA's reported values for 
NOX (as PM2.5) and SO2 for 2020, 2025, 
and 2030 calculated with discount rates of 3 percent and 7 percent, and 
EPA's values for ozone season NOX, which do not involve 
discounting since the impacts are in the same year as emissions. DOE 
derived values specific to the sector for commercial water heating 
using a method described in appendix 14B of the NOPR TSD. DOE used 
linear interpolation to define values for the years between 2020 and 
2025 and between 2025 and 2030; for years beyond 2030 the values are 
held constant.
    DOE estimated the monetized value of NOX and 
SO2 emissions reductions from commercial water heating 
equipment using 2022 benefit-per-ton estimates from the EPA's 
``Technical Support Document Estimating the Benefit per Ton of Reducing 
PM2.5 and Ozone Precursors from 21 Sectors'' (``EPA 
TSD'').\161\ Although none of the sectors refers specifically to 
residential and commercial buildings, and by association, commercial 
water heaters, 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 emissions inventories. Because 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 TSD provides high and low estimates 
for 2016, 2020, 2025, and 2030 at 3- and 7-percent discount rates. DOE 
primarily relied on the low estimates to be conservative.
---------------------------------------------------------------------------

    \161\ U.S. Environmental Protection Agency. Technical Support 
Document: Estimating the Benefit per Ton of Reducing 
PM2.5 and Ozone Precursors from 21 Sectors, available at: 
www.epa.gov/benmap/estimating-benefit-ton-reducing-directly-emitted-pm25-pm25-precursors-and-ozone-precursors.
---------------------------------------------------------------------------

    DOE multiplied the site emissions reduction (in tons) in each year 
by the associated $/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 and 
SO2 emissions and will make any appropriate updates for the 
final rule.

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 AEO2021. NEMS 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. For 
the current analysis, impacts are quantified by comparing the levels of 
electricity sector generation, installed capacity, fuel consumption and 
emissions in the AEO2021 Reference case and various side cases. Details 
of the methodology are provided in the appendices to chapters 13 and 15 
of the NOPR 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 potential new or 
amended energy conservation standards.

[[Page 30694]]

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''). 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.\162\ 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 energy conservation standards.
---------------------------------------------------------------------------

    \162\ See U.S. Department of Commerce--Bureau of Economic 
Analysis. Regional Multipliers: A User Handbook for the Regional 
Input-Output Modeling System (RIMS II). 1997. U.S. Government 
Printing Office: Washington, DC. Available at apps.bea.gov/scb/pdf/regional/perinc/meth/rims2.pdf (last accessed July 7, 2021).
---------------------------------------------------------------------------

    DOE estimated indirect national employment impacts for the 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'').\163\ 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.
---------------------------------------------------------------------------

    \163\ Livingston, O.V., S.R. Bender, M.J. Scott, and R.W. 
Schultz. ImSET 4.0: Impact of Sector Energy Technologies Model 
Description and User Guide. 2015. Pacific Northwest National 
Laboratory: Richland, WA. PNNL-24563.
---------------------------------------------------------------------------

    DOE notes that ImSET is not a general equilibrium forecasting 
model, and that 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 proposed rule. Therefore, DOE used ImSET only to generate 
results for near-term timeframes (2026-2030), where these uncertainties 
are reduced. For more details on the employment impact analysis, see 
chapter 16 of the NOPR TSD.

V. Analytical Results and Conclusions

    The following section addresses the results from DOE's analyses 
with respect to the considered energy conservation standards for CWH 
equipment. It addresses the TSLs examined by DOE and the projected 
impacts of each of these levels. Additional details regarding DOE's 
analyses are contained in the NOPR TSD supporting this document.

A. Trial Standard Levels

    In general, DOE typically evaluates potential amended standards for 
products and equipment by grouping individual efficiency levels for 
each class into TSLs. Use of TSLs allows DOE to identify and consider 
manufacturer cost interactions between the equipment classes, to the 
extent that there are such interactions, and market cross elasticity 
from consumer purchasing decisions that may change when different 
standard levels are set.
    In the analysis conducted for this NOPR, for commercial gas-fired 
storage water heaters, DOE included efficiency levels for both thermal 
efficiency and standby loss in each TSL because standby loss is 
dependent upon thermal efficiency. This dependence of standby loss on 
thermal efficiency is discussed in detail in section IV.C.4.b of this 
NOPR and chapter 5 of the NOPR TSD. However, as discussed in section 
IV.C.4.b of this NOPR, for all thermal efficiency levels for commercial 
gas-fired storage water heaters, DOE only analyzed one standby loss 
level corresponding to each thermal efficiency level. The thermal 
efficiency levels for commercial gas-fired storage water heaters and 
commercial gas-fired instantaneous water heaters and hot water supply 
boilers, the standby loss levels for commercial gas-fired storage water 
heaters, and the UEF levels for residential-duty gas-fired storage 
water heaters that are included in each TSL are described in the 
following paragraphs and presented in Table V.1 of this NOPR.
    TSL 4 consists of the max-tech efficiency levels for each equipment 
category, which correspond to the highest condensing efficiency levels. 
TSL 3 consists of intermediate condensing efficiency levels for 
commercial gas-fired storage water heaters and residential-duty gas-
fired storage water heaters, and max-tech efficiency levels for 
commercial gas-fired instantaneous water heaters and hot water supply 
boilers. TSL 2 consists of the minimum condensing efficiency levels 
analyzed for commercial gas-fired storage water heaters and 
residential-duty gas-fired storage water heaters, and intermediate 
condensing efficiency levels for commercial gas-fired instantaneous 
water heaters and hot water supply boilers. These TSLs require similar 
technologies to achieve the efficiency levels and have roughly 
comparable equipment availability across each equipment category in 
terms of the share of models available that meet the efficiency level 
and having multiple manufacturers that produce those models. TSL 1 
consists of the maximum non-condensing thermal efficiency or UEF (as 
applicable) levels analyzed for each equipment category.
    Table V.1 presents the efficiency levels for each equipment 
category (i.e., commercial gas-fired storage water heaters and storage-
type instantaneous water heaters, residential-duty gas-fired storage 
water heaters, gas-fired tankless water heaters, and gas-fired 
circulating water heaters and hot water supply

[[Page 30695]]

boilers) in each TSL. Table V.2 presents the thermal efficiency value 
and standby loss reduction factor for each equipment category in each 
TSL that DOE considered, with the exception of residential-duty gas-
fired storage water heaters (for which TSLs are shown separately in 
Table V.3). The standby loss reduction factor is a multiplier 
representing the reduction in allowed standby loss relative to the 
current standby loss standard and which corresponds to the associated 
increase in thermal efficiency. Table V.3 presents the UEF equations 
for residential-duty gas-fired storage water heaters corresponding to 
each TSL that DOE considered.

                                         Table V.1--Trial Standard Levels for CWH Equipment by Efficiency Level
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                         Trial standard level * **
                                                 -------------------------------------------------------------------------------------------------------
                                                              1                         2                         3                         4
                    Equipment                    -------------------------------------------------------------------------------------------------------
                                                   Et or UEF                 Et or UEF                 Et or UEF                 Et or UEF
                                                       EL         SL EL          EL         SL EL          EL         SL EL          EL         SL EL
--------------------------------------------------------------------------------------------------------------------------------------------------------
Commercial gas-fired storage water heaters and              1            0            2            0            4            0            5            0
 storage-type instantaneous water heaters.......
Residential-duty gas-fired storage water heaters            2  ...........            3  ...........            4  ...........            5  ...........
Gas-fired instantaneous water heaters and hot
 water supply boilers:
    Tankless water heaters......................            2  ...........            4  ...........            5  ...........            5  ...........
    Circulating water heaters and hot water                 2  ...........            4  ...........            5  ...........            5  ...........
     supply boilers.............................
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Et stands for thermal efficiency, SL stands for standby loss, UEF stands for uniform energy factor, and EL stands for efficiency level. Et applies to
  commercial gas-fired storage water heaters and storage-type instantaneous water heaters, and to gas-fired instantaneous water heaters and hot water
  supply boilers. SL applies to commercial gas-fired storage water heaters and storage-type instantaneous water heaters. UEF applies to residential-duty
  gas-fired storage water heaters.
** As discussed in sections III.B.6 and III.B.7 of this NOPR, DOE did not analyze amended standby loss standards for instantaneous water heaters and hot
  water supply boilers. In addition, standby loss standards are not applicable for residential-duty commercial gas-fired storage water heaters. Lastly,
  for commercial gas-fired storage water heaters and storage-type instantaneous water heaters DOE only analyzed the reduction that is inherent to
  increasing Et and did not analyze SL ELs above EL0.


                       Table V.2--Trial Standard Levels for CWH Equipment by Thermal Efficiency and Standby Loss Reduction Factor
                                                [Except Residential-Duty Gas-Fired Storage Water Heaters]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                         Trial standard level * **
                                                 -------------------------------------------------------------------------------------------------------
                                                              1                         2                         3                         4
                    Equipment                    -------------------------------------------------------------------------------------------------------
                                                       Et       SL factor        Et       SL factor        Et       SL factor        Et       SL factor
                                                   (percent)     [dagger]    (percent)     [dagger]    (percent)     [dagger]    (percent)     [dagger]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Commercial gas-fired storage water heaters and             82         0.98           90         0.91           95         0.86           99         0.83
 storage-type instantaneous water heaters.......
Gas-fired instantaneous water heaters and hot
 water supply boilers:
    Tankless water heaters......................           84  ...........           94  ...........           96  ...........           96  ...........
    Circulating water heaters and hot water                84  ...........           94  ...........           96  ...........           96  ...........
     supply boilers.............................
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Et stands for thermal efficiency, and SL stands for standby loss.
** As discussed in sections III.B.6 and III.B.7 of this NOPR, DOE did not analyze amended standby loss standards for instantaneous water heaters and hot
  water supply boilers.
[dagger] Standby loss reduction factor is a factor that is multiplied by the current maximum standby loss equations for each equipment class, as
  applicable. DOE used reduction factors to develop the amended maximum standby loss equation for each TSL. These reduction factors and maximum standby
  loss equations are discussed in section IV.C.5 of this NOPR.


          Table--V.3 Trial Standard Levels by UEF for Residential-Duty Gas-Fired Storage Water Heaters
----------------------------------------------------------------------------------------------------------------
                                                              Trial standard level **
                                 -------------------------------------------------------------------------------
         Draw pattern *                    1                   2                   3                   4
                                 -------------------------------------------------------------------------------
                                          UEF                 UEF                 UEF                 UEF
----------------------------------------------------------------------------------------------------------------
High............................    0.7497-0.0009*Vr    0.8397-0.0009*Vr    0.9297-0.0009*Vr    0.9997-0.0009*Vr
Medium..........................    0.6902-0.0011*Vr    0.7802-0.0011*Vr    0.8702-0.0011*Vr    0.9402-0.0011*Vr
Low.............................    0.6262-0.0012*Vr    0.7162-0.0012*Vr    0.8062-0.0012*Vr    0.8762-0.0012*Vr
Very Small......................    0.3574-0.0009*Vr    0.4474-0.0009*Vr    0.5374-0.0009*Vr    0.6074-0.0009*Vr
----------------------------------------------------------------------------------------------------------------
* Draw pattern is a classification of hot water use of a consumer water heater or residential-duty commercial
  water heater, based upon the first-hour rating. The draw pattern is determined using the Uniform Test Method
  for Measuring the Energy Consumption of Water Heaters in in appendix E to subpart B of 10 CFR part 430.
** Vr is rated volume in gallons.

    DOE constructed the TSLs for this NOPR to include ELs 
representative of ELs with similar characteristics (i.e., using similar 
technologies and/or efficiencies, and having roughly comparable 
equipment availability). The

[[Page 30696]]

use of representative ELs provided for greater distinction between the 
TSLs. While representative ELs were included in the TSLs, DOE 
considered all efficiency levels as part of its analysis.\164\
---------------------------------------------------------------------------

    \164\ Efficiency levels that were analyzed for this NOPR are 
discussed in section IV.C.4 of this document. Results by efficiency 
level are presented in TSD chapters 8, 10, and 12.
---------------------------------------------------------------------------

B. Economic Justification and Energy Savings

1. Economic Impacts on Individual Consumers
    DOE analyzed the economic impacts on CWH equipment consumers by 
looking at the effects that potential amended 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 in the following sections.

a. Life-Cycle Cost and Payback Period

    In general, higher-efficiency products can affect consumers in two 
ways: (1) Purchase price increases and (2) annual operating costs 
decrease. 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. Chapter 8 of the NOPR TSD 
provides detailed information on the LCC and PBP analyses.
    Table V.4 through Table V.13 of this NOPR show the LCC and PBP 
results for the TSLs considered in this NOPR. 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.2.i of this document). Because some consumers 
purchase products with higher efficiency in the no-new-standards case, 
the average savings are less than the difference between the average 
LCC of the baseline product and the average LCC at each TSL. The 
savings refer only to consumers who are affected by a standard at a 
given TSL. As was noted in IV.H.1, DOE assumes a large percentage of 
consumers are already purchasing higher efficiency condensing equipment 
by 2027. 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.4--Average LCC and PBP Results for Commercial Gas-Fired Storage Water Heaters and Storage-Type Instantaneous Water Heaters
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                               Average costs (2020$)                          Simple
                                              Thermal      Standby loss  ----------------------------------------------------------------     payback
                  TSL *                     efficiency      (SL) factor      Installed     First year's      Lifetime                         period
                                          (Et) (percent)                       cost       operating cost  operating cost        LCC           (years)
--------------------------------------------------------------------------------------------------------------------------------------------------------
0.......................................              80            1.00           5,145           1,888          17,874          23,018  ..............
1.......................................              82            0.98           5,186           1,850          17,558          22,744             1.1
2.......................................              90            0.91           6,240           1,728          16,587          22,828             7.0
3.......................................              95            0.86           6,306           1,653          16,031          22,338             5.2
4.......................................              99            0.83           6,387           1,599          15,584          21,971             4.5
--------------------------------------------------------------------------------------------------------------------------------------------------------
* The results for each TSL are calculated assuming that all consumers use equipment with that efficiency level. The PBP is measured relative to the
  baseline equipment.
Note: TSL 0 represents the baseline.


   Table V.5--Average LCC Savings Relative to the No-New-Standards Case for Commercial Gas-Fired Storage Water
                              Heaters and Storage-Type Instantaneous Water Heaters
----------------------------------------------------------------------------------------------------------------
                                                                              Life-cycle cost savings
                                                                 -----------------------------------------------
                                      Thermal                      Percentage of   Percentage of
               TSL                  efficiency     Standby loss     commercial      commercial    Average  life-
                                    (Et) level      (SL) factor   consumers that  consumers that    cycle cost
                                     (percent)                      experience a    experience a     savings *
                                                                     net cost       net benefit       (2020$)
----------------------------------------------------------------------------------------------------------------
0...............................              80            1.00               0               0               0
1...............................              82            0.98               1              33              93
2...............................              90            0.91              14              22              80
3...............................              95            0.86              12              38             301
4...............................              99            0.83              13              86             664
----------------------------------------------------------------------------------------------------------------
The calculation includes consumers with zero LCC savings (no impact).
Note: TSL 0 represents the baseline.


                               Table V.6--Average LCC and PBP Results for Residential-Duty Gas-Fired Storage Water Heaters
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                              Average costs (2020$)                           Simple
                                                                       ------------------------------------------------------------------     payback
                         TSL *                              UEF **                        First year's       Lifetime                         period
                                                                        Installed cost   operating cost   operating cost        LCC           (years)
--------------------------------------------------------------------------------------------------------------------------------------------------------
0.....................................................            0.59           2,219              925           12,033          14,253  ..............
1.....................................................            0.68           2,435              855           11,346          13,781             3.1
2.....................................................            0.77           3,246              806           10,947          14,193             9.4

[[Page 30697]]

 
3.....................................................            0.86           3,596              754           10,438          14,034             8.6
4.....................................................            0.93           3,634              725           10,155          13,788             7.5
--------------------------------------------------------------------------------------------------------------------------------------------------------
* The results for each TSL are calculated assuming that all consumers use equipment with that efficiency level. The PBP is measured relative to the
  baseline equipment.
Note: TSL 0 represents the baseline.
** The UEF shown is for the representative capacity of 75 gallons.


   Table V.7--Average LCC Savings Relative to the No-New-Standards Case for Residential-Duty Gas-Fired Storage
                                                  Water Heaters
----------------------------------------------------------------------------------------------------------------
                                                                             Life-cycle cost savings
                                                               -------------------------------------------------
                                                                 Percentage of    Percentage of
                      TSL                            UEF *         commercial       commercial    Average  life-
                                                                 consumers that   consumers that    cycle  cost
                                                                  experience a     experience a     savings **
                                                                    net cost       net benefit        (2020$)
----------------------------------------------------------------------------------------------------------------
0.............................................            0.59                0                0               0
1.............................................            0.68                2               28             129
2.............................................            0.77               17               20            (20)
3.............................................            0.86               26               44              90
4.............................................            0.93               18               77             324
----------------------------------------------------------------------------------------------------------------
* The UEF shown is for the representative capacity of 75 gallons.
** The calculation includes consumers with zero LCC savings (no impact). A value in parentheses is a negative
  number.
Note: TSL 0 represents the baseline.


                             Table V.8--Average LCC and PBP Results by Efficiency Level for Gas-Fired Tankless Water Heaters
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                              Thermal                          Average costs (2020$)                          Simple
                                                            efficiency   ----------------------------------------------------------------     payback
                          TSL *                                (Et)                        First year's      Lifetime                         period
                                                             (percent)    Installed cost  operating cost  operating cost        LCC           (years)
--------------------------------------------------------------------------------------------------------------------------------------------------------
0.......................................................              80           2,875             597           8,338          11,213  ..............
1.......................................................              84           2,911             572           8,052          10,964             1.6
2.......................................................              94           3,490             519           7,517          11,007             9.4
3.......................................................              96           3,541             510           7,401          10,942             8.9
4.......................................................              96           3,541             510           7,401          10,942             8.9
--------------------------------------------------------------------------------------------------------------------------------------------------------
* The results for each TSL are calculated assuming that all consumers use equipment with that efficiency level. The PBP is measured relative to the
  baseline equipment.
TSL 0 represents the baseline.


   Table V.9-- Average LCC Savings Relative to the No-New-Standards-Case Efficiency Distribution for Gas-Fired
                                             Tankless Water Heaters
----------------------------------------------------------------------------------------------------------------
                                                                             Life-cycle cost savings
                                                               -------------------------------------------------
                                                    Thermal      Percentage of    Percentage of
                      TSL                         efficiency       commercial       commercial    Average  life-
                                                     (Et)        consumers that   consumers that    cycle cost
                                                   (percent)      experience a     experience a      savings *
                                                                    net cost       net benefit        (2020$)
----------------------------------------------------------------------------------------------------------------
0.............................................              80                0                0               0
1.............................................              84                0               17              42
2.............................................              94                9                8              40
3.............................................              96               12               25              63
4.............................................              96               12               25              63
----------------------------------------------------------------------------------------------------------------
* The calculation includes consumers with zero LCC savings (no impact).
Note: TSL 0 represents the baseline.


[[Page 30698]]


            Table V.10--Average LCC and PBP Results by Efficiency Level for Gas-Fired Circulating Water Heaters and Hot Water Supply Boilers
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                              Thermal                          Average costs (2020$)                          Simple
                                                            efficiency   ----------------------------------------------------------------     payback
                          TSL *                                (Et)                        First year's      Lifetime                         period
                                                             (percent)    Installed cost  operating cost  operating cost        LCC           (years)
--------------------------------------------------------------------------------------------------------------------------------------------------------
0.......................................................              80           7,714           4,449          80,795          88,509  ..............
1.......................................................              84           7,910           4,306          78,534          86,444             1.4
2.......................................................              94          11,993           3,930          72,782          84,775             9.3
3.......................................................              96          12,325           3,864          71,741          84,066             8.8
4.......................................................              96          12,325           3,864          71,741          84,066             8.8
--------------------------------------------------------------------------------------------------------------------------------------------------------
* The results for each TSL are calculated assuming that all consumers use equipment with that efficiency level. The PBP is measured relative to the
  baseline equipment.
Note: TSL 0 represents the baseline.


   Table V.11--Average LCC Savings Relative to the No-New-Standards-Case Efficiency Distribution for Gas-Fired
                             Circulating Water Heaters and Hot Water Supply Boilers
----------------------------------------------------------------------------------------------------------------
                                                                             Life-cycle cost savings
                                                               -------------------------------------------------
                                                    Thermal      Percentage of    Percentage of
                      TSL                         efficiency       commercial       commercial    Average  life-
                                                     (Et)        consumers that   consumers that    cycle cost
                                                   (percent)      experience a     experience a      savings *
                                                                    net cost       net benefit        (2020$)
----------------------------------------------------------------------------------------------------------------
0.............................................              80                0                0               0
1.............................................              84                2               15             172
2.............................................              94               11               22             702
3.............................................              96               13               36           1,047
4.............................................              96               13               36           1,047
----------------------------------------------------------------------------------------------------------------
* The calculation includes consumers with zero LCC savings (no impact).
Note: TSL 0 represents the baseline.


