Vol. 81 Friday, No. 185 September 23, 2016

Part II

Department of Energy

10 CFR Parts 429 and 430 Energy Conservation Program: Energy Conservation Standards for Residential Furnaces; Proposed Rules

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DEPARTMENT OF ENERGY direction on the rounding of standby No telefacsimilies (faxes) will be mode and off mode values, generally, accepted. For detailed instructions on 10 CFR Parts 429 and 430 and to clarify the level of precision for submitting comments and additional [Docket Number EERE–2014–BT–STD– the furnace and boiler standards. information on the rulemaking process, 0031] DATES: Comments: DOE will accept see section VII of this document comments, data, and information (‘‘Public Participation’’). RIN 1904–AD20 regarding this supplemental notice of Written comments regarding the proposed rulemaking before and after burden-hour estimates or other aspects Energy Conservation Program: Energy the public meeting, but no later than of the collection-of-information Conservation Standards for November 22, 2016. See section VII, requirements contained in this proposed Residential Furnaces ‘‘Public Participation,’’ for details. rule may be submitted to Office of AGENCY: Office of Energy Efficiency and Comments regarding the likely Energy Efficiency and Renewable Renewable Energy, Department of competitive impact of the proposed Energy through the methods listed _ _ Energy. standards should be sent to the above and by email to Chad S [email protected]. ACTION: Supplemental notice of Department of Justice contact listed in EPCA requires the Attorney General proposed rulemaking (SNOPR) and the ADDRESSES section before November to provide DOE a written determination announcement of public meeting. 22, 2016. Meeting: DOE will hold a public of whether the proposed standard is SUMMARY: The Energy Policy and meeting on October 17, 2016, from 9:00 likely to lessen competition. The U.S. Conservation Act of 1975 (EPCA), as a.m. to 5:00 p.m., in Washington, DC. Department of Justice Antitrust Division amended, prescribes energy The meeting will also be broadcast as a invites input from market participants conservation standards for various webinar. See section VII, ‘‘Public and other interested persons with views consumer products and certain Participation,’’ for webinar registration on the likely competitive impact of the commercial and industrial equipment, information, participant instructions, proposed standard. Interested persons including residential furnaces. EPCA and information about the capabilities may contact the Division at also requires the U.S. Department of available to webinar participants. [email protected] before Energy (DOE) to periodically determine ADDRESSES: The public meeting will be November 22, 2016. Please indicate in whether more-stringent, amended held at the U.S. Department of Energy, the ‘‘Subject’’ line of your email the title standards would be technologically Forrestal Building, Room 6E–069, 1000 and Docket Number of this rulemaking feasible and economically justified, and Independence Avenue SW, Washington, notice. would save a significant amount of DC 20585. Docket: The docket, which includes energy. On March 12, 2015, DOE Instructions: Any comments Federal Register notices, public meeting published in the Federal Register a submitted must identify the SNOPR on attendee lists and transcripts, notice of proposed rulemaking (NOPR), Energy Conservation Standards for comments, and other supporting in which DOE proposed amendments to Residential Furnaces, and provide documents/materials, is available for the energy conservation standards for docket number EERE–2014–BT–STD– review at www.regulations.gov. All residential non-weatherized gas 0031 and/or regulatory information documents in the docket are listed in furnaces and mobile home gas furnaces. number (RIN) 1904–AD20. Comments the www.regulations.gov index. In response to the NOPR, DOE received may be submitted using any of the However, some documents listed in the comment expressing concern regarding following methods: index may not be publicly available, DOE’s proposed approach and Federal eRulemaking Portal: such as those containing information encouraging the Department to examine www.regulations.gov. Follow the that is exempt from public disclosure. establishing a separate product class for instructions for submitting comments. The docket Web page can be found at: small furnaces. In response, DOE Email: ResFurnaces2014STD0031@ https://www.regulations.gov/ published a notice of data availability ee.doe.gov. Include the docket number docket?D=EERE-2014-BT-STD-0031. (NODA) in the Federal Register on and/or RIN in the subject line of the The docket Web page contains simple September 14, 2015 that contained an message. Submit electronic comments instructions on how to access all analysis of a potential product class for in WordPerfect, Microsoft Word, PDF, documents, including public comments, small non-weatherized gas furnaces. In or ASCII file format, and avoid the use in the docket. See section VII, ‘‘Public this supplemental notice of rulemaking of special characters or any form of Participation,’’ for further information (SNOPR), DOE responds to comments encryption. on how to submit comments through received on the NOPR and NODA and Postal Mail: Mr. John Cymbalsky, U.S. www.regulations.gov. is making a modified proposal regarding Department of Energy, Building For further information on how to amended energy conservation standards Technologies Office, Mailstop EE–5B, submit a comment, review other public for the subject residential furnaces 1000 Independence Avenue SW., comments and the docket, or participate (including a separate small furnaces Washington, DC 20585–0121. If in the public meeting, contact product class), which supersedes DOE’s possible, please submit all items on a Appliance and Equipment Standards earlier proposal, as set forth in the compact disc (CD), in which case it is Staff at (202) 586–6636 or by email: _ _ _ March 12, 2015 NOPR. The notice also not necessary to include printed copies. Appliance Standards Public requests comment on the SNOPR’s Hand Delivery/Courier: Mr. John [email protected]. proposed standards and associated Cymbalsky, U.S. Department of Energy, FOR FURTHER INFORMATION CONTACT: Mr. analyses and results. The SNOPR also Building Technologies Office, 950 John Cymbalsky, U.S. Department of proposes clarifications to the L’Enfant Plaza SW., Room 6002, Energy, Office of Energy Efficiency and certification and reporting requirements Washington, DC 20024. Telephone: Renewable Energy, Building of standby mode and off mode values (202) 586–2945. If possible, please Technologies Office, EE–5B, 1000 for non-weatherized oil furnaces submit all items on a CD, in which case Independence Avenue SW., (including mobile home oil furnaces) it is not necessary to include printed Washington, DC 20585–0121. and electric furnaces, to provide copies. Telephone: (202) 287–1692. Email:

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residential_furnaces_and_boilers@ 3. Standby Mode and Off Mode Standards 3. Net Present Value Analysis ee.doe.gov. 4. Rulemaking Process I. Consumer Subgroup Analysis Mr. Eric Stas or Ms. Johanna Jochum, 5. Compliance Date J. Manufacturer Impact Analysis U.S. Department of Energy, Office of the 6. Regional Standards 1. Overview General Counsel, GC–33, 1000 7. Regulatory Issues 2. Government Regulatory Impact Model 8. Certification of Compliance and Level of Independence Avenue SW., Analysis and Key Inputs Precision a. Capital and Product Conversion Costs Washington, DC 20585–0121. IV. Methodology and Discussion of Related b. Manufacturer Production Costs Telephone: (202) 586–9507 or (202) Comments c. Shipment Scenarios 287–6307. Email: [email protected] A. Market and Technology Assessment d. Manufacturer Markup Scenarios or [email protected]. 1. Scope of Coverage and Product Classes 3. Discussion of Comments For further information on how to a. General Approach a. Direct Employment Impacts submit or review public comments, b. Condensing and Non-Condensing b. Cumulative Regulatory Burden contact the Appliance and Equipment Furnaces c. Impacts of the July 2014 Furnace Fan Standards Staff at (202) 586–6636 or by c. Input Capacity Final Rule on GRIM _ _ _ d. Other Comments d. Regulatory Flexibility Analysis email: Appliance Standards Public 2. Technology Options [email protected]. K. Emissions Analysis B. Screening Analysis L. Monetizing Carbon Dioxide and Other SUPPLEMENTARY INFORMATION: 1. Screened-Out Technologies Emissions Impacts 2. Remaining Technologies Table of Contents 1. Social Cost of Carbon C. Engineering Analysis a. Monetizing Carbon Dioxide Emissions 1. Efficiency Levels I. Synopsis of the Proposed Rule b. Development of Social Cost of Carbon a. Baseline Efficiency Level and Product A. Benefits and Costs to Consumers Values Characteristics B. Impact on Manufacturers c. Current Approach and Key Assumptions b. Other Energy Efficiency Levels C. National Benefits and Costs 2. Social Cost of Other Air Pollutants 2. Cost-Assessment Methodology 1. AFUE Standards M. Utility Impact Analysis a. Teardown Analysis 2. Standby Mode and Off Mode Standards N. Employment Impact Analysis b. Cost Estimation Method 3. Combined Results for AFUE Standards V. Analytical Results and Conclusions and Standby Mode and Off Mode c. Manufacturing Production Costs A. Trial Standard Levels Standards d. Cost-Efficiency Relationship B. Economic Justification and Energy D. Conclusion e. Manufacturer Markup Savings II. Introduction f. Manufacturer Interviews 1. Economic Impacts on Individual A. Authority 3. Electric Furnaces B. Background D. Markups Analysis Consumers 1. Current Standards E. Energy Use Analysis a. Life-Cycle Cost and Payback Period 2. History of Standards Rulemaking for 1. Active Mode b. Consumer Subgroup Analysis Residential Furnaces a. Furnace Capacity c. Rebuttable Presumption Payback Period III. General Discussion b. Adjustments to Energy Use Estimated for 2. Economic Impacts on Manufacturers A. Product Classes and Scope of Coverage 2009 a. Industry Cash Flow Analysis Results B. Test Procedure c. Furnace Electricity Use b. Direct Impacts on Employment C. Technological Feasibility d. Rebound Effect c. Impacts on Manufacturing Capacity 1. General 2. Standby Mode and Off Mode d. Impacts on Subgroups of Manufacturers 2. Maximum Technologically Feasible 3. Comments on Energy Use Results e. Cumulative Regulatory Burden Levels F. Life-Cycle Cost and Payback Period 3. National Impact Analysis D. Energy Savings Analysis a. Significance of Energy Savings 1. Determination of Savings 1. Product Cost b. Net Present Value of Consumer Costs 2. Significance of Savings 2. Installation Cost and Benefits E. Economic Justification a. Basic Installation Cost c. Indirect Impacts on Employment 1. Specific Criteria b. Additional Installation Costs for Non- 4. Impact on Utility or Performance of a. Economic Impact on Manufacturers and Weatherized Gas Furnaces Products Consumers c. Comments on Installation Cost Results 5. Impact of Any Lessening of Competition b. Savings in Operating Costs Compared to for Non-Weatherized Gas Furnaces 6. Need of the Nation To Conserve Energy Increase in Price (LCC and PBP) d. Installation Cost for Mobile Home Gas 7. Other Factors c. Energy Savings Furnaces 8. Summary of National Economic Impacts d. Lessening of Utility or Performance of 3. Annual Energy Consumption C. Conclusion Products 4. Energy Prices 1. Benefits and Burdens of TSLs e. Impact of Any Lessening of Competition Considered for Non-Weatherized Gas f. Need for National Energy Conservation 5. Maintenance and Repair Costs 6. Product Lifetime Furnace and Mobile Home Gas Furnace g. Other Factors AFUE Standards 2. Rebuttable Presumption 7. Discount Rates 2. Benefits and Burdens of TSLs F. Other Issues 8. Efficiency Distribution in the No-New- Considered for Non-Weatherized Gas 1. Economic Justification of the March Standards Case Furnace and Mobile Home Gas Furnace 2015 NOPR Proposed Standards 9. Accounting for Product Switching Under a. General Potential Standards Standby Mode and Off Mode Standards b. Consumer Impacts from the Proposed a. Consumer Choice Model 3. Summary of Annualized Benefits and Standards b. Product Switching Decision Criteria Costs of the Proposed Standards c. Product Switching Due to the Proposed c. Summary of Product Switching Model VI. Procedural Issues and Regulatory Review Standards d. Switching Resulting From Standards for A. Review Under Executive Orders 12866 d. Summary Response to Comments on the Mobile Home Gas Furnaces and 13563 Economic Justification of the March 2015 10. Payback Period B. Review Under the Regulatory Flexibility NOPR Proposed Standards for Non- G. Shipments Analysis Act Weatherized Gas Furnaces 1. Shipments Model and Inputs 1. Description of Reasons Why Action Is e. Economic Justification of the March 2. Impact of Potential Standards on Being Considered and Legal Basis 2015 NOPR Proposed Standards for Shipments 2. Description and Estimated Number of Mobile Home Gas Furnaces H. National Impact Analysis Small Entities Regulated 2. Safety Concerns Regarding the Proposed 1. Product Efficiency Trends 3. Description and Estimate of Compliance Standards 2. National Energy Savings Requirements

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a. Non-Weatherized Gas Furnaces and the Act), Public Law 94–163 (42 U.S.C. rulemaking will satisfy both statutory Mobile Home Gas Furnaces AFUE 6291–6309, as codified), established the provisions. Standards Energy Conservation Program for In accordance with these and other b. Weatherized Gas Furnaces and Mobile Consumer Products Other Than Home Gas Furnaces Standby Mode and 2 statutory provisions discussed in this Off Mode Standards Automobiles. These products include document, DOE proposes amended 4. Identification of Duplication, Overlap, non-weatherized gas furnaces (NWGFs) energy conservation standards for the and Conflict With Other Rules and and mobile home gas furnaces (MHGFs), subject residential furnaces (i.e., NWGFs the subject of this rulemaking. (42 Regulations and MHGFs). The proposed standards, 5. A Description of Significant Alternatives U.S.C. 6292(a)(5)) to the Rule Pursuant to EPCA, any new or which are expressed in terms of C. Review Under the Paperwork Reduction amended energy conservation standard minimum annual fuel utilization Act of 1995 must be designed to achieve the efficiency (AFUE) by certified input D. Review Under the National maximum improvement in energy capacity and electrical energy Environmental Policy Act of 1969 efficiency that the Secretary of Energy consumption, are shown in Table I.1 E. Review Under Executive Order 13132 and Table I.2. These proposed F. Review Under Executive Order 12988 determines is technologically feasible and economically justified. (42 U.S.C. standards, if adopted, would apply to all G. Review Under the Unfunded Mandates NWGFs and MHGFs listed in Table I.1 Reform Act of 1995 6295(o)(2)(A)) Furthermore, the new or H. Review Under the Treasury and General amended standard must result in a and Table I.2 manufactured in, or Government Appropriations Act, 1999 significant conservation of energy. (42 imported into, the United States starting I. Review Under Executive Order 12630 U.S.C. 6295(o)(3)(B)) EPCA specifically on the date 5 years after the publication J. Review Under the Treasury and General provides that DOE must conduct a of the final rule for this rulemaking. For Government Appropriations Act, 2001 second round of energy conservation non-weatherized gas furnaces, DOE has K. Review Under Executive Order 13211 standards rulemaking for NWGFs and also suggested an alternative certified L. Information Quality MHGFs. (42 U.S.C. 6295(f)(4)(C)) The input capcity threshold of 60 kBtu/h for VII. Public Participation the proposed standard of 80 percent A. Attendance at the Public Meeting statute also provides that not later than B. Procedure for Submitting Prepared 6 years after issuance of any final rule AFUE, and requests public comment on General Statements for Distribution establishing or amending a standard, this alternative. Increasing the small C. Conduct of the Public Meeting DOE must publish either a notice of furnace threshold reduces the fuel D. Submission of Comments determination that standards for the switching impacts relative to the E. Issues on Which DOE Seeks Comment product do not need to be amended, or proposed standard (see Table V.3), and VIII. Approval of the Office of the Secretary a notice of proposed rulemaking has a significantly lower fraction of including new proposed energy consumers who would be negatively I. Synopsis of the Proposed Rule conservation standards (proceeding to a impacted (see Table V.41). See Section Title III, Part B 1 of the Energy Policy final rule, as appropriate). (42 U.S.C. V.C.1 for more discussion on this and Conservation Act of 1975 (EPCA or 6295(m)(1)) Once complete, this alternative.

TABLE I.1—PROPOSED AFUE ENERGY CONSERVATION STANDARDS FOR NON-WEATHERIZED GAS FURNACES AND MOBILE HOME GAS FURNACES [TSL 6]

Certified Proposed input standard: Product class capacity AFUE (kBtu/h) (%)

Non-Weatherized Gas Furnaces ...... ≤55 80.0 >55 92.0 Mobile Home Gas Furnaces ...... All 92.0

TABLE I.2—PROPOSED STANDBY MODE AND OFF MODE ENERGY CONSERVATION STANDARDS FOR NON-WEATHERIZED GAS FURNACES AND MOBILE HOME GAS FURNACES ELECTRICAL ENERGY CONSUMPTION [TSL 3]

Proposed Proposed standby mode off mode Product class standard: standard: PW,SB PW,OFF (watts) (watts)

Non-Weatherized Gas Furnaces ...... 8.5 8.5 Mobile Home Gas Furnaces ...... 8.5 8.5

A. Benefits and Costs to Consumers the proposed AFUE standards and and MHGFs, as measured by the average standby mode and off mode standards, life-cycle cost (LCC) savings and the Table I.3 and Table I.4 present DOE’s respectively, on consumers of NWGFs evaluation of the economic impacts of

1 For editorial reasons, upon codification in the 2 All references to EPCA in this document refer Efficiency Improvement Act of 2015 (EEIA 2015), U.S. Code, Part B was redesignated Part A. to the statute as amended through the Energy Public Law 114–11 (April 30, 2015).

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simple payback period (PBP).3 In both positive for all product classes, and the NWGFs and MHGFs, which is estimated cases, the average LCC savings are PBP is less than the average lifetime of to be 21.5 years (see section IV.F.6).

TABLE I.3—IMPACTS OF PROPOSED AFUE ENERGY CONSERVATION STANDARDS ON CONSUMERS OF NON-WEATHERIZED GAS FURNACES AND MOBILE HOME GAS FURNACES [TSL 6]

Simple Average payback Product class LCC savings period (2015$) (years)

Non-Weatherized Gas Furnaces ...... 692 6.1 Mobile Home Gas Furnaces ...... 1,049 1.7

TABLE I.4—IMPACTS OF PROPOSED STANDBY MODE AND OFF MODE ENERGY CONSERVATION STANDARDS ON CONSUMERS OF NON-WEATHERIZED GAS FURNACES AND MOBILE HOME GAS FURNACES [TSL 3]

Simple Average payback Product class LCC savings period (2015$) (years)

Non-Weatherized Gas Furnaces ...... 19 7.0 Mobile Home Gas Furnaces ...... 19 6.9

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

TABLE I.5—COMBINED IMPACTS OF PROPOSED AFUE AND STANDBY MODE AND OFF MODE ENERGY CONSERVATION STANDARDS ON CONSUMERS OF NON-WEATHERIZED GAS FURNACES AND MOBILE HOME GAS FURNACES

Simple Average payback Product class LCC savings period (2015$) (years)

Non-Weatherized Gas Furnaces ...... 411 7.0 Mobile Home Gas Furnaces ...... 1,050 1.9

DOE’s analysis of the impacts of the expects the impacts on INPV to range integrated standard. As discussed in the proposed standards on consumers is from ¥8.0 percent to 3.5 percent, or a October 20, 2010 test procedure final described in further detail in section change of ¥$88.0 million to $38.5 rule, DOE concluded that due to the IV.F of this document. million. Under the proposed standby magnitude of the active mode energy mode and off mode standards, DOE consumption as compared to the B. Impact on Manufacturers expects impacts on INPV to range from standby mode and off mode electrical The industry net present value (INPV) ¥0.3 percent to 0.5 percent, or a change consumption, an integrated metric is the sum of industry discounted cash of ¥$3.4 million to $5.7 million. would not be feasible because the flows from the reference year of the Industry conversion costs are expected standby and off mode electrical manufacturer impact analysis (MIA) to total $54.7 million as a result of the consumption would be a de minimis through the end of the analysis period proposed standards. portion of the overall energy (2016 to 2051). Using a real discount DOE’s analysis of the impacts of the consumption. 75 FR 64621, 64627. rate of 6.4 percent, DOE estimates that proposed standards on manufacturers is Thus, an integrated metric could not be the INPV for manufacturers of NWGFs described in further detail in section used to effectively regulate the standby and MHGFs in the case without IV.J of this document. mode and off mode energy amended standards is $1,104.3 million 4 consumption. in 2015$. DOE analyzed the impacts of C. National Benefits and Costs AFUE energy conservation standards Benefits and costs for the AFUE 1. AFUE Standards and standby mode and off mode energy standards are considered separately DOE’s analyses indicate that the conservation standards on from benefits and costs for the standby proposed AFUE energy conservation manufacturers independently. Under mode and off mode standards because it standards for NWGFs and MHGFs the proposed AFUE standards, DOE was not feasible to develop a single, would save a significant amount of

3 The average LCC savings are measured relative which is designed to compare specific efficiency 4 All monetary values in this document are to the efficiency distribution in the no-new- levels, is measured relative to the baseline product expressed in 2015 dollars and, where appropriate, standards case, which depicts the market in the (see section IV.C.1.a). The AFUE standard results are discounted to 2016 unless explicitly stated compliance year in the absence of amended or new include the projected fuel switching as described in otherwise. standards (see section IV.F.8). The simple PBP, chapter 8 of the SNOPR TSD.

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6 energy. Relative to the case without tons (Mt) of carbon dioxide (CO2), 687 each set of SCC values (see Table I.6), amended standards, the lifetime energy thousand tons of nitrogen oxides (NOX), DOE estimates the present monetary savings for NWGFs and MHGFs and 2,777 thousand tons of methane value of the CO2 emissions reduction 7 purchased in the 30-year period that (CH4). Projected emissions show an (not including CO2 equivalent emissions begins in the anticipated first year of increase of 76.8 thousand tons of sulfur of other gases with global warming compliance with the amended standards dioxide (SO2), 1.07 thousand tons of potential) is between $0.8 billion and (2022–2051) amount to 2.9 quadrillion nitrous oxide (N2O), and 0.3 tons of $12.6 billion, with a value of $4.12 British thermal units (Btu), or quads.5 mercury (Hg). The increase is due to billion using the central SCC case This represents a savings of 2.3 percent projected switching from NWGFs to represented by $40.6/t in 2015. relative to the energy use of these electric heat pumps and electric DOE estimates the present monetary products in the case without amended furnaces under the proposed standards. value of the NOX emissions reduction to standards (referred to as the ‘‘no-new- Note that the reduction in carbon be $0.2 billion at a 7-percent discount standards case’’). emissions would be diminished by 18 rate and $0.5 billion at a 3-percent The cumulative net present value percent if DOE were to utilize an discount rate.9 DOE is still investigating (NPV) of total consumer benefits of the alternate threshold for small furnaces of appropriate valuation of changes in proposed AFUE standards for NWGFs less than or equal to 60 kBTU/hr to set methane and other emissions, and and MHGFs ranges from $5.6 billion (at its proposed standard of 80 percent therefore did not include any such a 7-percent discount rate) to $21.7 AFUE. See Section V.C.1 for more values in the analysis for this SNOPR. billion (at a 3-percent discount rate). analysis. The cumulative reduction in However, the available evidence This NPV expresses the estimated total CO2 emissions through 2030 amounts to indicates that the value of the reduction value of future operating-cost savings 6.44 Mt, which is equivalent to the minus the estimated increased product in methane emissions from the emissions resulting from the annual and installation costs for NWGFs and proposed standards would far outweigh electricity use of 0.88 million homes. MHGFs purchased in 2022–2051. the cost associated with the relatively small increase in SO N O, and Hg In addition, the proposed AFUE The value of the CO2 reductions is 2, 2 standards for NWGFs and MHGFs are calculated using a range of values per emissions. Consideration of those values would not affect the standards DOE projected to yield significant metric ton (t) of CO2 (otherwise known environmental benefits. DOE estimates as the ‘‘Social Cost of Carbon,’’ or SCC) proposes in this SNOPR. that the proposed AFUE standards developed by a Federal interagency Table I.6 summarizes the economic would result in cumulative emission working group.8 The derivation of the benefits and costs expected to result reductions (over the same period as for SCC values is discussed in section IV.L. from the proposed AFUE standards for energy savings) of 143 million metric Using discount rates appropriate for NWGFs and MHGFs.

TABLE I.6—SUMMARY OF ECONOMIC BENEFITS AND COSTS OF PROPOSED AFUE ENERGY CONSERVATION STANDARDS FOR NON-WEATHERIZED GAS FURNACES AND MOBILE HOME GAS FURNACES [TSL 6] *

Present value Discount rate Category (billion 2015$) (percent)

Benefits

Consumer Operating Cost Savings ...... 10.1 7 30.2 3 CO2 Reduction (using mean SCC at 5% discount rate) ** ...... 0.8 5 CO2 Reduction (using mean SCC at 3% discount rate) ** ...... 4.1 3 CO2 Reduction (using mean SCC at 2.5% discount rate) ** ...... 6.7 2.5 CO2 Reduction (using 95th percentile SCC at 3% discount rate) ** ...... 12.6 3 NOX Reduction † ...... 0.2 7 0.5 3 Total Benefits † ...... 14.3 7 34.8 3

5 The quantity refers to full-fuel-cycle (FFC) when the SNOPR was prepared, AEO 2015 was the See section IV.L.2 for further discussion. The U.S. energy savings. FFC energy savings includes the most recent available AEO. DOE intends to use AEO Supreme Court has stayed the rule implementing energy consumed in extracting, processing, and 2016 for the final rule. the Clean Power Plan until the current litigation transporting primary fuels (i.e., coal, natural gas, 8 Technical Update of the Social Cost of Carbon against it concludes. Chamber of Commerce, et al. petroleum fuels), and, thus, presents a more for Regulatory Impact Analysis Under Executive v. EPA, et al., Order in Pending Case, 577 U.S. l complete picture of the impacts of energy efficiency Order 12866, Interagency Working Group on Social l( (2016). However, the benefit-per-ton estimates standards. For more information on the FFC metric, Cost of Carbon, United States Government (May established in the Regulatory Impact Analysis for see section IV.H.1. A quad is equal to 1015 Btu. 2013; revised July 2015) (Available at https:// the Clean Power Plan are based on scientific studies 6 A metric ton is equivalent to 1.1 short tons. www.whitehouse.gov/sites/default/files/omb/ that remain valid irrespective of the legal status of Results for emissions other than CO are presented inforeg/scc-tsd-final-july-2015.pdf). 2 the Clean Power Plan. DOE is primarily using a in short tons. 9 DOE estimated the monetized value of NO X national benefit-per-ton estimate for NO emitted 7 DOE calculated emissions reductions relative to emissions reductions associated with electricity X the no-new-standards case, which includes key savings using benefit per ton estimates from the from the Electricity Generating Unit sector based on assumptions in the Annual Energy Outlook 2015 Regulatory Impact Analysis for the Clean Power an estimate of premature mortality derived from the (AEO 2015) Reference case. AEO 2015 generally Plan Final Rule, published in August 2015 by EPA’s ACS study (Krewski et al. 2009). If the benefit-per- represents current legislation and environmental Office of Air Quality Planning and Standards. ton estimates were based on the Six Cities study regulations for which implementing regulations Available at www.epa.gov/cleanpowerplan/clean- (Lepuele et al. 2011), the values would be nearly were available as of October 31, 2014. At the time power-plan-final-rule-regulatory-impact-analysis. two-and-a-half times larger.

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TABLE I.6—SUMMARY OF ECONOMIC BENEFITS AND COSTS OF PROPOSED AFUE ENERGY CONSERVATION STANDARDS FOR NON-WEATHERIZED GAS FURNACES AND MOBILE HOME GAS FURNACES—Continued [TSL 6] *

Present value Discount rate Category (billion 2015$) (percent)

Costs

Consumer Incremental Installed Costs ...... 4.4 7 8.5 3

Total Net Benefits

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

The benefits and costs of the proposed based on the lifetime of NWGFs and MHGFs standards proposed in this rule AFUE standards, for NWGFs and MHGFs shipped in 2022–2051. Because is $500 million per year in increased MHGFs sold in 2022–2051, can also be CO2 emissions have a very long equipment costs, while the estimated expressed in terms of annualized values. residence time in the atmosphere, the annual benefits are $1,138 million in The monetary values for the total SCC values for emissions in future years reduced equipment operating costs, annualized net benefits are: (1) The reflect CO2-emissions impacts that $243 million in CO2 reductions, and value of the benefits in reduced continue through 2300. In addition, the $18.6 million in reduced NOX consumer operating costs, minus (2) the CO2 reduction is a benefit that accrues emissions. In this case, the net benefit increase in product purchase prices and globally. As discussed in section IV.L.1, amounts to $900 million per year. Using installation costs, plus (3) the value of DOE maintains that consideration of a 3-percent discount rate for all benefits the benefits of CO and NO emission global benefits is appropriate because of 2 X and costs and the average SCC series reductions, all annualized.10 the global nature of the climate change The national operating cost savings problem. that has a value of $40.6/t in 2015, the are domestic private U.S. consumer Estimates of annualized benefits and estimated cost of the proposed NWGFs monetary savings that occur as a result costs of the proposed AFUE standards and MHGFs AFUE standards is $504 of purchasing the covered products. The are shown in Table I.7. The results million per year in increased equipment national operating cost savings are under the primary estimate are as costs, while the estimated annual measured for the lifetime of NWGFs and follows. Using a 7-percent discount rate benefits are $1,785 million in reduced MHGFs shipped in 2022–2051 and for benefits and costs other than CO2 operating costs, $243 million in CO2 include savings that accrue from such reduction (for which DOE used a 3- reductions, and $29.3 million in products after 2051. The benefits percent discount rate along with the reduced NOX emissions. In this case, the associated with reduced carbon average SCC series that has a value of net benefit amounts to $1,553 million emissions achieved as a result of the $40.6/metric ton in 2015),11 the per year. proposed standards are also calculated estimated cost of the NWGFs and

10 To convert the time-series of costs and benefits discounted the present value from each year to the compliance year that yields the same present into annualized values, DOE calculated a present 2016. The calculation uses discount rates of 3 and value. value in 2016, the year used for discounting the 7 percent for all costs and benefits except for the 11 DOE used a 3-percent discount rate because the NPV of total consumer costs and savings. For the value of CO reductions, for which DOE used case- 2 SCC values for the series used in the calculation benefits, DOE calculated a present value associated specific discount rates, as shown in Table I.6. Using with each year’s shipments in the year in which the the present value, DOE then calculated the fixed were derived using a 3-percent discount rate (see shipments occur (e.g., 2020 or 2030), and then annual payment over a 30-year period, starting in section IV.L).

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TABLE I–7—ANNUALIZED BENEFITS AND COSTS OF PROPOSED AFUE ENERGY CONSERVATION STANDARDS FOR NON- WEATHERIZED GAS FURNACES AND MOBILE HOME GAS FURNACES [TSL 6] *

Low-net-benefits High-net-benefits Discount rate Primary estimate estimate estimate

(million 2015$/year)

Benefits

Consumer Operating Cost Savings ...... 7% ...... 1,138 ...... 1,007 ...... 1,353. 3% ...... 1,785 ...... 1,548 ...... 2,156. CO2 Reduction (using mean SCC at 5% discount rate) ** ... 5% ...... 69.7 ...... 62.2 ...... 80.8. CO2 Reduction (using mean SCC at 3% discount rate) ** ... 3% ...... 243 ...... 217 ...... 283. CO2 Reduction (using mean SCC at 2.5% discount rate) ** 2.5% ...... 360 ...... 320 ...... 418. CO2 Reduction (using 95th percentile SCC at 3% discount 3% ...... 742 ...... 661 ...... 862. rate ) **. NOX Reduction † ...... 7% ...... 18.6 ...... 16.8 ...... 47.9. 3% ...... 29.3 ...... 26.3 ...... 76.8. Total Benefits † ...... 7% plus CO2 range ... 1,226 to 1,899 .... 1,086 to 1,684 .... 1,482 to 2,263. 7% ...... 1,400 ...... 1,240 ...... 1,684. 3% plus CO2 range ... 1,884 to 2,557 .... 1,636 to 2,235 .... 2,315 to 3,096. 3% ...... 2,058 ...... 1,791 ...... 2,517.

Costs

Consumer Incremental Product Costs ...... 7% ...... 500 ...... 554 ...... 452. 3% ...... 504 ...... 559 ...... 460.

Net Benefits

Total † ...... 7% plus CO2 range ... 726 to 1,399 ...... 531 to 1,130 ...... 1,030 to 1,811. 7% ...... 900 ...... 686 ...... 1,232. 3% plus CO2 range ... 1,380 to 2,052 .... 1,077 to 1,676 .... 1,855 to 2,637. 3% ...... 1,553 ...... 1,232 ...... 2,057. * This table presents the annualized costs and benefits associated with NWGFs and MHGFs shipped in 2022¥2051. These results include benefits to consumers which accrue after 2051 from the products shipped in 2022¥2051.The incremental installed costs include incremental equipment cost as well as installation costs. The results account for the incremental variable and fixed costs incurred by manufacturers due to the proposed standards, some of which may be incurred in preparation for the rule. The CO2 reduction benefits are global benefits due to actions that occur domestically. The Primary, Low-Net-Benefits, and High-Net-Benefits Estimates utilize projections of energy prices from the AEO 2015 Reference case, Low Economic Growth case, and High Economic Growth case, respectively. In addition, incremental product costs reflect a me- dium decline rate in the Primary Estimate, a constant price trend in the Low Net Benefits Estimate, and a high decline rate in the High Net Bene- fits Estimate. The methods used to derive projected price trends are explained in section IV.L.1. Note that the Benefits and Costs may not sum to the Net Benefits due to rounding. ** The CO2 reduction benefits are calculated using four different sets of SCC values. The first three use the average SCC calculated using 5 percent, 3 percent, and 2.5 percent discount rates, respectively. The fourth represents the 95th percentile of the SCC distribution calculated using a 3-percent discount rate. The SCC values are emission year specific. See section IV.L.1 for more details. † DOE estimated the monetized value of NOX emissions reductions associated with electricity savings using benefit per ton estimates from the Regulatory Impact Analysis for the Clean Power Plan Final Rule, published in August 2015 by EPA’s Office of Air Quality Planning and Stand- ards. (Available at www.epa.gov/cleanpowerplan/clean-power-plan-final-rule-regulatory-impact-analysis.) See section IV.L.2. for further discus- sion. For the Primary Estimate and Low-Net-Benefits Estimate, DOE used national benefit-per-ton estimates for NOX emitted from the Electric Generating Unit sector based on an estimate of premature mortality derived from the ACS study (Krewski et al. 2009). For the High-Net-Benefits Estimate, the benefit-per-ton estimates were based on the Six Cities study (Lepuele et al. 2011); these are nearly two-and-a-half times larger than those from the ACS study. † Total Benefits for both the 3 percent and 7 percent cases are presented using only the average SCC with 3-percent discount rate. In the rows labeled ‘‘7% plus CO2 range’’ and ‘‘3% plus CO2 range,’’ the operating cost and NOX benefits are calculated using the labeled discount rate, and those values are added to the full range of CO2 values.

