[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
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Energy conservation standards *
-----------------------------------------
Minimum
Equipment Size thermal Maximum standby loss
efficiency [dagger]
(%)
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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).
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* 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]
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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).
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* 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.
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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.
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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\
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\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.
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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 $2.62 billion using a 3-percent discount. DOE is
currently only monetizing fine particulate matter
(``PM2.5'') and (for NOX) ozone precursor health
benefits, but will continue to assess the ability to monetize other
effects such as health benefits from reductions in direct
PM2.5 emissions.
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\10\ DOE estimated the monetized value of SO2 and
NOX emissions reductions associated with site and
electricity savings using benefit per ton estimates from the
scientific literature. See section IV.L.2 of this document for
further discussion.
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Table I.4 summarizes the economic benefits and costs expected to
result from the proposed standards for CWH equipment. In the table,
total benefits for both the 3-percent and 7-percent cases are presented
using the average GHG social costs with 3-percent discount rate. DOE
does not have a
[[Page 30614]]
single central SC-GHG point estimate and it emphasizes the importance
and value of considering the benefits calculated using all four SC-GHG
estimates. The estimated total net benefits using each of the four SC-
GHG estimates are presented in section V.B.6. of this document.
Table I.4--Summary of Economic Benefits and Costs of Proposed Energy
Conservation Standards for CWH Equipment
[TSL 3]
------------------------------------------------------------------------
Billion 2020$
------------------------------------------------------------------------
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.
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\17\ DOE also presents a sensitivity analysis that considers
impacts for equipment shipped in a 9-year period.
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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.
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\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.
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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\
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\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.
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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.
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\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'').
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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.
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\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.
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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.
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\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).
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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.
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\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.
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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.
---------------------------------------------------------------------------
\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/.
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\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.
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\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.
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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.
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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.
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\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.
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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.
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\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.
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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.
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\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.
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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\
---------------------------------------------------------------------------
\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.
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\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).
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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\
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\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.
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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.
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\154\ Available www.epa.gov/sites/production/files/2021-04/documents/emission-factors_apr2021.pdf (last accessed July 12,
2021).
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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\
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\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).
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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\
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\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).
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[[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.
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\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).
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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