          Table V.12--Average LCC and PBP Results by Efficiency Level for Gas-Fired Instantaneous Water Heaters and Hot Water Supply Boilers *
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                              Thermal                          Average costs (2020$)                          Simple
                                                            efficiency   ----------------------------------------------------------------     payback
                          TSL *                                (Et)                        First year's      Lifetime                         period
                                                             (percent)    Installed cost  operating cost  operating cost        LCC           (years)
--------------------------------------------------------------------------------------------------------------------------------------------------------
0.......................................................              80           5,512           2,696          47,826          53,338  ..............
1.......................................................              84           5,635           2,607          46,463          52,099             1.4
2.......................................................              94           8,124           2,378          43,085          51,208             9.3
3.......................................................              96           8,328           2,338          42,465          50,793             8.8
4.......................................................              96           8,328           2,338          42,465          50,793             8.8
--------------------------------------------------------------------------------------------------------------------------------------------------------
* This table shows results for the gas-fired instantaneous water heaters and hot water supply boilers equipment class (i.e., both tankless water heaters
  and hot water supply boilers), and reflects a weighted average result of Tables V.8 and V.10 of this NOPR.
** The results for each TSL are calculated assuming that all consumers use equipment with that efficiency level. The PBP is measured relative to the
  baseline equipment.
Note: TSL 0 represents the baseline.


   Table V.13--Average LCC Savings Relative to the No-New-Standards-Case Efficiency Distribution for Gas-Fired
                            Instantaneous Water Heaters and Hot Water Supply Boilers*
----------------------------------------------------------------------------------------------------------------
                                                                             Life-cycle cost savings
                                                               -------------------------------------------------
                                                    Thermal      Percentage of    Percentage of
                      TSL                         efficiency       commercial       commercial     Average life-
                                                     (Et)        consumers that   consumers that    cycle cost
                                                   (percent)      experience a     experience a     savings **
                                                                    net cost       net benefit        (2020$)
----------------------------------------------------------------------------------------------------------------
0.............................................              80                0                0               0
1.............................................              84                1               16             113
2.............................................              94               10               16             400
3.............................................              96               12               31             599
4.............................................              96               12               31             599
----------------------------------------------------------------------------------------------------------------
* This table shows results for the gas-fired instantaneous water heaters and hot water supply boilers equipment
  class (i.e., both tankless water heaters and hot water supply boilers), and reflects a weighted average result
  of Tables V.9 and V.11 of this NOPR.
** The calculation includes consumers with zero LCC savings (no impact).
Note: TSL 0 represents the baseline.


[[Page 30699]]

b. Consumer Subgroup Analysis
    In the consumer subgroup analysis, DOE estimated the impact of the 
considered TSLs on a low-income residential population (0-20 percentile 
gross annual household income) subgroup. Table V.14 through Table V.23 
of this NOPR compare the average LCC savings and PBP at each efficiency 
level for the consumer subgroup, along with the average LCC savings for 
the entire consumer sample. In most cases, the average LCC savings and 
PBP for low-income residential consumers at the considered efficiency 
levels are either similar to or more favorable than the average for all 
consumers, due in part to greater levels of equipment usage in RECS 
apartment building sample identified as low-income observations when 
compared to the average consumer of CWH equipment. The exception is 
tankless water heaters in which low-income consumers' LCC savings are 
lower than the average of all consumers. Chapter 11 of the NOPR TSD 
presents the complete LCC and PBP results for the subgroup analysis.

  Table V.14--Comparison of Impacts for Consumer Subgroup With All Consumers, Commercial Gas-Fired Storage Water Heaters and Storage-Type Instantaneous
                                                                      Water Heaters
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                              Thermal                          LCC savings  (2020$)       Simple payback period  (years)
                                                            efficiency     Standby loss  ---------------------------------------------------------------
                           TSL                                 (Et)         (SL) factor     Residential                     Residential
                                                             (percent)       (percent)      low-income          All         low-income          All
--------------------------------------------------------------------------------------------------------------------------------------------------------
1.......................................................              82              98             124              93             0.9             1.1
2.......................................................              90              91             210              80             5.6             7.0
3.......................................................              95              86             509             301             4.1             5.2
4.......................................................              99              83           1,008             664             3.5             4.4
--------------------------------------------------------------------------------------------------------------------------------------------------------


    Table V.15--Comparison of Impacted Consumers for Consumer Subgroup and All Consumers, Commercial Gas-Fired Storage Water Heaters and Storage-Type
                                                               Instantaneous Water Heaters
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                             Percent of consumers that       Percent of consumers that
                                                              Thermal      Standby loss        experience a net cost         experience a net benefit
                           TSL                              efficiency      (SL) factor  ---------------------------------------------------------------
                                                               (Et)          (percent)      Residential                     Residential
                                                             (percent)                      low-income          All         low-income          All
--------------------------------------------------------------------------------------------------------------------------------------------------------
1.......................................................              82              98               0               1              34              33
2.......................................................              90              91              11              14              26              22
3.......................................................              95              86               7              12              42              38
4.......................................................              99              83               6              13              93              86
--------------------------------------------------------------------------------------------------------------------------------------------------------


 Table V.16--Comparison of Impacts for Consumer Subgroup With All Consumers, Residential-Duty Gas-Fired Storage
                                                  Water Heaters
----------------------------------------------------------------------------------------------------------------
                                                       LCC savings  (2020$)       Simple payback period  (years)
                                                 ---------------------------------------------------------------
               TSL                      UEF         Residential                     Residential
                                                    low-income          All         low-income          All
----------------------------------------------------------------------------------------------------------------
1...............................            0.68             131             129             3.1             3.1
2...............................            0.77              15            (20)             8.5             9.4
3...............................            0.86             138              90             7.9             8.6
4...............................            0.93             383             324             6.9             7.5
----------------------------------------------------------------------------------------------------------------
* Parentheses indicate negative values.


Table V.17--Comparison of Impacted Consumers for Consumer Subgroup and All Consumers, Residential-Duty Gas-Fired
                                              Storage Water Heaters
----------------------------------------------------------------------------------------------------------------
                                                     Percent of consumers that       Percent of consumers that
                                                       experience a net cost         experience a net benefit
               TSL                      UEF      ---------------------------------------------------------------
                                                    Residential                     Residential
                                                    low-income          All         low-income          All
----------------------------------------------------------------------------------------------------------------
1...............................            0.68               1               2              29              28
2...............................            0.77              15              17              22              20
3...............................            0.86              22              26              47              44
4...............................            0.93              14              18              81              77
----------------------------------------------------------------------------------------------------------------


[[Page 30700]]


  Table V.18--Comparison of Impacts for Consumer Subgroup With All Consumers, Gas-Fired Tankless Water Heaters
----------------------------------------------------------------------------------------------------------------
                                      Thermal          LCC savings  (2020$)       Simple payback period  (years)
                                    efficiency   ---------------------------------------------------------------
               TSL                     (Et)         Residential                     Residential
                                     (percent)      low-income          All         low-income          All
----------------------------------------------------------------------------------------------------------------
1...............................              84              25              42             2.8             1.6
2...............................              94              11              40            13.2             9.4
3...............................              96              21              63            12.7             8.9
4...............................              96              21              63            12.7             8.9
----------------------------------------------------------------------------------------------------------------


 Table V.19--Comparison of Impacted Consumers for Consumer Subgroup and All Consumers, Gas-Fired Tankless Water
                                                     Heaters
----------------------------------------------------------------------------------------------------------------
                                                     Percent of consumers that       Percent of consumers that
                                      Thermal          experience a net cost         experience a net benefit
               TSL                  efficiency   ---------------------------------------------------------------
                                       (Et)         Residential                     Residential
                                     (percent)      low-income          All         low-income          All
----------------------------------------------------------------------------------------------------------------
1...............................              84               0               0              17              17
2...............................              94              11               9               6               8
3...............................              96              16              12              22              25
4...............................              96              16              12              22              25
----------------------------------------------------------------------------------------------------------------


 Table V.20--Comparison of Impacts for Consumer Subgroup With All Consumers, Gas-Fired Circulating Water Heaters
                                          and Hot Water Supply Boilers
----------------------------------------------------------------------------------------------------------------
                                                       LCC savings  (2020$)       Simple payback period  (years)
                                      Thermal    ---------------------------------------------------------------
               TSL                  efficiency      Residential                     Residential
                                  (Et) (percent)    low-income          All         low-income          All
----------------------------------------------------------------------------------------------------------------
1...............................              84             265             172             1.1             1.4
2...............................              94           2,029             702             6.7             9.3
3...............................              96           2,754           1,047             6.3             8.8
4...............................              96           2,754           1,047             6.3             8.8
----------------------------------------------------------------------------------------------------------------


   Table V.21--Comparison of Impacted Consumers for Consumer Subgroup and All Consumers, Gas-Fired Circulating
                                   Water Heaters and Hot Water Supply Boilers
----------------------------------------------------------------------------------------------------------------
                                                     Percent of consumers that       Percent of consumers that
                                      Thermal          experience a net cost         experience a net benefit
               TSL                  efficiency   ---------------------------------------------------------------
                                  (Et) (percent)    Residential                     Residential
                                                    low-income          All         low-income          All
----------------------------------------------------------------------------------------------------------------
1...............................              84               1               2              15              15
2...............................              94               6              11              28              22
3...............................              96               6              13              43              36
4...............................              96               6              13              43              36
----------------------------------------------------------------------------------------------------------------


    Table V.22--Comparison of Impacts for Consumer Subgroup With All Consumers, Gas-Fired Instantaneous Water
                                     Heaters and Hot Water Supply Boilers *
----------------------------------------------------------------------------------------------------------------
                                                       LCC savings  (2020$)       Simple payback period  (years)
                                      Thermal    ---------------------------------------------------------------
               TSL                  efficiency      Residential                     Residential
                                  (Et) (percent)    low-income          All         low-income          All
----------------------------------------------------------------------------------------------------------------
1...............................              84             156             113             1.2             1.4
2...............................              94           1,111             400             7.0             9.3
3...............................              96           1,511             599             6.5             8.8
4...............................              96           1,511             599             6.5             8.8
----------------------------------------------------------------------------------------------------------------
* This table shows results for the gas-fired instantaneous water heaters and hot water supply boilers equipment
  class (i.e., both tankless water heaters and hot water supply boilers), and reflects a weighted average result
  of Tables V.18 and V.20 of this NOPR.


[[Page 30701]]


  Table V.23--Comparison of Impacted Consumers for Consumer Subgroup and All Consumers, Gas-Fired Instantaneous
                                  Water Heaters and Hot Water Supply Boilers *
----------------------------------------------------------------------------------------------------------------
                                                     Percent of consumers that       Percent of consumers that
                                      Thermal          experience a net cost         experience a net benefit
               TSL                  efficiency   ---------------------------------------------------------------
                                  (Et) (percent)    Residential                     Residential
                                                    low-income          All         low-income          All
----------------------------------------------------------------------------------------------------------------
1...............................              84               1               1              16              16
2...............................              94               8              10              18              16
3...............................              96              10              12              33              31
4...............................              96              10              12              33              31
----------------------------------------------------------------------------------------------------------------
* This table shows results for the gas-fired instantaneous water heaters and hot water supply boilers equipment
  class (i.e., both tankless water heaters and hot water supply boilers), and reflects a weighted average result
  of Tables V.19 and V.21 of this NOPR.

c. Rebuttable Presumption Payback
    As discussed in section I.A.2 of this document, 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. In calculating a 
rebuttable presumption PBP for each of the considered TSLs, DOE used 
discrete values, and, as required by EPCA, based the energy use 
calculation on the DOE test procedure for CWH equipment. In contrast, 
the PBPs presented in section V.B.1.a were calculated using 
distributions that reflect the range of energy use in the field. Table 
V.24 presents rebuttable presumption payback period results. TSL 1 is 
the only level at which the rebuttable presumption payback periods are 
less than or equal to three. See chapter 8 of the NOPR TSD for more 
information on the rebuttable presumption payback analysis.

                               Table V.24--Rebuttable Presumption Payback Periods
----------------------------------------------------------------------------------------------------------------
                                                                   Trial standard level  (years)
                    Equipment                    ---------------------------------------------------------------
                                                         1               2               3               4
----------------------------------------------------------------------------------------------------------------
Commercial Gas-Fired Storage and Storage-Type                1.1             6.8             4.9             4.3
 Instantaneous Water Heaters....................
Residential Duty Gas-Fired Storage..............             3.1             8.6             8.1             7.1
Gas-Fired Instantaneous Water Heaters and Hot                1.4             8.2             7.9             7.9
 Water Supply Boilers...........................
Instantaneous, Gas-Fired Tankless...............             1.5             7.9             7.7             7.7
Instantaneous Water Heaters and Hot Water Supply             1.4             8.2             7.9             7.9
 Boilers........................................
----------------------------------------------------------------------------------------------------------------

2. Economic Impacts on Manufacturers
    DOE performed an MIA to estimate the impact of amended energy 
conservation standards on manufacturers of CWH equipment. The following 
section describes the expected impacts on manufacturers at each 
considered TSL. Chapter 12 of the NOPR 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.25 through Table V.28 of this NOPR summarize the estimated 
financial impacts of potential amended energy conservation standards on 
manufacturers of CWH equipment, as well as the conversion costs that 
DOE estimates manufacturers of CWH equipment would incur at each TSL.
    The impact of potential amended energy conservation standards was 
analyzed under two markup scenarios: (1) The preservation of gross 
margin percentage markup scenario and (2) the preservation of per-unit 
operating profit markup scenario, as discussed in section IV.J.2.d of 
this document. The preservation of gross margin percentage scenario 
provides the upper bound while the preservation of operating profits 
scenario results in the lower (or more severe) bound to impacts of 
potential amended standards on industry.
    Each of the modeled scenarios results in a unique set of cash flows 
and corresponding INPV for each TSL. INPV is the sum of the discounted 
cash flows to the industry from the base year through the end of the 
analysis period (2020-2055). The ``change in INPV'' results refer to 
the difference in industry value between the no-new-standards case and 
standards case at each TSL. To provide perspective on the short-run 
cash flow impact, DOE includes a comparison of free cash flow between 
the no-new-standards case and the standards case at each TSL in the 
year before amended standards would take effect. This figure provides 
an understanding of the magnitude of the required conversion costs 
relative to the cash flow generated by the industry in the no-new-
standards case.
    Conversion costs are one-time investments for manufacturers to 
bring their manufacturing facilities and product designs into 
compliance with potential amended standards. As described in section 
IV.J.2.c of this document, conversion cost investments occur between 
the year of publication of the final rule and the year by which 
manufacturers must comply with the new standard. The conversion costs 
can have a significant impact on the short-term cash flow on the 
industry and generally result in lower free cash flow in the period 
between the publication of the final rule and the compliance date of 
potential amended standards. Conversion costs are independent of the 
manufacturer markup scenarios and are not presented as a range in this 
analysis.
    The results in Table V.25 through Table V.28 of this NOPR show 
potential INPV impacts for CWH equipment manufacturers by equipment 
class. The

[[Page 30702]]

tables present the range of potential impacts reflecting both the less 
severe set of potential impacts (preservation of gross margin) and the 
more severe set of potential impacts (preservation of per-unit 
operating profit). In the following discussion, the INPV results refer 
to the difference in industry value between the no-new-standards case 
and each standards case that results from the sum of discounted cash 
flows from 2020 (the base year) through 2055 (the end of the analysis 
period).
    To provide perspective on the near-term cash flow impact, DOE 
discusses the change in free cash flow between the no-new-standards 
case and the standards case at each TSL in the year before new 
standards take effect. These figures provide an understanding of the 
magnitude of the required conversion costs at each TSL relative to the 
cash flow generated by the industry in the no-new-standards case.
1. Industry Cash Flow for Commercial Gas-Fired Storage Water Heaters 
and Storage-Type Instantaneous Equipment

      Table V.25--Manufacturing Impact Analysis Results for Commercial Gas-Fired Storage Water Heaters and Storage-Type Instantaneous Water Heaters
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                               Trial standard level
                                                     Units                    No-new-    ---------------------------------------------------------------
                                                                          standards case         1               2               3               4
--------------------------------------------------------------------------------------------------------------------------------------------------------
INPV.................................  2020$ millions...................           134.6     133.5-133.9     127.8-130.4     121.1-125.1       70.1-76.6
Change in INPV.......................  2020$ millions...................  ..............     (1.1)-(0.7)     (6.8)-(4.2)    (13.5)-(9.5)   (64.5)-(58.0)
                                       %................................  ..............     (0.8)-(0.5)     (5.1)-(3.1)    (10.0)-(7.0)   (47.9)-(43.1)
Free Cash Flow (2025)................  2020$ millions...................            10.9            10.2             6.6             2.6            31.8
Change in Free Cash Flow.............  2020$ millions...................  ..............           (0.7)           (4.3)           (8.3)          (42.7)
                                       %................................  ..............           (6.2)          (39.3)          (75.8)         (391.4)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Product Conversion Costs.............  2020$ millions...................  ..............             1.9             5.3            11.6            82.1
Capital Conversion Costs.............  2020$ millions...................  ..............             0.0             5.4             9.2            19.5
                                      ------------------------------------------------------------------------------------------------------------------
    Total Conversion Costs...........  2020$ millions...................  ..............             1.9            10.6            20.8           101.5
--------------------------------------------------------------------------------------------------------------------------------------------------------

    At TSL 1, DOE estimates impacts on INPV for commercial gas-fired 
storage and storage-type instantaneous water heater equipment 
manufacturers to range from -0.8 percent to -0.5 percent, or a change 
of -$1.1 million to -$0.7 million. At this level, DOE estimates that 
industry free cash flow would decrease by approximately 6.2 percent to 
$10.2 million, compared to the no-new-standards-case value of $10.9 
million in the year before compliance (2025).
    DOE estimates 70 percent of commercial gas-fired storage water 
heater and storage-type instantaneous water heater basic models meet or 
exceed the thermal efficiency and standby loss standards at TSL 1. DOE 
does not expect the modest increases in thermal efficiency and standby 
loss requirements at this TSL to require major equipment redesigns or 
large capital investments. Overall, DOE estimates that manufacturers 
would incur $1.9 million in product conversion costs and $0.03 million 
in capital conversion costs to bring their equipment portfolios into 
compliance with a standard set to TSL 1. At TSL 1, conversion costs are 
a key driver of results. These upfront investments result in a lower 
INPV in both manufacturer markup scenarios.
    At TSL 2, DOE estimates impacts on INPV for manufacturers of this 
equipment class to range from -5.1 percent to -3.1 percent, or a change 
in INPV of -$6.8 million to -$4.2 million. At this potential standard 
level, industry free cash flow would decrease by approximately 39.3 
percent to $6.6 million, compared to the no-new-standards case value of 
$10.9 million in the year before compliance (2025).
    DOE estimates 41 percent of commercial gas-fired storage water 
heater and storage-type instantaneous water heater basic models meet or 
exceed the thermal efficiency and standby loss standards at TSL 2. 
Product and capital conversion costs would increase at this TSL as 
manufacturers update designs and production equipment to meet a thermal 
efficiency standard that necessitates condensing technology. DOE notes 
that capital investment would vary by manufacturers due to differences 
in condensing heat exchanger designs and differences in existing 
production capacity. These capital conversion costs include, but are 
not limited to, investments in tube bending, press dies, machining, 
enameling, MIG welding, leak testing, quality assurance stations, and 
conveyer.
    DOE estimates that manufacturers would incur $5.3 million in 
product conversion costs and $5.4 million in capital conversion costs 
to bring their offered commercial gas-fired storage water heaters and 
storage-type instantaneous water heaters into compliance with a 
standard set to TSL 2. At TSL 2, conversion costs are a key driver of 
results. These upfront investments result in a lower INPV in both 
manufacturer markup scenarios.
    At TSL 3, DOE estimates impacts on INPV for commercial gas-fired 
storage water heater and storage-type instantaneous water heater 
manufacturers to range from -10.0 percent to -7.0 percent, or a change 
in INPV of -$13.5 million to -$9.5 million. At this potential standard 
level, DOE estimates industry free cash flow would decrease by 
approximately 75.8 percent to $2.6 million, compared to the no-new-
standards-case value of $10.9 million in the year before compliance 
(2025).
    DOE estimates that 34 percent of currently offered commercial gas-
fired storage water heater and storage-type instantaneous water heater 
basic models meet or exceed the thermal efficiency and standby loss 
standards at TSL 3. At this level, DOE estimates that product 
conversion costs would increase, as manufacturers would have to 
redesign a larger percentage of their offerings to meet the higher 
thermal efficiency levels. Additionally, capital conversion costs would 
increase, as manufacturers upgrade their laboratories and test 
facilities to increase capacity for product development and safety 
testing for their commercial gas-fired storage water heater and 
storage-type instantaneous water heater offerings. Overall, DOE 
estimates that manufacturers would incur $11.6 million in product 
conversion costs and $9.2 million in capital conversion costs