2. Standby Mode and Off Mode products in standby mode and off mode NWGFs and MHGFs purchased in 2022– Standards in the case without new standards 2051. (referred to as the ‘‘no-new-standards In addition, the proposed standby For the proposed standby mode and case’’). off mode standards, relative to the case mode and off mode standards for without new standards, the lifetime The cumulative net present value NWGFs and MHGFs are projected to energy savings for NWGFs and MHGFs (NPV) of total consumer benefits of the yield significant environmental benefits. purchased in the 30-year period that proposed standby mode and off mode DOE estimates that the proposed begins in the anticipated first year of standards for NWGFs and MHGFs standby mode and off mode standards compliance with the new standards ranges from $1.31 billion (at a 7-percent would result in cumulative emission (2022–2051) amount to 0.28 quads.12 discount rate) to $3.96 billion (at a 3- reductions (over the same period as for This represents a savings of 16 percent percent discount rate). This NPV energy savings) of 16.3 Mt of CO2, 9.17 relative to the energy use of these expresses the estimated total value of thousand tons of SO2, 30.0 thousand future operating-cost savings minus the tons of NOX, 72.3 thousand tons of CH4, 12 The quantity refers to full-fuel-cycle (FFC) estimated increased product costs for 0.192 thousand tons of N2O, and 0.034 energy savings. tons of Hg. The cumulative reduction in

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

TABLE I.8—SUMMARY OF ECONOMIC BENEFITS AND COSTS OF PROPOSED STANDBY MODE AND OFF MODE ENERGY CONSERVATION STANDARDS FOR NWGFS AND MHGFS [TSL 3] *

Present value Discount rate Category (billion 2015$) (percent)

Benefits

Consumer Operating Cost Savings ...... 1.7 7 4.7 3 CO2 Reduction (using mean SCC at 5% discount rate) ** ...... 0.1 5 CO2 Reduction (using mean SCC at 3% discount rate) ** ...... 0.5 3 CO2 Reduction (using mean SCC at 2.5% discount rate) ** ...... 0 .8 2 .5 CO2 Reduction (using 95th percentile SCC at 3% discount rate) ** ...... 1.5 3 NOX Reduction † ...... 0.02 7 0.05 3 Total Benefits † ...... 2.2 7 5.2 3

Costs

Consumer Incremental Installed Costs ...... 0.4 7 0.7 3

Total Net Benefits

Including CO2 and NOX Reduction Monetized Value † ...... 1.8 7 4.5 3 * This table presents the costs and benefits associated with NWGFs and MHGFs shipped in 2022–2051. These results include benefits to con- sumers which accrue after 2051 from the products shipped in 2022–2051. The incremental installed costs include incremental equipment cost as well as installation costs. The results account for the incremental variable and fixed costs incurred by manufacturers due to the proposed stand- ards, some of which may be incurred in preparation for the rule. The CO2 reduction benefits are global benefits due to actions that occur domes- tically. ** The interagency group selected four sets of SCC values for use in regulatory analyses. Three sets of values are based on the average SCC from the integrated assessment models, at discount rates of 5 percent, 3 percent, and 2.5 percent. For example, for 2015 emissions, these val- ues are $12.4/t, $40.6/t, and $63.2/t, in 2015$, respectively. The fourth set ($118/t in 2015$ for 2015 emissions), which represents the 95th per- centile of the SCC distribution calculated using a 3-percent discount rate, is included to represent higher-than-expected impacts from temperature change further out in the tails of the SCC distribution. The SCC values are emission year specific. See section IV.L.1 for more details. † DOE estimated the monetized value of NOX emissions reductions associated with electricity savings using benefit per ton estimates from the ‘‘Regulatory Impact Analysis for the Clean Power Plan Final Rule,’’ published in August 2015 by EPA’s Office of Air Quality Planning and Stand- ards. (Available at www.epa.gov/cleanpowerplan/clean-power-plan-final-rule-regulatory-impact-analysis.) See section IV.L.2 for further discussion. DOE is primarily using a national benefit-per-ton estimate for NOX emitted from the Electricity Generating Unit sector based on an estimate of premature mortality derived from the ACS study (Krewski et al. 2009). If the benefit-per-ton estimates were based on the Six Cities study (Lepuele et al. 2011), the values would be nearly two-and-a-half times larger. † Total Benefits for both the 3 percent and 7 percent cases are presented using only the average SCC with 3-percent discount rate.

The benefits and costs of the proposed Estimates of annualized benefits and percent discount rate for benefits and standby mode and off mode standards, costs of the proposed standby mode and costs other than CO2 reduction (for for NWGFs and MHGFs sold in 2022– off mode standards are shown in Table which DOE used a 3-percent discount 2051, can also be expressed in terms of I.9. The results under the primary rate along with the average SCC series annualized values. The monetary values estimate are as follows. Using a 7- that has a value of $40.6/metric ton in for the total annualized net benefits are: 2015), the estimated cost of the NWGFs (1) The national economic value of the NPV of total consumer costs and savings. For the and MHGFs standards proposed in this benefits in reduced consumer operating benefits, DOE calculated a present value associated rule is $40.7 million per year in costs, minus (2) the increase in product with each year’s shipments in the year in which the increased equipment costs, while the shipments occur (e.g., 2020 or 2030), and then estimated annual benefits are $188 purchase prices and installation costs, discounted the present value from each year to million in reduced equipment operating plus (3) the value of the benefits of CO2 2016. The calculation uses discount rates of 3 and 7 percent for all costs and benefits except for the costs, $28.2 million in CO2 reductions, and NOX emission reductions, all value of CO2 reductions, for which DOE used case- and $1.79 million in reduced NO annualized.13 X specific discount rates, as shown in Table I.8. Using emissions. In this case, the net benefit the present value, DOE then calculated the fixed 13 To convert the time-series of costs and benefits annual payment over a 30-year period, starting in amounts to $178 million per year. Using into annualized values, DOE calculated a present the compliance year, that yields the same present a 3-percent discount rate for all benefits value in 2016, the year used for discounting the value. and costs and the average SCC series

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

TABLE I.9—ANNUALIZED BENEFITS AND COSTS OF PROPOSED STANDBY MODE AND OFF MODE ENERGY CONSERVATION STANDARDS FOR NON-WEATHERIZED GAS FURNACES AND MOBILE HOME GAS FURNACES [TSL 3] *

Low-net-benefits High-net-benefits Discount rate Primary estimate estimate estimate

(million 2015$/year)

Benefits

Consumer Operating Cost Savings ...... 7% ...... 188 ...... 169 ...... 219 3% ...... 276 ...... 246 ...... 329

CO2 Reduction (using mean SCC at 5% discount rate) ** ... 5% ...... 8.2 ...... 7.4 ...... 9.2 CO2 Reduction (using mean SCC at 3% discount rate) ** ... 3% ...... 28.2 ...... 25.5 ...... 31.8 CO2 Reduction (using mean SCC at 2.5% discount rate) ** 2.5% ...... 41.6 ...... 37.6 ...... 46.9 CO2 Reduction (using 95th percentile SCC at 3% discount 3% ...... 86.0 ...... 77.8 ...... 96.9 rate ) **. NOX Reduction † ...... 7% ...... 1.8 ...... 1.6 ...... 4.5 3% ...... 2.8 ...... 2.5 ...... 7.1 Total Benefits † ...... 7% plus CO2 range ... 198 to 276 ...... 178 to 249 ...... 233 to 321 7% ...... 218 ...... 197 ...... 255 3% plus CO2 range ... 287 to 365 ...... 256 to 326 ...... 345 to 433 3% ...... 307 ...... 274 ...... 368

Costs

Consumer Incremental Product Costs ...... 7% ...... 40.7 ...... 37.2 ...... 45.4 3% ...... 41.4 ...... 37.5 ...... 46.5

Net Benefits

Total † ...... 7% plus CO2 range ... 157 to 235 ...... 141 to 212 ...... 187 to 275 7% ...... 178 ...... 159 ...... 210 3% plus CO2 range ... 245 to 323 ...... 218 to 288 ...... 298 to 386 3% ...... 265 ...... 236 ...... 321 * This table presents the annualized costs and benefits associated with NWGFs and MHGFs shipped in 2022–2051. These results include ben- efits to consumers which accrue after 2051 from the products shipped in 2022–2051.The incremental installed costs include incremental equip- ment cost as well as installation costs. The results account for the incremental variable and fixed costs incurred by manufacturers due to the pro- posed standards, some of which may be incurred in preparation for the rule. The CO2 reduction benefits are global benefits due to actions that occur domestically. The Primary, Low-Net-Benefits, and High-Net-Benefits Estimates utilize projections of energy prices from the AEO 2015 Ref- erence case, Low Economic Growth case, and High Economic Growth case, respectively. In addition, incremental product costs reflect a con- stant price trend for each of the estimates. Note that the Benefits and Costs may not sum to the Net Benefits due to rounding. ** The CO2 reduction benefits are calculated using 4 different sets of SCC values. The first three use the average SCC calculated using 5-per- cent, 3-percent, and 2.5-percent discount rates, respectively. The fourth represents the 95th percentile of the SCC distribution calculated using a 3-percent discount rate. The SCC values are emission year specific. See section IV.L.1 for more details. † DOE estimated the monetized value of NOX emissions reductions associated with electricity savings using benefit per ton estimates from the Regulatory Impact Analysis for the Clean Power Plan Final Rule, published in August 2015 by EPA’s Office of Air Quality Planning and Stand- ards. (Available at www.epa.gov/cleanpowerplan/clean-power-plan-final-rule-regulatory-impact-analysis.) See section IV.L.2 for further discussion. For the Primary Estimate and Low-Net-Benefits Estimate, DOE used national benefit-per-ton estimates for NOX emitted from the Electric Gener- ating Unit sector based on an estimate of premature mortality derived from the ACS study (Krewski et al., 2009). For the High-Net-Benefits Esti- mate, the benefit-per-ton estimates were based on the Six Cities study (Lepuele et al., 2011); these are nearly two-and-a-half times larger than those from the ACS study. †† Total Benefits for both the 3-percent and 7-percent cases are presented using only the average SCC with 3-percent discount rate. In the rows labeled ‘‘7 percent plus CO2 range’’ and ‘‘3 percent plus CO2 range,’’ the operating cost and NOX benefits are calculated using the labeled discount rate, and those values are added to the full range of CO2 values.

3. Combined Results for AFUE I.10.14 The results under the primary 2015), the estimated cost of the NWGF Standards and Standby Mode and Off estimate are as follows. Using a 7- and MHGF standards proposed in this Mode Standards percent discount rate for benefits and rule is $541 million per year in costs other than CO2 reduction (for increased equipment costs, while the DOE also added the annualized which DOE used a 3-percent discount estimated annual benefits are $1,326 benefits and costs from the individual rate along with the average SCC series million in reduced equipment operating annualized tables to provide a combined that has a value of $40.6/metric ton in costs, $272 million in CO2 reductions, benefit and cost estimate of the and $20 million in reduced NOX proposed AFUE and standby mode and 14 To obtain the combined results, DOE added the emissions. In this case, the net benefit off mode standards, as shown in Table results for the AFUE standards in Table I.7 with the amounts to $1,077 million per year. results for the standby mode and off mode standards in Table I.9. Using a 3-percent discount rate for all

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

TABLE I.10—ANNUALIZED BENEFITS AND COSTS OF PROPOSED AFUE (TSL 6) AND STANDBY MODE AND OFF MODE (TSL 3) ENERGY CONSERVATION STANDARDS FOR NON-WEATHERIZED GAS FURNACES AND MOBILE HOME GAS FUR- NACES *

Low-net-benefits High-net-benefits Discount rate Primary estimate estimate estimate

(million 2015$/year)

Benefits

Consumer Operating Cost Savings ...... 7% ...... 1326 ...... 1176 ...... 1572 3% ...... 2061 ...... 1794 ...... 2486 CO2 Reduction (using mean SCC at 5% discount rate) ** ... 5% ...... 78 ...... 70 ...... 90 CO2 Reduction (using mean SCC at 3% discount rate) ** ... 3% ...... 272 ...... 242 ...... 315 CO2 Reduction (using mean SCC at 2.5% discount rate) ** 2.5% ...... 401 ...... 358 ...... 465 CO2 Reduction (using 95th percentile SCC at 3% discount 3% ...... 828 ...... 739 ...... 959 rate ) **. NOX Reduction † ...... 7% ...... 20 ...... 18 ...... 52 3% ...... 32 ...... 29 ...... 84 Total Benefits † ...... 7% plus CO2 range ... 1424 to 2175 ...... 1264 to 1933 ...... 1715 to 2584 7% ...... 1618 ...... 1437 ...... 1939 3% plus CO2 range ... 2171 to 2921 ...... 1892 to 2561 ...... 2660 to 3529 3% ...... 2364 ...... 2065 ...... 2884

Costs

Consumer Incremental Product Costs ...... 7% ...... 541 ...... 592 ...... 497 3% ...... 546 ...... 597 ...... 506

Net Benefits

Total † ...... 7% plus CO2 range ... 884 to 1634 ...... 673 to 1342 ...... 1217 to 2086 7% ...... 1077 ...... 845 ...... 1442 3% plus CO2 range ... 1625 to 2375 ...... 1295 to 1964 ...... 2154 to 3023 3% ...... 1819 ...... 1468 ...... 2378 * This table presents the annualized costs and benefits associated with NWGFs and MHGFs shipped in 2022¥2051. These results include benefits to consumers which accrue after 2051 from the products shipped in 2022¥2051. The results account for the incremental variable and fixed costs incurred by manufacturers due to the proposed standards, some of which may be incurred in preparation for the rule. The CO2 reduc- tion benefits are global benefits due to actions that occur domestically. The Primary, Low-Net-Benefits, and High-Net-Benefits Estimates utilize projections of energy prices from the AEO 2015 Reference case, Low-Economic-Growth case, and High-Economic-Growth case, respectively. In addition, incremental product costs for AFUE standards reflect a medium decline rate in the Primary Estimate, a constant price trend in the Low- Net-Benefits Estimate, and a high decline rate in the High-Net-Benefits Estimate. The methods used to derive projected price trends are ex- plained in section IV.F.1. Note that the Benefits and Costs may not sum to the Net Benefits due to rounding. ** The CO2 reduction benefits are calculated using four different sets of SCC values. The first three use the average SCC calculated using 5- percent, 3-percent, and 2.5-percent discount rates, respectively. The fourth represents the 95th percentile of the SCC distribution calculated using a 3-percent discount rate. The SCC values are emission year specific. See section IV.L.1 for more details. † DOE estimated the monetized value of NOX emissions reductions associated with electricity savings using benefit per ton estimates from the Regulatory Impact Analysis for the Clean Power Plan Final Rule, published in August 2015 by EPA’s Office of Air Quality Planning and Stand- ards. (Available at www.epa.gov/cleanpowerplan/clean-power-plan-final-rule-regulatory-impact-analysis.) See section IV.L.2 for further discussion. For the Primary Estimate and Low-Net-Benefits Estimate, DOE used national benefit-per-ton estimates for NOX emitted from the Electric Gener- ating Unit sector based on an estimate of premature mortality derived from the ACS study (Krewski et al. 2009). For the High-Net-Benefits Esti- mate, the benefit-per-ton estimates were based on the Six Cities study (Lepuele et al. 2011); these are nearly two-and-a-half times larger than those from the ACS study. † Total Benefits for both the 3-percent and 7-percent cases are presented using only the average SCC with 3-percent discount rate. In the rows labeled ‘‘7% plus CO2 range’’ and ‘‘3% plus CO2 range,’’ the operating cost and NOX benefits are calculated using the labeled discount rate, and those values are added to the full range of CO2 values.

DOE’s analysis of the national impacts and economically justified, and would consumer benefits, consumer LCC of the proposed standards is described result in the significant conservation of savings, and emission reductions) in further detail in sections IV.H, IV.K, energy. DOE further notes that products would outweigh the burdens (loss of and IV.L of this document. achieving these standard levels are INPV for manufacturers and LCC D. Conclusion already commercially available for all increases for some consumers). product classes covered by this DOE has tentatively concluded that DOE also considered more-stringent proposal. Based on the analyses the proposed AFUE standards and energy efficiency levels as potential described above, DOE has tentatively standby mode and off mode standards standards, and is still considering them concluded that the benefits of the represent the maximum improvement in in this rulemaking. However, DOE has energy efficiency that DOE has proposed standards to the Nation tentatively concluded that the potential determined is technologically feasible (energy savings, positive NPV of burdens of the more-stringent energy

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efficiency levels would outweigh the implements the remainder of the (3) The total projected amount of energy (or projected benefits. DOE is also seeking program. Subject to certain criteria and as applicable, water) savings likely to result comment on an option that considers an conditions, DOE is required to develop directly from the standard; alternate capacity size for the small test procedures to measure the energy (4) Any lessening of the utility or the furnace threshold for the 80 percent performance of the covered products likely to efficiency, energy use, or estimated result from the standard; AFUE standard (See section V.C.1), annual operating cost of each covered (5) The impact of any lessening of which reduces the fuel switching product prior to the adoption of a new competition, as determined in writing by the impacts relative to the proposed option or amended energy conservation Attorney General, that is likely to result from (see Table V.3), and has a significantly standard. (42 U.S.C. 6295(o)(3)(A) and the standard; lower fraction of consumers who would (r)) Manufacturers of covered products (6) The need for national energy and water be negatively impacted (see Table V.41). must use the prescribed DOE test conservation; and Based on consideration of the public procedure as the basis for certifying to (7) Other factors the Secretary of Energy comments DOE receives in response to DOE that their products comply with (Secretary) considers relevant. this SNOPR and related information the applicable energy conservation (42 U.S.C. 6295(o)(2)(B)(i)(I)–(VII)) collected and analyzed during the standards adopted under EPCA and Further, EPCA, as amended, course of this rulemaking effort, DOE when making representations to the establishes a rebuttable presumption may adopt energy efficiency levels public regarding the energy use or that a standard is economically justified presented in this notice that are either efficiency of those products. (42 U.S.C. if the Secretary finds that the additional higher or lower than the proposed 6293(c) and 6295(s)) Similarly, DOE cost to the consumer of purchasing a standards, or some combination of must use these test procedures to product complying with an energy level(s) that incorporate the proposed determine whether the products comply conservation standard level will be less standards in part. with standards adopted pursuant to than three times the value of the energy II. Introduction EPCA. (42 U.S.C. 6295(s)) The DOE test savings during the first year that the procedures for residential furnaces The following section briefly consumer will receive as a result of the appear at title 10 of the Code of Federal standard, as calculated under the discusses the statutory authority Regulations (CFR) part 430, subpart B, underlying this supplemental proposal, applicable test procedure. (42 U.S.C. appendix N. 6295(o)(2)(B)(iii)) as well as some of the relevant historical DOE must follow specific statutory background related to the establishment EPCA, as amended, also contains criteria for prescribing new or amended what is known as an ‘‘anti-backsliding’’ of amended and new standards for standards for covered products, residential NWGFs and MHGFs. provision, which prevents the Secretary including residential furnaces. Any new from prescribing any amended standard A. Authority or amended standard for a covered that either increases the maximum Title III, Part B of the Energy Policy product must be designed to achieve the allowable energy use or decreases the and Conservation Act of 1975 (EPCA or maximum improvement in energy minimum required energy efficiency of the Act), Public Law 94–163 (42 U.S.C. efficiency that the Secretary of Energy a covered product. (42 U.S.C. 6291–6309, as codified) established the determines is technologically feasible 6295(o)(1)) Also, the Secretary may not Energy Conservation Program for and economically justified. (42 U.S.C. prescribe an amended or new standard Consumer Products Other Than 6295(o)(2)(A) and (3)(B)) Furthermore, if interested persons have established by Automobiles, a program covering most DOE may not adopt any standard that a preponderance of the evidence that major household appliances would not result in the significant the standard is likely to result in the (collectively referred to as ‘‘covered conservation of energy. (42 U.S.C. unavailability in the United States in products’’). These products includes the 6295(o)(3)) Moreover, DOE may not any covered product type (or class) of residential furnaces that are the subject prescribe a standard: (1) For certain performance characteristics (including of this rulemaking. (42 U.S.C. products, including residential furnaces, reliability), features, sizes, capacities, 6292(a)(5)) EPCA, as amended, if no test procedure has been established and volumes that are substantially the prescribed energy conservation for the product, or (2) if DOE determines same as those generally available in the standards for these products (42 U.S.C. by rule that the standard is not United States. (42 U.S.C. 6295(o)(4)) 6295(f)(1) and (2)), and directed DOE to technologically feasible or economically Additionally, EPCA specifies conduct future rulemakings to justified. (42 U.S.C. 6295(o)(3)(A)–(B)) requirements when promulgating an determine whether to amend these In deciding whether a proposed energy conservation standard for a standards. (42 U.S.C. 6295(f)(4)) Under standard is economically justified after covered product that has two or more 42 U.S.C. 6295(m), the agency must receiving comments on the proposed subcategories. DOE must specify a periodically review its already standard, DOE must determine whether different standard level for a type or established energy conservation the benefits of the standard exceed its class of product that has the same standards for a covered product no later burdens. (42 U.S.C. 6295(o)(2)(B)(i)) function or intended use, if DOE than six years from the issuance of any DOE must make this determination by, determines that products within such final rule establishing or amending a to the greatest extent practicable, group: (A) Consume a different kind of standard for a covered product. considering the following seven energy from that consumed by other Pursuant to EPCA, DOE’s energy statutory factors: covered products within such type (or conservation program for covered (1) The economic impact of the standard class); or (B) have a capacity or other products consists essentially of four on manufacturers and consumers of the performance-related feature which other parts: (1) Testing; (2) labeling; (3) the products subject to the standard; products within such type (or class) do establishment of Federal energy (2) The savings in operating costs not have and such feature justifies a conservation standards; and (4) throughout the estimated average life of the higher or lower standard. (42 U.S.C. covered products in the type (or class) certification and enforcement compared to any increase in the price, initial 6295(q)(1)) In determining whether procedures. The Federal Trade charges, or maintenance expenses for the capacity or another performance-related Commission (FTC) is primarily covered products that are likely to result feature justifies a different standard for responsible for labeling, and DOE from the standard; a group of products, DOE must consider

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such factors as the utility to the address standby mode and off mode rulemakings represented the first and consumer of the feature and other energy use. In this rulemaking, DOE the second, respectively, of the two factors DOE deems appropriate. Id. Any intends to adopt separate energy rulemakings required under 42 U.S.C. rule prescribing such a standard must conservation standards to address 6295(f)(4)(B)–(C) to consider amending include an explanation of the basis on standby mode and off mode energy use. the standards for residential furnaces. which such higher or lower level was The June 2011 DFR and October 2011 B. Background established. (42 U.S.C. 6295(q)(2)) notice of effective date and compliance Federal energy conservation 1. Current Standards dates amended, in relevant part, the requirements generally supersede State EPCA established the energy energy conservation standards and laws or regulations concerning energy conservation standards that apply to compliance dates for three product classes of residential furnaces (i.e., conservation testing, labeling, and most residential furnaces currently standards. (42 U.S.C. 6297(a)–(c)) DOE NWGFs, MHGFs, and non-weatherized being manufactured. The original may, however, grant waivers of Federal oil furnaces). The existing standards standards established a minimum AFUE preemption for particular State laws or were left in place for three classes of of 75-percent for mobile home furnaces. regulations, in accordance with the residential furnaces (i.e., weatherized For all other furnaces, the original procedures and other provisions set oil-fired furnaces, mobile home oil-fired standards generally established a forth under 42 U.S.C. 6297(d)). furnaces, and electric furnaces). For one minimum AFUE of 78-percent. Pursuant to amendments contained in class of residential furnaces However, Congress recognized the the Energy Independence and Security (weatherized gas furnaces), the existing potential need for a separate standard Act of 2007 (EISA 2007), Public Law standard was left in place, but the 110–140, DOE may consider the based on the capacity of a furnace and compliance date was amended. establishment of regional energy directed DOE to undertake a rulemaking Electrical standby mode and off mode conservation standards for furnaces to establish a standard for ‘‘small’’ gas energy consumption standards were (except boilers). (42 U.S.C. furnaces (those having an input of less established for non-weatherized gas and 6295(o)(6)(B)) Specifically, in addition than 45,000 Btu per hour). (42 U.S.C. oil-fired furnaces (including mobile to a base national standard for a 6295(f)(1)–(2)) DOE initially established home furnaces) and electric furnaces. product, DOE may establish for furnaces a standard for small furnaces at the Compliance with the energy a single more-restrictive regional same level as furnaces generally (i.e., a conservation standards promulgated in standard. (42 U.S.C. 6295(o)(6)(B)) The minimum AFUE of 78-percent). (10 CFR the June 2011 DFR was to be required regions must include only contiguous 430.32(e)(1)(i); 54 FR 47916 (Nov. 17, on May 1, 2013 for non-weatherized States (with the exception of Alaska and 1989)) furnaces and on January 1, 2015 for EPCA also required DOE to conduct Hawaii, which may be included in weatherized furnaces. 76 FR 37408, two rounds of rulemaking to consider regions with which they are not 37547–48 (June 27, 2011); 76 FR 67037, amended standards for residential contiguous), and each State may be 67051 (Oct. 31, 2011). The amended furnaces (42 U.S.C. 6295(f)(4)(B)–(C)), a placed in only one region (i.e., an entire energy conservation standards and requirement subsequently expanded to State cannot simultaneously be placed compliance dates in the June 2011 DFR encompass a six-year look back review in two regions, nor can it be divided would have superseded those standards of all covered products (42 U.S.C. between two regions). (42 U.S.C. and compliance dates promulgated by 6295(m)(1)). In a final rule published on 6295(o)(6)(C)) Further, DOE can the November 2007 final rule for November 19, 2007 (November 2007 establish the additional regional NWGFs, MHGFs, and non-weatherized final rule), DOE prescribed amended standards only: (1) Where doing so oil furnaces. Similarly, the amended energy conservation standards for would produce significant energy compliance date for weatherized gas residential furnaces manufactured on or savings in comparison to a single furnaces in the June 2011 DFR after November 19, 2015. 72 FR 65136. national standard; (2) if the regional superseded the compliance date in the The November 2007 final rule revised standards are economically justified; November 2007 final rule. and (3) after considering the impact of the energy conservation standards to 80- After publication of the October 2011 these standards on consumers, percent AFUE for non-weatherized gas notice, the American Public Gas furnaces (NWGF), to 81-percent AFUE manufacturers, and other market Association (APGA) sued DOE 15 in the for weatherized gas furnaces, to 80- participants, including product United States Court of Appeals for the percent AFUE for mobile home gas distributors, dealers, contractors, and District of Columbia Circuit (D.C. furnaces (MHGF), and to 82-percent installers. (42 U.S.C. 6295(o)(6)(D)) Circuit) to invalidate the rule as it AFUE for non-weatherized oil-fired Finally, pursuant to the amendments pertained to NWGFs (as discussed furnaces. Id. at 65169. Based on market contained in EISA 2007, any final rule further in section II.B.2). Petition for assessment and the standard levels at for new or amended energy Review, American Public Gas issue, the October 2006 NOPR proposed conservation standards promulgated Association, et al. v. Department of and the November 2007 final rule after July 1, 2010, is required to address Energy, et al., No. 11–1485 (D.C. Cir. established standards without regard to standby mode and off mode energy use. filed Dec. 23, 2011). The parties to the the certified input capacity of a furnace. (42 U.S.C. 6295(gg)(3)) Specifically, litigation engaged in settlement 71 FR 59204, 59214 (Oct. 6, 2006); 72 when DOE adopts a standard for a negotiations which ultimately led to FR 65136, 65169 (Nov. 19, 2007). covered product after that date, it must, filing of an unopposed motion on March Subsequently, on October 31, 2011, DOE if justified by the criteria for adoption of 11, 2014, seeking to vacate DOE’s rule published a notice of effective date and standards under EPCA (42 U.S.C. in part and to remand to the agency for compliance dates (76 FR 67037) to 6295(o)), incorporate standby mode and further rulemaking. On April 24, 2014, confirm amended energy conservation off mode energy use into a single the Court granted the motion and standards and compliance dates standard, or, if that is not feasible, adopt ordered that the standards established a separate standard for such energy use contained in a June 27, 2011 direct final for that product. (42 U.S.C. rule (June 2011 DFR; 76 FR 37408) for 15 After APGA filed its petition for review on 6295(gg)(3)(A)–(B)) DOE’s current test residential central air conditioners and December 23, 2011, various entities subsequently procedures for residential furnaces residential furnaces. These two intervened.

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for NWGFs and MHGFs be vacated and established in the November 2007 final in this SNOPR, are set forth in DOE’s remanded to DOE for further rule for these products was required regulations at 10 CFR 430.32(e)(1)(ii). rulemaking. As a result, only the beginning on November 19, 2015. As Table II.1 below shows the current standards for non-weatherized oil-fired stated previously, the standards for standards for product classes that have furnaces and weatherized gas furnaces weatherized oil-fired furnaces, mobile been previously amended (either by the established in the June 2011 DFR went home oil-fired furnaces, and electric November 2007 final rule or June 2011 into effect as stated in that final rule. furnaces were unchanged, and as such, DFR) and the existing standards for the The standards established by the June the original standards for those product product classes where the AFUE 2011 DFR for the NWGFs and MHGFs classes remain in effect. The standards standard has not been amended. did not go into effect, and thus, for all residential furnaces, including compliance with the standards the two product classes being analyzed

TABLE II.1—FEDERAL ENERGY CONSERVATION STANDARDS FOR RESIDENTIAL FURNACES

Minimum annual fuel Product class utilization Compliance efficiency date (%)

Non-weatherized Gas * ...... 80 11/19/2015 Mobile Home Gas * ...... 80 11/19/2015 Weatherized Gas ...... 81 1/1/2015 Non-weatherized Oil-Fired ...... 83 5/1/2013 Mobile Home Oil-Fired ...... 75 9/1/1990 Weatherized Oil-Fired ...... 78 1/1/1992 Electric ...... 78 1/1/1992 * Only non-weatherized gas and mobile home gas furnaces are being analyzed for this current rulemaking.

2. History of Standards Rulemaking for (i.e., mobile home oil-fired furnaces and did not oppose. The motion did not Residential Furnaces weatherized oil-fired furnaces). The state that the November 2007 final rule Given the somewhat complicated standards amended in the November would be vacated, but indicated that interplay of recent DOE rulemakings 2007 Rule were to apply to furnaces DOE would revisit its initial and statutory provisions related to manufactured or imported on and after conclusions outlined in the November residential furnaces, DOE provides the November 19, 2015. 72 FR 65136. The 2007 Rule in a subsequent rulemaking following regulatory history as energy conservation standards in the action. DOE also agreed that the final background leading to the present November 2007 final rule consist of a rule in that subsequent rulemaking rulemaking. Amendments to EPCA in minimum AFUE level for each of the six action would address both regional the National Appliance Energy classes of furnaces. Id. at 65169. As standards for furnaces, as well as the Conservation Act of 1987 (NAECA; Pub. previously noted, based on the market effects of alternate standards on natural L. 100–12) established EPCA’s original analysis for the November 2007 final gas prices. The Second Circuit granted energy conservation standards for rule and the standards established DOE’s motion on April 21, 2009. DOE furnaces, consisting of the minimum under that rule, the November 2007 notes that the Second Circuit’s order did AFUE levels described above for mobile final rule eliminated the distinction not vacate the energy conservation home furnaces and for all other furnaces between furnaces based on their standards set forth in the November except ‘‘small’’ gas furnaces. (42 U.S.C. certified input capacity, (i.e., the 2007 final rule, and during the remand, 6295(f)(1)–(2)) Pursuant to 42 U.S.C. standards applicable to ‘‘small’’ they went into effect as originally 6295(f)(1)(B), in November 1989, DOE furnaces were established at the same scheduled. adopted a mandatory minimum AFUE level and as part of their appropriate As described previously in section level for ‘‘small’’ furnaces. 54 FR 47916 class of furnace generally). II.B, on June 27, 2011, DOE published (Nov. 17, 1989). The standards Following DOE’s adoption of the a direct final rule (June 2011 DFR) established by NAECA and the November 2007 final rule, several revising the energy conservation November 1989 final rule for ‘‘small’’ parties jointly sued DOE in the United standards for residential furnaces gas furnaces are still in effect for mobile States Court of Appeals for the Second pursuant to the voluntary remand in home oil-fired furnaces, weatherized Circuit (Second Circuit) to invalidate State of New York, et al. v. Department oil-fired furnaces, and electric furnaces. the rule. Petition for Review, State of of Energy, et al. 76 FR 37408. In the June Pursuant to EPCA, DOE was required New York, et al. v. Department of 2011 DFR, DOE considered the to conduct two rounds of rulemaking to Energy, et al., Nos. 08– 0311–ag(L); 08– amendment of the same six product consider amended energy conservation 0312–ag(con) (2d Cir. filed Jan. 17, classes considered in the November standards for furnaces. (42 U.S.C. 2008). The petitioners asserted that the 2007 final rule analysis plus electric 6295(f)(4)(B) and (C)) In satisfaction of standards for residential furnaces furnaces. As discussed in section II.B.1, this first round of amended standards promulgated in the November 2007 final the June 2011 DFR amended the existing rulemaking under 42 U.S.C. rule did not reflect the ‘‘maximum energy conservation standards for 6295(f)(4)(B), as noted above, DOE improvement in energy efficiency’’ that NWGFs, MHGFs, and non-weatherized published a final rule in the Federal ‘‘is technologically feasible and oil furnaces, and amended the Register on November 19, 2007 (the economically justified’’ under 42 U.S.C. compliance date (but left the existing November 2007 Rule) that revised these 6295(o)(2)(A). On April 16, 2009, DOE standards in place) for weatherized gas standards for most furnaces, but left filed with the Court a motion for furnaces. The June 2011 DFR also them in place for two product classes voluntary remand that the petitioners established electrical standby mode and