[[Page 30703]]

to bring their commercial gas-fired storage water heater and storage-
type instantaneous water heater portfolio into compliance with a 
standard set to TSL 3. At TSL 3, conversion costs are a key driver of 
results. These upfront investments result in a lower INPV in both 
manufacturer markup scenarios.
    TSL 4 represents the max-tech thermal efficiency and standby loss 
levels. At TSL 4, DOE estimates impacts on INPV for commercial gas-
fired storage water heater and storage-type instantaneous water heater 
manufacturers to range from -47.9 percent to -43.1 percent, or a change 
in INPV of -$64.5 million to -$58.0 million. At this TSL, DOE estimates 
industry free cash flow in the year before compliance (2025) would 
decrease by approximately 391 percent to -$31.8 million compared to the 
no-new-standards case value of $10.9 million.
    The impacts on INPV at TSL 4 are significant. DOE estimates less 
than 1 percent of currently offered basic models meet or exceed the 
efficiency levels prescribed at TSL 4. DOE expects product conversion 
costs to be significant at TSL 4, as almost all equipment on the market 
would have to be redesigned. Furthermore, the redesign process would be 
more resources intensive and costly at TSL 4 than at other TSLs. 
Traditionally, manufacturers design their equipment platforms to 
support a range of models with varying input capacities and storage 
volumes, and the efficiency typically will vary slightly between models 
within a given platform. However, at TSL 4, manufacturers would be 
limited in their ability to maintain a platform approach to designing 
commercial gas-fired storage and storage-type instantaneous water 
heaters, because the 99 percent thermal efficiency level represents the 
maximum achievable efficiency and there would be no allowance for 
slight variations in efficiency between individual models. At TSL 4, 
manufacturers would be required to separately redesign each individual 
model to optimize performance for each specific input capacity and 
storage volume combination. In manufacturer interviews, some 
manufacturers raised concerns that they would not have sufficient 
engineering capacity to complete necessary redesigns within the 3-year 
conversion period. If manufacturers require more than 3 years to 
redesign all models, they would likely prioritize redesigns based on 
sales volume. Due to the increase in number of redesigns and 
engineering effort, DOE estimates that product conversion costs would 
increase to $82.1 million.
    DOE estimates that manufacturers would also incur $19.5 million in 
capital conversion costs. In addition to upgrading production lines, 
DOE expects manufacturers would need to add laboratory space to develop 
and test products to meet amended standards at TSL 4 standards. These 
large upfront investments result in a lower INPV in both manufacturer 
markup scenarios.
    At TSL 4, the large conversion costs result in a free cash flow 
dropping below zero in the years before the standard year. The negative 
free cash flow calculation indicates manufacturers may need to access 
cash reserves or outside capital to finance conversion efforts.
2. Industry Cash Flow for Residential-Duty Gas-Fired Storage Water 
Heaters

                         Table V.26--Manufacturing Impact Analysis Results for Residential Duty Gas-Fired Storage Water Heaters
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                               Trial standard level
                                                     Units                    No-new-    ---------------------------------------------------------------
                                                                          standards case         1               2               3               4
--------------------------------------------------------------------------------------------------------------------------------------------------------
INPV.................................  2020$ millions...................            10.1        9.8-10.1         9.2-9.9        8.4-10.6         5.7-8.1
Change in INPV.......................  2020$ millions...................  ..............       (0.3)-0.0     (0.9)-(0.2)       (1.7)-0.5     (4.5)-(2.0)
                                       %................................  ..............       (3.0)-0.0     (8.7)-(2.4)      (16.5)-5.4   (44.0)-(19.7)
Free Cash Flow (2025)................  2020$ millions...................             0.8             0.6             0.3          (0.02)           (1.9)
Change in Free Cash Flow.............  2020$ millions...................  ..............           (0.2)           (0.5)           (0.8)           (2.7)
                                       %................................  ..............          (21.4)          (59.7)         (102.7)         (335.2)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Product Conversion Costs.............  2020$ millions...................  ..............             0.5             0.7             1.2             4.6
Capital Conversion Costs.............  2020$ millions...................  ..............             0.0             0.5             0.9             1.9
                                                                         -------------------------------------------------------------------------------
    Total Conversion Costs...........  2020$ millions...................  ..............             0.5             1.2             2.1             6.5
--------------------------------------------------------------------------------------------------------------------------------------------------------

    At TSL 1, DOE estimates impacts on INPV for residential-duty gas-
fired storage equipment manufacturers to range from -3.0 percent to 
less than one percent, or a change of -$0.3 million to less than 0.1 
million. At this level, DOE estimates that industry free cash flow 
would decrease by approximately 21.4 percent to $0.6 million, compared 
to the no-new-standards-case value of $0.8 million in the year before 
compliance (2025).
    DOE estimates that 53 percent of currently offered residential-duty 
gas-fired storage water heater basic models already meet or exceed the 
UEF standards at TSL 1. DOE does not expect the modest increases in UEF 
requirements at this TSL to require major equipment redesigns or large 
capital investments. Overall, DOE estimates that manufacturers would 
incur $0.5 million in product conversion costs and $0.03 million in 
capital conversion costs to bring their residential-duty commercial 
gas-fired storage equipment portfolios into compliance with a standard 
set to TSL 1. At TSL 1, conversion costs are the primary driver of 
results. These upfront investments result in a lower INPV in both 
manufacturer markup scenarios.
    At TSL 2, DOE estimates impacts on INPV for manufacturers of this 
equipment class to range from -8.7 percent to -2.4 percent, or a change 
in INPV of -$0.9 million to -$0.2 million. At this potential standard 
level, industry free cash flow would decrease by approximately 59.7 
percent to $0.3 million, compared to the no-new-standards case value of 
$0.8 million in the year before compliance (2025).
    DOE estimates that 38 percent of currently offered residential-duty 
gas-fired storage water heater basic models would already meet or 
exceed the UEF standards at TSL 2. DOE estimates that product and 
capital conversion costs would increase at this TSL. Manufacturers 
would meet the UEF levels for residential-duty commercial gas-fired 
storage equipment by shifting to condensing technology. DOE notes

[[Page 30704]]

that the capital investment would vary by manufacturers due to 
differences in condensing heat exchanger designs and differences in 
existing production capacity.
    DOE estimates that manufacturers would incur $0.7 million in 
product conversion costs and $0.5 million in capital conversion costs 
to bring their residential-duty gas-fired storage water heaters into 
compliance with a standard set to TSL 2. At TSL 2, conversion costs 
continue to be the primary driver of results. These upfront investments 
result in a lower INPV in both manufacturer markup scenarios.
    At TSL 3, DOE estimates impacts on INPV for residential-duty gas-
fired manufacturers to range from -16.5 percent to 5.4 percent, or a 
change in INPV of -$1.7 million to $0.5 million. At this potential 
standard level, DOE estimates industry free cash flow would decrease by 
approximately 102.7 percent to -$0.02 million compared to the no-new-
standards-case value of $0.8 million in the year before compliance 
(2025).
    The impacts on INPV at TSL 3 are slightly more negative at the 
lower bound than at TSL 2. Unlike TSL 2, at the upper bound, INPV 
impacts are positive. DOE estimates that 22 percent of currently 
offered residential-duty commercial gas-fired storage water heater 
basic models would meet or exceed the UEF standards at TSL 3. At this 
level, DOE estimates that product conversion costs would increase, as 
manufacturers would have to redesign a larger percentage of their 
offerings to meet the higher UEF levels. Additionally, capital 
conversion costs would increase, as manufacturers increase production 
capacity for condensing equipment. Overall, DOE estimates that 
manufacturers would incur $1.2 million in product conversion costs and 
$0.9 million in capital conversion costs to bring their residential-
duty commercial gas-fired storage water heater portfolio into 
compliance with a standard set to TSL 3. At TSL 3, conversion costs are 
a key driver of results.
    TSL 4 represents the max-tech UEF levels. At TSL 4, DOE estimates 
impacts on INPV for residential-duty commercial gas-fired storage water 
heater manufacturers to range from -44.0 percent to -19.7 percent, or a 
change in INPV of -$4.5 million to -$2.0 million. At this TSL, DOE 
estimates industry free cash flow in the year before compliance (2025) 
would decrease by approximately 335.2 percent to -$1.9 million compared 
to the no-new-standards case value of $0.8 million.
    The impacts on INPV at TSL 4 are significant. DOE estimates that 
less than 5 percent of currently offered residential-duty gas-fired 
water heater equipment meet or exceed the efficiency levels prescribed 
at TSL 4. DOE expects conversion costs to be significant at TSL 4, as 
most equipment currently on the market would have to be redesigned and 
new products would have to be developed to meet a wider range of 
storage volumes. DOE estimates that product conversion costs would 
increase to $4.6 million, as manufacturers would have to redesign a 
much larger percentage of their offerings to meet max-tech.
    DOE estimates that manufacturers would also incur $1.9 million in 
capital conversion costs. In addition to upgrading production lines, 
DOE accounted for the costs to add laboratory space to develop and 
safety test products that meet max-tech efficiency levels. At TSL 4, 
conversion costs are high. These upfront investments result in a lower 
INPV in both manufacturer markup scenarios.
    At TSL 4, the large conversion costs result in a free cash flow 
dropping below zero in the years before the standard year. The negative 
free cash flow calculation indicates manufacturers may need to access 
cash reserves or outside capital to finance conversion efforts.
3. Industry Cash Flow for Gas-Fired Instantaneous Tankless Water 
Heaters

                          Table V.27--Manufacturing Impact Analysis Results for Gas-Fired Instantaneous Tankless Water Heaters
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                               Trial standard level
                                                     Units                    No-new-    ---------------------------------------------------------------
                                                                          standards case         1               2               3               4
--------------------------------------------------------------------------------------------------------------------------------------------------------
INPV.................................  2020$ millions...................             7.1         6.8-6.8         6.1-6.2         6.1-6.3         6.1-6.3
Change in INPV.......................  2020$ millions...................  ..............     (0.3)-(0.3)     (1.0)-(0.9)     (1.1)-(0.8)     (1.1)-(0.8)
                                       %................................  ..............     (4.5)-(4.2)   (14.8)-(12.6)   (15.0)-(11.8)   (15.0)-(11.8)
Free Cash Flow (2025)................  2020$ millions...................             0.5             0.3           (0.2)           (0.2)           (0.2)
Change in Free Cash Flow.............  2020$ millions...................  ..............           (0.2)           (0.7)           (0.7)           (0.7)
                                       %................................  ..............          (43.2)         (143.2)         (143.3)         (143.3)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Product Conversion Costs.............  2020$ millions...................  ..............             0.6             1.2             1.2             1.2
Capital Conversion Costs.............  2020$ millions...................  ..............             0.0             0.6             0.6             0.6
                                                                         -------------------------------------------------------------------------------
    Total Conversion Costs...........  2020$ millions...................  ..............             0.6             1.8             1.8             1.8
--------------------------------------------------------------------------------------------------------------------------------------------------------

    At TSL 1, DOE estimates impacts on INPV for gas-fired instantaneous 
tankless water heaters manufacturers to range from -4.5 percent to -4.2 
percent, or a change of approximately -$0.3 million. At this level, DOE 
estimates that industry free cash flow would decrease by approximately 
43.2 percent to $0.3 million, compared to the no-new-standards-case 
value of $0.5 million in the year before compliance (2025).
    DOE estimates that 84 percent of basic models of gas-fired 
instantaneous tankless water heaters already meet or exceed the thermal 
efficiency standards at TSL 1. At this level, DOE expects manufacturers 
of this equipment class to incur product conversion costs to redesign 
their equipment. DOE does not expect the modest increases in thermal 
efficiency requirements at this TSL to require capital investments. 
Overall, DOE estimates that manufacturers would incur $0.6 million in 
product conversion costs and no capital conversion costs to bring this 
equipment portfolio into compliance with a standard set to TSL 1. At 
TSL 1, product conversion costs are the key driver of results. These 
upfront investments result in a lower INPV in both manufacturer markup 
scenarios.
    At TSL 2, DOE estimates impacts on INPV ranges from -14.8 percent 
to -12.6 percent, or a change in INPV of -$1.0 million to -$0.9 
million. At this potential standard level, DOE estimates industry free 
cash flow to decrease by approximately 143.2 percent to -$0.21 million 
compared to the no-new-

[[Page 30705]]

standards-case value of $0.5 million in the year before compliance 
(2025).
    DOE estimates that 84 percent of basic models of gas-fired 
instantaneous tankless water heaters already meet or exceed the thermal 
efficiency standards at TSL 2. DOE estimates that product and capital 
conversion costs would increase at this TSL. Manufacturers would meet 
the thermal efficiency levels by using condensing technology. DOE 
understands that tankless water heater manufacturers produce far more 
consumer products in significantly higher volumes than commercial 
offerings, and that these products are manufactured in the same 
facilities with shared production lines. DOE expects manufacturers 
would need to make incremental investments rather than setup new 
production lines. Overall, DOE estimates that manufacturers would incur 
$1.2 million in product conversion costs and $0.6 million in capital 
conversion costs to bring their instantaneous gas-fired tankless wat 
heater portfolio into compliance with a standard set to TSL 2.
    As discussed in section IV.A of this document, TSL 3 and TSL 4 
represent max-tech thermal efficiency levels for gas-fired 
instantaneous tankless water heaters. Therefore, DOE modeled identical 
impacts to manufacturers of this equipment for both TSL 3 and TSL 4. At 
these levels, DOE estimates impacts on INPV to range from -15.0 percent 
to -11.8 percent, or a change in INPV of -$1.1 million to -$0.8 
million. At these levels, DOE estimates industry free cash flow in the 
year before compliance (2025) would decrease by approximately 143.3 
percent to -$0.2 million compared to the no-new-standards case value of 
$0.5 million. DOE estimates that 53 percent of basic models of 
efficiency standards at TSL 3 and TSL 4.
    DOE anticipates modest product conversion costs as manufacturers 
continue to increase their offerings at greater input capacities. 
Overall, DOE estimates that manufacturers would incur $1.2 million in 
product conversion costs and $0.6 million in capital conversion costs 
to bring their gas-fired instantaneous tankless portfolio into 
compliance with a standard set to TSL 3 and TSL 4.
4. Industry Cash Flow for Instantaneous Circulating Water Heaters and 
Hot Water Supply Boilers

                      Table V.28--Manufacturing Impact Analysis Results for Circulating Water Heaters and Hot Water Supply Boilers
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                               Trial standard level
                                                     Units                    No-new-    ---------------------------------------------------------------
                                                                          standards case         1               2               3               4
--------------------------------------------------------------------------------------------------------------------------------------------------------
INPV.................................  2020$ millions...................            31.3       31.1-31.3       28.0-33.2       24.0-30.2       24.0-30.2
Change in INPV.......................  2020$ millions...................  ..............     (0.2)-(0.0)       (3.3)-1.9     (7.3)-(1.1)     (7.3)-(1.1)
                                       %................................  ..............     (0.5)-(0.1)      (10.5)-5.9    (23.2)-(3.4)    (23.2)-(3.4)
Free Cash Flow (2025)................  2020$ millions...................             2.1             2.0             0.6           (1.8)           (1.8)
Change in Free Cash Flow.............  2020$ millions...................  ..............           (0.1)           (1.5)           (3.9)           (3.9)
                                       %................................  ..............           (4.1)          (71.3)         (187.5)         (187.5)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Product Conversion Costs.............  2020$ millions...................  ..............             0.2             1.8             8.1             8.1
Capital Conversion Costs.............  2020$ millions...................  ..............             0.0             1.9             1.9             1.9
                                                                         -------------------------------------------------------------------------------
    Total Conversion Costs...........  2020$ millions...................  ..............             0.2             3.6            10.0            10.0
--------------------------------------------------------------------------------------------------------------------------------------------------------

    At TSL 1, DOE estimates impacts on INPV for instantaneous 
circulating water heater and hot water supply boiler manufacturers to 
range from -0.5 percent to -0.1 percent, or a change of -$0.1 million 
to less than -0.1 million. At this level, DOE estimates that industry 
free cash flow would decrease by approximately 4.1 percent to $2.0 
million, compared to the no-new-standards-case value of $2.1 million in 
the year before compliance (2025).
    DOE estimates that 62 percent of basic models of this equipment 
class already meet or exceed the thermal efficiency standards at TSL 1. 
At this level, DOE expects manufacturers of this equipment class to 
incur product conversion costs to redesign their equipment. DOE does 
not expect the modest increases in thermal efficiency requirements at 
this TSL to require capital investments. Overall, DOE estimates that 
manufacturers would incur $0.2 million in product conversion costs and 
no capital conversion costs to bring this equipment portfolio into 
compliance with a standard set to TSL 1. At TSL 1, product conversion 
costs are the key driver of results. These upfront investments result 
in a slightly lower INPV in both manufacturer markup scenarios.
    At TSL 2, DOE estimates impacts on INPV ranges from -10.5 percent 
to 5.9 percent, or a change in INPV of -$3.3 million to $1.9 million. 
At this potential standard level, DOE estimates industry free cash flow 
to decrease by approximately 71.3 percent to $0.6 million compared to 
the no-new-standards-case value of $2.1 million in the year before 
compliance (2025).
    The impacts on INPV at TSL 2 remain similar to TSL 1. DOE estimates 
that 36 percent of basic models of this equipment class already meet or 
exceed the thermal efficiency standards at TSL 2. DOE estimates that 
product and capital conversion costs would increase at this TSL. 
Manufacturers would meet the thermal efficiency levels by using 
condensing technology. DOE anticipates that manufacturers will begin to 
incur some product conversion costs associated with design changes to 
reach condensing levels. Additionally, DOE anticipates manufacturers 
achieving condensing levels with additional purchased parts (i.e., 
condensing heat exchanger, burner tube, blower, gas valve). DOE's 
capital conversion costs reflect the incremental warehouse space 
required to store these additional purchased parts.
    Overall, DOE estimates that manufacturers would incur $1.8 million 
in product conversion costs and $1.9 million in capital conversion 
costs to bring their instantaneous circulating water heater and hot 
water supply boiler portfolio into compliance with a standard set to 
TSL 2.
    As discussed in section IV.A of this document, TSL 3 and TSL 4 
represent max-tech thermal efficiency levels for circulating water 
heater and hot water supply boiler equipment. Therefore, DOE modeled 
identical impacts to manufacturers of this equipment for both TSL 3 and 
TSL 4. At these levels, DOE estimates impacts on INPV to range from -
23.2 percent to -3.4 percent, or

[[Page 30706]]

a change in INPV of -$7.3 million to -$1.1 million. DOE estimates 
industry free cash flow in the year before compliance (2025) would 
decrease by approximately 187.5 percent to -$1.8 million compared to 
the no-new-standards case value of $2.1 million. DOE estimates that 27 
percent of basic models of this equipment class already meet or exceed 
the max-tech thermal efficiency standards at these TSLs.
b. Impacts on Direct Employment
    To quantitatively assess the potential impacts of amended energy 
conservation standards on direct employment in the CWH equipment 
industry, DOE typically uses 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. 
This analysis includes both production and non-production employees 
employed by CWH equipment manufacturers. DOE used statistical data from 
the U.S. Census Bureau's 2018-2019 Annual Survey of Manufacturers \165\ 
(ASM), the results of the engineering analysis, and interviews with 
manufacturers to determine the inputs necessary to calculate industry-
wide labor expenditures and domestic employment levels. Labor 
expenditures related to manufacturing of the product are a function of 
the labor intensity of the product, the sales volume, and an assumption 
that wages remain fixed in real terms over time.
---------------------------------------------------------------------------

    \165\ U.S. Census Bureau, 2018-2019 Annual Survey of 
Manufacturers: Statistics for Industry Groups and Industries (2019) 
(Available at https://www.census.gov/data/tables/time-series/econ/asm/2018-2019-asm.html).
---------------------------------------------------------------------------

    The total labor expenditures in the GRIM are converted to domestic 
production worker employment levels by dividing production labor 
expenditures by the average fully burden wage per production worker. 
DOE calculated the fully burdened wage by multiplying the industry 
production worker hourly blended wage (provided by the ASM) by the 
fully burdened wage ratio. The fully burdened wage ratio factors in 
paid leave, supplemental pay, insurance, retirement and savings, and 
legally required benefits. DOE determined the fully burdened ratio from 
the Bureau of Labor Statistic's employee compensation data.\166\ The 
estimates of production workers in this section cover workers, 
including line-supervisors who are directly involved in fabricating and 
assembling a product within the manufacturing facility. Workers 
performing services that are closely associated with production 
operations, such as materials handling tasks using forklifts, are also 
included as production labor.
---------------------------------------------------------------------------

    \166\ U.S. Bureau of Labor Statistics. Employer Costs for 
Employee Compensation. June 17, 2021. Available at: www.bls.gov/news.release/pdf/ecec.pdf.
---------------------------------------------------------------------------

    Non-production worker employment levels were determined by 
multiplying the industry ratio of production worker employment to non-
production employment against the estimated production worker 
employment explained above. Estimates of non-production workers in this 
section cover above the line supervisors, sales, sales delivery, 
installation, office functions, legal, and technical employees.
    The total direct employment impacts calculated in the GRIM are the 
sum of the changes in the number of domestic production and non-
production workers resulting from the amended energy conservation 
standards for CWH equipment, as compared to the no-new-standards case. 
Typically, more efficient equipment is more complex and labor intensive 
to produce. Per-unit labor requirements and production time 
requirements trend higher with more stringent energy conservation 
standards.
    DOE estimates that 93 percent of CWH equipment sold in the United 
States is currently manufactured domestically. In the absence of 
amended energy conservation standards, DOE estimates that there would 
be 217 domestic production workers in the CWH industry in 2026, the 
year of compliance.
    DOE's analysis forecasts that the industry will employ 382 
production and non-production workers in the CWH industry in 2026 in 
the absence of amended energy conservation standards. Table V.29 
presents the range of potential impacts of amended energy conservation 
standards on U.S. production workers of CWH equipment.

   Table V.29--CWH Direct Employment in 2026 Potential Changes in the Total Number of CWH Equipment Production
                                      Workers in Direct Employment in 2026
----------------------------------------------------------------------------------------------------------------
                                      No-new-
                                  standards case         1               2               3               4
----------------------------------------------------------------------------------------------------------------
Number of Domestic Production                217             218             214             219             223
 Workers........................
Number of Domestic Non-                      165             166             163             167             170
 Production Workers.............
                                 -------------------------------------------------------------------------------
    Total Domestic Direct                    382             384             377             386             393
     Employment **..............
----------------------------------------------------------------------------------------------------------------
Changes in Direct Employment....  ..............               2             (5)               4              11
----------------------------------------------------------------------------------------------------------------
* Numbers in parentheses indicate negative numbers.
** This field presents impacts on domestic direct employment, which aggregates production and non-production
  workers. Based on ASM census data, DOE assumed the ratio of production to non-production employees stays
  consistent across all analyzed TSLs, which is 43 percent non-production workers.

    In NOPR interviews conducted ahead of the 2016 NOPR notice, several 
manufacturers that produce high-efficiency CWH equipment stated that a 
standard that went to condensing levels could cause them to hire more 
employees to increase their production capacity. Others stated that a 
condensing standard would require additional engineers to redesign CWH 
equipment and production processes. Due different variations in 
manufacturing labor practices, actual direct employment could vary 
depending on manufacturers' preference for high capital or high labor 
practices in response to amended standards. DOE notes that the 
employment impacts discussed here are independent of the indirect 
employment impacts to the broader U.S. economy, which are documented in 
chapter 15 of the accompanying TSD.
c. Impacts on Manufacturing Capacity
    At the time of manufacturer interviews (conducted ahead of the

[[Page 30707]]

withdrawn May 2016 CWH ECS NOPR), industry feedback indicated that the 
average CWH equipment manufacturer's current production was running at 
approximately 60-percent capacity. However, some manufacturers did 
express concerns about engineering and laboratory constraints if 
standards were set at condensing levels.
    At TSL 4 (max-tech), this issue is exacerbated due to the 
proliferation of re-designs required. As discussed in further detail in 
section IV.J.2.c of this document, DOE anticipates manufacturers would 
incur significant product conversion costs for all gas-fired storage 
water heaters, gas-fired circulating water heaters, and hot water 
supply boilers. Because of the high conversion costs as this level, 
some manufacturers may not have the capacity to redesign the full range 
of equipment offerings in the 3-year conversion period. Instead, 
manufacturers would likely choose to offer a reduced selection of 
models to limit upfront investments.
    Furthermore, none of the three largest manufacturers of commercial 
gas storage water heaters produces equipment that can meet the TE 
standard at TSL 4. Currently, only two models from a single 
manufacturer can meet the TE standard at TSL 4. This manufacturer is a 
small business and does not have the production capacity to meet the 
demand for the entire industry's shipments. Similarly, for residential-
duty gas-fired storage water heaters, only one manufacturer offers 
models that can meet the UEF standard at TSL 4.
    Issue 10: DOE seeks comment on whether manufacturers expect 
manufacturing capacity constraints would limit equipment availability 
to customers in the timeframe of the amended standard compliance date 
(2026).
d. Impacts on Subgroups of Manufacturers
    Small manufacturers, niche equipment manufacturers, and 
manufacturers exhibiting a cost structure substantially different from 
the industry average could be affected disproportionately. Using 
average cost assumptions developed for an industry cash-flow estimate 
is inadequate to assess differential impacts among manufacturer 
subgroups.
    For the CWH equipment industry, DOE identified and evaluated the 
impact of amended energy conservation standards on one subgroup--small 
manufacturers. The SBA defines a ``small business'' as having 1,000 
employees or fewer for NAICS code 333318, ``Other Commercial and 
Service Industry Machinery Manufacturing.'' Based on this definition, 
DOE identified 3 small, domestic manufacturers of the covered equipment 
that would be subject to amended standards.
    For a discussion of the impacts on the small manufacturer subgroup, 
see the regulatory flexibility analysis in section VI.B of this 
document and chapter 12 of the NOPR TSD.
e. Cumulative Regulatory Burden
    One aspect of assessing manufacturer burden involves looking at the 
cumulative impact of multiple DOE standards and the product-specific 
regulatory actions of other Federal agencies that affect the 
manufacturers of a covered product or equipment. While any one 
regulation may not impose a significant burden on manufacturers, the 
combined effects of several existing 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. In addition to energy 
conservation standards, other regulations can significantly affect 
manufacturers' financial operations. Multiple regulations affecting the 
same manufacturer can strain profits and 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.

 Table V.30--Compliance Dates and Expected Conversion Expenses of Federal Energy Conservation Standards Affecting Commercial Water Heater Manufacturers
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                          Number of
                                                                                        manufacturers                                        Industry
                                                                        Number of        potentially       Approx.          Industry        conversion
               Federal energy conservation standard                  manufacturers *     impacted by   standards year   conversion costs   costs/product
                                                                                       finalized rule                    millions  ($)      revenue ***
                                                                                             **
--------------------------------------------------------------------------------------------------------------------------------------------------------
Commercial Warm Air Furnaces; 81 FR 2420 (January 15, 2016).......                 14               2            2023   7.5-22.2 (2014$)       1.7%-5.1%
                                                                                                                                                [dagger]
Residential Central Air Conditioners and Heat Pumps; 82 FR 1786                    30               3            2023      342.6 (2015$)            0.5%
 (January 6, 2017)................................................
--------------------------------------------------------------------------------------------------------------------------------------------------------
* 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 CWH equipment that are also listed as manufacturers in the listed energy conservation
  standard contributing to cumulative regulatory burden.
*** This column presents industry conversion costs as a percentage of product revenue during the conversion period. Industry conversion costs are the
  upfront investments manufacturers must make to sell compliant products/equipment. The revenue used for this calculation is the revenue from just the
  covered product/equipment associated with each row. The conversion period is the time frame over which conversion costs are made and lasts from the
  announcement year of the final rule to the standards year of the final rule. The conversion period typically ranges from 3 to 5 years, depending on
  the energy conservation standard.
[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.

    Issue 11: DOE requests information regarding the impact of 
cumulative regulatory burden on manufacturers of CWH equipment 
associated with multiple DOE standards or product-specific regulatory 
actions of other Federal agencies. Additionally, where industry-wide 
constraints exist as a result of other overlapping regulatory actions, 
DOE requests stakeholders help identify and quantify those constraints.
3. National Impact Analysis
    This section presents DOE's estimates of the NES and the NPV of 
consumer benefits that would result from each of the TSLs considered as 
potential amended standards.
a. Significance of Energy Savings
    To estimate the energy savings attributable to potential amended 
standards for CWH equipment, DOE compared their energy consumption

[[Page 30708]]

under the no-new-standards case to their anticipated energy consumption 
under each TSL. The savings are measured over the entire lifetime of 
equipment purchased in the 30-year period that begins in the year of 
anticipated compliance with amended standards (2026-2055). Table V.31 
presents DOE's projections of the NES for each TSL considered for CWH 
equipment. The savings were calculated using the approach described in 
section IV.H of this document.

             Table V.31--Cumulative National Energy Savings for CWH Equipment; 30 Years of Shipments
                                                   [2026-2055]
----------------------------------------------------------------------------------------------------------------
                                                                   Trial standard level (quads)
                                                 ---------------------------------------------------------------
                                                         1               2               3               4
----------------------------------------------------------------------------------------------------------------
Primary Energy:
    Commercial gas-fired storage and storage-               0.04            0.19            0.30            0.51
     type instantaneous.........................
    Residential duty gas-fired storage..........            0.01            0.03            0.06            0.09
    Instantaneous gas-fired tankless............            0.00            0.01            0.02            0.02
    Instantaneous circulating water heaters and             0.02            0.21            0.26            0.26
     hot water supply boilers...................
                                                 ---------------------------------------------------------------
        Total Primary Energy....................            0.08            0.44            0.64            0.87
----------------------------------------------------------------------------------------------------------------
FFC Energy:
    Commercial gas-fired storage and storage-               0.04            0.21            0.33            0.56
     type instantaneous.........................
    Residential duty gas-fired storage..........            0.02            0.03            0.07            0.10
    Instantaneous gas-fired tankless............            0.00            0.01            0.02            0.02
    Instantaneous circulating water heaters and             0.03            0.23            0.29            0.29
     hot water supply boilers...................
                                                 ---------------------------------------------------------------
        Total FFC Energy........................            0.09            0.48            0.70            0.96
----------------------------------------------------------------------------------------------------------------

    OMB Circular A-4 \167\ 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 NOPR, DOE 
undertook a sensitivity analysis using 9 years, rather than 30 years, 
of equipment shipments. The choice of a 9-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.\168\ The review timeframe established in EPCA is generally 
not synchronized with the equipment lifetime, equipment manufacturing 
cycles, or other factors specific to commercial water heaters. 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 are 
presented in Table V.32 of this NOPR. The impacts are counted over the 
lifetime of commercial water heaters purchased in 2026-2034.
---------------------------------------------------------------------------

    \167\ U.S. Office of Management and Budget. Circular A-4: 
Regulatory Analysis. September 17, 2003. Available at 
www.whitehouse.gov/sites/whitehouse.gov/files/omb/circulars/A4/a-4.pdf (last accessed July 7, 2021).
    \168\ 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 
products, the compliance period is 5 years rather than 3 years.

             Table V.32--Cumulative National Energy Savings for CWH Equipment; 9 Years of Shipments
                                                   [2026-2034]
----------------------------------------------------------------------------------------------------------------
                                                                   Trial standard level (quads)
                                                 ---------------------------------------------------------------
                                                         1               2               3               4
----------------------------------------------------------------------------------------------------------------
Primary Energy:
    Commercial gas-fired storage and storage-               0.01            0.06            0.10            0.16
     type instantaneous.........................
    Residential-duty gas-fired storage..........            0.00            0.01            0.02            0.03
    Instantaneous gas-fired tankless............            0.00            0.00            0.00            0.00
    Instantaneous circulating water heaters and             0.01            0.05            0.06            0.06
     hot water supply boilers...................
                                                 ---------------------------------------------------------------
        Total Primary Energy....................            0.03            0.13            0.18            0.25
----------------------------------------------------------------------------------------------------------------
FFC Energy:
    Commercial gas-fired storage and storage-               0.01            0.07            0.11            0.17
     type instantaneous.........................
    Residential-duty gas-fired storage..........            0.01            0.01            0.02            0.03
    Instantaneous gas-fired tankless............            0.00            0.00            0.00            0.00
    Instantaneous circulating water heaters and             0.01            0.06            0.07            0.07
     hot water supply boilers...................
                                                 ---------------------------------------------------------------

[[Page 30709]]

 
        Total FFC Energy........................            0.03            0.14            0.20            0.28
----------------------------------------------------------------------------------------------------------------

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 CWH equipment. 
In accordance with OMB's guidelines on regulatory analysis,\169\ DOE 
calculated NPV using both a 7-percent and a 3-percent real discount 
rate. Table V.33 shows the consumer NPV results with impacts counted 
over the lifetime of equipment purchased in 2026-2055.
---------------------------------------------------------------------------

    \169\ U.S. Office of Management and Budget. Circular A-4: 
Regulatory Analysis. September 17, 2003. Available at 
www.whitehouse.gov/sites/whitehouse.gov/files/omb/circulars/A4/a-4.pdf (last accessed July 7, 2021).

     Table V.33--Cumulative Net Present Value of Consumer Benefits for CWH Equipment; 30 Years of Shipments
                                                   [2026-2055]
----------------------------------------------------------------------------------------------------------------
                                                               Trial standard level (billion 2020$)
                  Discount rate                  ---------------------------------------------------------------
                                                         1               2               3               4
----------------------------------------------------------------------------------------------------------------
3 percent:
    Commercial gas-fired storage and storage-               0.16            0.51            0.93            1.73
     type instantaneous.........................
    Residential duty gas-fired storage..........            0.05            0.05            0.11            0.21
    Instantaneous gas-fired tankless............            0.01            0.03            0.04            0.04
    Instantaneous circulating water heaters and             0.07            0.27            0.41            0.41
     hot water supply boilers...................
                                                 ---------------------------------------------------------------
        Total NPV at 3 percent..................            0.29            0.86            1.49            2.40
----------------------------------------------------------------------------------------------------------------
7 percent:
    Commercial gas-fired storage and storage-               0.08            0.18            0.37            0.72
     type instantaneous.........................
    Residential duty gas-fired storage..........            0.02            0.01            0.03            0.07
    Instantaneous gas-fired tankless............            0.01            0.01            0.01            0.01
    Instantaneous circulating water heaters and             0.02            0.03            0.07            0.07
     hot water supply boilers...................
                                                 ---------------------------------------------------------------
        Total NPV at 7 percent..................            0.12            0.22            0.48            0.88
----------------------------------------------------------------------------------------------------------------

    The NPV results based on the aforementioned 9-year analytical 
period are presented in Table V.34 of this NOPR. The impacts are 
counted over the lifetime of equipment purchased in 2026-2034. 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.

        Table V.34--Cumulative Net Present Value of Consumer Benefits CWH Equipment; 9 Years of Shipments
                                                   [2026-2034]
----------------------------------------------------------------------------------------------------------------
                                                              Trial standard level * (billion 2020$)
                  Discount rate                  ---------------------------------------------------------------
                                                         1               2               3               4
----------------------------------------------------------------------------------------------------------------
3 percent:
    Commercial gas-fired storage and storage-               0.07            0.09            0.26            0.56
     type instantaneous.........................
    Residential duty gas-fired storage..........            0.02            0.00            0.02            0.06
    Instantaneous gas-fired tankless............            0.00            0.00            0.01            0.01
    Instantaneous circulating water heaters and             0.02            0.08            0.12            0.12
     hot water supply boilers...................
                                                 ---------------------------------------------------------------
        Total NPV at 3 percent..................            0.11            0.18            0.41            0.75
----------------------------------------------------------------------------------------------------------------
7 percent:
    Commercial gas-fired storage and storage-               0.04            0.03            0.13            0.31
     type instantaneous.........................
    Residential duty gas-fired storage..........            0.01          (0.00)            0.00            0.03
    Instantaneous gas-fired tankless............            0.00            0.00            0.00            0.00
    Instantaneous circulating water heaters and             0.01            0.01            0.03            0.03
     hot water supply boilers...................
                                                 ---------------------------------------------------------------

[[Page 30710]]

 
        Total NPV at 7 percent..................            0.06            0.03            0.16            0.36
----------------------------------------------------------------------------------------------------------------
* A value in parentheses is a negative number.

c. Indirect Impacts on Employment
    It is estimated that that amended energy conservation standards for 
CWH equipment would reduce energy expenditures 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. 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 
(2026-2030), where these uncertainties are reduced.
    The results suggest that the proposed standards would be likely to 
have a negligible impact on the net demand for labor in the economy. 
The net change in jobs is so small that it would be imperceptible in 
national labor statistics and might be offset by other, unanticipated 
effects on employment. Chapter 16 of the NOPR TSD presents detailed 
results regarding anticipated indirect employment impacts.
4. Impact on Utility or Performance of Products
    As discussed in section III.E.1.d of this document, DOE has 
tentatively concluded that the standards proposed in this NOPR would 
not lessen the utility or performance of the CWH equipment 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 
of this NOPR, 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 NOPR 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. 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 
NOPR TSD presents the estimated impacts on electricity generating 
capacity, relative to the no-new-standards case, for the TSLs that DOE 
considered in this proposed rulemaking.
    Energy conservation resulting from potential energy conservation 
standards for CWH equipment is expected to yield environmental benefits 
in the form of reduced emissions of certain air pollutants and 
greenhouse gases. Table V.35 provides DOE's estimate of cumulative 
emissions reductions expected to result from the TSLs considered in 
this proposed rulemaking. The emissions were calculated using the 
multipliers discussed in section IV.K of this document. DOE reports 
annual emissions reductions for each TSL in chapter 13 of the NOPR TSD. 
Table V.36 presents cumulative FFC emissions by equipment class.

                Table V.35--Cumulative Emissions Reduction for CWH Equipment Shipped in 2026-2055
----------------------------------------------------------------------------------------------------------------
                                                                       Trial standard level
                                                 ---------------------------------------------------------------
                                                         1               2               3               4
----------------------------------------------------------------------------------------------------------------
                                             Power Sector Emissions
----------------------------------------------------------------------------------------------------------------
CO2 (million metric tons).......................               5              24              34              47
SO2 (thousand tons).............................          (0.05)          (0.12)          (0.04)            0.06
NOX (thousand tons).............................               4              21              30              41
Hg (tons).......................................        (0.0005)        (0.0015)        (0.0014)        (0.0012)
CH4 (thousand tons).............................            0.08            0.46            0.68            0.95
N2O (thousand tons).............................            0.01            0.04            0.07            0.09
----------------------------------------------------------------------------------------------------------------
                                               Upstream Emissions
----------------------------------------------------------------------------------------------------------------
CO2 (million metric tons).......................            0.56            2.91            4.20            5.73
SO2 (thousand tons).............................            0.00            0.01            0.02            0.02
NOX (thousand tons).............................            8.60           44.68           64.44           88.04

[[Page 30711]]

 
Hg (tons).......................................          (0.00)          (0.00)          (0.00)          (0.00)
CH4 (thousand tons).............................           62.79          325.91          469.86          641.78
N2O (thousand tons).............................            0.00            0.00            0.01            0.01
----------------------------------------------------------------------------------------------------------------
                                               Total FFC Emissions
----------------------------------------------------------------------------------------------------------------
CO2 (million metric tons).......................               5              26              38              52
SO2 (thousand tons).............................          (0.05)          (0.11)          (0.02)            0.08
NOX (thousand tons).............................              13              66              95             129
Hg (tons).......................................        (0.0005)        (0.0016)        (0.0014)        (0.0012)
CH4 (thousand tons).............................              63             326             471             643
N2O (thousand tons).............................            0.01            0.05            0.07            0.10
----------------------------------------------------------------------------------------------------------------
Negative values refer to an increase in emissions.