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off mode standards for NWGFs, non- required to conduct any earlier pursuant to its authority under 42 weatherized oil furnaces, and electric rulemaking stages). U.S.C. 42 U.S.C. 6295(f)(4)(C), which furnaces. DOE confirmed the standards In the March 2015 NOPR, DOE requires DOE to conduct a second round and compliance dates promulgated in proposed adopting a national standard of amended standards rulemaking for the June 2011 DFR in a notice of of 92-percent AFUE for all NWGFs and residential non-weatherized gas effective date and compliance dates MHGFs. 80 FR 13120, 13198 (March 12, furnaces and mobile home gas furnaces. published on October 31, 2011. 76 FR 2015). In response, while some EPCA, as amended by EISA 2007, also 67037. stakeholders supported the national 92- requires that not later than 6 years after As noted earlier, following DOE’s percent AFUE standard, others opposed issuance of any final rule establishing or adoption of the June 2011 DFR, APGA the proposed standards and encouraged amending a standard, DOE must publish filed a petition for review with the DOE to withdraw the March 2015 either a notice of the determination that United States Court of Appeals for the NOPR. (See section III.F.1 for comments standards for the product do not need to District of Columbia Circuit to providing specific reasons for opposing be amended, or a notice of proposed rulemaking including proposed energy invalidate the DOE rule as it pertained or supporting the proposed standards are summarized in that section.) conservation standards. (42 U.S.C. to NWGFs. Petition for Review, Multiple parties suggested that DOE 6295(m)(1)) To this end, DOE published American Public Gas Association, et al. should create a separate product class a NOPR for the subject furnaces on v. Department of Energy, et al., No. 11– for furnaces based on input capacity and March 12, 2015, and this SNOPR is a 1485 (D.C. Cir. filed Dec. 23, 2011). On set lower standards for the ‘‘small continuation of that rulemaking in light April 24, 2014, the Court granted a furnaces’’ product class in order to of comments and other information motion that approved a settlement mitigate some of the negative impacts of received at earlier stages of the process. agreement that was reached between the proposed standards. Among other Once completed, this rulemaking will DOE, APGA, and the various reasons, commenters suggested that satisfy both statutory provisions. intervenors in the case, in which DOE such an approach would reduce the Furthermore, EISA 2007 amended agreed to a partial vacatur and remand number of low-income consumers EPCA to require that any new or of the NWGFs and MHGFs portions of switching to electric heat due to higher amended energy conservation standard the June 2011 DFR in order to conduct installation costs, because those adopted after July 1, 2010, shall address further notice-and-comment consumers typically have smaller homes standby mode and off mode energy rulemaking. Accordingly, the Court’s in which a furnace with a lower input consumption pursuant to 42 U.S.C. order vacated the June 2011 DFR in part capacity would be installed and, 6295(o). (42 U.S.C. 6295(gg)(3)) If (i.e., those portions relating to NWGFs therefore, would not be impacted if a feasible, the statute directs DOE to and MHGFs) and remanded to the condensing standard were adopted only incorporate standby mode and off mode agency for further rulemaking. for higher-input-capacity furnaces. energy consumption into a single As part of the settlement, DOE agreed (These comments are discussed further standard with the product’s active mode to use best efforts to issue a notice of in section IV.I.A.) To explore the energy use. If a single standard is not proposed rulemaking within one year of potential impacts of such an approach, feasible, DOE may consider establishing the remand, and to issue a final rule DOE published a notice of data a separate standard to regulate standby within the later of two years of the availability (NODA) in the Federal mode and off mode energy issuance of remand, or one year of the Register on September 14, 2015 consumption. Consequently, DOE is issuance of the proposed rule, including (September 2015 NODA). 80 FR 55038. considering standby mode and off mode at least a ninety-day public comment The September 2015 NODA contained energy use as part of this rulemaking for period. Due to the extensive and recent analysis that considered thresholds for residential furnaces. In the March 2015 rulemaking history for residential defining the small furnace product class NOPR, DOE proposed a maximum furnaces, as well as the associated from 45 kBtu/h to 65 kBtu/h certified energy use of 8.5 watts in both standby opportunities for notice and comment input capacity and maintaining a non- and off mode for NWGF and MHGF. 80 described above, DOE forwent the condensing 80-percent AFUE standard FR 13120, 13198 (March 12, 2015). The typical earlier rulemaking stages (e.g., for that product class, while increasing changes in this SNOPR apply only to Framework Document, preliminary the standard to a condensing level (i.e., the active mode AFUE standards, and analysis) and instead published a NOPR either 90-percent, 92-percent, 95- therefore, the proposed standby mode on March 12, 2015 (March 2015 NOPR). percent, or 98-percent AFUE) for large and off mode standards set forth in the 80 FR 13120. DOE concluded that there furnaces. Id. at 55042. The results March 2015 NOPR remain part of this was a sufficient recent exchange of indicated that life-cycle cost savings SNOPR. information between interested parties increased and the share of consumers DOE received a number of written and DOE regarding the energy with net costs decreased as a result of comments from interested parties in conservation standards for residential an 80-percent AFUE standard for the response to the March 2015 NOPR and furnaces such as to allow for this small furnace product class. Id. at September 2015 NODA. DOE proceeding to move directly to the 55042–44. It also showed that national considered these comments, as well as NOPR stage. Moreover, DOE notes that energy savings increased because fewer comments from the March 2015 NOPR under 42 U.S.C. 6295(p) and 5 U.S.C. consumers switched to more energy- public meeting, in preparing this 553(b) and (c), DOE is only required to intensive electric heat. Id. at 55044. SNOPR. The commenters are publish a notice of proposed rulemaking DOE has initiated this rulemaking in summarized in Table II.2. Relevant and accept public comments before partial fulfillment of the remand in comments, and DOE’s responses, are amending energy conservation American Public Gas Association, et al. provided in the appropriate sections of standards in a final rule (i.e., DOE is not v. Department of Energy, et al. and this notice.16

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

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TABLE II.2—INTERESTED PARTIES PROVIDING WRITTEN COMMENT ON THE NOPR AND NODA FOR NON-WEATHERIZED GAS FURNACES AND MOBILE HOME GAS FURNACES

Name Acronyms Type

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

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TABLE II.2—INTERESTED PARTIES PROVIDING WRITTEN COMMENT ON THE NOPR AND NODA FOR NON-WEATHERIZED GAS FURNACES AND MOBILE HOME GAS FURNACES—Continued

Name Acronyms Type

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

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III. General Discussion American Society of Heating, of section 9.10 for two-stage and DOE issued this supplemental Refrigerating and Air-Conditioning modulating condensing furnaces and proposal after considering oral and Engineers (ASHRAE)/American boilers. Id. On March 11, 2015, DOE published a written comments, data, and National Standards Institute (ANSI) notice of proposed rulemaking for its information from interested parties that Standard 103–1993, Method of Testing for Annual Fuel Utilization Efficiency of test procedure for residential furnaces represent a variety of interests. DOE Residential Central Furnaces and and boilers in the Federal Register considered all comments received in Boilers (1993). 62 FR 26140, 26157. (March 2015 Test Procedure NOPR). 80 response to both the March 2015 NOPR On October 20, 2010, DOE updated its FR 12876. In the March 2015 Test and the September 2015 NODA when test procedures for residential furnaces Procedure NOPR, DOE proposed a range developing this SNOPR, but in a final rule published in the Federal of changes to the test procedure acknowledges that in light of this Register (October 2010 test procedure including incorporating by reference modified proposal some comments rule). 75 FR 64621. This rule amended ANSI/ASHRAE 103–2007 in place of received to date may no longer apply. DOE’s test procedure for residential ANSI/ASHRAE 103–1993. After The following discussion addresses furnaces and boilers to establish a publication of the March 2015 Test issues raised by commenters in response method for measuring the electrical Procedure NOPR, DOE granted a request to both notices on the listed topics. energy use in standby mode and off from AHRI to reopen the comment A. Product Classes and Scope of mode for gas-fired, oil-fired, and electric period for an additional 45 days, so as Coverage furnaces pursuant to requirements to allow further time to conduct product established by EISA 2007. These test When evaluating and establishing testing and to review supporting procedure amendments were primarily information. 80 FR 31324 (June 2, 2015). energy conservation standards, DOE based on and incorporate by reference divides covered products into product In response to the March 2015 Test provisions of the International Procedure NOPR, several commenters classes by the type of energy used or by Electrotechnical Commission (IEC) capacity or by other performance-related raised concerns that some proposed test Standard 62301 (First Edition), provisions would affect efficiency feature that justify a different standard. ‘‘Household electrical appliances— In making a determination whether a ratings. DOE published a final rule for Measurement of standby power.’’ On the residential furnaces and boilers test performance-related feature justifies a December 31, 2012, DOE published a different standard, DOE must consider procedure in the Federal Register on final rule in the Federal Register which January 15, 2016 (January 2016 test such factors such as the utility of the updated the incorporation by reference feature to the consumer and other procedure final rule). 81 FR 2628. In of the standby mode and off mode test that final rule, DOE did not adopt those factors DOE deems appropriate. (42 procedure provisions to refer to the U.S.C. 6295(q)) provisions for which commenters latest edition of IEC Standard 62301 expressed concern regarding impacts on DOE agreed to the partial vacatur and (Second Edition). 77 FR 76831. remand of the June 2011 DFR, efficiency ratings, including a decision On July 10, 2013, DOE published a to withdraw its proposal to incorporate specifically as it related to energy final rule in the Federal Register (July conservation standards for NWGFs and by reference ANSI/ASHRAE 103–2007. 2013 final rule) that modified the Id. at 2628–30. The final revisions MHGFs in the settlement agreement to existing testing procedures for included: resolve the litigation in American Public residential furnaces and boilers. 78 FR Gas Ass’n v. U.S. Dept. of Energy (No. 41265. The modification addressed the • Clarification of the electrical power term 11–1485, D.C. Cir. Filed Dec 23, 2011). ‘‘PE’’; omission of equations needed to • 80 FR 13120, 13130–32 (March 12, calculate AFUE for two-stage and Adoption of a smoke stick test for determining use of minimum default draft 2015). These two product classes were modulating condensing furnaces and evaluated in the March 2015 NOPR. In factors; boilers that are tested using an optional • Allowance for the measurement of today’s SNOPR, DOE is proposing to procedure provided by section 9.10 of condensate under steady-state conditions; further divide NWGFs into two product ASHRAE 103–1993 (incorporated by • Reference to manufacturer’s installation classes based on capacity. For a detailed reference into DOE’s test procedure), and operation manual and clarifications for discussion of this proposal and the which allows the test engineer to omit when that manual does not specify test set- comments on product classes received the heat-up and cool-down tests if up; in response to the March 2015 NOPR certain conditions are met. Specifically, • Specification of ductwork requirements and September 2015 NODA, please see the DOE test procedure allows for units that are installed without a return Section IV.A.1. condensing boilers and furnaces to omit duct; and • Revision of the requirements regarding the heat-up and cool-down tests B. Test Procedure AFUE reporting precision. provided that the units have no DOE’s current energy conservation measurable airflow through the Id. at 2628. standards for residential furnaces are combustion chamber and heat DOE determined that none of the expressed in terms of AFUE for fossil exchanger during the burner off period adopted test procedure amendments fuel consumption (see 10 CFR and have post-purge period(s) of less would alter the projected measured 430.32(e)(1)). AFUE is an annualized than 5 seconds. For two-stage and energy efficiency or energy use of fuel efficiency metric that fully accounts modulating condensing furnaces and residential furnaces. 81 FR 2628–2641 for fuel consumption in active, standby, boilers, ASHRAE 103–1993 (and by (Jan. 15, 2016). Commenters also raised and off modes. The existing DOE test extension the DOE test procedure) does issues regarding the timing of the test procedure for determining the AFUE of not contain the necessary equations to procedure rulemaking vis-a`-vis the residential furnaces is located at 10 CFR calculate the heating seasonal efficiency standards rulemaking. In response to the part 430, subpart B, appendix N. The (which contributes to the ultimate March 2015 NOPR, AHRI asserted that current DOE test procedure for calculation of AFUE) when the option the timing of the test procedure residential furnaces was originally in section 9.10 is selected. The July rulemaking and proposed standards established by a May 12, 1997 final rule, 2013 final rule adopted two new rulemaking was contrary to both EPCA which incorporates by reference the equations needed to account for the use and DOE’s own regulation on process.

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AHRI added that it is unfair to propose addressed the comments regarding the means for improving efficiency are a standard that will be enforced by DOE timing of that test procedure final rule technologically feasible. DOE considers and FTC in terms of labeling and the standards rulemaking process, technologies incorporated in requirements, but that will be measured stating that appendix A to 10 CFR part commercially-available products or in by some undetermined test procedure. 430, subpart C, establishes procedures, working prototypes to be AHRI further stated that it is only after interpretations, and policies to guide technologically feasible. 10 CFR part DOE has considered and resolved all DOE in the consideration and 430, subpart C, appendix A, section comments on the test procedure that the promulgation of new or revised 4(a)(4)(i). required analysis of the impact on the appliance efficiency standards under related standard can be actually EPCA. (See section 1 of 10 CFR part 430, After DOE has determined that determined. (AHRI, No. 0159 at pp. 9– subpart C, appendix A) Those particular technology options are 10) Several stakeholders stated that the procedures are a general guide to the technologically feasible, it further test procedure must be finalized before steps DOE typically follows in evaluates each technology option in issuing a NOPR for efficiency standards, promulgating energy conservation light of the following additional which DOE did not do for residential standards, but the guidance recognizes screening criteria: (1) Practicability to furnaces. (AGA, No. 0118 at p. 6; that DOE can and will, on occasion, manufacture, install, and service; (2) Vectren, No. 0111 at p. 7; Goodman, No. deviate from the typical process. (See 10 adverse impacts on product utility or 0135 at p. 10; Laclede, No. 0141 at p. 35, CFR part 430, subpart C, appendix A, availability; and (3) adverse impacts on JCI, No. 0148 at pp. 3–4; ACCA, No. section 14(a)) Accordingly, DOE health or safety. 10 CFR part 430, 0158–1 at pp. 4–5; APGA, No. 0106 at concluded that there was no basis to subpart C, appendix A, section pp. 8–9) AGA and HARDI stated that either: (1) Delay the final rules adopting 4(a)(4)(ii)–(iv). Additionally, it is DOE stakeholders cannot properly assess the standards for residential furnaces and policy not to include in its analysis any proposed standards without knowing boilers; or (2) suspend the test proprietary technology that is a unique the impact of the final test procedure on procedure rulemaking until the pathway to achieving a certain AFUE. (AGA, No. 0118 at pp. 43–44; standards rulemaking has been efficiency level. Section IV.B of this HARDI, No. 0131 at p. 2) completed. 81 FR 2628, 2631 (Jan. 15, notice discusses the results of the In response to the March 2015 NOPR 2016). With regards to the effect of test screening analysis for NWGFs and and the September 2015 NODA, several procedure changes on measured MHGFs, particularly the designs DOE stakeholders expressed concern about efficiency and accounting for such considered, those it screened out, and the potential change in furnace changes in the standards rulemaking those that are the basis for the potential efficiency due to the provisions of the analyses, DOE again notes that its final standards considered in this proposed furnace and boiler test rule did not adopt those specific procedure and the resulting impact on rulemaking. For further details on the provisions about which commenters on screening analysis for this rulemaking, the standards rulemaking analyses. the test procedure rulemaking expressed (Laclede, No. 0141 at p. 35; JCI, No. see chapter 4 of the SNOPR technical concern for these impacts. As DOE support document (TSD). 0148 at pp. 3–4; Ingersoll Rand, No. concluded in the January 2016 test 0156 at p. 7; Ingersoll Rand, No. 0182 procedure final rule, the amendments to 2. Maximum Technologically Feasible at p. 2) Ingersoll Rand also suggested the test procedure adopted in that final Levels that the amended test procedure rule will not alter the measured energy proposed in the March 2015 Test efficiency or energy use of the covered When DOE proposes to adopt an Procedure NOPR would have an impact products that are subject to the test amended standard for a type or class of on the measured efficiency of furnaces. procedures. Id. at 2642. Therefore, no covered product, it must determine the Ingersoll Rand suggested that on further action is necessary in this maximum improvement in energy average, two-stage/modulating standards rulemaking in order to efficiency or maximum reduction in condensing furnaces would see a drop accommodate the test procedure energy use that is technologically of 0.7-percent AFUE, and two-stage/ amendments. This SNOPR is consistent feasible for such product. (42 U.S.C. modulating non-condensing furnaces with the guidance provided in the 6295(p)(1)) Accordingly, in the would see an increase of 0.4-percent Process Rule, section 7(c) of 10 CFR part engineering analysis, DOE determined AFUE under the proposed test 430, subpart C, appendix A, because it the maximum technologically feasible procedure, and that the efficiency levels was issued subsequent to the (‘‘max-tech’’) improvements in energy analyzed in the engineering analysis finalization of the relevant test efficiency for NWGFs and MHGFs, should be adjusted based on these procedure. using the design parameters for the most changes in ratings. (Ingersoll Rand, No. efficient products available on the 0182 at p. 2) AGA urged DOE to issue C. Technological Feasibility market or in working prototypes. The an SNOPR and re-open the comment 1. General period after the test procedure is max-tech levels that DOE determined finalized to implement appropriate In each energy conservation standards for this rulemaking are described in adjustments regarding the test rulemaking, DOE conducts a screening section IV.C.1.b of this SNOPR and in procedure. (AGA, No. 0118 at pp. 43– analysis based on information gathered chapter 5 of the SNOPR TSD. 44) on all current technology options and D. Energy Savings In response, DOE finalized its prototype designs that could improve amendments to the residential furnace the efficiency of the products or 1. Determination of Savings and boiler test procedure on January 15, equipment that are the subject of the 2016, which means that the test rulemaking. As the first step in such an For each trial standard level (TSL), procedure amendments have been analysis, DOE develops a list of DOE projected energy savings from completed as of the issuance of the technology options for consideration in application of the TSL to NWGFs and modified proposal contained in this consultation with manufacturers, design MHGFs purchased in the 30-year period SNOPR. Furthermore, in the January engineers, and other interested parties. that begins in the expected first year of 2016 test procedure final rule, DOE DOE then determines which of those compliance with the proposed

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standards (2022–2051).17 The savings ‘‘significant’’ is not defined in the Act, discussed further in the following are measured over the entire lifetime of the U.S. Court of Appeals for the District section. For consumers in the aggregate, NWGFs and MHGFs purchased in the of Columbia Circuit, in Natural DOE also calculates the national net above 30-year period. DOE quantified Resources Defense Council v. present value of the consumer costs and the energy savings attributable to each Herrington, 768 F.2d 1355, 1373 (D.C. benefits expected to result from TSL as the difference in energy Cir. 1985), opined that Congress particular standards. DOE also evaluates consumption between each standards intended ‘‘significant’’ energy savings in the impacts of potential standards on case and the no-new-standards case. the context of EPCA to be savings that identifiable subgroups of consumers The no-new-standards case represents a are not ‘‘genuinely trivial.’’ The energy that may be affected disproportionately projection of energy consumption that savings for all of the TSLs considered in by a standard. reflects how the market for a product this rulemaking, including the proposed b. Savings in Operating Costs Compared would likely evolve in the absence of standards (presented in section V.B.3.a), to Increase in Price (LCC and PBP) amended energy conservation are nontrivial, and, therefore, DOE standards. considers them ‘‘significant’’ within the EPCA requires DOE to consider the DOE used its national impact analysis meaning of section 325 of EPCA. savings in operating costs throughout (NIA) spreadsheet model to estimate the estimated average life of the covered national energy savings (NES) from E. Economic Justification product in the type (or class) compared potential amended standards for 1. Specific Criteria to any increase in the price of, or in the NWGFs and MHGFs. The NIA initial charges for, or maintenance spreadsheet model (described in section As noted above, EPCA provides seven expenses of, the covered product that IV.H of this SNOPR) calculates energy factors to be evaluated in determining are likely to result from a standard. (42 savings in terms of site energy, which is whether a potential energy conservation U.S.C. 6295(o)(2)(B)(i)(II)) DOE conducts the energy directly consumed by standard is economically justified. (42 this comparison in its LCC and PBP products at the locations where they are U.S.C. 6295(o)(2)(B)(i)(I)–(VII)) The analysis. used. For electricity, DOE reports following sections discuss how DOE has The LCC is the sum of the purchase national energy impacts on an annual addressed each of those seven factors in price of a product (including its basis in terms of primary (source) this rulemaking. installation) and the operating expense energy, which is the energy that is used a. Economic Impact on Manufacturers (including energy, maintenance, and to generate and transmit the site and Consumers repair expenditures) discounted over electricity. To calculate the primary the lifetime of the product. The LCC energy impacts, DOE derives annual In determining the impacts of a analysis requires a variety of inputs, conversion factors from the model used potential amended standard on such as product prices, product energy to prepare the Energy Information manufacturers, DOE conducts a consumption, energy prices, Administration’s (EIA) most recent manufacturer impact analysis (MIA), as maintenance and repair costs, product Annual Energy Outlook (AEO).18 DOE discussed in section IV.J. DOE first uses lifetime, and discount rates appropriate also calculates NES in terms of full-fuel- an annual cash-flow approach to for consumers. To account for cycle (FFC) energy savings. The FFC determine the quantitative impacts. This uncertainty and variability in specific metric includes the energy consumed in step includes both a short-term inputs, such as product lifetime and extracting, processing, and transporting assessment—based on the cost and discount rate, DOE uses a distribution of primary fuels (i.e., coal, natural gas, capital requirements during the period values, with probabilities attached to petroleum fuels), and, thus, presents a between when a regulation is issued and each value. more complete picture of the impacts of when entities must comply with the The PBP is the estimated amount of energy conservation standards.19 DOE’s regulation—and a long-term assessment time (in years) it takes consumers to approach is based on the calculation of over a 30-year period. The industry- recover the increased purchase cost an FFC multiplier for each of the energy wide impacts analyzed include: (1) (including installation) of a more- types used by covered products or Industry net present value (INPV), efficient product through lower equipment. For more information on which values the industry on the basis operating costs. DOE calculates the PBP FFC energy savings, see section IV.H.2 of expected future cash flows; (2) cash by dividing the change in purchase cost of this notice. For natural gas, the flows by year; (3) changes in revenue due to a more-stringent standard by the primary energy savings are considered and income; and (4) other measures of change in annual operating cost for the to be equal to the site energy savings. impact, as appropriate. Second, DOE year that standards are assumed to take analyzes and reports the impacts on effect. 2. Significance of Savings different types of manufacturers, For its LCC and PBP analysis, DOE To adopt any new or amended including impacts on small assumes that consumers will purchase standards for a covered product, DOE manufacturers. Third, DOE considers the covered products in the first year of must determine that such action would the impact of standards on domestic compliance with new or amended result in significant energy savings. (42 manufacturer employment and standards. The LCC savings for the U.S.C. 6295(o)(3)(B)) Although the term manufacturing capacity, as well as the considered efficiency levels are potential for standards to result in plant calculated relative to the case that 17 Each TSL is composed of specific efficiency closures and loss of capital investment. reflects projected market trends in the levels for each product class. The TSLs considered Finally, DOE takes into account absence of new or amended standards. for this SNOPR are described in section V.A. DOE conducted a sensitivity analysis that considers cumulative impacts of various DOE DOE’s LCC and PBP analysis is impacts for products shipped in a 9-year period. regulations and other regulatory discussed in further detail in section 18 At the time when the SNOPR was prepared, requirements on manufacturers. IV.F. AEO 2015 was the most recent available AEO. DOE For individual consumers, measures intends to use AEO 2016 for the final rule. of economic impact include the changes c. Energy Savings 19 The FFC metric is discussed in DOE’s Although significant conservation of statement of policy and notice of policy in LCC and payback period (PBP) amendment. 76 FR 51282 (August 18, 2011), as associated with new or amended energy is a separate statutory amended at 77 FR 49701 (August 17, 2012). standards. These measures are requirement for adopting an energy

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conservation standard, EPCA requires demand for electricity also may result in evaluation of the economic justification DOE, in determining the economic reduced costs for maintaining the for a potential standard level (thereby justification of a standard, to consider reliability of the Nation’s electricity supporting or rebutting the results of the total projected energy savings that system. DOE conducts a utility impact any preliminary determination of are expected to result directly from the analysis to estimate how standards may economic justification). The rebuttable standard. (42 U.S.C. 6295(o)(2)(B)(i)(III)) affect the Nation’s needed power presumption payback calculation is As discussed in section III.D, DOE uses generation capacity, as discussed in discussed in section IV.F.9.d of this the NIA spreadsheet models to project section IV.M. document. national energy savings. DOE maintains that environmental and public health benefits associated F. Other Issues d. Lessening of Utility or Performance of with the more efficient use of energy are 1. Economic Justification of the March Products important to take into account when 2015 NOPR Proposed Standards In establishing product classes and in considering the need for national energy a. General evaluating design options and the conservation. The proposed standards impact of potential standard levels, DOE are likely to result in environmental The March 2015 NOPR elicited a large evaluates potential standards that would benefits in the form of reduced number of public comments which not lessen the utility or performance of emissions of air pollutants and represented a range of views regarding the considered products. (42 U.S.C. greenhouse gases (GHGs) associated DOE’s proposed standards for NWGFs 6295(o)(2)(B)(i)(IV)) Based on data with energy production and use. DOE and MHGFs and the economic available to DOE, the standards conducts an emissions analysis to justification and other impacts thereof. proposed in this document would not estimate how potential standards may Comments on the general reasons for reduce the utility or performance of the affect these emissions, as discussed in opposing or supporting the proposed products under consideration in this section IV.K; the emissions impacts are standards are summarized and rulemaking. reported in section V.B.6 of this notice. summarily addressed here. Comments DOE also estimates the economic value related to DOE’s NOPR analysis, and e. Impact of Any Lessening of how DOE addressed them in its Competition of emissions reductions resulting from the considered TSLs, as discussed in subsequent analyses, are presented in EPCA directs DOE to consider the section IV.L. section IV. impact of any lessening of competition, Several stakeholders stated that there as determined in writing by the g. Other Factors was no economic justification for a Attorney General, that is likely to result In determining whether an energy national condensing standard for from a proposed standard. (42 U.S.C. conservation standard is economically NWGFs. (AGA, No. 0036 at p. 3; AGL 6295(o)(2)(B)(i)(V)) It also directs the justified, DOE may consider any other Resources, No. 0039 at p. 1; APGA, No. Attorney General to determine the factors that the Secretary deems to be 0106 at p. 12; AGL Resources, No. 0112 impact, if any, of any lessening of relevant. (42 U.S.C. 6295(o)(2)(B)(i)(VII)) at pp. 1–, 2; Carrier, No. 0116 at pp. 3– competition likely to result from a To the extent DOE identifies any 4; AGA, No. 0118 at pp. 3–5; Lennox, proposed standard and to transmit such relevant information regarding No. 0125 at p. 15; NPGA, No. 0130 at determination to the Secretary within 60 economic justification that does not fit p. 8; SoCalGas, No. 0132 at p. 5; days of the publication of a proposed into the other categories described Goodman, No. 0135 at p. 2; Nortek, No. rule, together with an analysis of the above, DOE could potentially consider 0137 at p. 2; Laclede, No. 0141 at p. 58; nature and extent of the impact. (42 such information under ‘‘other factors.’’ Rheem, No. 0142 at p. 2; JCI, No. 0148 U.S.C. 6295(o)(2)(B)(ii)) DOE will at p. 9; AHRI, No. 0181 at p. 1; Metal- 2. Rebuttable Presumption transmit a copy of this supplemental Fab, No. 0192 at p. 2; Municipal Gas proposed rule to the Attorney General As set forth in 42 U.S.C. Authority of Georgia, No. 0086 at p. 3; with a request that the Department of 6295(o)(2)(B)(iii), EPCA creates a Natural Gas Association of Georgia, No. Justice (DOJ) provide its determination rebuttable presumption that an energy 0110 at p. 1) Stakeholders also on this issue. DOE will publish and conservation standard is economically expressed concern that the proposed respond to the Attorney General’s justified if the additional cost to the standard would harm rather than benefit determination in the final rule. DOE consumer of a product that meets the consumers. (AGA, No. 0040 at pp. 2–3; invites comment from the public standard is less than three times the AGA, No. 0118 at pp. 2–3; Joint regarding the competitive impacts that value of the first full year’s energy Representatives, No. 0067 at p. 1; are likely to result from this proposed savings resulting from the standard, as NAHB, No. 0124 at p. 5; Southern Gas rule. In addition, stakeholders may also calculated under the applicable DOE Association, No. 0145 at p. 1; Energy provide comments separately to DOJ test procedure. DOE’s LCC and PBP Association of Pennsylvania, No. 0146 regarding these potential impacts. See analyses generate values used to at p. 1; NiSource, No. 0127 at pp. 8–9) ADDRESSES section for information to calculate the effects that proposed Many stakeholders stated that the send comments to DOJ. energy conservation standards would proposed standard would result in a net have on the payback period for cost for many consumers, particularly f. Need for National Energy consumers. These analyses include, but those living in the south and low- Conservation are not limited to, the 3-year payback income consumers (see section III.F.1.b), DOE also considers the need for period contemplated under the and would cause an unacceptable national energy conservation in rebuttable-presumption test. In addition, amount of switching from NWGFs to determining whether a new or amended DOE routinely conducts an economic electric heating products (see section standard is economically justified. (42 analysis that considers the full range of III.F.1.c). U.S.C. 6295(o)(2)(B)(i)(VI)) The energy impacts to consumers, manufacturers, Many other stakeholders opposed the savings from the proposed standards are the Nation, and the environment, as proposed 92-percent AFUE national likely to provide improvements to the required under 42 U.S.C. standards for NWGFs and encouraged security and reliability of the nation’s 6295(o)(2)(B)(i). The results of this DOE to withdraw the NOPR. (Moore, energy system. Reductions in the analysis serve as the basis for DOE’s No. 0033 at p. 1; Wood, No. 0068 at p.

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

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

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

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

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unable to afford an average-priced not to make those changes eventually design does not alter the existing single-section mobile home. (MHI, No. being degraded. (MUD, No. 0144 at p. 2) situation regarding the fraction of 0129 at p. 2; Nortek, No. 0137 at pp. As discussed in section IV.F.2, DOE’s consumers who do not repair faulty 4–5) analysis accounts for resizing existing equipment. Regarding extended repair In response, DOE notes that the vent stacks or installing chimney liners of a furnace, DOE notes that AHRI expected average cost of a condensing in the case of an orphaned water heater. previously stated that establishing a furnace in a new mobile home is DOE has concluded that the National minimum condensing standard for comparable to a non-condensing furnace Fuel Gas Code (NFGC) provides NWGFs would not alter the situation because the increase in the price of the adequate guidance for installers regarding consumers who do not repair product is offset by a lower installation regarding vent sizing to ensure that the faulty equipment or who perform unsafe cost for a condensing furnace for most venting system is safe when a home repairs. AHRI also stated that installations.20 New furnaces installed condensing furnace is installed.22 DOE service technicians must alert the in mobile homes must be approved by notes that AHRI has previously stated consumer when they determine that the the U.S. Department of Housing and that from 2000 to 2010, there were about appliance is unsafe, and utility service Urban Development, which requires 7.5 million replacement installations of technicians are obligated to turn off the special sealed combustion (direct vent) condensing NWGFs, some of which gas to an unsafe appliance. (Docket No. for all non-condensing and condensing must have resulted in orphaned gas EERE–2011–BT–STD–0011, AHRI, No. installations of manufactured home water heaters. (Docket No. EERE–2011– 0046 at pp. 4–5) Thus, consumers’ own furnaces. (24 CFR 3280.709(d)(1)) For BT–STD–0011, AHRI, No. 0046 at p. 4) safety incentives and these additional condensing installations, the PVC However, there is no evidence from the safeguards would be expected to ensure piping is usually less expensive than the field over that time that consumers proper furnace operation, maintenance, metal vent system used for non- incurred a higher safety risk because and repair. condensing furnaces. Thus, there is not they chose to not address the water Rheem believes that the conversion of likely to be any effect on the heater’s venting system when the new a non-condensing furnace to a affordability of single-section mobile condensing furnace was installed. condensing furnace has significant homes due to the proposed MHGF The Pennsylvania Department of safety implications that may not be standard. Environmental Protection, Carrier, addressed in a no-heat emergency. PGW, Gas Authority, Nayes, and AGL (Rheem, No. 0142 at pp. 1–2; Rheem, 2. Safety Concerns Regarding the Resources stated that due to the No. 0184 at pp. 1, 2–3; Rheem, No. 0199 Proposed Standards difficulty and expense of installing a at pp. 1, 2–3) Carrier stated that in some Several stakeholders raised potential condensing furnace, many homeowners cases, it is impossible to install a safety concerns related to condensing will probably choose to repair rather condensing furnace due to physical furnace installations. CenterPoint than replace their failing furnace, or constraints, and forcing homeowners Energy and NMHC, NAA, and NLHA they might turn to an unlicensed into these situations could lead to stated that in the case of replacement contractor, thereby jeopardizing safety dangerous complications arising from with a condensing furnace, changes in by not following the minimum fuel gas life-threatening no-heat situations. the volume of gas being vented due to code requirements. (Pennsylvania (Carrier, No. 0116 at pp. 8, 20) orphaning the water heater would affect Department of Environmental In response, DOE has tentatively the draw of the venting system, and Protection, No. 0099 at p. 2; Carrier, No. concluded that the provisions of the could result in toxic combustion gases 0116 at pp. 8, 20; PGW, No. 0122 at p. NFGC and manufacturers provide being drawn back into the building.21 3; Gas Authority, No. 0086 at pp. 4–5; adequate guidance for installers to NMHC, NAA, and NLHA stated that it Nayes, No. 0055 at p. 1; AGL Resources, ensure that the condensing furnace is is foreseeable that local building No. 0112 at p. 7) PGW stated that installed safely, and the vast majority of inspectors would have concerns about repairing existing products long after contractors understand that they are the adequacies of the draw of a vent the point when they should be replaced liable for safety problems. DOE’s when it is carrying a reduced volume of has serious potential safety analysis accounts for situations where gases. (CenterPoint Energy, No. 0083 at ramifications related to gas leaks for extreme difficulties in installing a p. 23; NMHC, NAA, and NLHA, No. consumers, neighbors, and utility condensing furnace could lead to 0117 at pp. 3–4) MUD stated that many employees. (PGW, No. 0003–2 at pp. significant installation costs or contractors fail to inform consumers 5–6) AGL Resources, PGW, and MUD switching to electric furnaces or heat that an orphaned water heater may stated that trying to extend the life of a pumps to maintain adequate indoor require resizing existing vent stacks or worn-out product is dangerous, and can space heating. installing chimney liners, resulting in lead to fires or carbon monoxide (CO) PGW, AGL Resources, NiSource, and the vent stacks of consumers who elect poisoning. (AGL Resources, No. 0112 at Carrier stated that many consumers, pp. 6–7; PGW, No. 0122 at p. 3; MUD, particularly low-income consumers, 20 The standard for MHGF furnace fans requires No. 0144 at p. 2) may choose to rely on electric space technology (improved PSC motor) that entails a In response, DOE has tentatively heaters or other supplemental heating slight price increase ($11) in 2013$ compared to the concluded that the vast majority of sources, which puts them at increased baseline PSC motor (see furnace fan energy conservation standards final rule; available at: furnace consumers will make efforts to risk of fire, especially with older electric https://www.regulations.gov/ ensure that furnace repairs are done space heaters. (PGW, No. 0122 at p. 3; #!documentDetail;D=EERE-2010-BT-STD-0011- properly, despite certain commenters’ AGL Resources, No. 0112 at p. 7; 0117). This cost is applicable to less than 50 percent speculation to the contrary. DOE notes NiSource, No. 0127 at pp. 8–9; Carrier, of installations because the rest of the market is already comprised of MHGFs with improved PSC that establishing a minimum efficiency No. 0116 at pp. 8, 20) Jointly Owned motors or motors with higher efficiencies. standard that requires a condensing Natural Gas and Adairsville areis 21 The venting systems for commonly vented non- concerned that consumers may choose condensing NWGFs and gas water heaters that are 22 National Fire Protection Association and an inferior source of heat that may not atmospherically vented rely on a certain volume of American Gas Association. National Fuel Gas Code. be intended or safe for homes. (Jointly air to operate properly. When a water heater is 2015. (Last accessed April 20, 2016.) available at: orphaned, the volume of air being vented is www.nfpa.org/codes-and-standards/document- Owned Natural Gas, No. 0090 at p. 1; reduced. information-pages?mode=code&code=54. Adairsville, No. 0091 at p. 1)