    Table V.36--Cumulative FFC Emissions Reduction for CWH Equipment Shipped in 2026-2055, by Equipment Class
----------------------------------------------------------------------------------------------------------------
 
----------------------------------------------------------------------------------------------------------------
                   Total FFC Emissions, Commercial Gas Storage and Storage-Type Instantaneous
----------------------------------------------------------------------------------------------------------------
CO2 (million metric tons).......................             2.4            11.5            18.0            30.6
SO2 (thousand tons).............................            0.01          (0.10)          (0.05)            0.04
NOX (thousand tons).............................             5.9            28.7            44.6            75.5
Hg (tons).......................................          0.0000        (0.0010)        (0.0009)        (0.0008)
CH4 (thousand tons).............................            29.3           142.5           221.6           375.4
N2O (thousand tons).............................           0.005           0.020           0.034           0.060
----------------------------------------------------------------------------------------------------------------
                             Total FFC Emissions, Residential-Duty Gas-Fired Storage
----------------------------------------------------------------------------------------------------------------
CO2 (million metric tons).......................             0.9             1.8             3.7             5.2
SO2 (thousand tons).............................          (0.01)          (0.03)          (0.02)            0.00
NOX (thousand tons).............................             2.2             4.6             9.1            12.9
Hg (tons).......................................        (0.0001)        (0.0003)        (0.0002)        (0.0002)
CH4 (thousand tons).............................            11.0            23.1            45.5            63.9
N2O (thousand tons).............................            0.00            0.00            0.01            0.01
----------------------------------------------------------------------------------------------------------------
                              Total FFC Emissions, Instantaneous Gas-Fired Tankless
----------------------------------------------------------------------------------------------------------------
CO2 (million metric tons).......................             0.3             0.8             1.0             1.0
SO2 (thousand tons).............................            0.00            0.01            0.01            0.01
NOX (thousand tons).............................             0.6             2.0             2.5             2.5
Hg (tons).......................................          0.0000          0.0000          0.0000          0.0000
CH4 (thousand tons).............................             3.1             9.7            12.5            12.5
N2O (thousand tons).............................            0.00            0.00            0.00            0.00
----------------------------------------------------------------------------------------------------------------
            Total FFC Emissions, Instantaneous Circulating Water Heaters and Hot Water Supply Boilers
----------------------------------------------------------------------------------------------------------------
CO2 (million metric tons).......................             1.5            12.3            15.6            15.6
SO2 (thousand tons).............................          (0.06)            0.01            0.04            0.04
NOX (thousand tons).............................             3.9            30.4            38.4            38.4
Hg (tons).......................................        (0.0004)        (0.0003)        (0.0003)        (0.0003)
CH4 (thousand tons).............................            19.5           150.8           190.6           190.6
N2O (thousand tons).............................            0.00            0.02            0.03            0.03
----------------------------------------------------------------------------------------------------------------
Negative values refer to an increase in emissions.

    As part of the analysis for this proposed rulemaking, DOE estimated 
monetary benefits likely to result from the reduced emissions of 
CO2 that DOE estimated for each of the considered TSLs for 
CWH equipment. Section IV.L of this document discusses the SC-
CO2 values that DOE used. Table V.37 presents the value of 
CO2 emissions reduction at each TSL.

[[Page 30712]]



           Table V.37--Present Value of CO2 Emissions Reduction for CWH Equipment Shipped in 2026-2055
----------------------------------------------------------------------------------------------------------------
                                                     SC-CO2 case, discount rate and statistics (million 2020$)
                                                 ---------------------------------------------------------------
                                                        5%              3%             2.5%             3%
                       TSL                       ---------------------------------------------------------------
                                                                                                       (95th
                                                     (Average)       (Average)       (Average)      percentile)
----------------------------------------------------------------------------------------------------------------
1...............................................           42.72          188.75          297.10          572.26
2...............................................          216.02          965.28        1,524.73        2,925.16
3...............................................          315.92        1,406.42        2,218.97        4,262.76
4...............................................          441.12        1,950.37        3,070.51        5,913.66
----------------------------------------------------------------------------------------------------------------

    As discussed in section IV.L.1 of this document, DOE estimated 
monetary benefits likely to result from the reduced emissions of 
methane and N2O that DOE estimated for each of the 
considered TSLs for CWH equipment. Table V.38 presents the value of the 
CH4 emissions reduction at each TSL, and Table V.39 presents 
the value of the N2O emissions reduction at each TSL.

         Table V.38--Present Value of Methane Emissions Reduction for CWH Equipment Shipped in 2026-2055
----------------------------------------------------------------------------------------------------------------
                                                                        SC-CH4 case
                                         -----------------------------------------------------------------------
                                                       Discount rate and statistics (million 2020$)
                   TSL                   -----------------------------------------------------------------------
                                                 5%                3%               2.5%               3%
                                         -----------------------------------------------------------------------
                                               Average           Average           Average       95th percentile
----------------------------------------------------------------------------------------------------------------
1.......................................             24.18             74.88            105.36            198.50
2.......................................            122.53            385.00            543.61          1,022.35
3.......................................            178.13            556.88            785.40          1,477.79
4.......................................            247.24            765.51          1,077.28          2,028.76
----------------------------------------------------------------------------------------------------------------


      Table V.39--Present Value of Nitrous Oxide Emissions Reduction for CWH Equipment Shipped in 2026-2055
----------------------------------------------------------------------------------------------------------------
                                                                        SC-N2O case
                                         -----------------------------------------------------------------------
                                                       Discount rate and statistics (million 2020$)
                   TSL                   -----------------------------------------------------------------------
                                                 5%                3%               2.5%               3%
                                         -----------------------------------------------------------------------
                                               Average           Average           Average       95th percentile
----------------------------------------------------------------------------------------------------------------
1.......................................              0.03              0.12              0.18              0.31
2.......................................              0.15              0.62              0.99              1.67
3.......................................              0.23              0.95              1.49              2.54
4.......................................              0.32              1.34              2.11              3.59
----------------------------------------------------------------------------------------------------------------

    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 
global and U.S. economy continues to evolve rapidly. DOE, together with 
other Federal agencies, will continue to review 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. 
DOE notes that the proposed standards would be economically justified 
even without inclusion of monetized benefits of reduced GHG emissions.
    DOE also estimated the monetary value of the economic benefits 
associated with NOX and SO2 emissions reductions 
anticipated to result from the considered TSLs for CWH equipment. The 
dollar-per-ton values that DOE used are discussed in section IV.L of 
this document. Table V.40 presents the present value for NOX 
emissions reduction for each TSL calculated using 7-percent and 3-
percent discount rates, and Table V.41 presents similar results for 
SO2 emissions reductions. The results in these tables 
reflect application of the low dollar-per-ton values, which DOE used to 
be conservative. Results that reflect high dollar-per-ton values are 
presented in chapter 14 of the NOPR TSD.

 Table V.40--Present Value of NOX Emissions Reduction for CWH Equipment
                          Shipped in 2026-2055
------------------------------------------------------------------------
                                                     Million 2020$
                                             ---------------------------
                     TSL                       3% discount   7% discount
                                                  rate          rate
------------------------------------------------------------------------
1...........................................           356           137
2...........................................         1,800           671
3...........................................         2,627           990
4...........................................         3,663         1,406
------------------------------------------------------------------------


[[Page 30713]]


 Table V.41--Present Value of SO2 Emissions Reduction for CWH Equipment
                          Shipped in 2026-2055
------------------------------------------------------------------------
                                                     Million 2020$
                                             ---------------------------
                     TSL                       3% discount   7% discount
                                                  rate          rate
------------------------------------------------------------------------
1...........................................        (2.84)        (0.89)
2...........................................       (10.36)        (4.17)
3...........................................        (7.23)        (2.85)
4...........................................        (3.17)        (1.11)
------------------------------------------------------------------------

    The benefits of reduced CO2, CH4, and 
N2O emissions are collectively referred to as climate 
benefits. The benefits of reduced SO2 and NOX 
emissions are collectively referred to as health benefits. For the time 
series of estimated monetary values of reduced emissions, see chapter 
14 of the NOPR TSD.
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
    Table V.42 presents the NPV values that result from adding the 
estimates of the potential climate and health benefits resulting from 
reduced GHG, SO2, and NOX emissions to the NPV of 
consumer benefits for each TSL considered in this rulemaking. The 
consumer benefits are domestic U.S. monetary savings that occur as a 
result of purchasing the covered commercial water heaters, and are 
measured for the lifetime of products shipped in 2026-2055. The climate 
benefits associated with reduced GHG emissions resulting from the 
adopted standards are global benefits, and are also calculated based on 
the lifetime of commercial water heaters shipped in 2026-2055. The 
climate benefits associated with four SC-GHG estimates are shown. DOE 
does not have a single central SC-GHG point estimate and it emphasizes 
the importance and value of considering the benefits calculated using 
all four SC-GHG estimates.

    Table V.42--NPV of Consumer Benefits Combined With Climate and Health Benefits From Emissions Reductions
----------------------------------------------------------------------------------------------------------------
                    Category                           TSL 1           TSL 2           TSL 3           TSL 4
----------------------------------------------------------------------------------------------------------------
                    3% discount rate for NPV of Consumer and Health Benefits (billion 2020$)
----------------------------------------------------------------------------------------------------------------
5% d.r., Average SC-GHG case....................            0.71            2.99            4.61            6.75
3% d.r., Average SC-GHG case....................            0.91            4.00            6.08            8.78
2.5% d.r., Average SC-GHG case..................            1.05            4.72            7.12           10.21
3% d.r., 95th percentile SC-GHG case............            1.42            6.60            9.85           14.01
----------------------------------------------------------------------------------------------------------------
                    7% discount rate for NPV of Consumer and Health Benefits (billion 2020$)
----------------------------------------------------------------------------------------------------------------
5% d.r., Average SC-GHG case....................            0.33            1.23            1.96            2.97
3% d.r., Average SC-GHG case....................            0.52            2.24            3.43            5.00
2.5% d.r., Average SC-GHG case..................            0.66            2.96            4.47            6.43
3% d.r., 95th percentile SC-GHG case............            1.03            4.84            7.21           10.23
----------------------------------------------------------------------------------------------------------------

    The national operating cost savings are domestic U.S. monetary 
savings that occur as a result of purchasing CWH equipment, and are 
measured for the lifetime of products shipped in 2026-2055. The 
benefits associated with reduced GHG emissions achieved as a result of 
the adopted standards are also calculated based on the lifetime of CWH 
equipment shipped in 2026-2055.

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. 6313(a)(6)(A)(ii) and (C)(i)) 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. 6313(a)(6)(B)(ii)(I)-(VII) and 
42 U.S.C. 6313(a)(6)(C)(i))
    For this NOPR, DOE considered the impacts of amended standards for 
CWH equipment 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

[[Page 30714]]

current consumption and uncertain future energy cost savings.
1. Benefits and Burdens of TSLs Considered for CWH Equipment Standards
    Table V.43 and Table V.44 summarize the quantitative impacts 
estimated for each TSL for CWH equipment. The national impacts are 
measured over the lifetime of each class of CWH equipment purchased in 
the 30-year period that begins in the anticipated year of compliance 
with amended standards (2026-2055). The energy savings, emissions 
reductions, and value of emissions reductions refer to full-fuel-cycle 
results. DOE exercises its own judgment in presenting monetized climate 
benefits as recommended in applicable Executive Orders and DOE would 
reach the same conclusion presented in this notice in the absence of 
the social cost of greenhouse gases, including the February 2021 
Interim Estimates presented by the Interagency Working Group on the 
Social Cost of Greenhouse Gases. The efficiency levels contained in 
each TSL are described in section V.A of this document.

               Table V.43--Summary of Analytical Results for CWH Equipment TSLs: National Impacts
----------------------------------------------------------------------------------------------------------------
                    Category                           TSL 1           TSL 2           TSL 3           TSL 4
----------------------------------------------------------------------------------------------------------------
                                 Cumulative FFC National Energy Savings (quads)
----------------------------------------------------------------------------------------------------------------
Commercial gas-fired storage and storage-type               0.04            0.21            0.33            0.56
 instantaneous..................................
Residential duty gas-fired storage..............            0.02            0.03            0.07            0.10
Instantaneous gas-fired tankless................            0.00            0.01            0.02            0.02
Instantaneous circulating water heaters and hot             0.03            0.23            0.29            0.29
 water supply boilers...........................
                                                 ---------------------------------------------------------------
    Total Quads.................................            0.09            0.48            0.70            0.96
----------------------------------------------------------------------------------------------------------------
                               NPV of Consumer Costs and Benefits (billion 2020$)
----------------------------------------------------------------------------------------------------------------
NPV at 3% discount rate:
    Commercial gas-fired storage and storage-               0.16            0.51            0.93            1.73
     type instantaneous.........................
    Residential duty gas-fired storage..........            0.05            0.05            0.11            0.21
    Instantaneous gas-fired tankless............            0.01            0.03            0.04            0.04
    Instantaneous circulating water heaters and             0.07            0.27            0.41            0.41
     hot water supply boilers...................
                                                 ---------------------------------------------------------------
        Total NPV at 3% (billion 2020$).........            0.29            0.86            1.49            2.40
NPV at 7% discount rate:
    Commercial gas-fired storage and storage-               0.08            0.18            0.37            0.72
     type instantaneous.........................
    Residential duty gas-fired storage..........            0.02            0.01            0.03            0.07
    Instantaneous gas-fired tankless............            0.01            0.01            0.01            0.01
    Instantaneous circulating water heaters and             0.02            0.03            0.07            0.07
     hot water supply boilers...................
                                                 ---------------------------------------------------------------
        Total NPV at 7% (billion 2020$).........            0.12            0.22            0.48            0.87
----------------------------------------------------------------------------------------------------------------
                            Cumulative FFC Emissions Reduction (Total FFC Emissions)
----------------------------------------------------------------------------------------------------------------
CO2 (million metric tons).......................               5              26              38              52
SO2 (thousand tons).............................          (0.05)          (0.11)          (0.02)            0.08
NOX (thousand tons).............................              13              66              95             129
Hg (tons).......................................         (0.000)         (0.002)         (0.001)         (0.001)
CH4 (thousand tons).............................              63             326             471             643
N2O (thousand tons).............................            0.01            0.05            0.07            0.10
----------------------------------------------------------------------------------------------------------------
                      Present Value of Benefits and Costs (3% discount rate, billion 2020$)
----------------------------------------------------------------------------------------------------------------
Consumer Operating Cost Savings.................            0.34            1.63            2.44            3.51
Climate Benefits *..............................            0.26            1.35            1.96            2.72
Health Benefits **..............................            0.35            1.79            2.62            3.66
                                                 ---------------------------------------------------------------
    Total Benefits [dagger].....................            0.96            4.77            7.03            9.89
Consumer Incremental Product Costs [Dagger].....            0.05            0.77            0.95            1.11
Consumer Net Benefits...........................            0.29            0.86            1.49            2.40
                                                 ---------------------------------------------------------------
    Total Net Benefits..........................            0.91            4.00            6.08            8.78
----------------------------------------------------------------------------------------------------------------
                      Present Value of Benefits and Costs (7% discount rate, billion 2020$)
----------------------------------------------------------------------------------------------------------------
Consumer Operating Cost Savings.................            0.15            0.68            1.04            1.52
Climate Benefits *..............................            0.26            1.35            1.96            2.72
Health Benefits **..............................            0.14            0.67            0.99            1.40
                                                 ---------------------------------------------------------------
    Total Benefits [dagger].....................            0.55            2.70            3.99            5.64
Consumer Incremental Product Costs [Dagger].....            0.03            0.46            0.56            0.65
Consumer Net Benefits...........................            0.12            0.22            0.48            0.87
                                                 ---------------------------------------------------------------
    Total Net Benefits..........................            0.52            2.24            3.43            5.00
----------------------------------------------------------------------------------------------------------------
Note: This table presents the costs and benefits associated with commercial water heaters shipped in 2026-2055.
  These results include benefits to consumers which accrue after 2055 from the products shipped in 2026-2055.

[[Page 30715]]

 
* Climate benefits are calculated using four different estimates of the social cost of carbon (SC-CO2), methane
  (SC-CH4), and nitrous oxide (SC-N2O) (model average at 2.5 percent, 3 percent, and 5 percent discount rates;
  95th percentile at 3 percent discount rate), as shown in Table V.37 through Table V.39. Together these
  represent the global social cost of greenhouse gases (SC-GHG). For presentational purposes of this table, the
  climate benefits associated with the average SC-GHG at a 3 percent discount rate are shown, but the Department
  does not have a single central SC-GHG point estimate. See section IV.L of this document for more details.
** Health benefits are calculated using benefit-per-ton values for NOX and SO2. DOE is currently only monetizing
  PM2.5 and (for NOX) ozone precursor health benefits, but will continue to assess the ability to monetize other
  effects such as health benefits from reductions in direct PM2.5 emissions. The health benefits are presented
  at real discount rates of 3 and 7 percent. See section IV.L of this document for more details.
[dagger] Total and net benefits include consumer, climate, and health benefits. For presentation purposes, total
  and net benefits for both the 3-percent and 7-percent cases are presented using the average SC-GHG with 3-
  percent discount rate, but the Department does not have a single central SC-GHG point estimate. DOE emphasizes
  the importance and value of considering the benefits calculated using all four SC-GHG estimates. See Table
  V.42 for net benefits using all four SC-GHG estimates. On March 16, 2022, the Fifth Circuit Court of Appeals
  (No. 22-30087) granted the federal government's emergency motion for stay pending appeal of the February 11,
  2022, preliminary injunction issued in Louisiana v. Biden, No. 21-cv-1074-JDC-KK (W.D. La.). As a result of
  the Fifth Circuit's order, the preliminary injunction is no longer in effect, pending resolution of the
  federal government's appeal of that injunction or a further court order. Among other things, the preliminary
  injunction enjoined the defendants in that case from ``adopting, employing, treating as binding, or relying
  upon'' the interim estimates of the social cost of greenhouse gases--which were issued by the Interagency
  Working Group on the Social Cost of Greenhouse Gases on February 26, 2021--to monetize the benefits of
  reducing greenhouse gas emissions. In the absence of further intervening court orders, DOE will revert to its
  approach prior to the injunction and present monetized benefits where appropriate and permissible under law.
[Dagger] Costs include incremental equipment costs as well as installation costs.


       Table V.44--Summary of Analytical Results for CWH Equipment TSLs: Manufacturer and Consumer Impacts
----------------------------------------------------------------------------------------------------------------
              Category                     TSL 1 *            TSL 2 *            TSL 3 *            TSL 4 *
----------------------------------------------------------------------------------------------------------------
                                   Manufacturer Impacts: INPV (million 2020$)
----------------------------------------------------------------------------------------------------------------
Commercial gas-fired storage and            133.5-133.9        127.8-130.4        121.1-125.1          70.1-76.6
 storage-type instantaneous (No-new-
 standards case INPV=134.6).........
Residential-duty gas-fired storage             9.8-10.1            9.2-9.9           8.4-10.6            5.7-8.1
 (No-new-standards case INPV=10.1)..
Instantaneous gas-fired tankless (No-           6.8-6.8            6.1-6.2            6.1-6.3            6.1-6.3
 new-standards case INPV=7.1).......
Instantaneous circulating water               31.1-31.3          28.0-33.2          24.0-30.2          24.0-30.2
 heaters and hot water supply
 boilers (No-new-standards case INPV
 = 31.3)............................
                                     ---------------------------------------------------------------------------
    Total INPV ($) (No-new-standards        181.3-182.1        171.1-179.6        159.7-172.4        106.1-121.6
     case INPV = 183.1).............
----------------------------------------------------------------------------------------------------------------
                              Manufacturer Impacts: Change in INPV (million 2020$)
----------------------------------------------------------------------------------------------------------------
    Total Change in INPV ($)........      (1.85)-(1.03)     (12.03)-(3.50)    (23.39)-(10.75)    (77.00)-(61.53)
----------------------------------------------------------------------------------------------------------------
                                  Manufacturer Impacts: Industry NPV (% Change)
----------------------------------------------------------------------------------------------------------------
Commercial gas-fired storage and            (0.8)-(0.5)        (5.1)-(3.1)       (10.0)-(7.0)      (47.9)-(43.1)
 storage-type instantaneous.........
Residential-duty gas-fired storage..          (3.0)-0.0        (8.7)-(2.4)         (16.5)-5.4      (44.0)-(19.7)
Instantaneous gas-fired tankless....        (4.5)-(4.2)      (14.8)-(12.6)      (15.0)-(11.8)      (15.0)-(11.8)
Instantaneous circulating water             (0.5)-(0.1)         (10.5)-5.9       (23.2)-(3.4)       (23.2)-(3.4)
 heaters and hot water supply
 boilers............................
                                     ---------------------------------------------------------------------------
    Total INPV (% change)...........        (1.0)-(0.6)        (6.6)-(1.9)       (12.8)-(5.9)      (42.0)-(33.6)
----------------------------------------------------------------------------------------------------------------
                                      Consumer Average LCC Savings (2020$)
----------------------------------------------------------------------------------------------------------------
Commercial Gas-Fired Storage and                     93                 80                301                664
 Storage-type Instantaneous Water
 Heaters............................
Residential-Duty Gas-Fired Storage..                129               (20)                 90                324
Gas-Fired Instantaneous Water                       113                400                599                599
 Heaters and Hot Water Supply
 Boilers............................
--Instantaneous, Gas-Fired Tankless.                 42                 40                 63                 63
--Instantaneous Water Heaters and                   172                702              1,047              1,047
 Hot Water Supply Boilers...........
Shipment-Weighted Average *.........                101                120                322                605
----------------------------------------------------------------------------------------------------------------
                                           Consumer Simple PBP (years)
----------------------------------------------------------------------------------------------------------------
Commercial Gas-Fired Storage and                      1                  7                  5                  4
 Storage-type Instantaneous Water
 Heaters............................
Residential-Duty Gas-Fired Storage..                  3                  9                  9                  7
Gas-Fired Instantaneous Water                         1                  9                  9                  9
 Heaters and Hot Water Supply
 Boilers............................
--Instantaneous, Gas-Fired Tankless.                  2                  9                  9                  9
--Instantaneous Water Heaters and                     1                  9                  9                  9
 Hot Water Supply Boilers...........
Shipment-Weighted Average *.........                  1                  8                  6                  6
----------------------------------------------------------------------------------------------------------------

[[Page 30716]]

 
                                 Percent of Consumers that Experience a Net Cost
----------------------------------------------------------------------------------------------------------------
Commercial Gas-Fired Storage and                     1%                14%                12%                13%
 Storage-type Instantaneous Water
 Heaters............................
Residential-Duty Gas-Fired Storage..                 2%                17%                26%                18%
Gas-Fired Instantaneous Water                        1%                10%                12%                12%
 Heaters and Hot Water Supply
 Boilers............................
--Instantaneous, Gas-Fired Tankless.                 0%                 9%                12%                12%
--Instantaneous Water Heaters and                    2%                11%                13%                13%
 Hot Water Supply Boilers...........
Shipment-Weighted Average *.........                 1%                14%                14%                13%
----------------------------------------------------------------------------------------------------------------
Parentheses indicate negative (- ) values.
* Weighted by shares of each equipment class in total projected shipments in 2026.

    DOE first considered TSL 4, which represents the max-tech 
efficiency levels. At this TSL, the Secretary has tentatively 
determined that the benefits are outweighed by the burdens, as 
discussed in detail in the following paragraphs.
    TSL 4 would save an estimated 0.96 quads of energy, an amount DOE 
considers significant. Commercial gas-fired storage water heaters and 
storage-type instantaneous water heaters save an estimated 0.56 quads 
while Residential-Duty Gas-Fired Storage equipment save 0.10 quads of 
energy. Instantaneous gas-fired tankless water heaters are estimated to 
save 0.02 quads of energy, while instantaneous circulating water 
heaters and hot water supply boilers save an estimated 0.29 quads.
    Under TSL 4, the NPV of consumer benefit would be $0.87 billion 
using a discount rate of 7 percent, and $2.40 billion using a discount 
rate of 3 percent. Much of the consumer benefit is provided by the 
commercial gas-fired storage water heaters and storage-type 
instantaneous water heaters totaling an estimated $0.72 billion using a 
7 percent discount rate, and $1.73 billion using a 3 percent discount 
rate. The consumer benefit for residential-duty gas-fired storage water 
heaters is estimated to be $0.07 billion at a 7 percent discount rate 
and $0.21 billion at a 3 percent discount rate. The consumer benefit 
for instantaneous gas-fired tankless water heaters is estimated to be 
$0.01 billion at a 7 percent discount rate and $0.04 at a 3 percent 
discount rate, and the consumer benefit for instantaneous circulating 
water heaters and hot water supply boilers is estimated to be $0.07 
billion at a 7 percent discount rate and $0.41 billion at a 3 percent 
discount rate.
    The cumulative emissions reductions at TSL 4 are 52 Mt of 
CO2, 0.08 thousand tons of SO2, 129 thousand tons 
of NOX, -0.0012 ton of Hg, 643 thousand tons of 
CH4, and 0.10 thousand tons of N2O. The estimated 
monetary value of the climate benefits from reduced GHG emissions 
(associated with the average SC-GHG at a 3-percent discount rate) at 
TSL 4 is $2.72 billion. The estimated monetary value of the health 
benefits from reduced NOX and SO2 emissions at 
TSL 4 is $3.66 billion using a 7-percent discount rate and $1.40 
billion using a 3-percent discount rate.
    Using a 7-percent discount rate for consumer benefits and costs, 
health benefits from reduced SO2 and NOX 
emissions, and the 3-percent discount rate case for climate benefits 
from reduced GHG emissions, the estimated total NPV at TSL 4 is $5.00 
billion. Using a 3-percent discount rate for all benefits and costs, 
the estimated total NPV at TSL 4 is $8.76 billion. The estimated total 
NPV is provided for additional information, however DOE primarily 
relies upon the NPV of consumer benefits when determining whether a 
proposed standard level is economically justified.
    At TSL 4, the average LCC impact is a savings of $664 for 
commercial gas-fired storage and storage-type instantaneous water 
heaters, $324 for residential-duty gas-fired storage water heaters, $63 
for instantaneous gas-fired instantaneous water heaters, and $1,047 for 
instantaneous circulating water heaters and hot water supply boilers. 
The simple PBP is 4 years for commercial gas-fired storage water 
heaters, 7 years for residential-duty gas-fired storage water heaters, 
and 9 years for both the instantaneous gas-fired tankless water heaters 
and the instantaneous circulating water heaters and hot water supply 
boilers. The fraction of consumers experiencing a net LCC cost is 13 
percent for commercial gas-fired storage water heaters and storage-type 
instantaneous water heaters, 18 percent for residential-duty gas-fired 
storage water heaters, 12 percent for instantaneous gas-fired tankless 
water heaters, and 13 percent for instantaneous circulating water 
heaters and hot water supply boilers.
    At TSL 4, the projected change in manufacturer INPV ranges from a 
decrease of $77.0 million to a decrease of $61.5 million, which 
correspond to decreases of 42.0 percent and 33.6 percent, respectively. 
Conversion costs total $119.8 million.
    Commercial gas-fired storage water heaters and storage type 
instantaneous equipment account for over 70 percent of unit shipments 
in the CWH industry. The projected change in manufacturer INPV for 
commercial gas-fired storage water heaters and storage type 
instantaneous equipment ranges from a decrease of $64.5 million to a 
decrease of $58.0 million, which correspond to decreases of 47.9 
percent and 43.1 percent, respectively. The potentially large negative 
impacts on INPV are largely driven by industry conversion costs. In 
particular, there are substantial increases in product conversion costs 
at TSL 4 for commercial gas-fired storage water heaters and storage 
type instantaneous equipment manufacturers. There are several factors 
that lead to high product conversion costs for this equipment.
    Currently, only two models of this equipment type from a single 
manufacturer can meet a 99 percent thermal efficiency standard, which 
represents less than 1 percent of the commercial gas-fired storage 
water heaters and storage type instantaneous equipment models currently 
offered on the market. The two models both have an input capacity of 
300,000 Btu/h and share a similar design. The manufacturer of these 
models is a small business with less than 1 percent market share in the 
commercial gas storage water heater market. The company's

[[Page 30717]]

ability to ramp-up production capacity at 99% thermal efficiency to 
serve a significantly larger portion of the market is unclear.
    Nearly all existing models would need to be redesigned to meet a 99 
percent thermal efficiency standard. Traditionally, manufacturers 
design their equipment platforms to support a range of models with 
varying input capacities and storage volumes, and the efficiency 
typically will vary slightly between models within a given platform. 
However, at TSL 4, manufacturers would not be able to maintain a 
platform approach to designing commercial gas-fired storage water 
heaters because the 99 percent thermal efficiency level represents the 
maximum achievable efficiency and there would be no allowance for 
slight variations in efficiency between individual models. At TSL 4, 
manufacturers would be required to individually redesign each model to 
optimize performance for one specific input capacity and storage volume 
combination. As a result, the industry's level of engineering effort 
and investment would grow significantly. In manufacturer interviews, 
some manufacturers raised concerns that they would not have sufficient 
engineering capacity to complete necessary redesigns within the 3-year 
conversion period. If manufacturers require more than 3 years to 
redesign all models, they would likely prioritize redesigns based on 
sales volume. There is risk that some models become unavailable, either 
temporarily or permanently.
    Product conversion costs for commercial gas-fired storage water 
heaters and storage type instantaneous equipment are expected to reach 
$82.1 million over the three-year conversion period. These investment 
levels are six times greater than typical R&D spending on this 
equipment class over a three-year period. Compliance with DOE standards 
could limit other engineering and innovation efforts, such as 
developing heat pump water heaters for the commercial market, during 
the conversion period beyond compliance with amended energy 
conservation standards.
    Residential-duty gas-fired storage water heaters account for 
approximately 14 percent of unit shipments in the CWH industry. At TSL 
4, the projected change in INPV for residential-duty gas-fired storage 
water heaters ranges from a decrease of $4.5 million to a decrease of 
$2.0 million, which correspond to decreases of 44.0 percent and 19.7 
percent, respectively. Conversion costs total $6.5 million.
    The drivers of negative impacts on INPV for residential-duty gas-
fired storage water heaters are largely identical to those identified 
for the commercial gas-fired storage water heaters. At TSL 4, there is 
only one manufacturer with a compliant model at this standard level. 
This represents less than 5 percent of models currently offered in the 
market. Product conversion costs are expected to reach $4.6 million 
over the conversion period as manufacturers have to optimize designs 
for each specific input capacity and storage volume combination.
    Instantaneous gas-fired tankless water heaters account for 6 
percent of unit shipments in the CWH industry. At TSL 4, the projected 
change in manufacturer INPV for instantaneous gas-fired tankless water 
heaters ranges from a decrease of $1.1 million to a decrease of $0.8 
million, which correspond to decreases of 15.0 percent and 11.8 
percent, respectively. Conversion costs total $1.8 million.
    At TSL 4, approximately half of currently offered instantaneous 
gas-fired tankless water heaters models would meet TSL 4 today. While 
most manufacturers have some compliant models, manufacturers would 
likely develop cost-optimized models to compete in a market where 
energy efficiency provides less product differentiation. Product 
conversion cost are expected to reach $1.2 million.
    Instantaneous circulating water heaters and hot water supply 
boilers account for over 7 percent of unit shipments in the CWH 
industry. At TSL 4, the projected change in manufacturer INPV for 
instantaneous circulating water heaters and hot water supply boilers 
ranges from a decrease of $7.3 million to a decrease of $1.1 million, 
which correspond to decreases of 23.2 percent and 3.4 percent, 
respectively. Conversion cost total $10.0 million.
    At TSL 4, approximately 27 percent of instantaneous circulating 
water heaters and hot water supply boilers models would meet TSL 4 
today. DOE notes that industry offers a large number of models to fit a 
wide range of installation requirements despite relatively low shipment 
volumes. Product conversion cost are expected to reach $8.1 million.
    The Secretary tentatively concludes that at TSL 4 for CWH 
equipment, the benefits of energy savings, positive NPV of consumer 
benefits, 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 potentials 
for large conversion costs, reduced equipment availability, delayed 
technology innovation, and substantial reductions in INPV. As noted 
previously, only one small manufacturer currently produces commercial 
gas-fired storage water heaters at that level. Similarly, only one 
manufacturer currently produces residential-duty gas-fired water 
heaters at that level. In light of substantial conversion costs, it is 
unclear whether a sufficient quantity of other manufacturers would 
undertake the conversions necessary to offer a competitive range of 
products across the range of sizes and applications required for gas-
fired storage water heaters. Consequently, the Secretary has 
tentatively concluded that the current record does not provide a clear 
and convincing basis to conclude that TSL 4 is economically justified.
    DOE then considered TSL 3, which would save an estimated 0.70 quads 
of energy, an amount DOE also considers significant. Commercial gas-
fired storage and storage-type instantaneous water heaters are 
estimated to save 0.33 quads while residential-duty gas-fired storage 
water heaters are estimated to save 0.07 quads of energy. Instantaneous 
gas-fired tankless water heaters are estimated to save 0.02 quads. 
Instantaneous circulating gas-fired water heaters and hot water supply 
boilers are estimated to save 0.29 quads of energy.
    Under TSL 3, the NPV of consumer benefit would be $0.48 billion 
using a discount rate of 7 percent, and $1.49 billion using a discount 
rate of 3 percent. Benefits to consumers of commercial gas-fired 
storage and storage type instantaneous equipment are estimated to be 
$0.37 billion using a discount rate of 7 percent, and $0.93 billion 
using a discount rate of 3 percent. Consumer benefits for residential-
duty gas-fired storage equipment are estimated to be $0.03 billion 
dollars at a 7 percent discount rate and $0.11 billion at a 3 percent 
discount rate. Benefits to consumers of instantaneous gas-fired 
tankless water heaters are estimated to be $0.01 billion at a 7 percent 
discount rate and $0.04 billion at a 3 percent discount rate, and 
consumer benefits for instantaneous circulating gas-fired water heaters 
and hot water supply boilers are estimated to be $0.07 billion at a 7 
percent discount rate and 0.41 billion at a 3 percent discount rate.
    The cumulative emissions reductions at TSL 3 are 38 Mt of 
CO2, -0.02 thousand tons of SO2, 95 thousand tons 
of NOX, -0.0014 tons of Hg, 471 thousand tons of 
CH4, and 0.07 thousand tons of N2O. The estimated 
monetary value of the climate benefits from reduced GHG emissions 
reduction (associated with the average SC-GHG at

[[Page 30718]]

a 3-percent discount rate) at TSL 3 is $1.96 billion. The estimated 
monetary value of the health benefits from reduced NOX and 
SO2 emissions at TSL 3 is $0.99 billion using a 7-percent 
discount rate and $2.62 billion using a 3-percent discount rate.
    Using a 7-percent discount rate for consumer benefits and costs, 
health benefits from reduced SO2 and NOX 
emissions, and the 3-percent discount rate case for climate benefits 
from reduced GHG emissions, the estimated total NPV at TSL 3 is $3.43 
billion. Using a 3-percent discount rate for all benefits and costs, 
the estimated total NPV at TSL 3 is $6.08 billion. The estimated total 
NPV is provided for additional information, however DOE primarily 
relies upon the NPV of consumer benefits when determining whether a 
proposed standard level is economically justified.
    At TSL 3, the average LCC impact is a savings of $301 for 
commercial gas-fired storage and storage-type instantaneous water 
heaters, $90 for residential-duty gas-fired storage water heaters, $63 
for instantaneous gas-fired tankless water heaters, and $1,047 for 
instantaneous circulating water heaters and hot water supply boilers. 
The simple PBP is 5 years for commercial gas-fired storage water 
heaters, 9 years for residential-duty gas-fired storage water heaters, 
and 9 years for both instantaneous gas-fired tankless water heaters and 
instantaneous circulating water heaters and hot water supply boilers. 
The fraction of consumers experiencing a net LCC cost is 12 percent for 
commercial gas-fired storage water heaters, 26 percent for residential-
duty gas-fired storage water heaters, 12 percent for instantaneous gas-
fired tankless water heaters, and 13 percent for instantaneous 
circulating water heaters and hot water supply boilers.
    At TSL 3, the projected change in manufacturer INPV ranges from a 
decrease of $23.4 million to a decrease of $10.8 million, which 
correspond to decreases of 12.8 percent and 5.9 percent, respectively. 
At this level, industry free cash flow is estimated to drop by 95% in 
the year before the standards year. Conversion costs total $34.6 
million.
    At TSL 3, nearly all commercial gas-fired storage water heaters and 
storage type instantaneous equipment manufacturers have models at a 
range of input capacities and storage volumes that can meet 95 percent 
thermal efficiency. Approximately 34 percent of commercial gas-fired 
storage water heaters and storage type instantaneous models currently 
offered would meet TSL 3 today. Additionally, an amended standard at 
TSL 3 would allow manufacturers to design equipment platforms that 
support a range of models with varying input capacities and storage 
volumes, rather than having to optimize designs for each individual 
input capacity and storage volume combinations.
    The change in INPV for commercial gas-fired storage water heaters 
and storage type instantaneous equipment ranges from a decrease of 
$13.5 million to a decrease of $9.5 million, which correspond to 
decreases of 10.0 percent and 7.0 percent, respectively. Product 
conversion costs are $11.6 million and capital conversion costs are 
$9.2 million, for a total of approximately $20.8 million. At this 
level, product conversion costs are typical of R&D spending over the 
conversion period.
    At TSL 3, multiple residential-duty gas-fired storage water heater 
manufacturers offer models at a range of input capacities and storage 
volumes that can meet a UEF standard at this level today. Approximately 
22 percent of current residential-duty gas-fired storage water heater 
models would meet TSL 3. An amended standard at TSL 3 would allow 
manufacturers to design equipment platforms that support a range of 
models with varying input capacities and storage volumes, rather than 
having to optimize designs for each individual input capacity and 
storage volume combination.
    The projected change in INPV for residential-duty gas-fired storage 
water heaters ranges from a decrease of $1.7 million to an increase of 
$0.5 million, which correspond to a decrease of 16.5 percent and an 
increase of 5.4 percent, respectively. DOE expects conversion costs for 
this equipment class to reach $2.1 million.
    At TSL 3, approximately half of instantaneous gas-fired tankless 
water heaters models would meet TSL 3 today. The projected change in 
manufacturer INPV for instantaneous gas-fired tankless water heaters 
ranges from a decrease of $1.1 million to a decrease of $0.8 million, 
which correspond to decreases of 15.0 percent and 11.8 percent, 
respectively. Conversion costs total $1.8 million.
    At TSL 3, approximately 27 percent of instantaneous circulating 
water heaters and hot water supply boilers models would meet TSL 3 
today. The projected change in manufacturer INPV for instantaneous 
circulating water heaters and hot water supply boilers ranges from a 
decrease of $7.3 million to a decrease of $1.1 million, which 
correspond to decreases of 23.2 percent and 3.4 percent, respectively. 
Conversion cost total $10.0 million.
    After considering the analysis and weighing the benefits and 
burdens, the Secretary has tentatively concluded that a standard set at 
TSL 3 for CWH equipment would be economically justified. Notably, the 
benefits to consumers vastly outweigh the cost to manufacturers. At TSL 
3, the NPV of consumer benefits, even measured at the more conservative 
discount rate of 7 percent, is over 2200 percent higher than the 
maximum of manufacturers' loss in INPV. The positive average LCC 
savings--a different way of quantifying consumer benefits--reinforces 
this conclusion. The economic justification for TSL 3 is clear and 
convincing even without weighing the estimated monetary value of 
emissions reductions. When those emissions reductions are included--
representing $1.96 billion in climate benefits (associated with the 
average SC-GHG at a 3-percent discount rate), and $0.30 billion (using 
a 3-percent discount rate) or $0.12 billion (using a 7-percent discount 
rate) in health benefits--the rationale becomes stronger still.
    As stated, DOE conducts a ``walk-down'' analysis to determine the 
TSL that represents the maximum improvement in energy efficiency that 
is technologically feasible and economically justified as required 
under EPCA. The walk-down is not a comparative analysis, as a 
comparative analysis would result in the maximization of net benefits 
instead of energy savings that are technologically feasible and 
economically justified, which would be contrary to the statute. 86 FR 
70892, 70908. Although DOE has not conducted a comparative analysis to 
select the proposed energy conservation standards, DOE notes at TSL 3 
the conversion cost impacts for commercial gas storage and residential-
duty gas-fired storage water heaters are less severe than TSL 4. For 
commercial gas storage water heaters, nearly all manufacturers have 
equipment that can meet TSL 3 across a range of input capacities and 
storage volumes. Similarly, for residential-duty commercial gas water 
heaters, multiple manufacturers currently produce equipment meeting TSL 
3. The concerns of manufacturers being unable to offer a competitive 
range of equipment across the range of input capacities and storage 
volumes currently offered would be mitigated at TSL 3.
    Although DOE considered proposed amended standard levels for CWH 
equipment by grouping the efficiency levels for each equipment category 
into TSLs, DOE evaluates all analyzed efficiency levels in its 
analysis. For commercial gas instantaneous water

[[Page 30719]]

heaters (including tankless and circulating/hot water supply boilers) 
TSL 3 (i.e., the proposed TSL) includes the max-tech efficiency levels, 
which is the maximum level determined to be technologically feasible. 
For commercial gas-fired storage water heaters and residential-duty 
gas-fired storage water heaters, TSL 3 includes efficiency levels that 
are one level below the max-tech efficiency level. As discussed 
previously, at the max-tech efficiency levels for gas-fired storage 
water heaters and residential-duty gas-fired storage water heaters 
there is a substantial risk of manufacturers being unable to offer a 
competitive range of equipment across the range of input capacities and 
storage volumes currently available. Setting standards at max-tech for 
these classes could limit other engineering and innovation efforts, 
such as developing heat pump water heaters for the commercial market, 
during the conversion period beyond compliance with amended energy 
conservation standards. The benefits of max-tech efficiency levels for 
commercial gas-fired storage water heaters and residential-duty gas-
fired storage water heaters do not outweigh the negative impacts to 
consumers and manufacturers. Therefore, DOE has tentatively concluded 
that the max-tech efficiency levels are not justified.
    Therefore, based on the previous considerations, DOE proposes to 
adopt the energy conservation standards for CWH equipment at TSL 3. The 
proposed amended energy conservation standards for CWH equipment, which 
are expressed as thermal efficiency and standby loss for commercial 
gas-fired storage and commercial gas-fired instantaneous water heaters 
and hot water supply boilers, and as UEF for residential-duty gas-
storage water heaters, are shown in Table V.45 and Table V.46.