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

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comment period.’’ (APGA, No. 0193 at schedule with 10 years between the compliance is required during which p. 4) DOE cannot speak to the decision- compliance dates of the first and second time manufacturers take steps to come making of other parties participating in required furnace rulemakings. into compliance) and rule spacing (i.e., the rulemaking. But, as a matter of Compliance with DOE’s first furnace the time between new standards which general practice and policy, DOE does standard amendment rulemaking was imposes no requirement on not disclose its deliberative process, required in 2015. Those commenters manufacturers). including whether a request to re-open stated that the compliance date for the In the present case, DOE notes that a comment period will be granted, and second rulemaking should therefore be the first remand agreement for DOE is not aware of any deviation from 2025. AGA stated that section residential furnaces (resulting from the that policy with respect to the re- 325(f)(4)(C) prescribes that DOE Petition for Review, State of New York, opening and extension of the comment undertake a rulemaking between 1997 et al. v. Department of Energy, et al., period here. DOE is committed to a fair and 2006 (which it did not do), and that Nos. 08–0311–ag(L); 08–0312–ag(con) and open rulemaking process, so any the period from the publication of the (2d Cir. filed Jan. 17, 2008)) did not characterization of DOE’s actions as final rule to the compliance date was to vacate the November 2007 Rule for intended to ‘‘tilt the playing field’’ is be from 5 to 15 years. AGA stated that furnaces and boilers. Therefore, DOE simply not correct. EPCA does not require that the has concluded that the November 2007 AHRI encouraged DOE to consider compliance date be set 5 years from the final rule completed the first round of other ways to promote energy final rule, and a separate provision of rulemaking for amended energy conservation and the use of efficient EPCA supports adoption of a 2025 conservation standards for furnaces, products because there will be regions compliance date. Laclede supported thereby satisfying the requirements of where condensing furnaces will never AGA and APGA’s comments on a 42 U.S.C. 6295(f)(4)(B). The June 2011 be economically attractive or practical. compliance date of 2025. (AGA, No. direct final rule (June 2011 DFR) AHRI stated that energy use can be 0118 at pp. 42–43; Vectren, No. 0111 at satisfied the second round of reduced through changing consumer p. 6; APGA, No. 0106 at pp. 9–11; rulemaking for amended energy behavior and other factors, which would Laclede, No. 0141 at p. 38) conservation standards for furnaces; more likely reduce heating fuel however, the settlement resulting from As noted in the March 2015 NOPR, consumption at lower cost and with the APGA lawsuit (Petition for Review, EPCA typically provides for compliance fewer negative impacts than an American Public Gas Association, et al. lead time, i.e., the time between efficiency standard. (AHRI, No. 0159 at v. Department of Energy, et al., No. 011– pp. 69–70) The Mercatus Center and publication of amended energy 1485 (D.C. Cir. filed Dec. 23, 2011) Laclede stated that DOE did not conservation standards for a covered vacated the standards for NWGFs and consider the alternatives to regulation. product and the date by which MHGFs. As a result, the June 2011 DFR (Mercatus Center, No. 0079 at p. 2; manufacturers must comply with the completed the second round of Laclede, No. 0141 at p. 20) amended energy conservation standards rulemaking for the furnace product Contrary to these commenters’ views, for such product. 80 FR 13120, 13136 classes for which that rule was not DOE did evaluate non-regulatory (March 12, 2015). When EPCA was vacated, and the current rulemaking alternatives to energy conservation enacted to include furnaces as a covered constitutes the second round of standards, as described in chapter 17 of product, those dates were specified. rulemaking for amended energy the NOPR TSD and the SNOPR TSD. (See e.g., 42 U.S.C. 6295(f)(4)(B) and conservation standards for NWGFs and However, DOE determined that none of (C)). Specifically, EPCA provided a 1994 MHGFs, as required under 42 U.S.C. the non-regulatory alternatives would compliance date for a final rule due in 6295(f)(4)(C). save as much energy as the proposed 1992, a 2002 compliance date for a final Missed deadlines in the furnaces standards. Furthermore, DOE does not rule due in 1994, and a 2012 rulemaking history have resulted in have discretion under the statute to compliance date for a final rule due ambiguity in terms of the applicable substitute energy conservation between 1997 and 2007. By including statutory compliance date. More standards that are economically justified these dates in the statute, Congress specifically, the statute does not clearly with other policies. indicated a 2-year period between the specify an applicable compliance date Laclede stated that because average rulemaking publication date and for the furnaces rulemaking proceedings consumers do not use an LCC analysis, compliance date for the first round of because the dates set forth in the statute DOE should use simple paybacks amended residential furnace standards, are based on rulemakings that were to instead of LCC savings. Laclede stated an 8-year lead time for the second round have been conducted earlier. For the that the ‘‘rebuttable presumption’’ of a of rulemaking, and a minimum of 5 reasons that follow, DOE does not agree 3-year simple payback is a much more years for the last round of amended with the commenters’ interpretation of reasonable criterion to use for the residential furnace standards. Id. Even the relevant statutory language general public. (Laclede, No. 0141 at p. in situations where statutory deadlines regarding setting the compliance date 18) DOE’s use of LCC analysis is have passed before a rulemaking could for this rulemaking. responsive to the EPCA mandate to be fully completed, DOE has generally These commenters contend that, in 42 consider the savings in operating costs maintained these timeframes as a U.S.C. 6295(f)(4)(B) and (C), Congress throughout the estimated average life of reflection of a congressional choice. mandated a 10-year gap between the the covered product compared to any However, Congress has also chosen to compliance dates for the latest two increase in the price of, initial charges require DOE to re-examine existing rounds of rulemaking for amended for, or maintenance expenses of the standards and, if appropriate, to update residential furnace standards (i.e., covered products which are likely to those standards following specific time applicable to products manufactured on result from the imposition of a standard. frames for both completion and or after January 1, 2002 and January 1, (42 U.S.C. 6295(o)(2)(B)(i)(II)) compliance. See 42 U.S.C. 6295(m)(4). 2012, respectively). (42 U.S.C. DOE also recognizes that there is a 6295(f)(4)(B) and (C)). These dates were 5. Compliance Date difference between compliance lead established by Congress in the National AGA, Vectren, and APGA stated that time (i.e., the time between the Appliance Energy Conservation Act of section 325(f)(4) of EPCA provides a publication of a final rule and the date 1987, which also established separate

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product classes for small and large provisions and Congress’s desire to published the final rule for ‘‘furnace furnaces.23 However, the statute did not expedite the energy conservation fans’’ 26 in the Federal Register on July specify that a 10-year gap is always standards rulemaking process, DOE 3, 2014, with a compliance date of July required. Instead the statute linked interprets the more-recent-in-time 3, 2019. 79 FR 38130. DOE did not specific compliance deadlines (2002 provision, specifying a 5-year lead time intend nor does it believe Congress and 2012) to specific statutory deadlines for compliance, as the most appropriate intended that the furnace fan standards for completion of rulemaking indicator of congressional intent. Such are to be understood as a standard on proceedings (1994 and 2007). DOE interpretation is also consistent with residential furnaces, but instead, DOE acknowledges that it missed the EPCA’s policy purposes ‘‘to conserve has interpreted that statutory provision statutory deadlines for completion of energy supplies through energy as authority to set standards for a these amended furnace standards rules conservation programs’’ and ‘‘to provide separate covered product. Consequently, (along with those of other products) and for improved energy efficiency of . . . the furnace fans rule is not the operative thus, also missed the statutory major appliances, and certain other rule for purposes of determining the compliance dates. In light of those consumer products.’’ (42 U.S.C. 6201(4) appropriate compliance date under the missed deadlines, Congress passed a and (5)) statute for NWGFs and MHGFs requirement in the Energy Policy Act of Consequently, DOE has tentatively standards. As described above, under 2005 that DOE submit a semi-annual decided to proceed with a lead time for DOE’s 6-year-lookback authority to report to Congress summarizing the compliance of 5 years after publication review prior standards rules, reasons DOE did not comply with of the final rule for amended furnaces manufacturers shall not be subject to deadlines and providing a plan to standards, consistent with the new standards for a covered product for expeditiously eliminate the rulemaking requirements of both 42 U.S.C. which other new standards have been backlog.24 Congress subsequently 6295(f)(4)(C) and (m)(4)(A)(ii). DOE required in the past 6 years. (42 U.S.C. passed the Energy Independence and notes that such lead time is the same 6295(m)(4)(B)) Therefore, the relevant Security Act of 2007 (EISA 2007) to lead time accorded to other furnace date for the aforementioned 6-year include the 6-year-lookback provision at product classes in the June 27, 2011 window is November 2015, and the 42 U.S.C. 6265(m).25 In establishing this DFR, thereby providing a level playing compliance date for newly-amended lookback requirement, Congress field for manufacturers of similar standards must be after November 19, eliminated the previously-existing products. Regarding the spacing 2021. lookback requirement, which provided between rules, DOE will also ensure that Accordingly, the relevant statutory that ‘‘the last final rules required under any amended standards are not required timing requirements are in good subsections (b) through (i)’’ must be with respect to furnaces within 6 years alignment. The provision at 42 U.S.C. issued before 42 U.S.C. 6295(m) could of the last time new standards were 6295(m)(4)(A)(ii) require a 5-year lead apply.’’ Thus, between 2005 and 2007, required (42 U.S.C. 6295(m)(4)(B)); as time for amended furnace standards, Congress recognized the need for DOE explained in the paragraphs which and given the publication date of this to quickly promulgate energy immediately follow, this 6-year SNOPR combined with the public conservation rules that should have limitation will also be met in the current comment period, the final rule should been issued years earlier and to review rulemaking. For these reasons, in its be completed such that the compliance those rules regardless whether DOE had analysis of amended energy date would fall after November 19, 2021 exhausted its product-specific conservation standards for NWGFs and (i.e., a date fulfilling the 6-year gap rulemaking authority. MHGFs in this SNOPR, DOE is using a required by 42 U.S.C. 6295(m)(4)(B)). Congress enacted EISA 2007 5-year lead time between the expected DOE further notes that this lead time for subsequent to the promulgation of the publication of the final rule and the NWGFs and MHGFs would be November 2007 final rule fulfilling compliance date for the standard. consistent with the 5 years of lead time DOE’s rulemaking obligation under 42 AGA, Vectren, Rheem, AHRI, and provided under 42 U.S.C. 6295(f)(4)(C) U.S.C. 6295(f)(4)(B) and subsequent to APGA stated that EPCA provides that to the other furnaces product classes for the date DOE was obligated to complete new standards cannot be applied to a which standards were promulgated in the rulemaking required in 42 U.S.C. product if other new standards have the June 2011 DFR. 6295(f)(4)(C). As such, with knowledge been required during the prior 6 years. EEI stated that to act in a more fuel of the missed deadlines for these Amended furnace standards took effect and market neutral manner, the new required furnace rulemakings, Congress in November 2015, and furnace fan standards for NWGFs should take effect specifically mandated a lead time for standards take effect in 2019. Thus, before or coincident with any new furnaces rulemakings under 42 U.S.C. these commenters argued that new standards for heat pumps. (EEI, No. 6295(m)(4)(A)(ii) (i.e., 5 years) and set a proposed amendments to the furnace 0160 at p. 2) DOE notes that the spacing requirement between standards should not take effect until compliance dates for energy rulemakings (i.e., a minimum of 6 years 2025, 6 years after the compliance date conservation standards are specified by since compliance with the last for the furnace fan rule. (AGA, No. 0118 EPCA and tied to promulgation of the standards rule). This later-in-time at pp. 42–43; Vectren, No. 0111 at p. 6; final rule. In any case, DOE expects that enactment, with awareness of the Rheem, No. 0142 at p. 3; AHRI, No. amended standards for central air missed deadlines in 42 U.S.C. 0159 at p. 3; APGA, No. 0106 at p. 11) conditioners and heat pumps will be DOE disagrees with these 6295(f)(4)(B) and (C), demonstrates issued later in 2016 with a compliance commenters’ interpretation of the Congress’s updated direction regarding relevant statutory provisions. The 26 Although in the furnace fan rulemaking DOE the lead time and spacing specifically standards on furnace fans were only covered those circulation fans that are used in for furnaces rulemakings going forward. responsive to the statutory directive that furnaces and modular blowers, the EPCA language Given the ambiguity in the statutory could be interpreted as encompassing electrically- DOE ‘‘shall consider and prescribe powered devices used in any residential HVAC product to circulate air through duct work. If 23 Public Law 100–12 (enacted March 17, 1987). energy conservation standards or energy use standards for electricity used for Congress had wanted to limit the regulation of fans 24 Section 141, Public Law 100–58 (enacted Aug. to only furnaces, it could have provided narrowly- 8, 2005). purposes of circulating air through duct tailored language to that end, rather than the 25 Public Law 110–140 (enacted Dec. 19, 2007). work.’’ (42 U.S.C. 6295(f)(4)(D)) DOE broader language it employed.

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year of 2023 (about a year after the DOE’s approach for addressing regional TABLE III.1—NATIONAL STANDARD AND compliance year for residential standards is included in the REGIONAL STANDARD (BY STATE) furnaces). methodology section corresponding to FOR ANALYSIS OF FURNACE STAND- 6. Regional Standards each individual analysis (see section IV ARDS of this notice), and in the SNOPR TSD, As discussed in section II.A, EISA specifically Chapter 8 (LCC and PBP Northern region 2007 amended EPCA to allow for the Analysis) and Chapter 10 (National National standard * standard establishment of a single more- Impact Analysis). For certain phases of restrictive regional standard in addition the analysis, additional regional Alabama Alaska to the base national standard for analysis is not required. For example, Arizona Colorado furnaces. (42 U.S.C. 6295(o)(6)(B)) The technologies for improving product Arkansas Connecticut regions must include only contiguous efficiency generally do not vary by California Idaho States (with the exception of Alaska and region, and thus, DOE did not perform Delaware Illinois District of Columbia Indiana Hawaii, which can be included in any additional regional analysis for the regions with which they are not Florida Iowa technology assessment and screening Georgia Kansas contiguous), and each State may be analysis. Similarly, DOE did not placed in only one region (i.e., a State Hawaii Maine examine the impacts of having two Kentucky Massachusetts cannot be divided among or otherwise regions in the engineering analysis, included in two regions). (42 U.S.C. Louisiana Michigan since the technologies and manufacturer Maryland Minnesota 6295(o)(6)(C)) processes are the same under both a Mississippi Missouri Further, EPCA mandates that a national and regional standard. Nevada Montana regional standard must produce To evaluate regional standards for New Mexico Nebraska significant energy savings in North Carolina New Hampshire residential furnaces, DOE maintained comparison to a single national Oklahoma New Jersey standard, and provides that DOE must the same regions analyzed in the March South Carolina New York determine that the additional standards 2015 NOPR, which are shown in Table Tennessee North Dakota are economically justified and consider III.1 and Figure III.1. The allocation of Texas Ohio the impact of the additional regional individual States to the regions was Virginia Oregon standards on consumers, manufacturers, largely based on whether a State’s Pennsylvania and other market participants, including annual heating degree day (HDD) 27 Rhode Island product distributors, dealers, average is above or below 5,000, which South Dakota contractors, and installers. (42 U.S.C. offers a rough threshold point at which Utah 6295(o)(6)(D)) For this rulemaking, DOE space heating demands are significant Vermont has considered the above-delineated enough to require longer operation of Washington impacts of regional standards in heating systems, thereby providing a West Virginia addition to national standards. basis for utilization of higher-efficiency Wisconsin Wyoming Where appropriate, DOE has systems. addressed the potential impacts from * DOE analyzes an approach whereby the considered regional standards in the 27 DOE used the population weighted state HDD agency would set a base National standard, relevant analyses, including the mark- as determined by the National Oceanic and as well as a more-stringent standard in the Northern region. Because compliance with the ups to determine product price, the LCC Atmospheric Administration (NOAA) in its 1971– 2000 United States Climate Normals report, regional standard would also meet the Na- and payback period analysis, the available at http://hurricane.ncdc.noaa.gov/ tional standard, Table III.1 categorizes States national impact analysis (NIA), and the climatenormals/hcs/HCS_51.pdf (last accessed July in terms of the most stringent standard appli- manufacturer impact analysis (MIA). 28, 2014). cable to that State.

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

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security,28 combined with the well- involved a rigorous, formal, and indicating that contractors have recognized potential of well-designed documented evaluation using objective experience installing these furnaces. energy conservation measures to reduce criteria and qualified and independent Distributors and manufacturers will GHG emissions, DOE believes that reviewers to make a judgment as to the have ample time to prepare for the evaluation of the potential benefits from technical/scientific/business merit, the amended standards, given the lead time slowing anthropogenic climate change actual or anticipated results, and the of 5 years prior to the compliance date. are properly part of the consideration of productivity and management Nortek stated that DOE must consider the need for national energy effectiveness of programs and/or conservation. projects. DOE has determined that the the cumulative burden of all AHRI also stated that DOE’s peer-reviewed analytical process rulemakings affecting heating and air consideration of environmental factors continues to reflect current practice, and conditioning systems. According to is imbalanced relative to the other the Department followed that process Nortek, rulemakings on standby power, required factors under EPCA, and the for developing energy conservation furnace fan efficiency, and CAC and environmental impacts, rather than standards in the case of the present heat pumps are on a path to potentially energy savings at point of use, are the NWGFs and MHGFs rulemaking. take effect within a year or two of each fundamental justification of the In addition, there has been extensive other. Nortek stated that depending on proposed standards. (AHRI, No. 0159 at interaction with stakeholder experts and the level set by the CAC and heat pump p. 23) DOE disagrees. As discussed in detailed review by these parties of rule, this could mean that a consumer section III.E.1, DOE considers seven DOE’s analytical models and data in the that now can simply replace a CAC factors (listed at 42 U.S.C. subject furnace standards rulemaking. system with a condensing unit and a 6295(o)(2)(B)(i)) when tentatively As further discussed in section VI.L, coil, may instead have to purchase and determining whether the proposed DOE incorporated a number of inputs install not only a condensing unit and standards are economically justified. from these reviewers into its analyses in coil, but also a 92-percent AFUE furnace DOE considers environmental benefits this rulemaking. For the reasons with a high efficiency motor and a new as part of its evaluation of the need for described in section VI.L, DOE believes thermostat required by the new CAC national energy and water conservation. that the reviews provided by system. Nortek believes this could To date, this accounting for stakeholders in the course of this increase the cost by several thousand environmental benefits has not had a rulemaking could complement the prior dollars, pricing a complete system out of decisive impact on the outcome of any peer review. the reach of many homeowners and standards rulemaking—i.e., DOE would Laclede stated that DOE did not forcing them to seek less expensive have adopted the same standards even respond to Laclede’s Freedom of alternatives. (Nortek, No. 0137 at p. 5) if environmental benefits had not been Information Act (FOIA) request. considered at all. The same is true for (Laclede, No. 0141 at pp. 38–39). DOE In response, DOE understands that today’s SNOPR. DOE further notes that has since responded to this request. many consumers replacing a CAC EPCA requires DOE, in determining the CGS and NJNG stated that under would be more likely to use the existing economic justification of a standard, to section 305(f) [sic] of EPCA and 42 noncondensing furnace (albeit achieving consider the total projected energy U.S.C. 6291(f) [sic], for furnaces with an lower CAC efficiency) rather than savings that are expected to result input capacity of 45 kBtu/h or smaller, purchase and install a new furnace at directly from the standard, and not just DOE cannot promulgate efficiency the same time. It is expected that a the energy savings at point of use. (42 standards that would lead to significant consumer’s decision to install a new U.S.C. 6295(o)(2)(B)(i)(III)) switching from natural gas furnaces to furnace would depend on the age and Laclede stated that key elements of electric resistance heating systems. condition of the existing furnace. the analysis have not been subjected to (CGS, No. 0098 at pp. 4–5; NJNG, No. 8. Certification of Compliance and Level an unbiased and current peer review as 0119 at p. 2) (DOE believes the of Precision required by an OMB Bulletin. Laclede commenters intended to reference 42 commented that the peer review cited in U.S.C. 6295(f); 42 U.S.C. 6291(f) does In this SNOPR, DOE is clarifying the the NOPR is approximately eight years not exist.) In response, DOE notes that standards to reflect the level of because the standard proposed in this old and does not cover a number of key precision required under the reporting SNOPR for furnaces with a certified elements in DOE’s furnaces analysis. and compliance requirements. In the input capacity of 55 kBtu/h or smaller Laclede stated that the peer review January 2016 Test Procedure Final Rule, process was insufficiently robust and is easily met by typical equipment in the market, it would not be expected to DOE clarified that a represented AFUE independent. (Laclede, No. 0141 at pp. value is to be truncated to the tenth of 37–38) lead to significant fuel switching for such furnaces. a percentage point. 81 FR 2628, 2638; 10 As discussed in more detail in section CFR 429.18(a)(2)(vii). Compliance for VI.L, DOE conducted formal peer Carrier stated that the rapid pace of furnaces and boilers is determined at reviews of the energy conservation regulatory change on contractors and this level of precision. This SNOPR standards development process and the consumers (due to revised furnace proposes to amend the standards to analyses that are typically used, and standards in addition to other regulatory reflect a consistent level of precision prepared a Peer Review Report, revisions and new regulations with the compliance and reporting consistent with the requirements of introduced throughout the last decade) OMB’s Bulletin, that describes the peer will create ongoing confusion in the requirements. DOE also proposes a review. Generation of this report marketplace, thereby increasing the risk clarification that input capacity for the of poor installation quality and purpose of certifying compliance means 28 National Climate Assessment 2014 (Available customer dissatisfaction. (Carrier, No. the nameplate maximum fuel input rate. at: http://nca2014.globalchange.gov/). The National 0116 at p. 33) There have been limited These revisions are for clarification and Security Implications of a Changing Climate (May changes in the standards applicable for consistency, and reflect current practice. 2015), The White House (Available at: https:// DOE does not anticipate that these www.whitehouse.gov/the-press-office/2015/05/20/ NWGFs since originally established in white-house-report-national-security-implications- EPCA. In addition, condensing NWGFs revisions would impact the current changing-climate). already have a significant market share, compliance of a manufacturer.

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IV. Methodology and Discussion of 1. Scope of Coverage and Product energy used, by capacity, or by other Related Comments Classes performance-related features that justify a. General Approach a different standard. In making a This section addresses the analyses determination whether capacity or other DOE has performed for this rulemaking EPCA defines a ‘‘furnace’’ as ‘‘a performance-related feature justifies a with regard to NWGFs and MHGFs. product which utilizes only single- different standard, DOE must consider Separate subsections address each phase electric current, or single-phase such factors as the utility of the feature component of DOE’s analyses. electric current or DC current in to the consumer and other factors DOE Comments on the methodology and conjunction with natural gas, propane, deems appropriate. (42 U.S.C. 6295(q)) DOE’s responses are presented in each or home heating oil, and which: In response to the March 2015 NOPR, section. (1) Is designed to be the principal a number of interested parties raised heating source for the living space of a DOE used several analytical tools to concerns pertaining to potential impacts residence; estimate the impact of the standards of a national condensing standard on (2) is not contained within the same proposed in this document. The first certain consumers as a result of either cabinet with a central air conditioner increased installation costs (due to tool is a spreadsheet that calculates the whose rated cooling capacity is above installing a condensing furnace) or LCC savings and PBP of potential 65,000 Btu per hour; switching to electric heat (resulting in amended or new energy conservation (3) is an electric central furnace, higher monthly bills). Several standards. The national impacts electric boiler, forced-air central commenters responding to the March analysis uses a second spreadsheet set furnace, gravity central furnace, or low 2015 NOPR recommended that DOE that provides shipments forecasts and pressure steam or hot water boiler; and consider establishing a separate product calculates national energy savings and (4) has a heat input rate 29 of less than class for furnaces with a lower input net present value of total consumer 300,000 Btu per hour for electric boilers capacity, one of the statutory bases for costs and savings expected to result and low pressure steam or hot water establishing a separate product class, from potential energy conservation boilers and less than 225,000 Btu per and analyze a less stringent standard to standards. DOE uses the third hour for forced-air central furnaces, reduce negative impacts on some spreadsheet tool, the Government gravity central furnaces, and electric furnace consumers while maintaining Regulatory Impact Model (GRIM), to central furnaces.’’ (42 U.S.C. 6291(23)) the overall economic and environmental assess manufacturer impacts of potential DOE has incorporated this definition benefits of the standards. 80 FR 55038, standards. These three spreadsheet tools into its regulations in the Code of 55038–39 (Sept. 14, 2015). The are available on the DOE Web site for Federal Regulations (CFR) at 10 CFR September 2015 NODA, therefore, this rulemaking: www1.eere.energy.gov/ 430.2. contained analyses examining the buildings/appliance_standards/ EPCA’s definition of a ‘‘furnace’’ potential impacts of such a product rulemaking.aspx?ruleid=62. covers the following types of products: class. In the September 2015 NODA, Additionally, DOE used output from the (1) Gas furnaces (non-weatherized and DOE discussed certain comments that latest version of EIA’s Annual Energy weatherized); (2) oil-fired furnaces (non- were received in response to the March Outlook (AEO), a widely known energy weatherized and weatherized); (3) 2015 NOPR that were relevant to such forecast for the United States, for the mobile home furnaces (gas and oil- a product class. emissions and utility impact analyses. fired); (4) electric resistance furnaces; In response to the March 2015 NOPR (5) hot water boilers (gas and oil-fired); and September 2015 NODA, several A. Market and Technology Assessment (6) steam boilers (gas and oil-fired); and stakeholders recommended that DOE establish separate product classes based DOE develops information in the (7) combination space/water heating on furnace capacity to preserve the market and technology assessment that appliances (water-heater/fancoil availability of non-condensing NWGFs provides an overall picture of the combination units and boiler/tankless for buildings with lower heating loads market for the products concerned, coil combination units). As discussed in and, thereby help alleviate the negative including the purpose of the products, the March 2015 NOPR, DOE agreed to impacts of the proposed standard. the industry structure, manufacturers, the partial vacatur and remand of the (ASAP, No. 0154–1 at p. 8; ASE, No. market characteristics, and technologies June 2011 DFR, specifically as it related 0115 at p. 1; ACEEE, No. 0113 at p. 3; used in the products. This activity to energy conservation standards for NWGFs and MHGFs in the settlement NMHC, NAA, and NLHA, No. 0117 at p. includes both quantitative and 5; Joint Consumer Commenters, No. qualitative assessments, based primarily agreement to resolve the litigation in American Public Gas Ass’n v. U.S. Dept. 0123 at pp. 8, 35; NRDC, No. 0134 at pp. on publicly-available information. The 2, 4–5; NRDC, No. 0186 at p. 1; A Ware, subjects addressed in the market and of Energy (No. 11–1485, D.C. Cir. Filed Dec 23, 2011). 80 FR 13120, 13130–32 No. 0204 at p. 1; NPGA, No. 0171 at p. technology assessment for this 2) 30 Furthermore, ACEEE and AHRI rulemaking include: (1) A determination (March 12, 2015). Therefore, DOE only considered amending the energy stated that a size threshold would not of the scope of the rulemaking and present the potential enforcement product classes; (2) manufacturers and conservation standards for these two product classes of residential furnaces challenges associated with regional industry structure; (3) existing standards. (ACEEE, No. 0113 at p. 3; efficiency programs; (4) historical (i.e., NWGFs and MHGFs) in the March 2015 NOPR. AHRI, No. 0181 at p. 2) Ubuntu shipments information; (5) market and As discussed in section III.A, when expressed the belief that establishing industry trends; and (6) technologies or evaluating and establishing energy separate furnace classes by capacity is a design options that could improve the conservation standards, DOE is energy efficiency of NWGFs and 30 authorized to divide covered products A notation in this form provides a reference for MHGFs. The key findings of DOE’s information that is in Docket No. EERE–2014–BT– into product classes by the type of market assessment are summarized STD–0031 (unless otherwise denoted) from the below. See chapter 3 of the SNOPR TSD listed stakeholder on the specified page of the 29 DOE uses certified input capacity to mean heat specified docket number. For example, the first for further discussion of the market and input rate in determining scope of coverage and comment is from ASAP on p. 8 of document technology assessment. product class. number 0154–1 in the docket.

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viable solution for achieving energy AGL Resources stated that EPCA gives instances where there would otherwise efficiency while also protecting low- DOE the authority to establish separate be negative impacts due to a higher income and minority communities. product classes on the basis of product standard. (Ubuntu, No. 0191 at p. 1) capacity, and DOE has previously opted b. Condensing and Non-Condensing NRDC stated that separating furnaces to create separate product classes on the Furnaces based on capacity is reasonable because basis of product capacity for a wide larger and smaller furnaces are distinct variety of covered products. (AGL Other stakeholders urged DOE to set products that serve different homes. Resources, No. 0112 at pp. 15–16) standards based on the use of NRDC stated that the consumer utility Johnson also commented that a two- condensing vs. non-condensing in both cases is still home heating but product-class standard could help technology, arguing that the type of smaller furnaces provide sufficient prevent furnace oversizing, which could venting required for furnaces constitutes consumer utility only for those homes increase the seasonal efficiency of the a ‘‘feature.’’ In the March 2015 NOPR, with lower heating loads, whether due furnace and reduce energy DOE stated that it would not consider to excellent insulation or geographic consumption. In addition, Johnson separate product classes for condensing location. (NRDC, No. 0134 at pp. 6–7) stated that a two-product-class standard and non-condensing furnaces and NRDC also theorized that separating could help encourage other energy detailed its reasons for not doing so. 80 furnaces based on capacity may reduce conservation measures, such as FR 13120, 13137–38 (March 12, 2015) the negative impacts for manufacturers increasing the insulation in the ceiling However, in response to the March 2015 by limiting conversion costs. (NRDC, and walls, improved caulking and NOPR, a number of stakeholders still No. 0134 at pp. 3–4) weather-stripping doors and windows, encouraged DOE to establish separate Many stakeholders commented in to enable consumers to purchase a small efficiency standards for non-condensing response to DOE’s September 2015 furnace. (Johnson, No. 0190 at p. 1) In and condensing NWGFs. Those NODA that they supported creation of its comments, the Joint Consumer comments are available in the docket for product classes by capacity. AHRI, Commenters requested DOE consider this rulemaking. Those same Carrier, JCI, and Ingersoll Rand stated tailoring the rule to the particular commenters raised, essentially, the that separating small and large furnaces circumstances (e.g. mild climates) that same comments in response to the by product class provides a reasonable result in consumers having net costs September 2015 NODA while also solution for most of the installations based on furnace input capacity in order responding to the concept of a small that cannot accommodate a condensing to reduce the number of losers and capacity product class. furnace without extraordinary costs or increase the overall net benefit. (Joint As explained in detail in the March installation site renovations; address the Consumer Commenters, No. 0123 at pp. 2015 NOPR, DOE has implemented the concern of those areas of the U.S. that 1, 11) ‘‘feature’’ provision of EPCA such that have low heating loads where the DOE has tentatively concluded that the Department ascertains the utility of installation of a condensing furnace is the establishment of a small furnace the purported feature to the consumer as not economically justified; and focus class has merit. Accordingly, DOE the basis for setting a separate product the benefit of a condensing standard on decided to develop a capacity-based class. 80 FR 13120, 13137–38 (March the input capacities where energy approach to set standards for NWGFs. In 12, 2015). In the present case, DOE savings are maximized. (AHRI, No. 0181 determining whether a less-stringent maintains the view that the consumer at pp. 1–2; Carrier, No. 0183 at pp. 2– standard is justified for small NWGFs utility of a furnace is that it provides 3; JCI, No. 0202 at p. 3; Ingersoll Rand, pursuant to 42 U.S.C. 6295(q), DOE heat to a dwelling, and that the type of No. 0203 at p. 1) Carrier and JCI added considered the costs and benefits of venting used for particular furnace that it benefits economically-challenged such a capacity-based approach in light technologies does not impact that or low-income individuals/families with of the results contained in the utility. As further explained in the a gas furnace option that minimizes September 2015 NODA. In this way, March 2015 NOPR, DOE has installation or electrical changes. DOE sought to determine the impact consistently followed this approach in (Carrier, No. 0183 at p.3; JCI, No. 0202 that a modified standard in an SNOPR its various appliance rulemakings, at p. 3) Carrier commented that the would be expected to have in terms of making such determinations on a case- approach may be satisfactory to all mitigating fuel switching. The building by-case basis to reflect the unique stakeholders and satisfy the parameters sample and furnace sizing criteria characteristics and circumstances of that guide DOE’s decision-making developed for the LCC analysis different products. As explained in the process. Carrier, Ingersoll Rand, and (described in section E) show that small March 2015 NOPR, disparate products AHRI stated that this concept warranted furnaces are commonly installed in may have very different consumer further consideration. (Carrier, No. 0183 circumstances that are different from utilities, thereby making direct at p. 2; Ingersoll Rand, No. 0182 at p. those of large furnaces—namely that the comparisons difficult and potentially 4; AHRI, No. 0181 at p. 1) buildings into which small furnaces are misleading. Id. Furthermore, tying the Lennox also agreed that the installed are more often smaller or are concept of ‘‘feature’’ to a specific September 2015 NODA justified found in the South where heating loads technology, as suggested in the gas creating a separate product class for are much lower due to warmer climate. utility comments, would effectively lock lower-input capacity non-condensing The cost-benefit analysis found that a in the technology existing at the time of furnaces. Lennox stated that lower less-stringent standard for small such decision as the ceiling for product capacity furnaces serve smaller furnaces would be economically efficiency. As a result, doing so would residences where the physical justified because it would reduce the eliminate DOE’s ability to address complexities and costs of replacing non- number of consumers experiencing net technological advances that could yield condensing furnaces with condensing costs (due to higher installation costs for significant consumer benefits in the furnaces is unduly burdensome, and condensing furnaces or switching to form of lower energy costs while that setting separate standard levels for electric heat). Thus, establishing a less providing the same functionality for smaller non-condensing furnaces could stringent standard for small furnaces consumers. Moreover, establishing increase economic benefits and energy would reduce fuel switching because separate standards based on preserving savings. (Lennox, No. 0201 at pp. 3–4) they are more likely to be used in a type of venting (i.e., establishing