  Table V.45--Proposed Amended Energy Conservation Standards for Commercial Water Heating Equipment Except for
                                    Residential-Duty Commercial Water Heaters
----------------------------------------------------------------------------------------------------------------
                                                                            Energy conservation standards *
                                                                      ------------------------------------------
                                                                           Minimum
               Equipment                             Size                  thermal        Maximum standby loss
                                                                         efficiency             [dagger]
                                                                             (%)
----------------------------------------------------------------------------------------------------------------
Gas-fired storage water heaters and      All.........................              95  0.86 x [Q/800 + 110(Vr)\1/
 storage-type instantaneous water                                                       2\] (Btu/h)
 heaters.
Electric instantaneous water heaters     <10 gal.....................              80  N/A
 [Dagger].                               >=10 gal....................              77  2.30 + 67/Vm (%/h)
Gas-fired instantaneous water heaters    <10 gal.....................              96  N/A
 and hot water supply boilers.           >=10 gal....................              96  Q/800 + 110(Vr)\1/2\ (Btu/
                                                                                        h)
----------------------------------------------------------------------------------------------------------------
* Vm is the measured storage volume, and Vr is the rated volume, both in gallons. Q is the nameplate input rate
  in Btu/h.
[dagger] Water heaters and hot water supply boilers having more than 140 gallons of storage capacity need not
  meet the standby loss requirement if: (1) The tank surface area is thermally insulated to R-12.5 or more, (2)
  a standing pilot light is not used, and (3) for gas or oil-fired storage water heaters, they have a fire
  damper or fan-assisted combustion.
[Dagger] Energy conservation standards for electric instantaneous water heaters are included in EPCA. (42 U.S.C.
  6313(a)(5)(D)-(E)) The compliance date for these energy conservation standards is January 1, 1994. In this
  NOPR, DOE proposes to codify these standards for electric instantaneous water heaters in its regulations at 10
  CFR 431.110. Further discussion of standards for electric instantaneous water heaters is included in section
  III.B.4 of this NOPR.


   Table V.46--Proposed Amended Energy Conservation Standards for Residential-Duty Gas-Fired Commercial Water
                                                     Heaters
----------------------------------------------------------------------------------------------------------------
              Equipment                    Specification *          Draw pattern **       Uniform energy factor
----------------------------------------------------------------------------------------------------------------
Gas-fired Storage....................  >75 kBtu/h and.........  Very Small.............  0.5374-(0.0009 x Vr)
                                       <=105 kBtu/h and.......  Low....................  0.8062-(0.0012 x Vr)
                                       <=120 gal and..........  Medium.................  0.8702-(0.0011 x Vr)
                                       <=180 [deg]F...........  High...................  0.9297-(0.0009 x Vr)
----------------------------------------------------------------------------------------------------------------
* Additionally, to be classified as a residential-duty water heater, a commercial water heater must meet the
  following conditions: (1) If requiring electricity, use single-phase external power supply; and (2) the water
  heater must not be designed to heat water at temperatures greater than 180 [deg]F.
** Draw pattern is a classification of hot water use of a consumer water heater or residential-duty commercial
  water heater, based upon the first-hour rating. The draw pattern is determined using the Uniform Test Method
  for Measuring the Energy Consumption of Water Heaters in appendix E to subpart B of 10 CFR part 430.

2. 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 
(1) the annualized national economic value (expressed in 2020$) of the 
benefits from operating products that meet the proposed standards 
(consisting primarily of operating cost savings from using less energy, 
minus increases in product purchase costs, and (2) the annualized 
monetary value of the benefits of GHG and NOX emission 
reductions.
    Table V.47 shows the annualized values for CWH equipment under TSL 
3, expressed in 2020$. The results under the primary estimate are as 
follows.
    Using a 7-percent discount rate for consumer benefits and costs and 
health benefits from reduced NOX and SO2 
emissions, and a 3-percent discount rate case for climate benefits from 
reduced GHG emissions, the estimated cost of the proposed standards for 
CWH equipment is $59 million per year in increased equipment costs, 
while the estimated annual benefits are $110 million in reduced 
equipment operating costs, $113 million in climate benefits, and $104 
million in health benefits. In this case, the net benefit amounts to 
$267 million per year.
    Using a 3-percent discount rate for all benefits and costs, the 
estimated cost of

[[Page 30720]]

the proposed standards for CWH equipment is $55 million per year in 
increased equipment costs, while the estimated annual benefits are $140 
million in reduced operating costs, $113 million in climate benefits, 
and $150 million in health benefits. In this case, the net benefit 
would amount to $349 million per year.

      Table V.47--Annualized Benefits and Costs of Proposed Energy Conservation Standards for CWH Equipment
                                                     [TSL 3]
----------------------------------------------------------------------------------------------------------------
                                                                            Million 2020$/year
                                                        --------------------------------------------------------
                        Category                                             Low-net-benefits  High-net-benefits
                                                          Primary estimate       estimate           estimate
----------------------------------------------------------------------------------------------------------------
                                                3% discount rate
----------------------------------------------------------------------------------------------------------------
Consumer Operating Cost Savings........................              140.3              130.3              151.7
Climate Benefits *.....................................              112.8              107.2              117.8
Health Benefits **.....................................              150.4              143.5              170.0
                                                        --------------------------------------------------------
    Total Benefits [dagger]............................                404                381                439
Consumer Incremental Product Costs [Dagger]............               54.7               52.6               56.6
                                                        --------------------------------------------------------
    Net Benefits.......................................                349                328                383
----------------------------------------------------------------------------------------------------------------
                                                7% discount rate
----------------------------------------------------------------------------------------------------------------
Consumer Operating Cost Savings........................              109.6              103.4              116.7
Climate Benefits * (3% discount rate)..................              112.8              107.2              117.8
Health Benefits **.....................................              104.3              100.4              117.2
                                                        --------------------------------------------------------
    Total Benefits [dagger]............................                327                311                352
Consumer Incremental Product Costs [Dagger]............               59.2               57.5               60.9
                                                        --------------------------------------------------------
    Net Benefits.......................................                267                253                291
----------------------------------------------------------------------------------------------------------------
Note: This table presents the costs and benefits associated with consumer pool heaters shipped in 2026-2055.
  These results include benefits to consumers which accrue after 2055 from the products shipped in 2026-2055.
  Numbers may not add due to rounding.
* Climate benefits are calculated using four different estimates of the social cost of carbon (SC-CO2), methane
  (SC-CH4), and nitrous oxide (SC-N2O) (model average at 2.5 percent, 3 percent, and 5 percent discount rates;
  95th percentile at 3 percent discount rate). Together these represent the global social cost of greenhouse
  gases (SC-GHG). For presentational purposes of this table, the climate benefits associated with the average SC-
  GHG at a 3 percent discount rate are shown, but the Department does not have a single central SC-GHG point
  estimate, and it emphasizes the importance and value of considering the benefits calculated using all four SC-
  GHG estimates. See section IV.L of this document for more details.
** Health benefits are calculated using benefit-per-ton values for NOX and SO2. DOE is currently only monetizing
  PM2.5 and (for NOX) ozone precursor health benefits, but will continue to assess the ability to monetize other
  effects such as health benefits from reductions in direct PM2.5 emissions. The health benefits are presented
  at real discount rates of 3 and 7 percent. See section IV.L of this document for more details.
[dagger] Total and net benefits include consumer, climate, and health benefits. For presentation purposes, total
  and net benefits for both the 3-percent and 7-percent cases are presented using the average SC-GHG with 3-
  percent discount rate, but the Department does not have a single central SC-GHG point estimate. DOE emphasizes
  the importance and value of considering the benefits calculated using all four SC-GHG estimates. On March 16,
  2022, the Fifth Circuit Court of Appeals (No. 22-30087) granted the federal government's emergency motion for
  stay pending appeal of the February 11, 2022, preliminary injunction issued in Louisiana v. Biden, No. 21-cv-
  1074-JDC-KK (W.D. La.). As a result of the Fifth Circuit's order, the preliminary injunction is no longer in
  effect, pending resolution of the federal government's appeal of that injunction or a further court order.
  Among other things, the preliminary injunction enjoined the defendants in that case from ``adopting,
  employing, treating as binding, or relying upon'' the interim estimates of the social cost of greenhouse
  gases--which were issued by the Interagency Working Group on the Social Cost of Greenhouse Gases on February
  26, 2021--to monetize the benefits of reducing greenhouse gas emissions. In the absence of further intervening
  court orders, DOE will revert to its approach prior to the injunction and present monetized benefits where
  appropriate and permissible under law.
[Dagger] Costs include incremental equipment costs as well as installation costs.

VI. Procedural Issues and Regulatory Review

A. Review Under Executive Orders 12866 and 13563

    Section 1(b)(1) of Executive Order (``E.O.'') 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 NOPR 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.
    (2) In some cases, the benefits of more-efficient equipment are not 
realized due to misaligned incentives between purchasers and users. An 
example of such a case is when the equipment purchase decision is made 
by a building contractor or building owner who does not pay the energy 
costs.
    (3) There are external benefits resulting from improved energy 
efficiency of 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

[[Page 30721]]

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. A summary of the 
potential costs and benefits of the regulatory action is presented in 
Table VI.1.

  Table VI.1--Annualized Benefits, Costs, and Net Benefits of Proposed
                                Standards
------------------------------------------------------------------------
                                             Million 2020$/year
             Category              -------------------------------------
                                     3% Discount rate   7% Discount rate
------------------------------------------------------------------------
Consumer Operating Cost Savings...              140.3              109.6
Climate Benefits *................              112.8              112.8
Health Benefits **................               17.3               12.3
                                   -------------------------------------
    Total Benefits [dagger].......                270                235
Costs [Dagger]....................               54.7               59.2
                                   -------------------------------------
    Net Benefits..................                216                175
------------------------------------------------------------------------
Note: This table presents the costs and benefits associated with
  commercial water heaters shipped in 2026-2055. These results include
  benefits to consumers which accrue after 2055 from the products
  shipped in 2026-2055.
* Climate benefits are calculated using four different estimates of the
  global SC-CO2, SC-CH4, and SC-N2O (see section IV.L of this proposed
  rule). Together these represent the global social cost of greenhouse
  gases (SC-GHG). For presentational purposes of this table, the climate
  benefits associated with the average SC-GHG at a 3 percent discount
  rate are shown, but the Department does not have a single central SC-
  GHG point estimate, and it emphasizes the importance and value of
  considering the benefits calculated using all four SC-GHG estimates.
** Health benefits are calculated using benefit-per-ton values for NOX
  and SO2. The benefits are based on the low estimates of the monetized
  value. DOE is currently only monetizing PM2.5 and (for NOX) ozone
  precursor health benefits, but will continue to assess the ability to
  monetize other effects such as health benefits from reductions in
  direct PM2.5 emissions. See section IV.L of this document for more
  details.
[dagger] Total benefits include consumer, climate, and health benefits.
  Total benefits for both the 3-percent and 7-percent cases are
  presented using the average SC-GHG with 3-percent discount rate, but
  the Department does not have a single central SC-GHG point estimate.
  On March 16, 2022, the Fifth Circuit Court of Appeals (No. 22-30087)
  granted the federal government's emergency motion for stay pending
  appeal of the February 11, 2022, preliminary injunction issued in
  Louisiana v. Biden, No. 21-cv-1074-JDC-KK (W.D. La.). As a result of
  the Fifth Circuit's order, the preliminary injunction is no longer in
  effect, pending resolution of the federal government's appeal of that
  injunction or a further court order. Among other things, the
  preliminary injunction enjoined the defendants in that case from
  ``adopting, employing, treating as binding, or relying upon'' the
  interim estimates of the social cost of greenhouse gases--which were
  issued by the Interagency Working Group on the Social Cost of
  Greenhouse Gases on February 26, 2021--to monetize the benefits of
  reducing greenhouse gas emissions. In the absence of further
  intervening court orders, DOE will revert to its approach prior to the
  injunction and present monetized benefits where appropriate and
  permissible under law.
[Dagger] Costs include incremental equipment costs as well as
  installation costs.

    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 E.O. 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 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 proposed rulemaking.
    DOE has also reviewed this regulation pursuant to E.O. 13563, 
issued on January 18, 2011. 76 FR 3281 (Jan. 21, 2011). E.O. 13563 is 
supplemental to and explicitly reaffirms the principles, structures, 
and definitions governing regulatory review established in E.O. 12866. 
To the extent permitted by law, agencies are required by E.O. 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 E.O. 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, 
this NOPR is consistent with these principles, including the 
requirement that, to the extent permitted by law, benefits justify 
costs and that net benefits are maximized.

B. Review Under the Regulatory Flexibility Act

    The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) requires 
preparation

[[Page 30722]]

of an initial regulatory flexibility analysis (IRFA) and a final 
regulatory flexibility analysis (FRFA) 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 website (www.energy.gov/gc/office-general-counsel). The following sections detail DOE's IRFA for this 
energy conversation standards proposed rulemaking.
1. Description of Reasons Why Action Is Being Considered
    DOE is proposing to amend energy conservation standards for CWH 
equipment. Pursuant to EPCA, DOE is to consider amending the energy 
efficiency standards for certain types of commercial and industrial 
equipment, including the equipment at issue in this document, whenever 
the American Society of Heating, Refrigerating, and Air-Conditioning 
Engineers (``ASHRAE'') amends the standard levels or design 
requirements prescribed in ASHRAE Standard 90.1, ``Energy Standard for 
Buildings Except Low-Rise Residential Buildings,'' (``ASHRAE Standard 
90.1''), and at a minimum, every six 6 years. DOE must adopt more 
stringent efficiency standards, unless DOE determines, supported by 
clear and convincing evidence, that adoption of a more stringent level 
would produce significant additional conservation of energy would be 
technologically feasible and economically justified. (42 U.S.C. 
6313(a)(6)(A)-(C))
2. Objectives of, and Legal Basis for, Rule
    Under EPCA, DOE must review energy efficiency standards for CWH 
equipment every six years and either: (1) Issue a notice of 
determination that the standards do not need to be amended as adoption 
of a more stringent level is not supported by clear and convincing 
evidence; or (2) issue a notice of proposed rulemaking including new 
proposed standards based on certain criteria and procedures in 
subparagraph (B) of 42 U.S.C. 6313(a)(6). (42 U.S.C. 6313(a)(6)(C))
    Under EPCA, DOE's energy conservation program consists essentially 
of four parts: (1) Testing, (2) labeling, (3) Federal energy 
conservation standards, and (4) certification and enforcement 
procedures. For covered equipment, relevant provisions of the Act 
include definitions (42 U.S.C. 6311), energy conservation standards (42 
U.S.C. 6313), test procedures (42 U.S.C. 6314), labeling provisions (42 
U.S.C. 6315), and the authority to require information and reports from 
manufacturers (42 U.S.C. 6316). DOE requires the manufacturer of any 
covered product or covered equipment to establish, maintain, and retain 
the records of certification reports, of the underlying test data for 
all certification testing, and of any other testing conducted to 
satisfy the requirements of 10 CFR part 429, 10 CFR part 430, and/or 10 
CFR part 431. Certification reports provide DOE and consumers with 
comprehensive, up-to date efficiency information and support effective 
enforcement.
3. Description on Estimated Number of Small Entities Regulated
    For manufacturers of CWH equipment, 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. See 13 CFR part 121. The equipment covered by this proposed rule 
are classified under North American Industry Classification System 
(``NAICS'') code 333318,\170\ ``Other Commercial and Service Industry 
Machinery Manufacturing.'' In 13 CFR 121.201, the SBA sets a threshold 
of 1,000 employees or fewer for an entity to be considered as a small 
business for this category. DOE's analysis relied on publicly available 
databases to identify potential small businesses that manufacture 
equipment covered in this rulemaking. DOE utilized the California 
Energy Commission's Modernized Appliance Efficiency Database System 
(``MAEDbS''),\171\ the DOE's Energy Star Database,\172\ and the DOE's 
Certification Compliance Database (``CCD'') \173\ in identifying 
manufacturers. For the purpose of this NOPR, two analyses are being 
performed regarding impacts to small businesses: (1) Impact of the 
amended standards and (2) impact of the codification of requirements 
for electric instantaneous water heater manufacturers.
---------------------------------------------------------------------------

    \170\ The business size standards are listed by NAICS code and 
industry description and are available at www.sba.gov/document/support--table-size-standards (Last accessed July 26th, 2021).
    \171\ MAEDbS can be accessed at 
www.cacertappliances.energy.ca.gov/Pages/Search/AdvancedSearch.aspx 
(Last accessed July 15th, 2021).
    \172\ Energy Star certified product can be found in the Energy 
Star database accessed at www.energystar.gov/productfinder/product/certified-commercial-water-heaters/results (Last accessed July 15th, 
2021).
    \173\ Certified equipment in the CCD are listed by product class 
and can be accessed at www.regulations.doe.gov/certification-data/#q=Product_Group_s%3A* (Last accessed July 15th, 2021).
---------------------------------------------------------------------------

    Regarding manufacturers impacted by the amended standards, DOE 
identified fifteen original equipment manufacturers (``OEM''). DOE 
screened out companies that do not meet the definition of a ``small 
business'' or are foreign-owned and operated. DOE used subscription-
based business information tools to determine headcount and revenue of 
the small businesses. Of these fourteen OEMs, DOE identified three 
companies that are small, domestic OEMs.
    Regarding models impacted by the codification of requirements for 
electric instantaneous water heaters, DOE's research identified 9 OEMs 
of commercial electric instantaneous water heaters being sold in the 
U.S. market. Of these nine companies, DOE has identified three as 
domestic, small businesses. The small businesses do not currently 
certify any other CWH equipment to DOE's CCMS.
    Issue 12: DOE seeks comment on the number of small manufacturers 
producing covered CWH equipment.
4. Description and Estimate of Compliance Requirements
    This NOPR proposes to adopt amended standards for gas-fired storage 
water heaters, gas-fired instantaneous water heaters and hot water 
supply boilers, and residential-duty gas-fired storage water heaters. 
Additionally, this NOPR seeks to codify energy conservation standards 
for electric instantaneous water heaters from EPCA into the CFR.
    To determine the impact on the small OEMs, product conversion costs 
and capital conversion costs were estimated. Product conversion costs 
are investments in research, development, testing, marketing, and other 
non-capitalized costs necessary to make product designs comply with 
amended energy conservation standards. Capital conversion costs are 
one-time investments in plant, property, and

[[Page 30723]]

equipment made in response to new and/or amended standards.
    In reviewing all commercially available models in DOE's Compliance 
Certification Database, the three small manufacturers account for 
approximately 4 percent of industry model offerings. Of the three small 
manufacturers, the first manufacturer exclusively manufactures gas-
fired instantaneous tankless water heaters and will remain unimpacted 
by the proposed standards as 100 percent of models meet TSL 3 or 
higher. There are no anticipated capital conversion costs or production 
conversion costs required to meet proposed standards.
    The second manufacturer exclusively manufacturers hot water supply 
boilers and 67 percent of its models are unimpacted by the proposed 
standards. DOE estimates that this manufacturer will incur 
approximately $16,700 in capital conversion costs and $15,650 in 
product conversion costs to meet proposed standards. The combined 
conversion costs represent less than one percent of the firm's 
anticipated revenue during the conversion period.
    The third manufacturer primarily manufactures gas-fired storage 
water heaters and residential-duty gas fired storage water heaters. For 
this manufacturer, 53 percent of their models are unimpacted by the 
proposed standards. DOE estimates that this manufacturer will incur 
approximately $178,000 in capital conversion costs and $226,000 in 
product conversion costs to meet proposed standards. The combined 
conversion costs represent 2% of the firm's anticipated revenue during 
the conversion period.
    In addition to proposing amended standards, this rulemaking, DOE is 
proposing to codify standards for electric instantaneous CWH equipment 
from EPCA into the CFR.
    EPCA prescribes energy conservation standards for several classes 
of CWH equipment manufactured on or after January 1, 1994. (42 U.S.C. 
6313(a)(5)) DOE codified these standards in its regulations for CWH 
equipment at 10 CFR 431.110. However, when codifying these standards 
from EPCA, DOE inadvertently omitted the standards put in place by EPCA 
for electric instantaneous water heaters. In the NOPR, DOE is proposing 
to codify these standards in its regulations at 10 CFR 431.110. This 
NOPR does not propose certification requirements for electric 
instantaneous water heaters. Thus, DOE estimates no additional 
paperwork costs on manufacturers of electric instantaneous water heater 
equipment as result of the NOPR.
    Issue 13: DOE seeks comment on types of costs and magnitude of 
costs small manufacturers would incur as result of the amended 
standards proposed for CWH equipment and the codification of standards 
for commercial electric instantaneous water heaters.
5. 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 being considered in this 
action.
6. Significant Alternatives to the Rule
    The discussion in the previous section analyzes impacts on small 
businesses that would result from DOE's proposed rule, represented by 
TSL 3. In reviewing alternatives to the proposed rule, DOE examined a 
range of different efficiency levels and their respective impacts to 
both manufacturers and consumers. DOE first considered TSL 4. TSL 4 
would save 0.96 quads of energy with a projected change in manufacturer 
INPV of -42.0 percent to -33.6 percent. TSL 4 has energy savings that 
are 37 percent higher than TSL 3.
    DOE also considered TSL 2 and TSL 1. TSL 2 would save 0.48 quads of 
energy with the projected change in manufacturer INPV ranging from -6.6 
percent to -1.9 percent. TSL 2 has energy savings that are 31 percent 
lower than TSL 3. TSL 1 would save 0.09 quads of energy with the 
projected change in manufacturer INPV ranging from -1.0 percent to -0.6 
percent. TSL 1 has energy savings that are 87 percent lower than TSL 3.
    Based on the presented discussion, DOE believes that TSL 3 would 
deliver the highest energy savings while mitigating the potential 
burdens placed on CWH equipment manufacturers, including small business 
manufacturers. Accordingly, DOE does not propose one of the other TSLs 
considered in the analysis, or the other policy alternatives as part of 
the regulatory impact analysis and included in chapter 17 of the NOPR 
TSD.
    Additional compliance flexibilities may be available through other 
means. Manufacturers subject to DOE's energy efficiency standards may 
apply to DOE's Office of Hearings and Appeals for exception relief 
under certain circumstances. Manufacturers should refer to 10 CFR part 
1003 for additional details.