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

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

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

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as issue 1 in section VII.E ‘‘Issues on combustion; (7) pulse combustion; (8) options are suitable for further Which DOE Seeks Comment.’’ low NOX premix burners; (9) burner de- consideration in an energy conservation rating; (10) insulation improvements; standards rulemaking: d. Other Comments (11) off-cycle dampers; and (12) direct (1) Technological feasibility. Technologies CEC expressed concern about the venting. 80 FR 13119, 13138 (Mar. 12, that are not incorporated in commercial impact that a two-tier capacity-based 2015). In addition, DOE identified three products or in working prototypes will not be approach would have on new technologies that would reduce the considered further. construction in the nation, particularly standby mode and off mode energy (2) Practicability to manufacture, install, given the preemptive effect of federal consumption of residential furnaces: (1) and service. If it is determined that mass appliance standards on state building Low-loss linear transformer (LL–LTX); production and reliable installation and codes. CEC stated that a two-tier (2) switching mode power supply servicing of a technology in commercial products could not be achieved on the scale capacity-based approach would create a (SMPS); and (3) control relay for models difficult situation for California: Either necessary to serve the relevant market at the with brushless permanent magnet time of the projected compliance date of the the state could continue to ensure that (BPM) motors. Id. standard, then that technology will not be furnaces are properly sized, which may In response to DOE’s proposal, NRDC considered further. mean installing a smaller-size furnace commented that DOE should consider (3) Impacts on product utility or product with a lower efficiency standard, or it using a control relay to completely availability. If it is determined that a could require larger furnaces to be disconnect the BPM motor and other technology would have significant adverse installed, but sacrifice proper sizing for controls when these components of a impact on the utility of the product to a more-efficient product. (CEC, No. 0172 furnace are not in use. In order to significant subgroups of consumers or would at pp. 1–2) DOE recognizes the address manufacturer concerns with result in the unavailability of any covered preemptive effect energy conservation product type with performance regard to product lifetime, NRDC characteristics (including reliability), standards may have on State building suggests that DOE assess whether such features, sizes, capacities, and volumes that code standards. (See 42 U.S.C. a technology option can be are substantially the same as products 6297(f)(3)) The sizing assumptions used implemented in a way that minimizes generally available in the United States at the for the cost-benefit analysis are the number of power cycles, such as time, it will not be considered further. discussed in section IV.E. only disconnecting the motor and (4) Adverse impacts on health or safety. If Some stakeholders commented on controls components when the furnace it is determined that a technology would separate small and large product classes has been inactive for more than 24 have significant adverse impacts on health or for MHGFs. AHRI and JCI requested that hours. NRDC estimates that this safety, it will not be considered further. DOE analyze separate standard levels technology option could potentially 10 CFR part 430, subpart C, appendix A, for small and large MHGFs. (AHRI, No. provide 2.5 billion kWh of annual 4(a)(4) and 5(b). 0195 at p. 1; JCI, No. 0202 at p. 4) JCI energy savings. (NRDC, No. 0134 at p. In sum, if DOE determines that a suggested that 80-percent AFUE MHGFs 8) technology, or a combination of with an input capacity of up to 80 kBtu/ In response, DOE notes that in most technologies, fails to meet one or more h should be allowed in replacement furnace installations, the furnace fan is of the above four criteria, it will be applications to provide cost-effective still used during periods when the excluded from further consideration in replacement units for consumers that furnace itself is not operating in order the engineering analysis. The reasons are typically known to be an to provide airflow for cooling and for eliminating any technology are economically-challenged market ventilation purposes. As such, DOE discussed below. segment. (JCI, No. 0202 at p. 4) ACEEE believes that the potential energy The subsequent sections include did not recommend a size cutoff for savings of a technology option which comments from interested parties in MHGFs, but stated that if DOE were to disconnects power from BPM and response to the March 2015 NOPR and consider such a cutoff, it would need to controls components after long periods the September 2015 NODA pertinent to be much lower than that for NWGFs. of inactivity would be small, due to the the screening criteria, DOE’s evaluation (ACEEE, No. 0113 at p. 5) frequency for which the fan is in active of each technology option against the DOE does not believe that the mode. However, DOE welcomes further screening analysis criteria, and whether considerations for small NWGFs apply feedback as to a technology option that DOE determined that a technology equally to small MHGFs. In particular, would disconnect the BPM motor and option should be excluded (‘‘screened DOE believes the installation and usage controls components after long periods out’’) based on the screening criteria. of small and large MHGF are not of inactivity, especially with regard to 1. Screened-Out Technologies significantly different and that the cost- the potential energy savings and benefit is similar regardless of capacity. reliability impacts of such a technology DOE screened out four identified Therefore, DOE is not proposing a option. This is identified as issue 2 in technologies: Pulse combustion, burner separate product class for small MHGFs. section VII.E, ‘‘Issues on Which DOE de-rating, low-NOX premix burners, and control relay to depower brushless 2. Technology Options Seeks Comment.’’ After identifying potential technology permanent magnetic motors. The In the market analysis and technology options for improving the efficiency of rationale for screening out each these assessment for the March 2015 NOPR, residential furnaces, DOE performed the technologies is outlined below. DOE identified 12 technology options screening analysis (see section IV.B of DOE decided to screen out the use of that would be expected to improve the this SNOPR or chapter 4 of the SNOPR pulse combustion from further analysis. AFUE of NWGFs and MHGFs, as TSD) on these technologies to determine Pulse combustion furnaces use self- measured by the DOE test procedure: (1) which could be considered further in sustaining pressure waves to draw a Using a condensing secondary heat the analysis and which should be fresh fuel-air mixture into the exchanger; (2) increasing the heat eliminated. combustion chamber, heat it by way of exchanger surface area; (3) heat compression, and then ignite it using a exchanger baffles; (4) heat exchanger B. Screening Analysis spark. Based on manufacturer feedback surface feature improvements; (5) two- DOE uses the following four screening received during the manufacturer stage combustion; (6) step-modulating criteria to determine which technology interviews conducted for the analysis

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for the June 2011 DFR, DOE and burners, allowing for the integration using a control relay to depower BPM understands that pulse combustion of premix burner technology in those motors could reduce the lifetime of the furnaces have had reliability and safety products. Incorporating this technology motors (the reason for this reduction in issues in the past, and therefore, into furnaces on a large scale will product lifetime is further explained in manufacturers do not consider their use require further research and chapter 4 of the TSD). DOE believes that a viable option to improve efficiency. In development due to the technical this reduction in lifetime would lead to addition, manufacturers can achieve constraints imposed by current furnace a reduction in utility of the product. For similar or greater efficiencies through burner and heat exchanger design. this reason, DOE is not including the use of other technologies that do not Lennox commented that the screening control relays for models with brushless operate with positive pressure in the analysis should have prevented the permanent magnet motors as a heat exchanger, such as those relying on elimination of non-condensing furnaces technology option, as it could reduce induced draft. (In pulse combustion from the market because these units consumer utility. systems, the positive pressure in the cannot be easily replaced by condensing Ingersoll Rand commented that due to heat exchanger could cause hazardous furnaces. Lennox argued that under a a lack of manufacturer experience, combustion products (e.g., carbon condensing furnace standard, implementation of SMPS as a monoxide) to leak into the home if consumers using non-condensing technology option for improving furnace fatigue caused the heat exchanger to furnaces in cold weather could be at a efficiency in standby/off mode may breach.) For these reasons, DOE is not safety risk if the furnace fails, due to the introduce reliability issues. Ingersoll including pulse combustion as a difficulty of replacing a non-condensing Rand believes that when considering the technology option. furnace with a condensing model. amount of energy savings offered by DOE also decided to screen out burner Therefore, Lennox believes that the SMPS, which Ingersoll Rand considers de-rating. Burner de-rating reduces the potential elimination of non-condensing to be low, the potential reliability issues burner firing rate while maintaining the furnaces from the marketplace is a for consumers are not justified. same heat exchanger geometry/surface violation of screening criteria number 4: (Ingersoll Rand, NOPR public meeting area and fuel-air ratio, which increases Adverse impacts on health or safety. transcript, No. 0044 at pp. 99–100) In the ratio of heat transfer surface area to (Lennox, No. 0125 at pp. 6–7) response, DOE considers SMPS to have the energy input, which increases As stated in 10 CFR part 430, subpart reached technological maturity in other efficiency. However, the lower energy C, appendix A, 4(a)(4) and 5(b), DOE consumer products, and is not aware of input means that less heat is provided screens out a technology option from any specific reasons as to why it would to the user than is provided using further consideration in the engineering not be able to achieve the same level of conventional burner firing rates, analysis if DOE determines that the long-term reliability in furnaces that it resulting in slower heating and longer technology option itself would have has reached in other products. As such, operating hours and/or not enough heat ‘‘significant adverse impacts on health DOE considers SMPS as a technology available to heat the intended space. As or safety.’’ Although DOE recognizes option to reduce standby/off mode a result of the decreased heat output of that replacing a non-condensing furnace energy consumption in the analyses for furnaces with de-rated burners, DOE has with a condensing furnace may take this SNOPR. screened out burner de-rating as a additional time as compared to Goodman commented that DOE technology option, as it could reduce replacing a non-condensing furnace, should not consider LL–LTX as a consumer utility. DOE does not believe that the amount technology option for reducing standby/ In addition, DOE is screening out low- of time is significant enough to off mode energy consumption. Due to NOX premix burners from further constitute a safety issue for occupants what Goodman sees as currently limited analysis. Premix burners eliminate the whose furnace has failed. The market penetration, Goodman believes need for secondary air in the additional time for replacing a non- that manufacturers need more time to combustion process by completely condensing furnace with a condensing research the failure modes, repair costs, mixing heating fuel with primary air furnaces was considered in the LCC and design changes that are incurred prior to ignition. This raises the overall analysis (section IV.F of this SNOPR with implementation of LL–LTX flame temperature, which improves heat and chapter 8 of the SNOPR TSD), and technology, and that the LCC analysis transfer and AFUE. In-shot burners that DOE estimated that the maximum cannot currently address the repair costs are commonly used in residential additional time needed for such associated with LL–LTX. (Goodman, No. furnaces, on the other hand, cannot replacement would total approximately 0135 at pp. 4–5) DOE is not aware of entrain sufficient primary air to 5 hours. DOE considered safety any specific barriers to implementation completely premix the air and gas. As concerns presented by commenters of LL–LTX as a technology option to a result, premix burner design responding to the March 2015 NOPR reduce standby/off mode energy incorporates a fan to ensure sufficient and September 2015 NODA (see section consumption. DOE believes that due to and complete mixing of the air and fuel III.F.2) but determined that they were the technological similarities between prior to combustion and does so by not sufficient to screen out condensing LL–LTX and LTX technology, the latter delivering the air to the fuel at positive heat exchanger technology. of which is already commonplace in pressure. To the extent of DOE’s Among the standby and off mode many consumer products, LL–LTX knowledge, and based on manufacturer technologies, DOE screened out using a would have little difficulty achieving feedback during the manufacturer control relay to depower BPM motors market acceptance in furnaces. interviews conducted prior to the March due to feedback received during the Therefore, DOE has considered LL–LTX 2015 NOPR, low-NOX premix burners manufacturer interviews conducted for as a technology option to reduce have not yet been successfully the residential furnaces June 2011 DFR. standby/off mode energy consumption incorporated into a residential furnace For this technology option, a switch is in this SNOPR. design that is widely available on the spring-loaded to a disconnected 2. Remaining Technologies market. DOE is aware that low-NOX position, and can only close to allow a premix burners have been incorporated supply of electrical power to the BPM Through a review of each technology, into boilers, but boilers have motor upon an inrush of current. DOE tentatively concludes that all of the significantly different heat exchangers Manufacturer interviews indicated that other identified technologies listed in

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section IV.A.2 met all four screening this relationship is referred to as a cost- approach in combination with a reverse- criteria as needed to be examined efficiency curve. engineering approach to identify the further as design options in DOE’s DOE conducted the AFUE engineering technology options needed to reach NOPR analysis. In summary, DOE did analysis for residential furnaces in this incrementally higher efficiency levels. not screen out the following technology SNOPR using a methodology similar to DOE physically tore down newly options to improve AFUE: (1) that which was used for the March 2015 manufactured furnaces for its analysis. Condensing secondary heat exchanger; NOPR, but with some updates which are Prior to teardown, all of the furnaces (2) increased heat exchanger face area; discussed both below and in chapter 5 were tested to verify their AFUE ratings (3) heat exchanger baffles; (4) heat of the SNOPR TSD. For completeness and determine their standby mode and exchanger surface feature and convenience of the reader, DOE is off mode power consumption (in watts). improvements; (5) two-stage reiterating portions of the engineering From the market analysis, DOE was able combustion; (6) step-modulating analysis information already presented to identify the most common AFUE combustion; (7) insulation in the March 2015 NOPR. The AFUE ratings of NWGF and MHGF on the improvements; (8) off-cycle dampers; engineering analysis for this SNOPR market and used this information to and (9) direct venting. DOE also used a combination of the efficiency- select AFUE efficiency levels for maintained the following technology level and reverse-engineering analysis. After identifying AFUE options to improve standby mode and approaches. More specifically, DOE efficiency levels for analysis, DOE used off mode energy consumption: (1) Low- identified the efficiency levels for the reverse-engineering approach (see loss transformer; and (2) switching analysis and then used the reverse- section IV.C.2.a) to determine the mode power supply. DOE determined engineering approach to determine both manufacturer production cost (MPC) at that these technology options are the technologies used and their each AFUE efficiency level identified technologically feasible because they are associated manufacturing costs at those for analysis. being used or have previously been used levels. In the residential furnace market, For the analysis of new standby mode in commercially-available products or manufacturers may use slight variations and off-mode energy conservation working prototypes. DOE also finds that on designs to achieve a given efficiency standards, DOE used a design-option all of the remaining technology options level. The benefit of using the approach to identify the efficiency meet the other screening criteria (i.e., efficiency-level approach is that it levels that would result from practicable to manufacture, install, and allows DOE to examine products at each implementing certain design options for service and do not result in adverse efficiency level regardless of the specific reducing power consumption in standby impacts on consumer utility, product design options that manufacturers use to mode and off mode. availability, health, or safety). For achieve that level, so the analysis can a. Baseline Efficiency Level and Product additional details, see chapter 4 of the account for variations in design. Using Characteristics SNOPR TSD. the reverse-engineering approach to estimate production cost at each DOE selected baseline units typical of C. Engineering Analysis efficiency level allows DOE to analyze the least-efficient commercially- In the engineering analysis, DOE actual models as the basis for available residential furnaces. DOE establishes the relationship between the developing the MSPs. selected baseline units as reference manufacturer selling price (MSP) and For the standby mode and off mode points for both NWGFs and MHGFs, improved NWGF and MHGF efficiency. analysis conducted for this SNOPR, against which it measured changes This relationship serves as the basis for DOE also replicated the methodology resulting from potential amended cost-benefit calculations for individual that was used for this analysis in the energy conservation standards. The consumers, manufacturers, and the March 2015 NOPR. In this analysis, baseline unit in each product class Nation. DOE typically structures the DOE adopted a design option approach, represents the basic characteristics of engineering analysis using one of three which allowed for the calculation of products in that class. Additional approaches: (1) Design option; (2) incremental costs through the addition details on the selection of baseline units efficiency level; or (3) reverse of specific design options to a baseline may be found in chapter 5 of the SNOPR engineering (or cost assessment). The model. DOE decided on this approach TSD. design-option approach involves adding because it did not have sufficient data DOE uses the baseline unit for the estimated cost and associated to execute an efficiency-level analysis, comparison in several phases of the efficiency of various efficiency- as manufacturers typically do not rate or analyses, including the engineering improving design changes to the publish data on the standby mode and/ analysis, LCC analysis, PBP analysis, baseline product to model different or off mode energy consumption of their and the NIA. To determine energy levels of efficiency. The efficiency-level products. As such, DOE was not able to savings that will result from an approach uses estimates of cost and conduct a reverse-engineering approach amended energy conservation standard, efficiency of products available on the due to a lack of definitive knowledge of DOE compares energy use at each of the market at distinct efficiency levels to the electrical energy consumption of higher energy efficiency levels to the develop the cost-efficiency relationship. products on the market. Also, the design energy consumption of the baseline The reverse-engineering approach options used to obtain higher unit. Similarly, to determine the involves testing products for efficiency efficiencies were composed of changes in price to the consumer that and determining cost from a detailed purchased parts, so obtaining price will result from an amended energy bill of materials (BOM) derived from quotes on these electrical components conservation standard, DOE compares reverse engineering representative was more accurate than attempting to the price of a baseline unit to the price products. For both NWGF and MHGF, determine their manufacturing costs via of a unit at each higher efficiency level. the efficiency ranges from that of the a reverse-engineering analysis. least-efficient unit sold today (i.e., the AFUE baseline efficiency level) to the 1. Efficiency Levels In the analysis of amended AFUE maximum technologically feasible As noted above, for analysis of standards, when calculating the price of efficiency level. At each efficiency level amended AFUE standards in this a baseline furnace and comparing it to examined, DOE determines the MSP; SNOPR, DOE used an efficiency-level the price of units at each higher

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efficiency level, DOE factored in future requiring constant torque BPM motors and improved PSC motors will be the changes to the indoor blower motor as the minimum standard indoor blower baseline design feature for MHGF units. baseline design option resulting from motor technology option for NWGF DOE has included constant torque BPM the 2014 furnace fans final rule.31 79 FR units, and improved primary split motors and improved PSC motors in the 38219 (July 3, 2014), 10 CFR 430.32(y). capacitor (PSC) motors as the minimum MPCs for NWGF and MHGF units, The 2014 furnace fans final rule set new standard technology option for MHGF respectively. The current and expected baseline efficiency levels for furnace units. As such, beginning in July 2019, baseline motor types are listed in Table fans requiring compliance on July 3, constant torque BPM motors will be the IV.1. 2019, which include a level effectively baseline design feature for NWGF units,

TABLE IV.1—BASELINE BLOWER MOTOR TYPES [Current and expected in 2019]

Expected Current typical typical baseline Product class baseline blower blower motor type motor type starting in 2019

NWGF ...... PSC ...... Constant-Torque BPM. MHGF ...... PSC ...... Improved PSC.

Currently, the baseline indoor blower during fan operation. The basic type of the building airflow to a wide range of motor design option for all residential BPM motor is a constant torque BPM operational demands. furnace types is a PSC motor. From motor, which accepts a specified Table IV.2 presents the baseline AFUE here, the next step up is an improved number of torque commands from an levels identified for each product class PSC motor, which consumes less energy outside control source. A second type of of furnaces. The baseline AFUE levels during fan operation than a standard BPM motor is a constant airflow BPM analyzed are the same as the current PSC motor. As compared to improved motor, which is similar to a constant PSC motors, BPM motors offer further torque BPM motor, but allows for more federal minimum AFUE standards for efficiency improvements. BPM motors precise operational commands. Constant furnaces, as established by the feature a completely redesigned inner airflow BPM motors accept precise November 2007 final rule. 10 CFR drive mechanism, which significantly airflow commands from an outside 430.32(e)(1)(ii); 72 FR 65136, 65169 reduces electricity wasted as heat control source, which allow it to adjust (Nov. 19, 2007).

TABLE IV.2—BASELINE RESIDENTIAL FURNACE AFUE EFFICIENCY LEVELS

Certified input capacity AFUE Product class (kBtu/h) (percent)

Non-Weatherized Gas Furnaces ...... ≤55 kBtu/h ...... 80 >55 kBtu/h ...... 80 Mobile Home Gas Furnaces ...... All ...... 80

Standby/off mode resistance elements, nor any electrical during the non-heating season because auxiliaries such as the blowers or the indoor blower motor in the furnace ‘‘Standby mode’’ and ‘‘off mode’’ pumps, are activated.’’ (10 CFR part 430, is needed to move air for the AC side power consumption are defined in the subpart B, appendix N, section 2.6) A of the home’s HVAC system and that the DOE test procedure for residential ‘‘seasonal off switch’’ is defined as ‘‘the furnaces and boilers. DOE defines switch is typically used only as a switch on the furnace or boiler that, ‘‘standby mode’’ for residential furnaces service or repair switch. Rheem when activated, results in a measurable and boilers as ‘‘the condition during the commented that it does not believe that change in energy consumption between heating season in which the furnace or energy consumption is the same for boiler is connected to the power source, the standby and off modes.’’ (10 CFR standby and off mode, but also stated and neither the burner, electric part 430, subpart B, appendix N, section that it has not rated any furnaces in the resistance elements, nor any electrical 2.7.) off mode. (Rheem, No. 0142 at p. 5). As auxiliaries such as blowers or pumps, Through reviewing product literature previously discussed, DOE estimates are activated.’’ (10 CFR part 430, subpart and discussions with manufacturers, that for a large majority of furnaces an B, appendix N, section 2.8) ‘‘Off mode’’ DOE has found that furnaces generally off switch is not included on the unit. for residential furnaces and boilers is do not have a seasonal off switch that However, DOE notes that if a furnace defined as ‘‘the condition during the would be used to turn the product off does include an off switch, then the non-heating season in which the furnace during the off season. Manufacturers energy consumption in off mode for that or boiler is connected to the power stated that if a switch is included with furnace would be reduced below that of source, and neither the burner, electric a product, it is left in the on position standby mode. Accordingly, in the

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

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analysis of standby mode and off mode DOE understands EEI’s concern that b. Other Energy Efficiency Levels energy conservation standards, DOE the max-tech efficiency level identified AFUE treated the standby mode and the off in the March 2015 NOPR analysis does mode power consumption for not account for additional functions that Table IV.4 and Table IV.5 show the residential furnaces as equal in order to consume energy in standby/off mode efficiency levels DOE selected for be conservative. DOE requests further that may be added to units in the future. analysis of amended AFUE standards comment on the treatment of standby However, DOE believes that, as EEI also for NWGF (both small and large) and mode and off mode energy consumption commented, the conservatively-selected MHGF, respectively, along with a (as defined by DOE) as equal. This is baseline efficiency level that DOE description of the typical technological identified as issue 3 in section VII.E, selected in the March 2015 NOPR may change at each level. The efficiency ‘‘Issues on Which DOE Seeks be substantially lower (i.e. higher power Comment.’’ consumption) than the efficiencies of levels analyzed for both small and large For the standby mode and off-mode many units currently on the market NWGF in this SNOPR are the same as analysis, DOE identified baseline today. DOE believes that the baseline those which were analyzed for NWGF in components as those that consume the used for this SNOPR allows for the the March 2015 NOPR. For MHGF, the most electricity during the operation of future addition of furnace functions that efficiency levels analyzed in this those modes. Because it would not be operate in the standby/off mode, while SNOPR are the same as in the NOPR, practical for DOE to test every furnace still allowing the unit to comply with except at the max-tech efficiency level, on the market to determine the baseline the proposed standard. Additionally, which is 96 percent AFUE in this efficiency, and manufacturers do not due to a lack of detailed information as SNOPR, but was 97 percent AFUE in the currently report standby mode and off to what additional functions may be March 2015 NOPR. 80 FR 13120, 13141 mode energy consumption, DOE added to furnaces in the future, DOE has (March 12, 2015). This change occurred ‘‘assembled’’ the most consumptive tentatively maintained the March 2015 because the January 2016 residential baseline components from the models NOPR baseline efficiency level in this furnaces test procedure final rule tested to model the electrical system of SNOPR. However, DOE seeks further amended the rounding requirements for a furnace with the expected maximum detailed feedback as to anticipated AFUE ratings to require rounding to the system standby mode and off mode furnace functions that would operate in nearest 0.1 percent AFUE point, rather power consumption observed during the standby/off mode and the energy than rounding to the nearest 1 percent consumption of such functions in testing of furnaces. AFUE point, as was required prior to the In response to this approach detailed relation to the baseline efficiency in test procedure amendment. 81 FR 2627, in the March 2015 NOPR, EEI standby/off mode. This is identified as 2638 (Jan. 15, 2016). Because the max- commented that this method of issue 4 in section VII.E, ‘‘Issues on selecting the baseline efficiency level is Which DOE Seeks Comment.’’ The tech MHGF unit in the March 2015 very conservative, and as a result, there components of the baseline standby NOPR analysis was 96.5 percent AFUE, are many units on the market which mode and off-mode consumption level this unit could have been rated as 97 will already comply with the max-tech used in this SNOPR analysis are percent AFUE under the test procedure standby/off mode efficiency level presented in Table IV.3. requirements at the time of the March proposed in the March 2015 NOPR. 2015 NOPR. (10 CFR 430.23(n) as (EEI, No. 169 at p. 12) However, EEI also TABLE IV.3—BASELINE STANDBY codified on January 1, 2016) The max- commented that due to potential future MODE AND OFF MODE POWER CON- tech MHGF unit at the time of the additions of furnace functions that SUMPTION FOR NWGF AND MHGF analysis for this SNOPR was still 96.5 consume energy in standby/off mode percent AFUE, but due to the changes (i.e., smart-grid applications, gas Standby mode in rounding procedures for AFUE demand response, carbon monoxide and off-mode ratings since the March 2015 NOPR, this monitoring, self-diagnostics, Component power con- sumption unit would not be able to achieve a 97 maintenance warnings, energy usage (watts) percent AFUE rating under the current displays, remote temperature settings, DOE test procedure. As such, DOE methane leak detection/warnings, etc.), Transformer ...... 4 revised the MHGF max-tech efficiency the future max-tech standby/off mode ECM Blower Motor (includes level to 96 percent AFUE in the analyses controls) ...... 3 efficiency level may have higher energy for this SNOPR. consumption in standby/off mode than Controls/Other ...... 4 the max-tech identified by DOE. (EEI, Total (watts) ...... 11 No. 0169 at pp. 12–14)

TABLE IV.4—AFUE EFFICIENCY LEVELS FOR NON-WEATHERIZED GAS FURNACES [Small and large]

AFUE Efficiency Level (EL) (%) Technology options

0—Baseline ...... 80 Baseline. 1 ...... 90 EL0 + Secondary condensing heat exchanger. 2 ...... 92 EL1 + Increased heat exchanger area. 3 ...... 95 EL2 + Increased heat exchanger area. 4—Max-Tech ...... 98 EL3 + Increased heat exchanger area + Step-modulating combustion + Constant- airflow BPM blower motor.

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TABLE IV.5—AFUE EFFICIENCY LEVELS FOR MOBILE HOME GAS FURNACES

AFUE Efficiency level (%) Technology options

0—Baseline ...... 80 Baseline. 1 ...... 92 EL0 + Secondary condensing heat exchanger. 2 ...... 95 EL1 + Increased heat exchanger area. 3—Max-Tech ...... 96 EL2 + Increased heat exchanger area.

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

TABLE IV.6—DESIGN FEATURES NOT DIRECTLY INCLUDED IN ANALYSIS OF AFUE EFFICIENCY LEVELS

Design feature Baseline option Enhanced option

NWGF Indoor Blower Motor ...... Constant torque brushless perma- Constant airflow BPM motor. nent magnet (BPM) motor *. MHGF Indoor Blower Motor ...... Improved PSC motor * ...... Constant torque BPM motor. Constant airflow BPM motor. MHGF combustion system ...... Single-stage combustion ...... Two-stage combustion (includes two-stage gas valve, two-speed in- ducer assembly, upgraded pressure switch, and additional controls and wiring). *The baseline design options listed for NWGF and MHGF indoor blower motors will not become effective until 2019 when the 2014 furnace fan rulemaking mandates new efficiency standards for furnace fans.

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

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TABLE IV.7—STANDBY MODE AND OFF MODE EFFICIENCY LEVELS FOR NON-WEATHERIZED GAS AND MOBILE HOME GAS FURNACES

Standby mode and off Efficiency Level EL mode power Technology options consumption (W)

0—Baseline ...... 11 Linear Power Supply with 40VA LTX. 1 ...... 9.5 Linear Power Supply with 40VA LL–LTX. 2 ...... 9.2 SMPS with 20VA LTX. 3—Max-Tech ...... 8.5 SMPS with 20VA LL–LTX.

In response to the analysis DOE EEI also commented that the margin EL3 is smaller than that of a LL–LTX presented in the March 2015 NOPR for of error for the equipment used to test implemented with a linear power standby/off mode efficiency standards, the standby/off mode energy supply at EL1 (20VA vs. 40VA, EEI commented that the Nielsen study consumption of furnaces may be larger respectively, as shown in Table IV.7). referenced by DOE in Chapter 3 (on than the incremental reduction in Because the transformer at EL3 has half page 3–38) of the March 2015 NOPR standby losses between some efficiency the capacity of the transformer at EL1, TSD states that standard 2–3 watt levels. As a result, EEI stated that some the potential energy savings of transformers have no load losses ranging units would not experience a switching to a LL–LTX at EL3 is lower between 0.5 and 1.5 watts, and therefore measurable reduction in standby losses than the savings provided at EL1 (see EEI wanted clarification on how DOE as a result of implementing some of the prior discussion). determined in the March 2015 NOPR design options. (EEI, NOPR Public EEI commented that due to the low that transitioning from a conventional Meeting Transcript, No. 0044 at pp. 94– wattage differences between each linear transformer to a low-loss linear 95) DOE notes that the equipment used efficiency level, implementing the transformer (LL–LTX) could save 1.5 to test the standby/off mode energy design options listed (see Table IV.7) to watts. (EEI, No. 0160 at p. 14) DOE notes consumption of the furnaces in this achieve efficiency levels above baseline that, as discussed in the Nielsen study, analysis has a published accuracy of may not always result in a reduction in these ‘‘standard 2–3 watt transformers’’ within 0.1 percent (see Chapter 5 of the energy consumption. EEI suggested that, feature a much lower capacity than the SNOPR TSD for further information). due to the potential range of standby/off transformers typically used in Between the efficiency levels analyzed, mode energy consumption values for residential furnaces. DOE’s teardown the smallest incremental decrease in units that incorporate any of these given analysis (see section IV.C.2) and review standby/off mode energy consumption design options, units could potentially of product literature indicated that (which occurs between EL1 and EL2) is have a higher energy usage than units furnaces typically ship with much larger 0.3 watts. This is significantly larger which incorporate a design option than both of the 0.1 percent margins of 40VA transformers. DOE estimates that corresponding with a lower efficiency error for EL1 and EL2, which are 0.0095 larger 40 VA transformers used in level (corresponding efficiency levels watts and 0.0092 watts, respectively. residential furnaces will have standby also listed in Table IV.7). Therefore, DOE believes that a reduction losses of approximately two watts. The In response, DOE understands that in standby losses at each efficiency level Nielsen study concludes that an LL– units which incorporate any of the would be captured by current test LTX standby losses are about 25 percent design options listed in Table IV.7 will methods, because the incremental have a range of energy consumption of the losses of a LTX.32 As such, an LL– reductions in standby losses are outside values which may differ from the LTX will consume approximately 25 of the margin of error of testing corresponding energy consumption percent of the two watts consumed in equipment. value listed in the table. standby mode by a LTX, which for a 40 In addition, EEI questioned how As mentioned previously, DOE VA LL–LTX is 0.5 watts, thus reducing implementation of an LL–LTX at EL1 developed the baseline efficiency level LTX transformer losses by 1.5 watts. offers 1.5 watts of energy savings and as a sum of the highest energy Therefore, DOE has maintained in the implementation of a SMPS at EL2 offers consumption measurements it obtained SNOPR standby/off mode analysis that 1.8 watts of energy savings, but by testing the various components that the implementation of an LL–LTX at implementation of both of these design consume standby power in furnaces. EL1 will result in a 1.5 watt reduction options at EL3 only offers 2.5 watts of The specific energy consumption values in standby losses relative to the baseline energy savings, rather than the sum of associated with each incremental efficiency level. Similarly, at EL3 a 20 the savings at EL1 and EL2, which efficiency levels were then developed VA LL–LTX will consume would be 3.3 watts of savings. (EEI, No. by reducing the baseline energy approximately 25 percent of the one 0169 at p. 13) In response, DOE clarifies consumption by the reduction in energy watt consumed at EL2 by a 20 VA LTX. that the implementation of a SMPS consumption provided by the particular As such, the 20 VA LL–LTX at EL3 will provides the proper voltage reduction design option implemented at that consume approximately 0.25 watts, needed for the furnace control board, efficiency level. Because of the reducing 20 VA LTX transformer losses but a smaller AC–AC transformer is still conservative nature by which the by 0.75 watts at EL2. required to provide 24VAC power for baseline energy consumption value was thermostats. DOE estimated that a 20VA developed, DOE expects that many units 32 N. Nielsen. ‘‘Loss Optimizing Low Power 50 Hz transformer would be sufficient to already achieve standby/off mode Transformers Intended for AC/DC Standby Power energy usage levels which are lower Supplies.’’ Applied Power Electronics Conference power thermostats. As such, the and Exposition, 2004. IEEE, pp. 420–25, September required capacity for a LL–LTX than the current baseline. DOE further 9, 2004. implemented in tandem with a SMPS at expects that those units that do not

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currently meet the proposed efficiency levels spanning the full range of BOMs incorporate all materials, level could do so via implementation of efficiencies from the baseline to the components, and fasteners (classified as the listed design options corresponding maximum technology achievable (‘‘max- either raw materials or purchased parts with that level in Table IV.7. tech’’) level. and assemblies), and characterize the Goodman commented that to properly During the development of the materials and components by weight, accommodate the LL–LTX design option engineering analysis for the March 2015 manufacturing processes used, (which is used at EL1 and EL3), it may NOPR, DOE held interviews with dimensions, material, and quantity. The be necessary to redesign the furnace manufacturers to gain insight into the BOMs from the teardown analysis were platform, because LL–LTX are larger residential furnace industry, and to then used as inputs to calculate the than baseline LTX. (Goodman, No. 0135 request feedback on the engineering MPC for each product that was torn at pp. 4–5) In the engineering analyses analysis. DOE used the information down. The MPCs resulting from the for this SNOPR, DOE has not accounted gathered from these interviews, along teardowns were then used to develop an for any particular design changes to the with the information obtained through industry average MPC for each furnace platform as a requirement in the teardown analysis, to refine its MPC efficiency level of each product class order to implement an LL–LTX. Every estimates for this rulemaking. Next, analyzed. For more detailed information furnace reverse-engineered by DOE DOE derived manufacturer markups on DOE’s teardown analysis, see appeared to have room for a larger using publicly-available residential Chapter chapter 5 of the SNOPR TSD. transformer. DOE estimates that the furnace industry financial data in In response to the NOPR, DOE 20VA LL–LTX transformer that could be conjunction with manufacturers’ received multiple comments suggesting used (along with other components) to feedback. The markups were used to that the engineering analysis be based reach EL3 is not significantly larger than convert the MPCs into MSPs. Further on furnace pricing currently seen in the the current 40VA LTX typically used in information on the analytical market, rather than teardowns, due to baseline designs. DOE has reverse- methodology is presented in the the fact that the inputs to the teardown engineered a number of control boards subsections below. For additional detail, analysis are not made publicly in space-constrained appliances where see chapter 5 of the SNOPR TSD. available. APGA expressed concern the power supplies made a transition with the level of transparency given that a. Teardown Analysis from a linear power supply to SMPS DOE does not disclose the product without any changes to the size of the To assemble BOMs and to calculate specific details obtained through the printed circuit board. DOE welcomes the manufacturing costs for the different teardown analysis. APGA stated that further feedback as to any design components in residential furnaces, without disclosure of the product modifications which may be necessary DOE disassembled multiple units into specific details from the teardown in order to integrate LL–LTX into their base components and estimated analysis, it is not possible to verify that furnaces. This is identified as issue 5 in the materials, processes, and labor its outputs are accurate. Further, APGA section VII.E, ‘‘Issues on Which DOE required for the manufacture of each stated that DOE should not use inputs Seeks Comment.’’ individual component, a process to its analysis that it cannot make DOE requests further comment on the referred to as a ‘‘physical teardown.’’ public, and should examine the real efficiency levels analyzed for standby Using the data gathered from the world prices of furnaces as a way of mode and off mode. In particular, DOE physical teardowns, DOE characterized determining consumer prices. (APGA, welcomes any additional feedback as to each component according to its weight, No. 0106 at pp. 32–34) Laclede the technological feasibility of achieving dimensions, material, quantity, and the commented that its employees solicited the proposed max-tech standby/off manufacturing processes used to price bids for installation of condensing mode energy consumption value of 8.5 fabricate and assemble it. furnaces in their homes, and found that watts. This is identified as issue 6 in DOE also used a supplementary the incremental installed costs were section VII.E, ‘‘Issues on Which DOE method, called a ‘‘virtual teardown,’’ higher than those determined by DOE’s Seeks Comment.’’ which examines published analysis. Laclede stated that using this manufacturer catalogs and 2. Cost-Assessment Methodology type of methodology to determine costs supplementary component data to is better founded than the teardown At the start of the engineering estimate the major physical differences methodology used by DOE. (Laclede, analysis, DOE identified the energy between a product that was physically No. 0141 at pp. 24–27) Ingersoll Rand efficiency levels associated with disassembled and a similar product that inquired as to whether DOE compares residential furnaces on the market using was not. For supplementary virtual the manufacturing costs generated by data gathered in the market assessment. teardowns, DOE gathered product data the teardown analysis with the prices DOE also identified the technologies such as dimensions, weight, and design that DOE pays to purchase the furnaces and features that are typically features from publicly-available which it tears down. (Ingersoll Rand, incorporated into products at the information, such as manufacturer NOPR Public Meeting Transcript, No. baseline level and at the various energy catalogs. For this SNOPR, data from a 0044 at p. 5960) efficiency levels analyzed above the total of 77 physical and virtual DOE notes that the sales prices of baseline. Next, DOE selected products teardowns of residential furnaces were furnaces currently seen in the market for physical teardown analysis having used to calculate industry MPCs in the place, which include both an MPC and characteristics of typical products on engineering analysis. various markups applied through the the market at the representative input The teardown analysis allowed DOE distribution chain, are not necessarily capacity. DOE gathered information by to identify the technologies that indicative of what the sales prices of performing a physical teardown analysis manufacturers typically incorporate into those furnaces would be following the (see section IV.C.2.a) to create detailed their products, along with the efficiency implementation of a more stringent BOMs, which included all components levels associated with each technology energy conservation standard. At a and processes used to manufacture the or combination of technologies. The end given efficiency level, the furnace MPC products. DOE used the BOMs from the result of each teardown is a structured depends in part on the production teardowns as inputs to calculate the BOM, which DOE developed for each of volume. At any given efficiency level MPC for products at various efficiency the physical and virtual teardowns. The above the current baseline, the industry-