C. Review Under the Paperwork Reduction Act

    Manufacturers of CWH equipment must certify to DOE that their 
equipment complies with any applicable energy conservation standards. 
In certifying compliance, manufacturers must test their equipment 
according to the applicable DOE test procedures for CWH equipment, 
including any amendments adopted for those test procedures on the date 
that compliance is required. DOE has established regulations for the 
certification and recordkeeping requirements for all covered commercial 
consumer products and commercial equipment, including CWH equipment. 
(See generally 10 CFR part 429). The collection-of-information 
requirement for the certification and recordkeeping is subject to 
review and approval by OMB under the Paperwork Reduction Act (``PRA''). 
DOE's current reporting requirements have been approved by OMB under 
OMB control number 1910-1400. Public reporting burden for the 
certification is estimated to average 35 hours per response, including 
the time for reviewing instructions, searching existing data sources, 
gathering and maintaining the data needed, certifying compliance, 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

    DOE is analyzing this proposed regulation in accordance with the 
National Environmental Policy Act of 1969 (``NEPA'') and DOE's NEPA 
implementing regulations (10 CFR part 1021). DOE's regulations include 
a categorical exclusion for rulemakings that establish energy 
conservation standards for consumer products or industrial equipment. 
10 CFR part 1021, subpart D, appendix B5.1. DOE anticipates that this 
rulemaking qualifies for categorical exclusion B5.1 because it is an 
interpretive rulemaking that that establishes energy conservation 
standards for consumer products or industrial equipment, none of the 
exceptions identified in CX B5.1(b) apply, no extraordinary 
circumstances exist that require further environmental analysis, and it 
otherwise meets the requirements for application of a categorical 
exclusion. See 10 CFR 1021.410. DOE will complete its NEPA review 
before issuing the final rule.

E. Review Under Executive Order 13132

    Executive Order 13132, ``Federalism,'' 64 FR 43255 (August 10, 
1999), imposes

[[Page 30724]]

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 that it will follow in the development of such 
regulations. 65 FR 13735. DOE has examined this NOPR 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 equipment that is the subject of this NOPR. States 
can petition DOE for exemption from such preemption to the extent, and 
based on criteria, set forth in EPCA (See 42 U.S.C. 6316(a) and (b); 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 NOPR 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 ``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 
www.energy.gov/gc/office-general-counsel.
    This NOPR does not contain a Federal intergovernmental mandate, nor 
is it expected to require expenditures of $100 million or more in any 
one year by the private sector. As a result, the analytical 
requirements of UMRA do not apply.

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 NOPR 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 NOPR 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). Pursuant to OMB Memorandum M-19-15, Improving 
Implementation of the Information Quality Act (April 24, 2019), DOE 
published updated guidelines which are available at www.energy.gov/sites/prod/files/2019/12/f70/DOE%20Final%20Updated%20IQA%20Guidelines%20Dec%202019.pdf. DOE has 
reviewed this NOPR under the OMB and DOE guidelines and has concluded 
that it is consistent with applicable policies in those guidelines.

K. Review Under Executive Order 13211

    E.O. 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 significant energy action, the 
agency must give a detailed statement of any

[[Page 30725]]

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 energy conservation standards for CWH equipment, 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 energy 
conservation standards rulemaking analyses are ``influential scientific 
information,'' which the Bulletin defines as ``scientific information 
the agency reasonably can determine will have or does have a clear and 
substantial impact on important public policies or private sector 
decisions.'' Id. at 70 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 has prepared a report describing that peer 
review.\174\ 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 
SNOPR.
---------------------------------------------------------------------------

    \174\ The 2007 ``Energy Conservation Standards Rulemaking Peer 
Review Report'' is available at the following website: energy.gov/eere/buildings/downloads/energy-conservation-standards-rulemaking-peer-review-report-0 (last accessed August 25, 2021).
---------------------------------------------------------------------------

M. Materials Incorporated by Reference

    In this NOPR, DOE proposes to incorporate by reference the 
following test standards:
    (1) ASTM C177-13, ``Standard Test Method for Steady-State Heat Flux 
Measurements and Thermal Transmission Properties by Means of the 
Guarded-Hot-Plate Apparatus''; and
    (2) ASTM C518-15, ``Standard Test Method for Steady-State Thermal 
Transmission Properties by Means of the Heat Flow Meter Apparatus.''
    ASTM C177-13 is an industry-accepted test procedure for determining 
the R-value of a sample using a guarded-hot-plate apparatus. ASTM C177-
13 is available on ASTM's website at www.astm.org/c0177-13.html.
    ASTM C518-15 is an industry-accepted test procedure for determining 
the R-value of a sample using a heat flow meter apparatus. ASTM C518-15 
is available on ASTM's website at https://www.astm.org/c0518-15.html.

VII. Public Participation

A. Participation in the Webinar

    The time and date of the webinar are listed in the DATES section at 
the beginning of this document. If no participants register for the 
webinar then it will be cancelled. Webinar registration information, 
participant instructions, and information about the capabilities 
available to webinar participants will be published on DOE's website: 
www1.eere.energy.gov/buildings/appliance_standards/standards.aspx?productid=36. 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 an interest in the topics addressed in this 
proposed rule, or who is representative of a group or class of persons 
that has an interest in these issues, may request an opportunity to 
make an oral presentation at the webinar. Such persons may submit to 
[email protected]">ApplianceStandards[email protected]. Persons who wish to speak 
should include with their request a computer file in WordPerfect, 
Microsoft Word, PDF, or text (ASCII) file format that briefly describes 
the nature of their interest in this rulemaking and the topics they 
wish to discuss. Such persons should also provide a daytime telephone 
number where they can be reached.
    Persons requesting to speak should briefly describe the nature of 
their interest in this rulemaking and provide a telephone number for 
contact. DOE requests persons selected to make an oral presentation to 
submit an advance copy of their statements at least two weeks before 
the webinar. At its discretion, DOE may permit persons who cannot 
supply an advance copy of their statement to participate, if those 
persons have made advance alternative arrangements with the Building 
Technologies Office. As necessary, requests to give an oral 
presentation should ask for such alternative arrangements.

C. Conduct of the Webinar

    DOE will designate a DOE official to preside at the webinar/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 webinar/public meeting. There shall not be 
discussion of proprietary information, costs or prices, market share, 
or other commercial matters regulated by U.S. anti-trust laws. After 
the webinar/public meeting and until the end of the comment period, 
interested parties may submit further comments on the proceedings and 
any aspect of the rulemaking.
    The webinar/public meeting will be conducted in an informal, 
conference style. DOE will present summaries of comments received 
before the webinar/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 
permit, 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. 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 webinar/public meeting will accept

[[Page 30726]]

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 webinar/public meeting.
    A transcript of the webinar/public meeting will be included in the 
docket, which can be viewed as described in the Docket section at the 
beginning of this proposed rule. 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 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 website will waive any CBI claims for the information 
submitted. For information on submitting CBI, see the Confidential 
Business Information section.
    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. Comments and documents submitted via 
email, hand delivery/courier, or postal mail also will be posted to 
www.regulations.gov. If you do not want your personal contact 
information to be publicly viewable, do not include it in your comment 
or any accompanying documents. Instead, provide your contact 
information in a cover letter. Include your first and last names, email 
address, telephone number, and optional mailing address. The cover 
letter will not be publicly viewable as long as it does not include any 
comments.
    Include contact information each time you submit comments, data, 
documents, and other information to DOE. No 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. DOE will make its own determination about the 
confidential status of the information and treat it according to its 
determination.
    It is DOE's policy that all comments may be included in the public 
docket, without change and as received, including any personal 
information provided in the comments (except information deemed to be 
exempt from public disclosure).

E. Issues on Which DOE Seeks Comment

    Although DOE welcomes comments on any aspect of this proposal, DOE 
is particularly interested in receiving comments and views of 
interested parties concerning the following issues:
    Issue 1: DOE requests comment on its assumption that the proposed 
test procedure amendments for residential-duty commercial water heaters 
are not expected to impact the efficiency ratings.
    Issue 2: DOE requests comment and information on whether integrated 
heat pump water heaters are capable of meeting the same hot water loads 
as commercial electric storage water heaters that use electric 
resistance elements.
    Issue 3: DOE requests comment on its proposed revisions to notes to 
the table of energy conservation standards in 10 CFR 431.110.
    Issue 4: DOE seeks comments on the extraordinary venting cost 
adder. Specifically, DOE seeks data to estimate the fraction of 
consumers that might incur extraordinary costs, and the level of such 
extraordinary costs.
    Issue 5: DOE seeks input on actual historical shipments for 
residential-duty gas-fired storage water heaters, gas-fired storage-
type instantaneous water heaters, and for hot water supply boilers.
    Issue 6: DOE seeks additional actual historical shipment 
information for commercial gas-fired instantaneous tankless water 
heaters covering the period between 2015 and 2020 to supplement the 
data provided in response to the withdrawn NOPR.
    Issue 7: DOE seeks historical shipments data dividing shipments 
between condensing and non-condensing efficiencies, for all product 
types that comprise the subject of this rulemaking.
    Issue 8: DOE seeks comment on the availability of systems that can 
be built by plumbing multiple individual water heaters together to 
achieve the same level of hot water delivery capacity.
    Issue 9: DOE seeks input on the production facility and 
manufacturing process changes required as a result of potential amended 
standards for each equipment category. DOE also requests

[[Page 30727]]

input on the costs associated with those facility and manufacturing 
changes.
    Issue 10: DOE seeks comment on whether manufacturers expect 
manufacturing capacity constraints would limit equipment availability 
to customers in the timeframe of the amended standard compliance date 
(2026).
    Issue 11: DOE requests information regarding the impact of 
cumulative regulatory burden on manufacturers of CWH equipment 
associated with multiple DOE standards or product-specific regulatory 
actions of other Federal agencies. Additionally, where industry-wide 
constraints exist as a result of other overlapping regulatory actions, 
DOE requests stakeholders help identify and quantify those constraints.
    Issue 12: DOE seeks comment on the number of small manufacturers 
producing covered CWH equipment.
    Issue 13: DOE seeks comment on types of costs and magnitude of 
costs small manufacturers would incur as result of the amended 
standards proposed for CWH equipment and the codification of standards 
for commercial electric instantaneous water heaters.

VIII. Approval of the Office of the Secretary

    The Secretary of Energy has approved publication of this notice of 
proposed rulemaking and announcement of public meeting.

List of Subjects in 10 CFR Part 431

    Administrative practice and procedure, Confidential business 
information, Incorporation by reference, Test procedures, Reporting and 
recordkeeping requirements.

Signing Authority

    This document of the Department of Energy was signed on May 4, 
2022, by Kelly J. Speakes-Backman, Principal Deputy Assistant Secretary 
for Energy Efficiency and Renewable Energy, pursuant to delegated 
authority from the Secretary of Energy. That document with the original 
signature and date is maintained by DOE. For administrative purposes 
only, and in compliance with requirements of the Office of the Federal 
Register, the undersigned DOE Federal Register Liaison Officer has been 
authorized to sign and submit the document in electronic format for 
publication, as an official document of the Department of Energy. This 
administrative process in no way alters the legal effect of this 
document upon publication in the Federal Register.

    Signed in Washington, DC, on May 5, 2022.
Treena V. Garrett,
Federal Register Liaison Officer, U.S. Department of Energy.
    For the reasons set forth in the preamble, DOE is proposing to 
amend part 431 of chapter II, subchapter D of title 10, Code of Federal 
Regulations, as set forth below:

PART 431--ENERGY EFFICIENCY PROGRAM FOR CERTAIN COMMERCIAL AND 
INDUSTRIAL EQUIPMENT

0
1. The authority citation for part 431 continues to read as follows:

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

0
2. Amend Sec.  431.105 by:
0
a. Revising paragraph (a);
0
b. In paragraph (c)(1), removing ``Sec.  431.102'' and adding in its 
place, ``Sec. Sec.  431.102; 431.110''; and
0
c. In paragraph (c)(2), removing ``Sec.  431.102t'' and adding in its 
place, ``Sec. Sec.  431.102; 431.110''.
    The revision reads as follows:


Sec.  431.105  Materials incorporated by reference.

    (a) Certain material is incorporated by reference into this subpart 
with the approval of the Director of the Federal Register in accordance 
with 5 U.S.C. 552(a) and 1 CFR part 51. To enforce any edition other 
than that specified in this section, DOE must publish a document in the 
Federal Register and the material must be available to the public. All 
incorporation by reference (IBR) approved material is available for 
inspection at DOE, and at the National Archives and Records 
Administration (NARA). Contact DOE at: The U.S. Department of Energy, 
Office of Energy Efficiency and Renewable Energy, Building Technologies 
Program, Sixth Floor, 950 L'Enfant Plaza SW, Washington, DC 20024, 
(202) 586-9127, [email protected], www.energy.gov/eere/buildings/building-technologies-office. For information on the availability of 
this material at NARA, email: [email protected], or go to: 
www.archives.gov/federal-register/cfr/ibr-locations.html. The material 
may be obtained from the sources in the following paragraphs of this 
section.
* * * * *
0
3. Revise Sec.  431.110 to read as follows:


Sec.  431.110  Energy conservation standards and their effective dates.

    (a) (1) Each commercial storage water heater, instantaneous water 
heater, and hot water supply boiler (excluding residential-duty 
commercial water heaters) must meet the applicable energy conservation 
standard level(s) as specified in table 1 to this paragraph. Any 
packaged boiler that provides service water that meets the definition 
of ``commercial packaged boiler'' in subpart E of this part, but does 
not meet the definition of ``hot water supply boiler'' in this subpart, 
must meet the requirements that apply to it under subpart E of this 
part.
    (2) Water heaters and hot water supply boilers with a rated storage 
volume greater than 140 gallons described in table 1 to this paragraph 
need not meet the standby loss requirement if:
    (i) The tank surface area is thermally insulated to R-12.5 or more, 
as determined using ASTM C177-13 or C518-15 (both incorporated by 
reference; see Sec.  431.105)
    (ii) A standing pilot light is not used; and
    (iii) For gas-fired or oil-fired storage water heaters, they have a 
flue damper or fan-assisted combustion.

                                   Table 1 to Sec.   431.110(a)--Commercial Water Heater Energy Conservation Standards
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                           Energy conservation standards \a\
                                                             -------------------------------------------------------------------------------------------
                                                                                       Minimum thermal
                                                                 Minimum thermal         efficiency        Maximum standby loss    Maximum standby loss
              Equipment                        Size                efficiency            (equipment             (equipment              (equipment
                                                                   (equipment        manufactured on and    manufactured on and     manufactured on and
                                                               manufactured on and    after [Compliance      after October 29,    after [compliance date
                                                                after October 9,       date of amended             2003)          of amended standards])
                                                                      2015)              standards])
--------------------------------------------------------------------------------------------------------------------------------------------------------
Electric storage water heaters......  All...................                   N/A                   N/A  0.30 + 27/Vm (%/h)....  0.30 + 27/Vm (%/h)
Gas-fired storage water heaters and   All...................                   80%                   95%  Q/800 + 110(Vr)\1/2\    0.86 x [Q/800 +
 storage-type instantaneous water                                                                          (Btu/h).                110(Vr)\1/2\] (Btu/h)
 heaters.
Oil-fired storage water heaters.....  All...................                   80%                   80%  Q/800 + 110(Vr)\1/2\    Q/800 + 110(Vr)\1/2\
                                                                                                           (Btu/h).                (Btu/h)
Electric instantaneous water heaters  <10 gal...............                   80%                   80%  N/A...................  N/A
 \b\.
                                      >=10 gal..............                   77%                   77%  2.30 + 67/Vm (%/h)....  2.30 + 67/Vm (%/h)

[[Page 30728]]

 
Gas-fired instantaneous water         <10 gal...............                   80%                   96%  N/A...................  N/A
 heaters and hot water supply         >=10 gal..............                   80%                   96%  Q/800 + 110(Vr)\1/2\    Q/800 + 110(Vr)\1/2\
 boilers.                                                                                                  (Btu/h).                (Btu/h)
Oil-fired instantaneous water heater  <10 gal...............                   80%                   80%  N/A...................  N/A
 and hot water supply boilers.        >=10 gal..............                   78%                   78%  Q/800 + 110(Vr)\1/2\    Q/800 + 110(Vr)\1/2\
                                                                                                           (Btu/h).                (Btu/h)
--------------------------------------------------------------------------------------------------------------------------------------------------------
\a\ Vm is the measured storage volume, and Vr is the rated storage volume, both in gallons. Q is the rated input in Btu/h, as determined pursuant to 10
  CFR 429.44.n
\b\ The compliance date for energy conservation standards for electric instantaneous water heaters is January 1, 1994.

    (b) Each unfired hot water storage tank manufactured on and after 
October 29, 2003, must have a minimum thermal insulation of R-12.5.
    (c) Each residential-duty commercial water heater must meet the 
applicable energy conservation standard level(s) in table 2 to this 
paragraph. Additionally, to be classified as a residential-duty 
commercial water heater, a commercial water heater must meet the 
following conditions:
    (1) If the water heater requires electricity, it must use a single-
phase external power supply; and
    (2) The water heater must not be designed to heat water to 
temperatures greater than 180 [deg]F

                          Table 2 to Sec.   431.110(c)--Residential-Duty Commercial Water Heater Energy Conservation Standards
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                         Uniform energy factor \a\
                                                                                 -----------------------------------------------------------------------
             Equipment                  Specifications          Draw pattern         Equipment manufactured before       Equipment manufactured after
                                                                                      [compliance date of amended         [compliance date of amended
                                                                                              standards])                         standards]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Gas-fired storage.................  >75 kBtu/hr and <=105  Very Small...........  0.2674-(0.0009 x Vr)..............  0.5374-(0.0009 x Vr)
                                     kBtu/hr and <=120
                                     gal.
                                                           Low..................  0.5362-(0.0012 x Vr)..............  0.8062-(0.0012 x Vr)
                                                           Medium...............  0.6002-(0.0011 x Vr)..............  0.8702-(0.0011 x Vr)
                                                           High.................  0.6597-(0.0009 x Vr)..............  0.9297-(0.0009 x Vr)
Oil-fired storage.................  >105 kBtu/hr and       Very Small...........  0.2932-(0.0015 x Vr)..............  0.2932-(0.0015 x Vr)
                                     <=140 kBtu/hr and
                                     <=120 gal.
                                                           Low..................  0.5596-(0.0018 x Vr)..............  0.5596-(0.0018 x Vr)
                                                           Medium...............  0.6194-(0.0016 x Vr)..............  0.6194-(0.0016 x Vr)
                                                           High.................  0.6470-(0.0013 x Vr)..............  0.6470-(0.0013 x Vr)
Electric instantaneous............  >12 kW and <=58.6 kW   Very Small...........  0.80..............................  0.80
                                     and <=2 gal.
                                                           Low..................  0.80..............................  0.80
                                                           Medium...............  0.80..............................  0.80
                                                           High.................  0.80..............................  0.80
--------------------------------------------------------------------------------------------------------------------------------------------------------
\a\ Vr is the rated storage volume (in gallons), as determined pursuant to 10 CFR 429.44.


[FR Doc. 2022-10011 Filed 5-18-22; 8:45 am]
BILLING CODE 6450-01-P