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aggregated MPC for furnaces at that manufacturing costs of Rheem’s units. specific data is presented in aggregate. level may be high relative to what it Further, Rheem commented that Given the potential for competitive would be under a more stringent manufacturers in general will object to harm, data is not released outside the standard, due to the increase in having a BOM from a complete aggregated form to DOE or its National production volume (and thus, improved teardown analysis of their product(s) Labs. The BOMs used to estimate the economies of scale and purchasing available to the public. (Rheem, NOPR industry-aggregate MPCs are developed power for furnace components) which Public Meeting Transcript, No. 0044, at by a DOE contractor and are not would occur at that level if a federal pp. 74–75). provided to DOE; DOE only receives the standard made it the new baseline DOE acknowledges both AGA and industry-aggregate MPCs from its efficiency. Under a more stringent Laclede’s concern about the public contractor for use in its analyses. This standard, the markups incorporated into availability of the information that is approach allows manufacturers to the sales price may change relative to derived from the teardown analysis. provide feedback under NDA, current markups. This could occur due However, DOE also understands improving the quality of the analysis. to the changes in market forces caused Rheem’s comment that furnace More information regarding details on by an increase in demand for furnaces manufacturers would object to having the teardown analysis can be found in at that higher efficiency, as well as any sensitive information related to the chapter 5 of the SNOPR TSD. design of their products being released changes in the production and b. Cost Estimation Method installation costs of furnaces at that into the public domain. Additionally, level resulting from higher production DOE notes that all manufacturers that The costs of individual models are volumes, greater experience with participated in manufacturer interviews estimated using the content of the BOMs condensing furnace installations, and a had access to DOE’s MPC estimates for (i.e. materials, fabrication, labor, and all other aspects that make up a production multitude of other factors. As higher models they manufacture that were torn facility) to generate MPCs. These MPCs efficiency furnaces become a down, as well as the raw material and hence include overhead and commodity rather than a premium purchased part price data underlying depreciation, for example. DOE product, high efficiency furnaces may the MPC estimates for those models. collected information on labor rates, not command the same markups that These discussions were covered by tooling costs, raw material prices, and can be applied to such products NDAs to allow manufacturers to submit other factors as inputs into the cost presently. Therefore, basing the confidential data and to comment freely estimates. For purchased parts, DOE engineering analysis on prices of on the inputs into the DOE analysis as estimates the purchase price based on furnaces as currently seen in the market well as the results. The MPCs presented herein take into account this feedback volume-variable price quotations and place would be a less accurate method detailed discussions with manufacturers of estimating future furnace prices from manufacturers. DOE’s treatment of confidential and component suppliers. For fabricated following an amended standard. It is for business information is governed by the parts, the prices of raw metal these reasons that DOE conducts Freedom of Information Act (FOIA) and materials’ 33 (e.g., tube, sheet metal) are interviews with manufacturers under 10 CFR 1004.11. (5 U.S.C. 552(b)(4)) estimated on the basis of 5-year averages non-disclosure agreements (NDAs) to While DOE is responsible for making (from 2010 to 2015). The cost of determine if the MPCs developed by the the final determination whether to transforming the intermediate materials analysis reflect the industry average cost disclose such information contained in into finished parts is estimated based on rather than current sales prices. Because requested documents, DOE will current industry pricing.34 the cost estimation methodology uses consider the submitter’s views in c. Manufacturing Production Costs data supplied by manufacturers under making its determination. (10 CFR the NDAs (such as raw material and 1004.11(a),(c)) Factors of interest to DOE In estimating the MPC, DOE took into purchased part prices), the resulting when evaluating requests to treat account the various furnace design individual model cost estimates submitted information as confidential enhancements offered for consumer themselves cannot be published. include: (1) A description of the items; comfort or to reduce electrical energy Stakeholders also suggested that DOE (2) whether and why such items are consumption during furnace operating take action to improve the transparency customarily treated as confidential periods (see Table IV.6 in section of the engineering analysis by releasing within the industry; (3) whether the IV.C.1.b of this document). In order to certain information currently not information is generally known by or accommodate these additional design available within the public domain. available from other sources; (4) features into the MPC estimates, DOE AGA requested that all information used whether the information has previously calculated MPC estimates both with and as inputs to the development of been made available to others without without these added design features. manufacturing costs be made publicly obligation concerning its DOE estimated the MPC at each available so that its validity can be confidentiality; (5) an explanation of the efficiency level considered for each assessed, emphasizing its view that competitive injury to the submitting product class, from the baseline through MPC calculations are foundational to person which would result from public the max-tech and then calculated the the entire analytical process. (AGA, disclosure; (6) when such information percentages attributable to each cost NOPR Public Meeting Transcript, No. might lose its confidential character due category (i.e., materials, labor, 0044 at pp. 73–74) Similarly, Laclede to the passage of time; and (7) why depreciation, and overhead). These commented that it would like access to disclosure of the information would be percentages are used to validate the the BOM spreadsheets used in the contrary to the public interest. (10 CFR assumptions by comparing them to engineering analysis in order to 429.7(c)(2)) For additional discussion of manufacturers’ actual financial data determine how accurate the confidential business information, see published in annual reports, along with manufacturer cost calculations are. the Confidential Business Information (Laclede, NOPR Public Meeting Discussion below. 33 American Metals Market, available at http:// www.amm.com/. Transcript, No. 0044, at pp. 71–72) In the present case, as is generally the 34 U.S. Department of Labor, Bureau of Labor However, Rheem objected to DOE case in appliance standards Statistics, Produce Price Indices, available at http:// publishing any information on the rulemakings, manufacturer and product www.bls.gov/ppi/.

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feedback obtained from manufacturers incremental costs of a BPM versus PSC to two-stage combustion. As such, in during interviews. DOE uses these motor, and pointed to PG&E’s comment this SNOPR DOE has continued to apply production cost percentages in the in its own comment filings. (ASAP No. a two-stage combustion adder to the manufacturer impact analysis (MIA) (see 0154 at p. 3) DOE clarifies that the MPCs for all units at the 80 AFUE section IV.J). additional costs of implementing though 95 AFUE efficiency levels for All of the furnaces torn down during constant torque BPM motor technology NWGFs. DOE requests comment as to the teardown analysis used PSC indoor in place of PSC motor technology were what percentage of NWGFs may be blower motors, except for at the max- included and based on the results of the capable of achieving the efficiency tech efficiency level, where constant engineering analysis performed in the levels promulgated by the furnace fans airflow BPM motors were used. July 2014 furnace fans rulemaking. See rule via implementation of a constant- Constant torque BPM indoor blower chapter 5 of the SNOPR TSD for further torque BPM motor with single-stage motors were considered the baseline information. design for NWGF units, because the July For the purpose of its engineering combustion technology, rather than two- 2014 furnace fans final rule set a level 35 analysis in this SNOPR (and in the stage combustion technology. This is at which manufacturers are likely to March 2015 NOPR) DOE expects that, in identified as issue 7 in section VII.E, incorporate constant torque BPM indoor light of the July 2014 furnace fan final ‘‘Issues on Which DOE Seeks blower motors into NWGFs before the rule, manufacturers will incorporate Comment.’’ compliance date of amended furnace two-stage combustion technology into Multiple stakeholders commented on standards resulting from today’s NWGF design in order to comply with the accuracy of the incremental rulemaking (2022), the 2014 furnace fan the furnace fan standard. DOE therefore differences between the baseline MPC final rule compliance date of July 3, developed a single cost adder for two- (for a non-condensing furnace) and the 2019. (10 CFR 430.32(y)). Similarly, stage combustion that applies to the MPCs for higher efficiency levels improved PSC indoor blower motors MPCs for all furnace input capacities (condensing furnaces), as presented in were considered as the baseline design and efficiency levels. The cost to change the March 2015 NOPR. APGA feature for MHGF units as a result of the from a single-stage to a two-stage commented that it found it counter- requirements set in the 2014 furnace combustion system includes the cost of fans rulemaking.35 79 FR 38129, 38151 a two-stage gas valve, a two-speed intuitive for the MPC of a baseline (July 3, 2014). DOE used the results of inducer assembly, upgraded pressure furnace to increase substantially the furnace fans rulemaking to calculate switch/tubing assembly, and additional between the June 2011 DFR and March the increase in furnace MPC needed to controls and wiring; these costs are 2015 NOPR, while the MPCs for accommodate constant torque BPM and estimated to be constant across input condensing furnaces increased by what improved PSC indoor blower motors capacities and efficiency levels. they regard as a ‘very minor’ amount. into NWGF and MHGF units, In response to the March 2015 NOPR, (APGA, No. 0106, at pp. 33–34) Both respectively, in place of the PSC motors Carrier commented that it believes the AHRI and Lennox commented that a present in the tear down units. In costs of a two-stage gas valve, two-stage survey of AHRI member manufacturers addition, DOE considered the increase inducer, additional pressure switch, demonstrate that the incremental MPCs in MPC resulting from the deluxe control board, wiring harness, for higher efficiency levels (relative to implementation of a constant airflow and pressure switch tubing were not baseline) estimated by DOE in the BPM indoor blower motor. Motor type included in the cost adder for two-stage March 2015 NOPR are between 35 was assigned in the LCC analysis based combustion. Carrier also commented percent and 45 percent lower than the on the market penetration of each type that it believes the value of the two- actual incremental MPCs relative to of motor at different efficiency levels. At stage combustion adder was not baseline that the industry sees, and that mentioned anywhere by DOE. (Carrier, the max-tech efficiency level for NWGF, the actual costs themselves (not the No. 0116, at pp. 6–7) DOE included the DOE determined that constant airflow incremental costs) are approximately 10 BPM motors are a required technology components that Carrier identified in its percent lower than the actual costs option. As such, the incremental MPC comments in the two-stage combustion faced by industry. AHRI supplemented changes of using a constant airflow BPM adder, as discussed in section 5.8.2 of indoor blower motor in place of a PSC the March 2015 NOPR TSD. these comments with aggregated MPCs motor were included in the MPC for Goodman commented that the for each efficiency level, which were NWGF at the max-tech AFUE level. efficiency requirements promulgated by developed based on feedback from PG&E commented that it found the the furnace fans rule can be achieved by furnace manufacturers that are AHRI language regarding the costs of BPM using single-stage combustion, and do members. (AHRI, No. 0159 at pp. 48–49; motor technology in chapter 5 of the not necessitate the use of two-stage Lennox, No. 0125 at p. 13) Similarly, NOPR TSD to be confusing, and that its combustion, as is currently Ingersoll Rand commented in response interpretation of DOE’s analyses is that implemented in the analysis. (Goodman, to the September 2015 NODA that the no incremental PSC to BPM motor costs No. 0135, at p. 7) Based on the MPC for 92 percent AFUE furnaces is were applied in the residential furnace engineering analysis performed for the likely underestimated. (Ingersoll Rand, NOPR analyses. (PG&E, No. 0153 at pp. furnace fans rule, DOE estimates that a No. 0182 at p. 3) NiSource stated that 8–9) ASAP expressed the same minority of NWGF designs would be according to information compiled by confusion as PG&E with regard to the able to achieve the new furnace fan AGA, the initial purchase price of a efficiency standards by using a constant- condensing furnace is $300 to $700 35 The Furnace Fans rule set a mandatory fan torque BPM motor while still using more than a non-condensing one. energy rating (FER) of .044*Qmax + 182 for NWGF single-stage combustion technology. (NiSource, No. 0127 at p. 3) units, .071*Qmax + 222 for non-condensing MHGF However, DOE had limited quantitative units, and .071*Qmax + 240 for condensing MHGF Metropolitan Utilities District stated data to use in the March 2015 NOPR units, where Qmax equals the airflow through the that DOE’s product prices derived from furnace at the maximum airflow-control setting and this SNOPR that detailed what operating point. For more information, see the portion of furnace designs would be a teardown analysis do not agree with furnace fans rulemaking Web page at: http:// actual market pricing as noted in the www1.eere.energy.gov/buildings/appliance_ capable of achieving the new standards standards/rulemaking.aspx/ruleid/41. without transitioning from single-stage

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GTI report.36 (Metropolitan Utilities increase in the incremental MPC (from ‘‘Issues on Which DOE Seeks District, No. 0144 at p. 1) 80 to 90-percent AFUE) between the Comment.’’ In the March 2015 NOPR analysis, March 2015 NOPR and this SNOPR Table IV.8 and Table IV.9 present DOE calculated the incremental analysis is still lower than the 35- DOE’s estimates of the MPCs by AFUE difference between the baseline percent to 40-percent deviation AHRI efficiency level at the representative efficiency level (80 percent AFUE) and reported between the March 2015 NOPR input capacity (80 kBtu/h) for both the EL1 (90 percent AFUE) for NWGFs to be incremental MPCs and the true NWGF and MHGF furnaces in this $83 (in 2013$). 80 FR 13120, 13144 incremental MPCs in industry. This rulemaking. The MPCs presented (March 12, 2015). In the analysis variation between the results of DOE’s incorporate the appropriate design conducted for this SNOPR, DOE analysis and AHRI’s estimates is likely characteristics of NWGFs and MHGFs at conducted additional teardowns and due to the AHRI-estimated industry each efficiency level. These design updated its database of component and MPCs being based on current characteristics include a single-stage gas material prices for furnaces to account valve (and corresponding single-stage production costs, whereas DOE for market changes through December components) for all MHGF efficiency estimated MPCs for a hypothetical case 2015 and provided results in 2015$. levels, a two-stage gas valve (and This data update from 2013 data to 2015 where the standard is at the analyzed corresponding components) for all data, in addition to other refinements of level (e.g., a condensing level such as 90 NWGF levels (except for the max-tech the cost estimation methodology percent AFUE). Thus, the standards case level, which incorporates a fully (described in chapter 5 of the SNOPR production volumes would be higher modulating (or ‘‘step modulating’’) TSD), resulted in the incremental MPC than current production volumes for a design), a constant-torque BPM blower between baseline and EL1 increasing to given efficiency level and could explain motor for NWGF (except for the max- $105 (in 2015$). After accounting for the discrepancy between the tech level, where the blower motor is a inflation, this difference represents a 25- incremental MPCs estimated by AHRI constant-airflow BPM motor), and an percent increase in the incremental and the incremental MPCs estimated by improved PSC blower motor for all manufacturing cost of a condensing DOE in the engineering analysis for this MHGF efficiency levels. Further furnace, relative to a non-condensing SNOPR. DOE welcomes additional discussion of the MPCs that incorporate unit. This change in the incremental feedback on the MPCs and incremental other design options (e.g., constant- MPC aligns with the stakeholder MPCs presented in this SNOPR. This is airflow BPM motors) is included in feedback. However, this 25-percent identified as issue 8 in section VII.E, chapter 5 of the TSD.

TABLE IV.8—MANUFACTURER PRODUCTION COST FOR NON-WEATHERIZED GAS FURNACES

Incremental Efficiency level MPC * cost above Efficiency level (AFUE) (2015$) baseline (%) (2015$)

Baseline ...... 80 321 ...... EL1 ...... 90 426 105 EL2 ...... 92 449 127 EL3 ...... 95 497 176 EL4 ...... 98 601 280 * The MPCs for the NWGF efficiency levels from Baseline through EL3 include two-stage combustion and incorporation of a constant-torque BPM indoor blower motor. DOE has determined that NWGFs at EL4 incorporate modulating operation and a constant-airflow BPM blower motor.

TABLE IV.9—MANUFACTURER PRODUCTION COST FOR MOBILE HOME GAS FURNACES

Incremental Efficiency level MPC * cost above Efficiency level (AFUE) (2015$) baseline (%) (2015$)

Baseline ...... 80 285 ...... EL1 ...... 92 379 94 EL2 ...... 95 428 143 EL3 ...... 96 454 169 * The MPCs for all MHGF efficiency levels include single-stage combustion and incorporation of an improved PSC indoor blower motor.

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

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

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TABLE IV.10—INCREMENTAL MANUFACTURER PRODUCTION COST FOR NON-WEATHERIZED GAS AND MOBILE HOME GAS FURNACES STANDBY MODE AND OFF MODE

Standby mode and off mode Incremental Efficiency level power con- MPC sumption (2015$) (W)

Baseline ...... 11 0 EL1 ...... 9.5 1.02 EL2 ...... 9.2 9.19 EL3 ...... 8.5 9.85

Chapter 5 of the SNOPR TSD presents percent and 98 percent AFUE levels due To calculate the manufacturer more information regarding the to the addition of modulating markups, DOE used 10–K reports 37 development of DOE’s estimates of the combustion components paired with a submitted to the U.S. Securities and MPCs for this rulemaking. constant airflow BPM indoor blower Exchange Commission (SEC) by six publicly-owned residential furnace d. Cost-Efficiency Relationship motor at 98 percent AFUE. However, the ratio of the incremental increase in MPC manufacturing companies. The financial DOE created cost-efficiency curves to incremental increase in AFUE (i.e. the figures necessary for calculating the representing the cost-efficiency slope of the cost-efficiency curve) manufacturer markup are net sales, relationships for the product classes that always increases with AFUE. costs of sales, and gross profit. For it examined (i.e., small and large furnaces, DOE averaged the financial NWGFs, and MHGFs). To develop the e. Manufacturer Markup figures spanning the years 2009 to 2013 cost-efficiency relationships for NWGFs in order to calculate the manufacturer at the representative capacity (80 kBtu/ To account for manufacturers’ non- markups. DOE used this approach h), DOE calculated a market-share production costs and profit margin, DOE because amended standards may reduce weighted average MPC for each applies a non-production cost multiplier product differentiation opportunities for efficiency level analyzed, based on the (the manufacturer markup) to the MPC. manufacturers and may hence reduce units torn down at that efficiency level. The resulting MSP is the price that DOE markup opportunities as well. DOE As discussed in section IV.C.2.a, DOE research suggests the manufacturer can acknowledges that numerous residential also performed virtual teardowns of sell a given unit into marketplace under furnace manufacturers are privately- units at input capacities other than the a standards scenario. To meet new or held companies and do not file SEC 10– representative input capacity. These amended energy conservation K reports. In addition, while the virtual teardowns allowed DOE to standards, manufacturers typically publicly-owned companies file SEC 10– develop cost-efficiency curves for redesign their baseline products. These K reports, the financial information NWGF at different input capacities. design changes typically increase MPCs summarized may not be exclusively for These cost-efficiency curves were then relative to those of previous baseline the residential furnace portion of their used in the downstream analyses. The MPCs. Depending on the competitive business and can also include financial cost-efficiency curves developed for environment for these particular information from other product sectors, input capacities other than the products, some or all of the increased whose margins could be quite different representative input capacity are production costs may be passed from from the residential furnace industries. DOE discussed the manufacturer presented in chapter 5 of the SNOPR manufacturers to retailers and markup with manufacturers during TSD. For MHGFs, DOE compared both eventually to consumers in the form of interviews, and used product specific MHGF and NWGF teardowns produced higher purchase prices. As production by a common manufacturer, in order to feedback on market share, markups and costs increase, manufacturers may also cost structure from manufacturers to determine the typical design differences incur additional overhead (e.g., between the two product classes. Using adjust the markup initially calculated warranty costs). The MSP is typically this information, DOE then developed through review of SEC 10–K reports. See high enough so that the manufacturer cost adders which it applied to the chapter 12 of the SNOPR TSD for more NWGF MPCs, in order to estimate the can recover the full cost of the product details about the manufacturer markup MPCs of MHGFs at each of the MHGF (i.e. full production and non-production calculation. costs) and yield a profit. efficiency levels. Additional details on f. Manufacturer Interviews how DOE developed the cost-efficiency The manufacturer markup has an relationships and related results are important bearing on profitability. A Throughout the rulemaking process, available in chapter 5 of the SNOPR high markup under a standards scenario DOE has sought and continues to seek feedback and insight from interested TSD. suggests manufacturers can readily pass parties that would improve the The results indicate that cost- along the increased variable costs and information used in its analyses. DOE efficiency relationships are nonlinear. some of the capital and product interviewed NWGF and MHGF The cost increase between the non- conversion costs (the one-time manufacturers as a part of the NOPR condensing (80 percent AFUE) and expenditures) to consumers. A low manufacturer impact analysis (see condensing (90 percent AFUE) markup suggests that manufacturers will section IV.J). During the interviews, efficiency levels is due to the addition have greater difficulty recovering their DOE sought feedback on all aspects of a secondary heat exchanger, and so investments, product conversion costs, there is a large step in both AFUE and and/or incremental MPCs. 37 U.S. Securities and Exchange Commission, MPC. For NWGFs, a significant cost Annual 10–K Reports (various years between 2009 increase also occurs between the 95 and 2013), available at http://sec.gov.

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its analyses for residential furnaces. furnace MPCs are provided in chapter 5 reflect marginal costs in perfectly DOE discussed the analytical of the SNOPR TSD. DOE seeks comment competitive markets or in markets with assumptions and estimates, cost on its methodology and estimates for a limited degree of concentration. estimation method, and cost-efficiency electric furnace MPCs and this is According to microeconomic theory of curves with residential furnace identified as issue 9 in section VII.E firm behavior, an incremental cost may manufacturers. DOE considered all the ‘‘Issues on Which DOE Seeks have a markup that is different from the information manufacturers provided Comment.’’ markup on the baseline product. DOE is while refining its cost estimates (and not aware of any representative D. Markups Analysis underlying data) and analytical empirical observations of markups over assumptions. In order to avoid The markups analysis develops time in the air conditioning or heating disclosing sensitive information about appropriate markups (e.g., for equipment industries, except at an individual manufacturers’ products or wholesalers, mechanical contractors, aggregate level. DOE evaluated time manufacturing processes, DOE general contractors, mobile home series margins and price data from three incorporated equipment and manufacturers, and mobile home industries that experienced rapidly manufacturing process figures into the dealers) in the distribution chain and changing input prices—the LCD analysis as averages. Additional sales taxes to convert the MSP estimates television retail market, the U.S. oil and information on manufacturer interviews derived in the engineering analysis to gasoline market, and the U.S. housing can be found in chapter 12 of the TSD. consumer prices, which are then used in market. The results indicate that dollar the LCC and PBP analysis and in the margins vary across different markets to 3. Electric Furnaces MIA. The markups are multipliers that reflect changes in input price, but the In addition to NWGFs and MHGFs, represent increases above the MSP for percent margins do not remain fixed DOE also performed an engineering NWGFs and MHGFs. DOE develops over time in any of these industries. analysis to estimate the MPCs of electric baseline and incremental markups for Appendix 6B in the SNOPR TSD furnaces. This analysis was performed each step in the distribution chain. The describes DOE’s findings. Regarding the to develop accurate electric furnace cost baseline markups are applied to the interview data with distributors and data as an input to the product price of products with baseline contractors, and the survey of switching analysis (see section IV.F.9 efficiency to determine the consumer contractors, DOE has reservations about for additional information). To estimate purchase cost. Likewise, the the applicability of these data, as the MPCs of electric furnaces, DOE used incremental markups are applied to the discussed below. information obtained from the difference in price between baseline and PHCC, ACCA, and AHRI stated that teardowns of three modular blower higher-efficiency models (the based on their survey of contractors on units, as well as a teardown of an incremental cost increase) to determine markup practices, contractors do not use electric heat kit assembly, which were the change in the consumer price for different markups before and after all originally used as inputs to the higher-efficiency products compared to standards. PHCC, ACCA, and AHRI engineering analysis performed for the baseline products. Before developing stated that if anything, contractors 2014 furnace fans rulemaking.38 markups, DOE defines key market report that markups increased. (PHCC, The MPCs of electric furnaces were participants and identifies distribution No. 0136 at p. 9; ACCA, No. 0158–2 at developed by calculating a market channels. p. 9; AHRI, No. 0159 at pp. 38) DOE share-weighted MPC of the three Commenting on the March 2015 acknowledges that the survey provides modular blower units that were torn NOPR, AHRI stated that DOE’s additional insight into contractor down, and then adding the MPC of the continued reliance on the incremental markup practices, but DOE found some electric heat kit to the market share- markup concept is unsupported. AHRI deficiencies in the way the questions weighted modular blower MPC. The stated that: (1) The minimal empirical were phrased and presented to MPC of the electric heat kit was scaled data cited in support of DOE’s contractors. Particularly, the two appropriately in order to approximate assumption either is irrelevant or tends markup-related questions appear to the MPCs of different input capacity to support the presence of consistent emphasize the short-term impact of a electric furnaces. Similar to the gross margins; (2) AHRI has supplied new standard on pricing strategy, and engineering analysis performed for interview data with distributors and the limited choices provided under each NWGFs, DOE estimated the MPCs of wholesalers, interview data with question do not address the dynamics electric furnaces at input capacities of contractors, and survey data of between short-term and long-term 60, 80, 100, and 120 kBtu/h. These contractors, all of which directly profitability in a fairly competitive MPCs are presented below in Table contradict DOE’s assumption; and (3) market like the HVAC construction IV.11. DOE has not supplied any references to industry. In contrast to the survey any empirical data that shows a responses, an in-depth interview with TABLE IV.11—ELECTRIC FURNACE difference in markups on pre- and post- an HVAC consultant conducted by DOE MPCS standard products. (AHRI, No. 0159 at indicates that while HVAC contractors pp. 39) Rheem and HARDI agreed with aim to maintain fixed-percentage AHRI. (Rheem, No. 0142 at pp. 3–4; Input capacity MPC markups, eventually they will likely (kBtu/h) HARDI, No. 0131 at p. 2) Goodman either have to lower their markup based stated that the argument for incremental on market pressures, or choose to lower 60 ...... $239 markups depends on the proposition 80 ...... 261 their markup after the company’s 100 ...... 270 that firms in aggregate are constrained finances have been reviewed. (DOE’s 120 ...... 293 in some manner so that they cannot earn questions and consultant responses are profits above their normal cost of provided in appendix 6B of the SNOPR Further details regarding the capital. (Goodman, No. 0135 at pp. 3– TSD.) methodology used to estimate electric 4) In summary, DOE acknowledges that DOE’s incremental markup approach its approach to estimating distributor 38 Modular blower units with electric heat kits are is based on the widely-accepted and contractor markup practices after also referred to as electric furnaces. economic view that prices closely amended standards take effect and

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change product costs is necessarily an At each step in the distribution industry 43 to disaggregate the approximation of real-world practices channel, companies mark up the price mechanical contractor markups into that are both complex and varying with of the product to cover business costs replacement and new construction business conditions. At this time, and profit margin. For the March 2015 markets. DOE also used various sources however, given the remarks from the NOPR and September 2015 NODA, DOE for the derivation of the mobile home consultant about the difficulty of characterized three distribution dealer markup (see chapter 6 of the maintaining fixed-percentage markups, channels to describe how NWGF SNOPR TSD). and the lack of persuasive evidence that products pass from the manufacturer to In addition to the markups, DOE standards facilitate a sustainable residential and commercial obtained state and local taxes from data increase in profitability for distributors consumers: 39 (1) replacement market; provided by the Sales Tax and contractors (as would be implied by (2) new construction, and (3) national Clearinghouse.44 These data represent keeping a fixed markup when product accounts.40 The NWGFs and MHGFs weighted average taxes that include price increases), DOE continues to replacement market distribution county and city rates. DOE derived maintain that its use of incremental channel is characterized as follows: shipment-weighted average tax values markups is reasonable. DOE intends to Manufacturer ‰ Wholesaler ‰ for each region considered in the further examine this issue and Mechanical contractor ‰ Consumer analysis. welcomes information that could The NWGF new construction Chapter 6 of the SNOPR TSD provides support improvement in its distribution channel is characterized as details on DOE’s development of methodology. follows: markups for NWGFs and MHGFs. PG&E commented that the Manufacturer ‰ Wholesaler ‰ E. Energy Use Analysis incremental markups DOE used in the ‰ Mechanical contractor General The purpose of the energy use March 2015 NOPR were too high ‰ contractor Consumer analysis is to determine the annual because once the furnace efficiency The MHGF new construction energy consumption of NWGFs and standard takes effect, manufacturer, distribution channel is characterized as MHGFs at different efficiencies in wholesaler, and contractor costs for follows: representative U.S. single-family homes, furnaces meeting the new requirements Manufacturer ‰ Mobile Home multi-family residences, and are likely to drop due to economies of Manufacturer ‰ Mobile Home commercial buildings, and to assess the scale for manufacturers (and thereby Dealer ‰ Consumer energy savings potential of increased wholesalers), product familiarity for In the third distribution channel, the furnace efficiency. The energy use contractors, and change of high- manufacturer sells the product to a analysis estimates the range of energy efficiency furnaces from premium to wholesaler and then to the NWGF use of NWGFs and MHGFs in the field commodity-priced products. (PG&E, No. commercial consumer through a (i.e., as they are actually used by 0153 at p. 4) ASAP expressed agreement national account: consumers). The energy use analysis with PG&E. (ASAP, No. 0154–1 at p. 3) Manufacturer ‰ Wholesaler ‰ provides the basis for other analyses DOE acknowledges that the costs of Consumer (National Account) DOE performed, particularly manufacturing, distributing and assessments of the energy savings and installing condensing furnaces could To estimate average baseline and incremental markups, DOE relied on the savings in consumer operating costs decline in the future if all or more of the that could result from adoption of market moves to condensing furnaces. several sources, including: (1) The 41 amended or new standards. Indeed, decline in the manufacturer HARDI 2013 Profit Report (for wholesalers); (1) U.S. Census Bureau DOE estimated the annual energy selling price is reflected in the price 42 consumption of NWGFs and MHGFs at trend discussed in section IV.F.1. 2012 Economic Census data on the residential and commercial building specified energy efficiency levels across However, a decline in costs associated a range of climate zones, building with manufacturing and distributing construction industry (for general contractors, mechanical contractors, and characteristics, and heating condensing furnaces does not suggest applications. The annual energy that DOE’s incremental markups are too mobile home manufacturers). In addition, DOE used the 2005 Air consumption includes the natural gas, high for wholesalers and contractors. liquid petroleum gas (LPG), and DOE’s incremental markup approach in Conditioning Contractors of America’s (ACCA) Financial Analysis on the electricity used by the furnace. the March 2015 NOPR was based on the To determine the field energy use of premise that less expensive products Heating, Ventilation, Air-Conditioning, and Refrigeration (HVACR) contracting residential furnaces used in homes, DOE (i.e., non-condensing furnaces) would established a sample of households be replaced by more expensive products 39 DOE estimates that three percent of NWGFs are using NWGFs and MHGFs from the (i.e., condensing furnaces) under the installed in commercial buildings. See section Energy Information Administration’s proposed standards. Applying IV.E.3 for further discussion. (EIA) 2009 Residential Energy incremental markups on the 40 The national accounts channel is an exception Consumption Survey (RECS incremental cost increase of higher- to the usual distribution channel that is only 45 applicable to those NWGFs installed in the small 2009). DOE assumed that furnaces in efficiency products should be addressed to mid-size commercial buildings where the on-site separately from potential declines in the contractor staff purchase equipment directly from 43 Air Conditioning Contractors of America costs of distributing and installing the wholesalers at lower prices due to the large (ACCA), Financial Analysis for the HVACR condensing furnaces due to the volume of equipment purchased, and perform the Contracting Industry (2005), available at proliferation of higher-efficiency installation themselves. DOE’s analysis assumes www.acca.org/store/ (last accessed Apr. 19, 2016). that about 17.5 percent of the NWGFs installed in 44 Sales Tax Clearinghouse Inc., State Sales Tax furnaces in the market. However, the the commercial sector use national accounts. Rates Along with Combined Average City and increased product price of condensing 41 Heating, Air Conditioning & Refrigeration County Rates (2016), available at http://thestc.com/ furnaces DOE analyzed in both the Distributors International (HARDI). 2013 HARDI STrates.stm (last accessed April 18, 2016). March 2015 NOPR and today’s SNOPR Profit Report, available at http://hardinet.org/ (last 45 U.S. Department of Energy: Energy Information accessed April 19, 2016). Administration, Residential Energy Consumption are distinguishable from potential 42 U.S. Census Bureau, 2012 Economic Census Survey: 2009 RECS Survey Data (2013), available at: declines in the cost of distributing and Data, available at: www.census.gov/econ/ (last http://www.eia.gov/consumption/residential/data/ installing condensing furnaces. accessed Dec. 3, 2015). 2009/ (last accessed July 29, 2014).

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residential buildings smaller than considered efficiency level, which by capacity provided by AHRI over 10,000 sq. ft. are residential furnaces. allowed calculation of the fuel 1995–2014, as well as 2014 HARDI The RECS data provide information on consumption and electricity shipments data by capacity and AFUE the vintage of the home, as well as consumption based on the DOE bins for three regions.52 53 These two heating energy use in each household. residential furnace test procedure. DOE data sources are not consistent and DOE DOE used the household samples not assumed in this analysis that furnaces needs further information to be able to only to determine furnace annual energy will be installed using instructions in utilize this data. For this SNOPR, DOE consumption, but also as the basis for the manufacturer’s installation manual kept the approach used in the conducting the LCC and PBP analysis. in order to ensure proper operation. September 2015 NODA and used the DOE projected household weights and DOE is not aware of any data reporting AHRI 2000 shipments data. See chapter household characteristics in 2022, the on deficiencies that will undermine the 7 and appendix 7B of the SNOPR TSD first year of compliance with any rated performance. for more detail. amended or new energy conservation a. Furnace Capacity In addition, the GTI report submitted standards for NWGFs and MHGFs. To by AGA and APGA in response to the characterize future new homes, DOE In the March 2015 NOPR, DOE assigned a input capacity for the September 2015 NODA stated that used a subset of homes in RECS 2009 correct furnace fan sizing would be that were built after 1990. existing furnace of each housing unit based on an algorithm that correlates the important for DOE to ensure that a To determine the field energy use of furnace/air conditioner system will NWGFs used in commercial buildings, heating square footage provide by RECS 2009 and the outdoor design provide adequate cooling, especially in DOE established a sample of buildings warmer climates dominated by cooling using NWGFs from EIA’s 2003 temperature for heating (i.e., the temperature that is exceeded by the 30- demand. The GTI report stated that Commercial Building Energy furnace capacity in these cases will not Consumption Survey (CBECS 2003),46 year minimum average temperature one percent of the time), based on the be based on the peak heating load, but which is the most recent such survey rather on the furnace fan capacity linked 47 estimated location of the RECS 2009 that is currently available. DOE to the air conditioner system capacity. assumed that 80 percent of furnaces in household, with the distribution of input capacities of furnaces based on a The GTI report stated that, as a result, commercial buildings smaller than the furnace will often be oversized for 48 reduced set of models from the 2013 10,000 sq. ft. are residential NWGFs. heating. The GTI report stated that the DOE assumed that each commercial AHRI residential furnace certification 50 best fit line for heating load vs. furnace building has one or more NWGFs. directory. DOE assumed that for the new furnace installation, the input size is consistent with the idea that 1. Active Mode capacity would remain the same as the furnaces are generally oversized for the heating load. (AGA, No. 0175–3 at p. 4; To estimate the annual energy input capacity for the existing furnace. APGA, No. 0180 at p. 6; APGA, No. consumption in active mode of furnaces Id. However, in the September 2015 0180 (attachment) at p. 4) meeting the considered efficiency NODA, DOE distributed the input levels, DOE first calculated the house capacity based on shipments data by DOE acknowledges that it is common heating load using the RECS 2009 input capacity bins for the year 2000 practice is to install a sufficiently large estimates of household furnace annual provided by AHRI.51 80 FR 55038, furnace to provide the furnace fan that energy consumption,49 the existing 55041 (Sept. 14, 2015). The AHRI data is required to meet the cooling furnace’s estimated capacity and was further disaggregated into 5-kBtu/h requirements. However, the furnace fan efficiency (AFUE), and the heat bins using the reduced models dataset standards that will take effect in July generated from the electrical from the September 2015 NODA 2019 require fan motor designs that can components. The analysis assumes that analysis. modulate the amount of air depending some homes have two furnaces, with the In response to the September 2015 on both heating and cooling heating load split evenly between them. NODA, AGA and APGA stated that requirements. Thus, the size of the The estimation of furnace capacity is GTI’s report found that RECS lacks the furnace fan (and the furnace capacity) discussed further below. The AFUE of data needed to perform furnace capacity will be able to better match the heating the existing furnaces was determined assignments, and additional market requirements of the house. DOE notes using the furnace vintage (the year of information is needed to appropriately that this will primarily affect furnaces installation of the product) provided by perform this analysis. (AGA, No. 0175– located in warmer areas of the country RECS and historical data on the market 2 at p. 2; AGA, No. 0175–2 at p. 3; AGA, (with higher cooling loads), which share of furnaces by AFUE by region No. 0175–3 at p. 8; APGA, No. 0180 at potentially lead to higher amount of (see section IV.E). DOE then used the p. 6; APGA, No. 0180 (attachment) at p. oversizing than is assumed in the house heating load to calculate the 8) analysis for these households. DOE burner operating hours at each DOE acknowledges that RECS does performed a sensitivity analysis to not directly report the input capacity of assess the impact of furnace fan cooling 46 U.S. Department of Energy: Energy Information the furnace, but, as described above, it requirements and the pending changes Administration, Commercial Buildings Energy provides data that allows for a in furnace fan design as part of its Consumption Survey (2003), available at http:// reasonable estimation of the capacity furnace sizing methodology by using www.eia.gov/consumption/commercial/data/2003/ when combined with shipments data index.cfm?view=microdata) (last accessed July 29, primarily 2014 HARDI regional 2014). disaggregated by capacity. In addition, 47 DOE recognizes that summary energy DOE reviewed average shipments data 52 D+R International, 2014 Natural Gas Furnace consumption estimates have been released for 2012 Market Report (2014), available at CBECS. For consideration of a final rule, DOE will 50 AHRI. Directory of Certified Product www.regulations.gov/#!documentDetail;D=EERE- rely on the most recent, complete version of CBECS. Performance: Residential Furnaces. Available at: 2014-BT-STD-0031-0118 (Last accessed May 5, 48 The remaining 20 percent are assumed to be https://www.ahridirectory.org/ahridirectory/pages/ 2016). weatherized gas furnaces. rfr/defaultSearch.aspx (last visited May 30, 2016). 53 The AFUE bins were: <80-percent AFUE, 80 to 49 EIA estimated the equipment’s annual energy 51 AHRI (formerly GAMA). Furnace and Boiler 85 percent AFUE, 85 to 90 percent AFUE, 90 to 92 consumption from the household’s utility bills Shipments data provided to DOE for Furnace and percent AFUE, 92 to 94 percent AFUE, 96 to 98 using conditional demand analysis. Boiler ANOPR. (January 23, 2002). percent AFUE, and 98 percent AFUE and above.

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shipments data by capacity. See chapter the September 2015 NODA. AHRI and agrees with the Efficiency Advocates 7 of the SNOPR TSD for further detail. Rheem stated that the percentage of that in the case of a standard that allows In response to the March 2015 NOPR, households assumed to install a small small furnaces to use non-condensing Allied Air stated that the furnace sizing furnace is generally too high for each technology, many consumers would analysis should be based on output input rate definition, and significantly have a financial incentive to downsize capacity, not input capacity. (Allied Air, overestimated at 60 and 65 kBtu/h. their furnace. In such a case, changes No. 0044 at p. 216) Although sizing AHRI and Rheem stated that data over from the past practice could be based on output capacity more the last 20 years indicates that only 10 expected. accurately matches the heating load, percent of consumers install furnaces Ingersoll Rand and the GTI report sizing the furnace by input capacity with an input rate under 60 kBtu/h, submitted by AGA and APGA stated slightly increases electricity use, which while DOE assumed 15 percent install that the ‘‘small fraction’’ used to is offset by slight decrease in fuel use such units. AHRI noted what it believed determine the use of a small, non- and decrease in total installed cost to be similar inconsistencies at 70 kBtu/ condensing NWGF was not provided. differential. Therefore, for this SNOPR, h and 80 kBtu/h. (AHRI, No. 0181 at pp. Ingersoll Rand requested that the ‘‘small DOE did not change the analysis 2–3, 5; Rheem, No. 0184 at p. 3; Rheem, fraction’’ used in the analysis be approach. No. 0199 at p. 3) Lennox stated that provided along with the reasoning for Under a separate standard for small DOE’s downsizing assumptions shift selecting that level. (Ingersoll Rand, No. furnaces that does not require a significantly from established historical 00203 at p. 2; AGA, No. 0175–3 at p. 3; condensing furnace, DOE expects that trends. (Lennox, No. 0201 at p. 5) APGA, No. 0180 (attachment) at p. 3) some consumers who would otherwise Ingersoll Rand commented that it would The Efficiency Advocates recommended install a typically-oversized furnace 54 be unusual for a newly installed furnace that DOE prepare several downsizing would choose to downsize in order to be to have a significantly lower input than scenarios in addition to the September able to purchase a non-condensing the one it has replaced, as would 2015 NODA assumption of 35 percent. furnace. For the September 2015 NODA happen with DOE’s downsizing analysis, DOE identified a sample of (Efficiency Advocates, No. 0196 at p. 2) methodology. (Ingersoll Rand, No. 0203 DOE did not assume that a specific households that would choose to at p. 2) In contrast, the Efficiency downsize to a non-condensing furnace fraction of consumers would downsize. Advocates stated that although For the September 2015 NODA, for at each of the considered small furnace oversizing has been standard practice in capacities. In identifying these households assigned a non-condensing the past, under the small furnace households, DOE first determined furnace in the no-new-standards case, scenario, significant up-front cost can be whether a household would install a DOE determined a downsized input avoided by installing a smaller non- non-condensing furnace with an input capacity using a reduced oversize factor condensing furnace. The Efficiency capacity greater than the small furnace of 35 percent (instead of the typical 70 Advocates stated that downsizing is size limit in the no-new-standards case, percent).55 If the downsized input particularly likely in warm climates based on the assigned input capacity capacity was below a given small where furnaces are commonly oversized and efficiency, determined as described furnace threshold, DOE assumed that to have a large blower for the cooling above. In each standards case, DOE the household would downsize to that season. (Efficiency Advocates, No. 0196 applied a smaller-than-typical capacity. The fractions of consumers oversizing factor (1.35 vs 1.7) to estimate at p. 2) purchasing a small furnace under the the number of consumers who would In response, the comments by AHRI, considered definitions are shown in downsize to the input capacity limit for Rheem and Ingersoll Rand reflect Table IV.12. Further details about the small furnaces. market conditions in recent years, downsizing methodology, including a Several stakeholders commented on where oversizing of furnaces has been a sensitivity analysis, are presented in the downsizing methodology used in common installation practice. DOE appendix 8J of the SNOPR TSD.

TABLE IV.12—SHARE OF SAMPLE HOUSEHOLDS MEETING SMALL FURNACE DEFINITION [Percent]

With separate Without small furnace Small furnace definition amended standard and standards downsizing

≤40 kBtu/h ...... 1 6 ≤45 kBtu/h ...... 3 8 ≤50 kBtu/h ...... 8 14 ≤55 kBtu/h ...... 10 15 ≤60 kBtu/h ...... 19 31 ≤65 kBtu/h ...... 19 38 ≤70 kBtu/h ...... 30 43 ≤75 kBtu/h ...... 42 53 ≤80 kBtu/h ...... 56 65 ≤85 kBtu/h ...... 56 65 ≤90 kBtu/h ...... 65 71 ≤95 kBtu/h ...... 67 73 ≤100 kBtu/h ...... 79 84

54 By typical oversizing, DOE refers to a value of 55 ACCA recommends oversizing by maximum of Equipment Selection (2nd Edition). Available at: 1.7 as specified in the DOE residential furnace and 40 percent. ACCA. Manual S—Residential https://www.acca.org/. boiler test procedure.

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b. Adjustments to Energy Use Estimated consumption using field data on static consumption of auxiliary components to for 2009 pressures of duct systems, as well as be lower for condensing furnaces than DOE adjusted the energy use airflow curves for furnace blowers from for non-condensing furnaces. estimated for 2009 to ‘‘normal’’ weather manufacturer literature. 80 FR 13120, (Goodman, No. 0135 at p. 7) DOE agrees by using long-term heating degree-day 13150 (March 12, 2015). As noted in that a condensate pump and heat tape (HDD) data for each geographical section IV.C, the furnace designs used in add to the electricity use of a region.56 For the SNOPR, DOE DOE’s analysis incorporate furnace fans condensing furnace, but because DOE accounted for changes in the geographic that meet the standards that will take assumed that the input capacity of a 59 distribution of homes based on effect in 2019. Condensing furnaces condensing furnace is the same as the AEO2015 projections of HDD.57 tend to have a more restricted airflow non-condensing furnace it is replacing, DOE accounted for change in building path than non-condensing furnaces the condensing furnace would operate shell characteristics and building size because of the presence of a secondary less than would a non-condensing (square footage) between 2009 and the heat exchanger, so the furnace fan furnace due to its higher efficiency. compliance year by applying the generally requires more energy to Thus, the electricity use of auxiliary building shell indexes in the National produce the equivalent airflow output components may be lower than for a Energy Modeling System (NEMS) for a condensing furnace compared to a non-condensing furnace despite the associated with the Annual Energy similar non-condensing furnace. additional electricity use of the Outlook. The indexes consider projected In response to the March 2015 NOPR, condensate pump and heat tape. improvements in building thermal Ingersoll Rand asked why DOE’s As stated above, a condensing furnace efficiency due to improvement in home analysis assumed condensing furnaces uses more electricity than an equivalent insulation and other thermal efficiency used 5 percent more electricity non-condensing furnace. DOE practices, as well as projected increases compared to non-condensing furnaces accounted for the additional heat in square footage. In the March 2015 in, while the July 2014 furnace fan final released by the furnace fan motor that NOPR, application of the index resulted rule used a difference of 7 or 8 percent. needs to be compensated by the central in nine-percent lower building heating (Ingersoll Rand, No. 0044 at p. 205) In air conditioner during the cooling load from 2009 to 2021. 80 FR 13120, response, the March 2015 NOPR season based on the 2014 furnace fan 13147 (March 12, 2015). EIA provides analysis applied on average a 10-percent final rule. DOE also accounted for separate indexes for new buildings and power consumption increase for additional electricity use by the furnace existing buildings. condensing furnaces based on the 2014 fan during continuous fan operation In developing the building shell index furnace fan efficiency standards final throughout the year. for new construction, building shell rule (5 percent was reported incorrectly d. Rebound Effect efficiency is determined by the relative in appendix 7B of the NOPR TSD). costs and energy bill savings for several DOE accounted for furnace fan use Higher-efficiency furnaces reduce the levels of heating and cooling equipment, during heating mode and the difference operating costs for a consumer, which in conjunction with the building shell in electricity use between the baseline can lead to greater use of the furnace. A attributes. In this SNOPR, DOE used efficiency level (80-percent AFUE) and direct rebound effect occurs when a building shell indexes based on the higher efficiency levels for furnace product that is made more efficient is AEO2015, which did not incorporate fan use during cooling mode, not the used more intensively, such that the the 2015 IECC. However, the 2015 IECC total furnace fan use during cooling expected energy savings from the has to be adopted by state or local mode. DOE accounted for a 10 percent efficiency improvement may not fully jurisdictions before it takes effect. As of increase in electricity use for the materialize. In the March 2015 NOPR April 2016, more than half of the furnace fan in condensing furnaces analysis, DOE examined a 2009 review country was still under the 2009 IECC during the cooling season due to the of empirical estimates of the rebound effect for various energy-using or older codes instead of the 2012 IECC increase in static pressure from the 62 or 2015 IECC.58 Given that the extent of secondary heat exchanger. To calculate products. 80 FR 13120, 13148. This adoption of the 2015 IECC across the electricity consumption for the inducer review concluded that the econometric United States is uncertain, DOE believes fan, ignition device, gas valve and and quasi-experimental studies suggest that use of building shell indexes based controls, DOE used the calculation a mean value for the direct rebound effect for household heating of around on AEO2015 is reasonable. For the final described in DOE’s test procedure 60 as 20 percent. DOE also examined a 2012 rule, DOE plans to use AEO2016, which well as 2013 AHRI Directory of Certified ACEEE paper 63 and a 2013 paper by will include updated building shell Furnace Equipment and manufacturer Thomas and Azevedo.64 Both of these efficiency factors that reflect the most product literature.61 Electricity publications examined the same studies current building codes. consumption of condensing furnaces that were reviewed by Sorrell, as well as reflects use of a condensate pumps and c. Furnace Electricity Use Greening et al,65 and identified heat tape. In the March 2015 NOPR, DOE Goodman stated that given that calculated furnace fan electricity 62 Steven Sorrell, et. al, Empirical Estimates of the auxiliary components such as Direct Rebound Effect: A Review, 37 Energy Pol’y condensate pumps and heat tape are 1356–71 (2009). 56 National Oceanic and Atmospheric unique to condensing furnaces, it is 63 Steven Nadel, ‘‘The Rebound Effect: Large or Administration (NOAA), NNDC Climate Data impossible for the annual electricity Small?’’ ACEEE White Paper (August 2012) Online (2009), available at http:// (Available at: www.aceee.org/white-paper/rebound- www7.ncdc.noaa.gov/CDO/CDODivisionalSelect.jsp effect-large-or-small). 59 (last accessed July 29, 2014). See Table 1 at: http://www1.eere.energy.gov/ 64 Brinda Thomas &Ines Azevedo, Estimating _ 57 U.S. Department of Energy, Energy Information buildings/appliance standards/product.aspx/ Direct and Indirect Rebound Effects for U.S. Administration, Annual Energy Outlook 2015, productid/42. Households with Input–Output Analysis, Part 1: available at www.eia.gov/forecasts/aeo/pdf/ 60 Found in 10 CFR part 430, subpart B, appendix Theoretical Framework, 86 Ecological Econ. 199– 0383(2015).pdf (last accessed July 29, 2015). N. 201 (2013), available at www.sciencedirect.com/ 58 DOE Building Energy Codes Program. Status of 61 AHRI Directory of Certified Furnace science/article/pii/S0921800912004764. State Energy Code Adoption. (Available at: https:// Equipment, February 2013 (Available at: 65 Lorna A. Greening, et. al., Energy Efficiency www.energycodes.gov/status-state-energy-code- www.ahridirectory.org/ahridirectory/pages/ and Consumption—The Rebound Effect—A Survey, adoption). home.aspx). 28 Energy Policy 389–401 (2002).

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methodological problems with some of zero use are households that switch cost (including installation) of a more- the studies. The studies, believed to be from an 80-percent AFUE NWGF to efficient product through lower operating most reliable by Thomas and Azevedo, either an electric furnace or heat pump. costs. DOE calculates the PBP by dividing the show a direct rebound effect for heating DOE accounts for the fuel switching change in purchase cost at higher efficiency levels by the change in annual operating cost products in the 1-percent to 15-percent from a gas water heater to an electrical for the year that amended or new standards range, while Nadel concludes that a water as a differential in energy use. are assumed to take effect. more likely range is 1 to 12 percent, Therefore for cases with water heater with rebound effects sometimes higher fuel switching, a negative fuel can occur For any given efficiency level, DOE than this range for low-income when: (1) The heating energy use in measures the change in LCC relative to households who could not afford to standards cases is less than the gas the LCC in the no-new-standards case, adequately heat their homes prior to water heater energy use; (2) when the which reflects the estimated efficiency weatherization. Based on DOE’s review household also switches to either an distribution of NWGFs and MHGFs in of these recent assessments (see chapter electric furnace or heat pump. the absence of new or amended energy 10 of the SNOPR TSD), DOE used a 15 ASAP stated that a 2015 evaluation of conservation standards. In contrast, the percent rebound effect for NWGFs and furnace incentive programs in PBP for a given efficiency level is MHGFs in the March 2015 NOPR and Massachusetts 66 suggests that DOE measured relative to the baseline September 2015 NODA. underestimated per-unit energy savings product. ASAP stated that the 15 percent for a 95-percent AFUE furnace For each considered efficiency level rebound value would be too high. compared to an 80-percent AFUE in each product class, DOE calculated (ASAP, No. 0050 at p. 101) Although a furnace in the North by 31 percent. the LCC and PBP for a nationally lower value might be warranted, DOE ASAP stated that Massachusetts is representative set of housing units and, prefers to be conservative and not risk generally representative of average for NWGFs, commercial buildings. As understating the rebound effect; climate conditions in the North. (ASAP, stated previously, DOE developed therefore, DOE continued to use a 15 No. 0154–1 at pp. 3, 5) The report cited household samples from the 2009 RECS percent rebound effect for this SNOPR by ASAP presents the results of a and 2003 CBECS. For each sample when accounting for national energy limited case study. DOE agrees that household or building, DOE determined savings. some households may experience the energy consumption for the furnace greater energy savings from installing a and the appropriate electricity price. By 2. Standby Mode and Off Mode condensing NWGF than others, as is developing a representative sample of DOE calculated furnace standby mode reflected in the distribution of energy households, the analysis captured the electricity consumption for each savings results. However, the energy variability in energy consumption and technology option identified in the savings depend not only on climate energy prices associated with the use of engineering analysis by multiplying the conditions, but other factors as well, NWGFs and MHGFs. power consumption at each efficiency such as physical building characteristics Inputs to the LCC calculation include level by the number of standby mode and household energy consumption the installed cost to the consumer, hours. DOE assumed that furnaces are behaviors, which may be different in operating expenses, the lifetime of the not usually equipped with an off mode, other parts of the North. product, and a discount rate. Inputs to so only the standby electricity the calculation of total installed cost consumption was considered. To F. Life-Cycle Cost and Payback Period include the cost of the product—which calculate the annual number of standby Analysis includes MPCs, manufacturer markups, mode hours for each sample household, In determining whether an energy wholesaler and contractor markups, and DOE subtracted the estimated total efficiency standard is economically sales taxes (where appropriate)—and furnace fan operating hours from the justified, DOE considers the economic installation costs. Inputs to the total hours in a year (8,760). The total impact of potential standards on calculation of operating expenses furnace fan operating hours are the sum consumers. The effect of new or include annual energy consumption, of the furnace fan operating hours amended energy conservation standards energy prices and price projections, during heating, cooling and continuous on individual consumers usually repair and maintenance costs, product fan modes. involves a reduction in operating cost lifetimes, and discount rates. Inputs to Goodman stated that DOE should take and an increase in purchase cost. DOE the payback period calculation include into account that manufacturers will used the following two metrics to the installed cost to the consumer and almost completely transition to measure consumer impacts: first year operating expenses. DOE brushless permanent magnet (BPM) • The LCC (life-cycle cost) is the total created distributions of values for motors in 2019 due to the furnace fan consumer expense of an appliance or product aspects of installation cost, repair and rule, which will increase the standby over the life of that product, consisting of maintenance, product lifetime, discount mode electricity consumption of the total installed cost (manufacturer selling rates, and sales taxes, with probabilities furnace. (Goodman, No. 0135 at p. 5) price, distribution chain markups, sales tax, attached to each value, to account for DOE accounted for the additional and installation costs) plus operating costs their uncertainty and variability. (expenses for energy use, maintenance, and The computer model DOE uses to electricity use of BPM motors in standby repair). To compute the operating costs, DOE mode. Chapter 7 of the SNOPR TSD calculate the LCC and PBP, which discounts future operating costs to the time TM describes the methodology in more of purchase and sums them over the lifetime incorporates Crystal Ball (a detail. of the product. commercially-available software • The PBP (payback period) is the program), relies on a Monte Carlo 3. Comments on Energy Use Results estimated amount of time (in years) it takes simulation to incorporate uncertainty In its comments on the March 2015 consumers to recover the increased purchase and variability into the analysis. The NOPR, AHRI stated that the analysis Monte Carlo simulations randomly unrealistically estimates zero or 66 The Cadmus Group, 2015. High Efficiency sample several input values from the Heating Equipment Impact Evaluation. Available at negative fuel use for some households http://www.neep.org/sites/default/files/resources/ probability distributions and NGWF and with 90-percent AFUE furnaces. (AHRI, High-Efficiency-Heating-Equipment-Impact- MHGF user samples. The model No. 0159 at p. 56) The households with Evaluation-Final-Report.pdf. calculated the LCC and PBP for

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

TABLE IV.13—SUMMARY OF INPUTS AND METHODS FOR THE LCC AND PBP ANALYSIS *

Inputs Source/method

Product Cost ...... Derived by multiplying MPCs by manufacturer, wholesaler, and contractor markups and sales tax, as ap- propriate. Used historical data to derive a price scaling index to forecast product costs. Installation Costs ...... Baseline installation cost determined with data from 2015 RS Means. Assumed no change with efficiency level.

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TABLE IV.13—SUMMARY OF INPUTS AND METHODS FOR THE LCC AND PBP ANALYSIS *—Continued

Inputs Source/method

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

1. Product Cost 2015 equal to 1, to forecast prices in cost of condensing furnaces. ASAP To calculate consumer product costs, 2022 for the LCC and PBP analysis, and, recommended that DOE use the high DOE multiplied the MPCs developed in for the NIA, for each subsequent year decreasing price trend scenario for its the engineering analysis with the through 2051. The index value in each main analysis because the trend manufacturer, wholesaler, and year is a function of the experience rate captures the market during the period contractor markups and sales taxes, as and the cumulative production through when condensing products grew to appropriate. DOE used baseline that year. To derive the latter, DOE significant market share, and is more markups for baseline consumer combined the historical shipments data representative of the expected trends products and it applies an incremental with projected shipments from the no- under a condensing standard. (ASAP, markup to the increase in MSP new-case projection made for the NIA No. 0154–1 at pp. 3–5) Fletcher, CEC, associated with higher-efficiency (see section IV.H of this notice). and the Joint Consumer Commenters products. Application of the index results in stated that the product price of Based on the updated engineering prices that decline 5 percent from 2015 condensing furnaces will decrease with analysis and markups, for the SNOPR, to 2022. an increase in production and the product price was estimated to be DOE emphasizes that its learning innovation due to the proposed $208 to $522 more for a condensing curve methodology was developed by standards. (Fletcher, No. 0064 at p. 1; NWGF than a non-condensing one. examining the literature on both CEC, No. 0120 at p. 5; Joint Consumer For the default price trend for economic theory and empirical studies Commenters, No. 0123 at pp. 18–21) In residential furnaces, DOE derived an of energy technology learning rates. contrast, AHRI stated that as condensing experience rate based on an analysis of DOE believes that its current learning furnaces have been produced since at long-term historical data. In the March curve methodology is consistent with least 1984, most of the learning for these 2015 NOPR, as a proxy for manufacturer economic theory, and utilizes the most products has already been captured in price, DOE used Producer Price Index extensive time series data available current designs. AHRI stated that it is (PPI) data for warm-air furnace specific to this product. not likely that there are major future equipment from the Bureau of Labor In response to the March 2015 NOPR, reductions in production cost from Statistics from 1990 through 2013.67 In some stakeholders suggested that non- learning. (AHRI, No. 0159 at p. 49) this SNOPR, DOE used PPI data from condensing and condensing furnaces DOE acknowledges that the prices of the BLS from 1990 through 2015.68 An may have different learning curves. non-condensing and condensing inflation-adjusted PPI was calculated SoCalGas stated that non-condensing furnaces may not change at the same using the implicit price deflators for furnaces are mature so their learning rate, and using a trend for all NWGFs to GDP for the same years. To calculate an rate should be near zero; the rate should represent the price trend of condensing experience rate, DOE performed a least- be different for condensing furnaces. furnaces may underestimate the future squares power-law fit on the inflation- (SoCalGas, No. 0132–2 at p. 6) ASAP decline in the cost of condensing adjusted PPI versus cumulative stated that it would be expected for the furnaces. It also acknowledges that an shipments of residential furnaces, based prices of technologies used in high- increase in production and innovation on a corresponding series for total efficiency products to decline much due to a condensing standard could shipments of residential furnaces (see faster than the total price of the product. result in decline in the cost of section IV.G of this notice for discussion ASAP stated that the use of historic condensing furnaces. However, DOE of shipments data). DOE then derived a price trends of heating products to could not find data that would allow a price factor index, with the price in estimate learning rates for furnaces projection of how the price trend for implicitly assumes that the prices of condensing furnaces may differ from the 67 U.S. Department of Labor, Bureau of Labor non-condensing and condensing trend for all NWGFs. Thus, for the Statistics, Produce Price Indices Series ID PCU333415333415C, available at www.bls.gov/ppi/ furnaces will change at the same rate, SNOPR, it used the same price trend (last accessed April 18, 2016). and will likely significantly projection for condensing and non- 68 Id. underestimate future declines in the condensing furnaces. Although

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information about price trends related to condensing gas furnaces, the additional condensing gas furnaces, DOE included different furnace technologies is not costs could include updating flue vent new adders for flue venting (PVC), available, DOE is exploring ways to connectors, vent resizing, and chimney combustion air venting (PVC), estimate learning rates for different relining. When a non-condensing gas concealing vent pipes, addressing an technologies.69 DOE welcomes furnace is replaced with a condensing orphaned water heater (by updating flue comments on ways to derive learning gas furnace, particular attention paid to vent connectors, vent resizing, or rates for different types of technologies. venting issues in replacement chimney relining), and condensate This is identified as issue 14 in section applications, including adding a new removal. DOE also updated its analysis VII.E, ‘‘Issues on Which DOE Seeks flue venting (PVC), combustion air in this SNOPR in response to some Comment.’’ venting (PVC), concealing vent pipes, comments it received as a result of the A detailed discussion of DOE’s addressing an orphaned water heater (by March 2015 NOPR and the September derivation of the experience rate is updating flue vent connectors, vent 2015 NODA, which are outlined below. provided in appendix 8C of the SNOPR resizing, or chimney relining), as well as AHRI commented that because most TSD. condensate removal. DOE also included furnace installations in existing installation adders for new construction buildings are emergency replacements 2. Installation Cost installations. For non-condensing during the heating season, there is a Installation cost includes labor, furnaces, the only adder is a new flue high premium on the ability to install a overhead, and any miscellaneous vent (metal, including a fraction with furnace quickly to prevent a house from materials and parts needed to install the stainless steel venting). For condensing freezing, so there is rarely time for a product. As part of its analysis, DOE gas furnaces, the adders include a new major reconstruction to accommodate a used information in the 2009 RECS to flue vent, combustion air venting for condensing furnace. (AHRI, No. 0159 at estimate the location of the furnace in direct vent installations, accounting for p. 59) While DOE understands that most each of the sample homes. For the a commonly vented water heater, and homeowners can make accommodations March 2015 NOPR and September 2015 condensate removal. DOE gave separate to allow for proper installation of a NODA, the installation cost estimates, consideration to the cost of installing a condensing furnace in unusual cases including labor costs, were based on non-condensing gas furnace and where major reconstruction might be 2013 RS Means data.70 condensing gas furnace in new homes required, DOE agrees that some In its comments on the March 2015 and in mobile homes. emergency situations will generate a NOPR, Ingersoll Rand stated that a small higher installation cost. However, DOE survey of dealers around the country a. Basic Installation Cost understands that emergency situations showed that homeowners are actually DOE’s analysis in the March 2015 may arise for both non-condensing and charged an average rate of $100/hour for NOPR and September 2015 NODA, as condensing installations, so it did not labor, compared to DOE’s estimates of well as this SNOPR, estimated basic include the related costs in its analysis. $52/hour to $71/hour from RS Means. installation costs that are applicable to AGL Resources commented that DOE (Ingersoll Rand, No. 0156 at p. 8) both replacement and new home did not include certain materials and In this SNOPR, DOE updated its data applications. These costs, which apply installation charges, like costs to 2015 RS Means.71 In addition, DOE to both condensing and non-condensing associated with ductwork modification contacted RS Means to verify what labor gas furnaces, include furnace setup and and material cost for electrical work, in costs and associated markups are more transportation, gas piping, ductwork, the non-condensing to condensing appropriate for installation of NWGFs electrical hookup, permit and removal/ NWGF installation scenario. (AGL and MHGFs in residential market. Based disposal fees, and where applicable, Resources, No. 0039 at p. 3; AGL on RS Means input, DOE has revised its additional labor hours for an attic Resources, No. 0112 at p. 3) In the labor costs from residential labor costs installation. March 2015 NOPR and the September to repair/remodeling labor costs, which SoCalGas stated that DOE’s analysis 2015 NODA, DOE included the cost of are about 40 percent higher than in the March 2015 NOPR did not electrical work required to add a previously applied in the NOPR. In consider the cost of asbestos removal in condensate pump or heat tape outlet addition, based on interactions with RS retrofitted homes. SoCalGas stated that near the NWGF location, but did not Means and from the Ingersoll Rand asbestos abatement services in Southern include additional ductwork costs. input, DOE modified its labor costs to California typically cost from $250 to These ductwork costs would impact all better reflect actual installation costs $3,000 depending on site conditions. efficiency levels equally and DOE applied in the field. See chapter 8 of the (SoCalGas, No. 0132–2 at p. 4) DOE therefore did not add them for this SNOPR TSD for additional details about agrees that asbestos presents a safety analysis. DOE tentatively determined the determination of installation costs. hazard that should be removed for all that this approach adequately reflects DOE conducted a detailed analysis of retrofit installations where it is present. the electrical work and ductwork cost installation costs for all potential However, DOE understands that the cost differential between the efficiency installation cases. When a non- would be the same regardless of the levels, so it did not make any additional condensing is replaced with a non- furnace efficiency level, so it is not changes for this SNOPR. necessary to include this cost for the Venting Requirements of Condensing 69 Taylor, M. and K. S. Fujita, Accounting for analysis of NWGF standards. Technological Change in Regulatory Impact Non-Weatherized Gas Furnaces Analyses: The Learning Curve Technique, Lawrence b. Additional Installation Costs for Non- In response to DOE’s approach in the Berkeley National Laboratory, Report No. LBNL– Weatherized Gas Furnaces 6195E (2013) (Available at: http://efficiency.lbl.gov/ March 2015 NOPR and the September sites/all/files/accounting_for_technological_ For replacement applications, DOE 2015 NODA, many stakeholders change_in_regulatory_impact_analyses_the_ included a number of additional costs commented specifically on the venting learning_curve_technique_lbnl-6195e.pdf). (‘‘adders’’) for a fraction of the sample requirements of condensing NWGFs 70 RS Means Company Inc., RS Means Residential households. For non-condensing gas compared to those of non-condensing Cost Data. Kingston, MA (2013). 71 RS Means Company Inc., RS Means Residential furnaces, these additional costs NWGFs, which are outlined below. Repair & Remodeling Cost Data. Kingston, MA included updating flue vent connectors, Ingersoll Rand commented that DOE (2015). vent resizing, and chimney relining. For should use the NFGC venting guide,

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

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for the costs required to conceal vent Category I furnaces are removed from heater market trends. (ASAP, No. 0154– pipes. the common stacks. (MUD, No. 0144 at 1 at p. 2) PG&E also stated that DOE p. 2) CenterPoint Energy, Vectren, and should eliminate added costs for new Common Venting Carrier stated that replacing a non- owner installations that are assumed to Common venting provides a single condensing furnace with a condensing be common-vented with non- exhaust flue for multiple gas appliances. one may require significant and condensing water heaters, as homes in In some cases, a non-condensing NWGF expensive modifications to the existing this category did not previously have a is commonly vented with a gas-fired vent system, such as installing a furnace and, therefore, do not have an water heater. When the non-condensing chimney liner to maintain safe venting existing common vent. (PG&E, No. 0153 NWGF is replaced with a condensing of the orphaned natural gas water at pp. 5–6) NWGF, the new condensing furnace and heater, or replacement of the existing DOE acknowledges that the frequency the existing water heater can no longer water heater with a new power-vented of chimney relining and vent resizing be commonly vented due to different water heater. (CenterPoint Energy, No. may decrease somewhat due to increase venting requirements,72 and the water 0083 at p. 2; Vectren, No. 0111 at p. 7; in use of high-efficiency water heaters. heater becomes ‘‘orphaned.’’ The Carrier, No. 0116 at p. 19) AHRI stated However, DOE did not find any existing vent may need to be modified that in many new homes, it would be information to predict the market share to safely vent the orphaned water possible to install a condensing gas of high-efficiency water heaters in 2022 heater. DOE accounted for a fraction of furnace and a power-vented gas water or the decrease in the fraction of installations that would require heater and avoid the cost of installing a installations with common vents. For chimney relining or vent resizing for the chimney. (AHRI, No. 0159 at p. 59) new owner and new construction orphaned water heater, including DOE has tentatively determined that installations, DOE applied a venting updating flue vent connectors, resizing the assumptions it made and costs it cost differential if the owner/builder vents, or relining chimneys when included for the March 2015 NOPR and was planning to install a commonly- applicable based upon the age of the September 2015 NODA adequately vented non-condensing furnace and furnace and the home. address the concerns raised in the above water heater. For the SNOPR, DOE Commenting on the March 2015 comments. DOE’s analysis reflects the prefers to be conservative and not NOPR, MHI stated that 92 percent AFUE likelihood that in some cases, replacing understate the impact of common furnaces require a dedicated venting a non-condensing furnace with a venting, and consequently, DOE did not system to meet positive vent pressures, condensing one may require significant change the approach in this SNOPR that which is particularly problematic for the modifications to the existing vent it used for the March 2015 NOPR and replacement market because it alters the system for the commonly-vented gas September 2015 NODA. performance characteristics of existing water heater. It accounted for costs for NMHC, NAA, and NLHA stated that common venting. MHI stated that the updating the vent connector, relining in many multi-family properties, proposed standard would require the chimney, and resizing the vent, furnaces and gas water heaters from consumers to take additional steps to which would satisfy the installation several units may share a chimney vent, comply with proper venting requirements of NFPA 54. In the March or a furnace and a water heater within requirements in existing homes, which 2015 NOPR and September 2015 NODA, one apartment may be commonly in many cases would be impractical, if DOE acknowledged that a potential vented. NMHC, NAA, and NLHA stated not impossible. (MHI, No. 0129 at p. 1) option is to install either a storage or that eliminating a non-condensing NPGA expressed concern that a 92 tankless power-vented water heater to furnace from a venting stack may percent AFUE standard could cause avoid the cost of a chimney or metal initiate a cascade of equipment various venting issues during furnace flue vent just for the gas water heater or replacements due to venting replacement, which could add cost to avoid switching to an electric storage requirements. (NMHC, NAA, and reconfigure the venting system and raise water heater. For the SNOPR (similar to NLHA, No. 0117 at pp. 3–4) Carrier potential safety concerns in venting an the March 2015 NOPR and September stated that each time a Category I orphaned water heater if the water 2015 NODA), DOE did not consider the furnace is replaced with a Category IV heater vent is not properly sized. power-vented water heater option but furnace in a multi-family building, the (NPGA, No. 0044 at pp. 18–19). NMHC, instead added additional installation Category I common-vent system will NAA, and NLHA stated that replacing costs associated with venting of the require resizing. Carrier stated that labor both the commonly-vented gas furnace Category I water heater, so that the costs for reconfiguration of existing and gas water heater while maintaining orphaned water heater could be vented Category I vents for installation of new the vertical vent is so costly as to be through the chimney or considered an Category IV vents could be higher than impractical in most situations. (NMHC, electric storage water heater as an average due to space constraints. NAA, and NLHA, No. 0117 at p. 4) MUD alternative. (Carrier, No. 0116 at p. 19) stated that orphaned water heaters PG&E stated that to accommodate DOE acknowledges that multi-family would not properly vent or satisfy the higher-efficiency water heaters, newly buildings may require additional installation requirements of NFPA 54 if constructed homes and many existing measures to replace non-condensing homes will need to upgrade their water furnaces with condensing furnaces. 72 The NFGC venting requirements refer to heater vents, thereby greatly reducing However, DOE did not find data that Category I, II, III, and IV gas appliances. Category the number of commonly-vented would allow a reliable estimation of the I gas appliances, such as natural draft gas water NWGFs and gas water heaters. PG&E associated costs. DOE welcomes data on heaters, exhaust high-temperature flue gases and are expects that the frequency of vent the costs associated with modifying the vented using negative static pressure vents designed to avoid excessive condensate production in the resizing will decrease due to the existing vent systems for non- vent. Category IV gas appliances, such as increase in use of high-efficiency water condensing gas furnaces in multi-family condensing furnaces, exhaust low temperature flue heaters expected to occur before 2021. buildings. This is identified as issue 11 gases and are vented using positive static pressure (PG&E, No. 0153 at pp. 4–5) ASAP in section VII.E, ‘‘Issues on Which DOE corrosion-resistant vents. Due to the different venting requirements, the NFGC does not allow agreed with PG&E that DOE’s estimate Seeks Comment.’’ common venting of condensing and non- of commonly-vented appliances is CEC expects that retrofit installation condensing appliances. outdated and does not account for water costs will decrease as the industry

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provides innovative solutions to address No. 0113 at p. 7) The Efficiency terminations increases, it becomes the orphaned water heater issue for Advocates stated that if small furnaces increasingly difficult or impossible to some retrofits. (CEC, No. 0120 at p. 5) are allowed to remain non-condensing, safely and reliably locate vent Although DOE agrees that installation the already small number of difficult-to- terminations on the outside of the costs may decrease over time, DOE does retrofit homes will decrease. (Efficiency structure. (Carrier, No. 0116 at p. 16) not have enough data at this time to Advocates, No. 0196 at p. 3) Carrier stated that if 80-percent AFUE project such cost trends in its analysis. Because the stock of buildings using Category I furnaces in a multi-unit See discussion under New Venting NWGFs in Canada has many similarities common vent system must be replaced Technologies. to the stock using NWGFs in northern with condensing Category IV furnaces, parts of the U.S., DOE investigated each new furnace will require its own Difficult Installations ACEEE’s reference to the lack of issues plastic venting system next to the metal The March 2015 NOPR analysis related to the implementation of the vent for the remaining Category I accounted for additional vent length to Canadian standards. Before the 2012 furnaces. Carrier stated that the reach a suitable location on an outside Canadian condensing furnace standard, dedicated piping for each condensing wall where the vent termination could the Heating, Refrigeration and Air furnace may lead to an impossible be located, as well as for wall Conditioning Institute of Canada (HRAI) situation as more common-vented non- penetrations and concealing flue vents and other stakeholders raised similar condensing furnaces are replaced with in conditioned spaces. concerns to those presented in the individually-vented condensing In response to the March 2015 NOPR, current rulemaking. HRAI afterwards furnaces and room for venting is several stakeholders commented that put together a Q&A for installers exhausted. PHCC stated that mechanical there are situations where venting a highlighting the issues and possible codes prohibit mixing return air from condensing furnace through an outside solutions related to the standard.73 sleeping quarters from different units in wall is impractical or impossible and Based on consultant research, the a multi-family building, so a common would require moving walls, ceilings or number of consumers and other non-condensing furnace used for other construction, especially in multi- stakeholders that have contacted NRCan multiple apartments would have to be family buildings, older homes, homes about issues related to the condensing replaced with separate condensing with shared walls, and homes with furnace standard has been extremely furnaces and separate venting systems. completely finished basements. (Nortek, small.74 The consultant information (PHCC, No. 0044 at p. 197) Southside No. 0137 at pp. 2–34; MUD, No. 0144 suggested that the potential problems Heating and Air Conditioning agreed at p. 1; Questar Gas, No. 0151 at p. 1; that were identified with the with PHCC. (Southside Heating and Air AHRI, No. 0159 at p. 59; PGW, No. requirement to retrofit condensing Conditioning, No. 0044 at p. 201) 0003–1 at pp. 1–3; PHCC, No. 0136 at furnaces were either overstated, or that MUD commented that a majority of p. 121; ACCA, No. 0158–2 at p. 121; the installing contractors found ways to apartment buildings in its service Southside Heating and Air resolve the issues. In regards to row territory utilize interior common vent Conditioning, No. 0044 at pp. 306–307; house installations, DOE believes that stacks. MUD and Carrier stated that NMHC, NAA, and NLHA, No. 0117 at its current analysis includes costs space constraints would prohibit the pp. 2–3; Nayes, No. 0055 at p. 1; Meeks, comparable to the methods that were installation of new PVC venting in the No. 0140 at p. 1) AHRI and Nortek identified in the Philadelphia existing chases. Carrier and MUD stated that in approximately 15–20 weatherization program to address commented that sidewall venting may percent of buildings that currently have venting difficulties in condensing not be an option due to firewalls, NWGFs, installing a condensing NWGF NWGF installations. In addition, as sidewalks adjacent to building, or other is impractical or impossible due to suggested by the Efficiency Advocates, local codes. Carrier stated that the physical constraints of the existing DOE’s proposed separate standards for situation may be exacerbated if it is buildings. (AHRI, No. 0159 at pp. 58–59; small and large NWGFs would desired to provide two-pipe or direct Nortek, No. 0137 at pp. 2–34) significantly reduce the number of venting for the condensing furnace to In contrast, ACEEE stated that the installations described as difficult. provide cleaner outdoor combustion air number of installations that would NMHC, NAA, and NLHA stated that for better reliability. MUD stated that entail high costs to retrofit condensing the location of the furnace determines building owners will face not only the furnaces are small in number. The how extensive the new horizontal high costs to replace furnaces, but will commenter stated that in Canada, venting must be to reach an exterior also need to modify vent stacks to national standards require condensing wall. NMHC, NAA, and NLHA stated comply with current codes. (MUD, No. furnaces, and neither Natural Resources that building code requirements present 0144 at p. 2; Carrier, No. 0116 at pp. 13– Canada nor its mortgage agency has additional challenges for multi-family 14) found any significant implementation properties that have few open areas on DOE recognizes the unique problems with that standard. ACEEE the exterior of the building to requirements for installing condensing also checked with the U.S. furnace OEM accommodate furnace vents. (NMHC, furnaces in multi-family buildings. The who might have the largest market share NAA, and NLHA, No. 0117 at p. 3) analysis for the March 2015 NOPR and in Canada, and that company reported Carrier stated that 92-percent AFUE this SNOPR accounts for the cost of essentially no pushback. ACEEE also Category IV furnaces require dedicated measures to address the constraints contacted a major weatherization vent systems and terminations for multi- mentioned by the comments. Such program about the costs to retrofit family installations. Carrier stated that measures include the vent length, condensing furnaces in Philadelphia for these installations, as the number of existing common vents, and horizontal row houses. ACEEE stated that venting. Moreover, because many multi- according to that source, the program 73 Heating, Refrigeration and Air Conditioning family NWGF installations would has installed many condensing furnaces Institute of Canada, Q&A for Installers: Venting utilize a relatively small furnace, DOE’s in Philadelphia row houses, and while Solutions for Upcoming Changes to Furnace proposed standard for NWGFs with a Standard (Available at: www.hrai.ca/PDFs/ they have found some challenges, they factsheets/PlasticVentingSystemAlternatives.pdf). certified input capacity of 55 kBtu/h have also developed moderate-cost 74 Edwards, P., Impact of Condensing Standard would greatly reduce the number of solutions to these problems. (ACEEE, on Consumers (2016). multi-family installations where a

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condensing furnace would be necessary. requirements would be cost prohibitive common, contractors will become better DOE’s analysis estimates that more than and, in some cases, impossible. (Questar trained and more aware of potential 60 percent of replacement multi-family Gas, No. 0151 at p. 1) Rheem stated that issues, thus increasing the reliability of NWGF installations would not be multi-family homes pose the most heat tape or using other options that do impacted by the proposed standard. serious challenges to providing proper not expose the condensate pipe to condensate management without freezing environment. Condensate Withdrawal extensive structural modification to the New Venting Technologies DOE accounted for the cost of home. (Rheem, No. 0142 at pp. 8–9) condensate removal for condensing DOE acknowledges that condensate To address certain difficult NWGF installations, including, when management can be costly for some installation situations, a new venting applicable, a condensate drain, multi-family units and very difficult in technology was recently developed to condensate pump, freeze protection rare cases. DOE notes the proposed vent a condensing residential furnace (heat tape), drain pan, condensate standard in this SNOPR would reduce and atmospheric combustion water neutralizer, and additional electric the number of cases where condensate heater through the same vent by reusing outlet for the condensate pump. disposal costs would be extremely high. of the existing metal vent or masonry Carrier stated that code requirements Darling stated that mobile homes have chimney with a new vent cap and may prevent condensate drainage to no provision for disposing of appropriate liner(s). In the March 2015 wastewater management utilities. condensate produced by a condensing NOPR, DOE conducted a sensitivity (Carrier, No. 0116 at p. 34) AGL furnace, leading to either costly analysis to estimate the impact of such Resources stated that the fraction of plumbing additions to legally a technology on the installation cost of furnaces requiring condensate accommodate the condensate or the a condensing NWGF, but did not neutralizers estimated by DOE is condensate drain dumping onto the include the technology in the primary extremely low and does not take into ground under the home. (Darling, No. analysis. account codes that require condensate 0065 at p. 1) DOE understands that most ASAP stated that DOE’s main analysis neutralization and the high likelihood of mobile homes have air conditioning that does not account for the latest venting encountering cast iron drain lines in has provisions for withdrawing technologies that can significantly older homes that require condensing condensate. In the March 2015 NOPR reduce installation costs, such as that furnace retrofits. AGL Resources also and this SNOPR, DOE included developed by M&G DuraVent. (ASAP, commented that the International condensate piping for all MHGFs and No. 0154–1 at p. 2) NRDC stated that the Plumbing Code, the most widely condensate pump, heat tape, and analysis shows that the DuraVent adopted plumbing code in the U.S., electrical outlet for condensate pump technology would deliver large average requires neutralizers. (AGL Resources, and heat tape for a fraction of MHGF consumer savings for row homes and No. 0112 at p. 4) Rheem stated that safe installations without air conditioning. condominiums. (NRDC, No. 0134 at p. operation of the furnace prohibits a Goodman commented that condensate 6) ACEEE and ASE stated that DOE common condensate drain with an air freeze protection is an added should consider DuraVent more fully in conditioner condensate drain. (Rheem, installation concern that must be its main analysis as a venting alternative No. 0142 at p. 8) addressed when installing condensing for orphaned water heaters. ACEEE In response, DOE notes that although furnaces. (Goodman, No. 0135 at p. 3) understands that other manufacturers neutralization is included in the Carrier and many contractors who have developed their own products and International Plumbing Code, it is not responded to PHCC’s and ACCA’s are getting UL certification, and that mandatory in most U.S. municipalities. survey stated that in some regions, many products will be widely available To address situations where condensate condensate located in an unheated long before a new furnace standard must be treated before disposal, DOE space (e.g., attics, ventilated takes effect. (ACEEE, No. 0113 at pp. 1– assumed that a fraction of installations crawlspaces) could freeze in the 2; ASE, No. 0115 at p. 21) The Joint require condensate neutralizer for condensate line. (Carrier, No. 0116 at p. Congress Members and PG&E stated that condensate withdrawal. As discussed in 34; PHCC, No. 0136 at p. 11; ACCA, No. new venting technologies are reducing appendix 8D of the SNOPR TSD, DOE 0158–2 at p. 11) Darling and AGL the cost of venting condensing furnaces determined that the fraction of Resources stated that replacing a non- in even the most difficult installations that require condensate condensing furnace located in an attic circumstances, such as row houses. The neutralizer used in the NOPR analysis or crawlspace, which are typically Joint Congress Members stated that it is (12.5 percent) is representative of the unconditioned, with a condensing reasonable to expect that costs would be current use. DOE notes that while furnace may require heat tape to prevent lower than estimated. (Joint Congress Rheem does not allow a common freezing. (Darling, No. 0065 at p. 1; AGL Members, No. 0161 at p. 3; PG&E, No. condensate drain with an air Resources, No. 0112 at p. 4) AHRI stated 0153 at p. 6) On the other hand, AGL conditioner condensate drain, other that a significant number of contractors Resources argued that DOE manufacturers allow a common believe that heat tape is not sufficiently overestimated the capabilities of the drain.75 76 77 reliable to prevent condensate from DuraVent technology, and noted that Questar Gas argued that with multi- freezing. (AHRI, No. 0159 at p. 62) In per the manufacturer’s guidelines, the family units, the condensate disposal response, DOE notes that the use of heat Category IV liner portion of the product tape to prevent condensate pipes from must always maintain at least a 45- 75 Carrier, Single-Stage 4-Way Multipoise freezing is standard installation degree angle. AGL Resources stated that Condensing Gas Furnace Series A and B: Installation, Start-up, Operating and Service and practice. DOE assumed that condensing DuraVent can only be used in very Maintenance Instructions (IM–PG95SAS–07) (2015). furnaces installed in non-conditioned limited applications where the existing 76 Goodman Manufacturing Company, L.P., spaces would require heat tape to common vent has no horizontal GMH95/GCH95/GME95/GCH9 Gas-Fired Warm Air prevent condensate from freezing. DOE sections, and where the furnace and Furnace Installation Instructions, Houston, TX. also accounted for the additional water heater are side by side. AGL 77 Rheem Manufacturing Company, Installation Instructions For Upflow, Downflow/Horizontal High installation cost and energy use of the Resources stated that because of these Efficiency Condensing two-Stage Gas Furnaces heat tape. In addition, DOE believes that limitations, DuraVent cannot be used in RGRM, RGTM Series. as condensing furnaces become more masonry chimneys. It added that

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DuraVent also requires annual c. Comments on Installation Cost installations that include other comfort- maintenance. (AGL Resources, No. 0039 Results for Non-Weatherized Gas related features (e.g., advanced at pp. 8–9; AGL Resources, No. 0112 at Furnaces thermostats, zoning, hypoallergenic pp. 13–15) Goodman urged DOE to update its filters, humidity controls). Also, the According to the available installation cost estimates based on the installation price varies widely by information, DuraVent is UL-approved results presented in the AHRI–ACCA– different contractors and areas of the for use with metal vents,78 but data on PHCC contractor survey report to ensure country/region. For the SNOPR, DOE the performance in the field are lacking. that the installation costs are compared its estimates to the AHRI– In addition, DOE recognizes that there representative of real world issues faced ACCA–PHCC contractor survey report are currently limitations of the by contractors and consumers in the and other sources such as Home DuraVent technology related to venting field. (Goodman, No. 0135 at p. 2) AHRI Advisor,79 ImproveNet,80 Angie’s List,81 in masonry chimneys. Because of the also stated that installation costs for HomeWyse,82 Cost Helper,83 Fixr,84 uncertainty regarding applicability of NWGFs are significantly CostOwl,85 and Gas Furnace Guide,86 DuraVent technology, DOE maintained underestimated. (AHRI, No. 0181 at p. and also consulted with RS Means staff its approach of conducting sensitivity 3) AHRI stated that according to its to make its baseline installation cost analyses for this SNOPR. For these survey results, the average installation estimates more comparable. It appears analyses, DOE only applied the costs for all furnaces in all regions are that much of the additional cost not DuraVent option to installations that over $1,000 more than what DOE included in the March 2015 NOPR is the could meet the DuraVent installation estimated, and the distribution of same for a non-condensing and requirements, as it did in the March installation costs is higher than DOE’s condensing furnace (such as ductwork, 2015 NOPR. DOE notes that while distribution in both the North and the emergency replacement, etc.). The LCC venting technology could lower South. (AHRI, No. 0159 at pp. 44–46) impacts are driven by the differential installation costs, DOE must base its Goodman, PHCC, and ACCA stated between the non-condensing and approach on currently available data that average installation costs from the condensing designs, so for the SNOPR and cannot speculate as to future AHRI–ACCA–PHCC survey range from did not add these additional costs. developments in advanced venting $1,908 for new installations in the Many stakeholders commented on the technologies, but welcomes any South to $2,730 for replacement installation cost when replacing a non- available data. installations in the North. (Goodman, condensing NWGF with a condensing No. 0135 at p. 2; PHCC, No. 0136 at p. Learning in Installation Costs NWGF. NiSource, Meeks, AAEA, 6; ACCA, No. 0158–2 at p. 6) Rheem and Ubuntu, DC Jobs or Else, CA, Payne, NRDC and ASAP commented that AHRI stated that survey data of actual Bishop, Indiana, Nayes, and A Ware DOE should apply a learning curve to contractors show replacement stated that the installation cost of a installation costs that are likely to installation costs of two or more times condensing furnace is $1,500 to $2,500, decline, particularly for homes with DOE’s estimates, depending on the type which is higher than DOE’s estimate. challenging installation conditions for of furnace. (Rheem, No. 0142 at p. 4; (NiSource, No. 0127 at p. 3; Meeks, No. which there has been relatively little AHRI, No. 0159 at p. 68) AHRI stated 0140 at p. 1; AAEA, No. 0056 at p. 1; market experience. NRDC stated that that the difference between DOE’s Ubuntu, No. 0057 at p. 1; Ubuntu, No. keeping installation costs constant over installation cost estimates and survey 0191 at p. 1; DC Jobs or Else, No. 0059 time implicitly assumes that results is unlikely to be due to the RS at p. 1; CA, No. 0061 at p. 1; Payne, No. manufacturers and installers would not Means data that DOE used. Rather, 0075 at p. 1; Bishop, No. 0076 at p. 1; deliver any new venting technologies AHRI stated that there is no evidence that DOE calibrated its installation cost that can significantly reduce installation 79 Home Advisor, How Much Does a New Gas costs. (NRDC, No. 0134 at pp. 2, 6; estimates with market data. (AHRI, No. Furnace Cost? (Available at: http:// ASAP, No. 0154–1 at p. 2) CEC expects 0159 at p. 46) Southside Heating and www.homeadvisor.com/cost/heating-and-cooling/ that retrofit installation costs would Air Conditioning stated that its gas-furnace-prices/) (Last accessed April 26, 2016). installation cost in Minnesota ranges 80 Improvenet, Furnace Installation Cost Guide decrease as the industry provides (Available at: http://www.improvenet.com/r/costs- innovative solutions to address venting from two to six times as much as DOE’s and-prices/furnace-installation-cost-estimator) (Last in all retrofits. (CEC, No. 0120 at p. 5) estimate for non-condensing NWGFs. accessed April 26, 2016). NRDC suggested including ‘‘learning Southside Heating and Air Conditioning 81 Angie’s List, How Much Does it Cost to Install curve’’ measures, and in particular, stated that its installation cost in a New Furnace (Available at: https:// Minnesota is triple DOE’s installation www.angieslist.com/articles/how-much-does-it- lower-cost installation measures that cost-install-new-furnace.htm) (Last accessed April will likely emerge for homes with cost for condensing NWGFs. (Southside 26, 2016). relatively challenging installation Heating and Air Conditioning, No. 0044 82 HomeWyse, Cost to Install a Furnace conditions for condensing furnaces. at p. 139) (Available at: http://www.homewyse.com/services/ cost_to_install_furnace.html) (Last accessed April (NRDC, No. 0134 at p. 2; NRDC, No. In response, the differences between total installation cost from available 26, 2016). 0186 at p. 2) 83 Cost Helper, How Much Does a Furnace Cost? survey data and the costs provided in (Available at: http://home.costhelper.com/ DOE acknowledges the potential for the March 2015 NOPR and September furnace.html) (Last accessed April 26, 2016). the cost of installing a condensing 2015 NODA could be due to various 84 FIXr, Gas Central Heating Installation Cost furnace to decline with experience, but issues affecting both non-condensing (Available at: http://www.fixr.com/costs/gas- it did not have information that would and condensing NWGFs, such as: The central-heating-installation) (Last accessed April be required to quantify a learning curve 26, 2016). cost of ductwork upgrades; baseline 85 CostOwl.com, How much Does a New Furnace for installation costs. electrical installation costs; additional Cost? (Available at: http://www.costowl.com/home- labor required in the baseline; improvement/hvac-furnace-replacement-cost.html) 78 M&G DuraVent’s FNS 80/90 Combination Cat underestimation of relining, resizing, or (Last accessed April 26, 2016). 86 I and Cat IV gas vent system is UL listed to other adjustments of metal venting in Gas Furnace Guide, Gas Furnace Prices and applicable portions of ULC S636/UL1738, UL1777, Installation Cost Comparison (Available at: http:// and UL441. (See www.duravent.com/ the baseline; premium for emergency gasfurnaceguide.com/compare/) (Last accessed Product.aspx?hProduct=49.) replacements; and premium April 26, 2016).

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Indiana, No. 0094 at p. 1; Nayes, No. that the installation costs for condensing and areas of the country. For both the 0055 at p. 1; A Ware, No. 0204 at p. 1) furnaces from their survey is between March 2015 NOPR and September 2015 Laclede stated that DOE significantly $500 and $600 more than for non- NODA, the average incremental understated the incremental costs to condensing furnaces. (Goodman, No. installation cost for a condensing NWGF install a condensing furnace compared 0135 at p. 2; PHCC, No. 0136 at p. 6; was $564 (in 2014$) for a retrofit to a non-condensing furnace. (Laclede, ACCA, No. 0158–2 at p. 6) PHCC and installation, which matches the No. 0141 at p. 5) Washington Gas stated ACCA stated that because contractors contractor survey and data provided by that according to contractors in its almost always install condensing SoCalGas. For the SNOPR, revised its service territory, a replacement furnaces where the economic returns are estimates using RS Means 2015 data condensing furnace could be as much as acceptable to consumers, the results of such that the average cost incremental is 50 percent higher than the installation their survey represent a lower bound on $528 in 2015$ for a retrofit installation. cost of a replacement non-condensing the costs that might be incurred under Table IV.15 shows the fraction of furnace. (Washington Gas, No. 0133 at a national condensing NWGF standard. installations impacted and the average p. 2) SoCalGas stated that data for (PHCC, No. 0136 at p. 11; ACCA, No. cost for each of the installation cost production housing in California 0158–2 at p. 11) AHRI stated that the adders in replacement applications. The demonstrates that the installed cost for survey responses do not include costs estimates of the fraction of installations a 92-percent furnace is higher than that for replacement installations that are impacted were based on the furnace of an 82-percent furnace by $385, $495, expensive, difficult, and require added location (primarily derived from and $551 for 40, 60, and 80 kBtu/h, system or site work. (AHRI, No. 0159 at information in the 2009 RECS) and a respectively. (SoCalGas, No. 0132–2 at p. 68) number of other sources that are p. 7; SoCalGas, No. 0132–6 at pp. 10– As noted previously, installation cost described in chapter 8 of the SNOPR 11) Goodman, PHCC, and ACCA stated varies widely for different contractors TSD.

TABLE IV.14—ADDITIONAL INSTALLATION COSTS FOR NON-WEATHERIZED GAS FURNACES IN REPLACEMENT APPLICATIONS

Replacement installations Average cost Installation cost adder impacted (2015$) (percent)

Non-Condensing Furnaces

Updating Flue Vent * ...... 2 $612

Condensing Furnaces

New Flue Venting (PVC) ...... 100 263 Combustion Air Venting (PVC) ...... 59 263 Concealing Vent Pipes ...... 9 379 Orphaned Water Heater ...... 19 702 Condensate Removal ...... 100 47 * For a fraction of installations, this cost includes the commonly-vented water heater vent connector, chimney relining, and vent resizing.

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

TABLE IV.15—ADDITIONAL INSTALLATION COSTS FOR NON-WEATHERIZED GAS FURNACES IN NEW HOME APPLICATIONS

New construction installations Average cost Installation cost adder impacted (2015$) (percent)

Non-Condensing Furnaces

New Flue Vent (Metal) * ...... 100 $1,364

Condensing Furnaces

New Flue Venting (PVC) ...... 100 178 Combustion Air Venting (PVC) ...... 60 176 Concealing Vent Pipes ...... 3 113 Orphaned Water Heater ...... 45 1,061 Condensate Removal ...... 100 35 * For a fraction of installations, this cost includes the commonly-vented water heater vent connector.

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

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JCI stated that for replacement consumers of the rebound effect, this monetary value of the higher energy use installations in mobile homes, value would be similar in monetary represents a lower bound for this significant rebuilding of closets and/or value to the foregone energy savings. quantity. For these reasons, DOE is alcoves may be required to Therefore, the economic impacts on retaining its current approach to accommodate a standard residential consumers, with or without including rebound effect. furnace design. JCI also stated that the the rebound effect in the analysis, are design of venting systems, return air the same. 4. Energy Prices connections, and supply air ductwork Several stakeholders believe that the For the September 2015 NODA, DOE are all different for standard residential cost of increased energy use due to the derived average annual residential and furnace designs, which increase the rebound effect should be accounted for commercial electricity, natural gas, and complexity and cost for a retrofit in the LCC analysis. AGA stated that LPG prices for States and various application. JCI stated that these exclusion of direct rebound effect regions using data from the Energy additional costs are not included in energy costs from the LCC analysis is Information Administration (EIA).87 88 89 DOE’s analysis to their full extent. (JCI, inconsistent with DOE’s definition of DOE calculated an average annual No. 0148 at p. 6) LCC analysis as a cost metric. AGA regional residential energy prices by: (1) In response, DOE notes that MHGFs stated that the definition of life-cycle Estimating an average residential price are usually installed in tight spaces and cost demonstrates that LCC is a cost for each utility in the region (by often require space modifications if the metric that does not encompass non- dividing the residential revenues by replacement furnace dimensions are financial consumer benefits. (AGA, No. residential sales); and (2) weighting different from those of the existing 0118 at p. 32) Ingersoll Rand and each utility by the number of residential furnace. Manufacturer literature shows Laclede commented that DOE consumers it served in that region. DOE that some condensing furnaces are underestimated the economic impacts of used the same methodology for average wider and shorter than existing non- standards by not accounting for the annual regional commercial energy condensing furnaces. DOE notes that reduction in energy savings due to the prices. Further details may be found in most of models at the proposed standard rebound effect. Laclede stated that the chapter 8 of the SNOPR TSD. at 92 percent AFUE are similar in size rebound effect is a cost with no SoCalGas stated that DOE used to the existing non-condensing furnaces. associated monetary offsets. (Ingersoll questionable values for marginal DOE performed a sensitivity analysis to Rand, No. 0156 at pp. 6, 9; Laclede, No. electricity prices in California in its LCC assess the impact of adding the costs of 0141 at pp. 36–37) NPGA, Ingersoll analysis. 3 (SoCalGas, No. 0132–2 at dealing with space constraints that Rand, and Laclede stated that DOE p. 5) MUD stated that its average could be encountered when a standard should consider the direct rebound residential natural gas rate has averaged condensing MHGF replaces an older effect in total operating costs. (NPGA, $5.41/MMBtu during the past 48 mobile home-specific furnace. No. 0130 at p. 3; Ingersoll Rand, No. months, whereas the forecasted prices MHI stated that the dedicated vent 0156 at p. 26; Laclede, No. 0141 at p. 37) in AEO2014 for Census Division 4 are system required for 92percent AFUE AHRI stated that DOE provides no $10/MMBtu in 2015. MUD stated that MHGFs, which alters the performance reasoned basis for not applying the AEO2015 provides a lower estimate. characteristics of common venting, is rebound effect in the LCC analysis as it (MUD, No. 0144 at pp. 2–3) In response, especially problematic because these does in the NIA. AHRI stated that DOE calculated average annual energy furnaces are only produced for the although comfort is real, it has no real prices based on historical data from EIA. mobile home market. (MHI, No. 0129 at monetary value. AHRI stated that the DOE only used AEO forecasts to project p. 1) DOE disagrees that a dedicated cost of the new higher-efficiency future energy price trends. For this vent system would be problematic furnace must be compared against the SNOPR analysis, DOE included the because furnaces installed in mobile actual monthly energy bill paid to most recent EIA energy price data. homes must be approved by the U.S. operate the furnace. (AHRI, No. 0159 at Average electricity and natural gas Department of Housing and Urban pp. 21, 68) Ingersoll Rand stated that prices from the EIA data were adjusted Development, which requires special including fuel switching but not the using seasonal marginal price factors to sealed combustion venting that cannot rebound effect in the LCC analysis derive monthly marginal electricity and be commonly vented. arbitrarily lowers the LCC of the space natural gas prices. For further details on the installation heating options in the standards case. Several stakeholders criticized DOE’s cost methodology, see chapter 8 of the (Ingersoll Rand, No. 0156 at p. 9) methodology to determine marginal SNOPR TSD. The approach suggested by the energy prices. AGA stated that a comments would place no value on the 3. Annual Energy Consumption comparison of AGA’s tariff-based increased comfort associated with the marginal gas price factors, which are For each sampled household or rebound effect, yet clearly consumers based on a dataset of about 200 tariffs, building, DOE determined the energy are paying for that service in their and DOE’s EIA-based marginal gas price consumption for a NWGF or MHGF at energy bill. DOE could reduce the factors shows that DOE’s factors different efficiency levels using the energy cost savings to account for the approach described in section IV.E of rebound effect, but then it would have 87 U.S. Department of Energy—Energy this notice. to add the value of increased comfort in Information Administration, Form EIA–826 For the LCC analysis, DOE does not order to conduct a proper economic Database Monthly Electric Utility Sales and include the increase in energy use analysis. The approach that DOE uses– Revenue Data (2014) available at: www.eia.doe.gov/ associated with the rebound effect not reducing the energy cost savings to cneaf/electricity/page/eia826.html. 88 U.S. Department of Energy—Energy discussed in section IV.E.1.d because account for the rebound effect and not Information Administration, Natural Gas Navigator the increased furnace usage associated adding the value of increased comfort– (2014), available at: http://tonto.eia.doe.gov/dnav/ with the rebound effect provides assumes that the value of increased ng/ng_pri_sum_dcu_nus_m.htm). consumers with increased value (e.g., a comfort is equal to the monetary value 89 U.S. Department of Energy—Energy Information Administration, 2014 State Energy more comfortable indoor temperature). of the higher energy use. Although DOE Consumption, Price, and Expenditure Estimates DOE believes that, if it were able to cannot measure the actual value of (SEDS) (2014), available at: www.eia.doe.gov/emeu/ monetize the increased value to increased comfort to the consumers, the states/_seds.html.

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significantly overestimate marginal utilities. DOE’s approach is, therefore, incremental benefits from condensing prices. AGA stated that the AGA tariff- more representative of a large group of furnaces by failing to use accurate based marginal price methodology uses consumers with diverse baseline gas estimates of how natural gas a conservative approach to calculate usage levels than an approach that uses commodity, transportation, and delivery marginal prices because merely only tariffs. For more details on the costs are likely to change, and how such subtracting fixed customer charges from comparative analysis, refer to appendix cost changes are passed to consumers the customer bill does not account for 8D of the SNOPR TSD. under existing utility rate design and all fixed charges found in some utility Laclede stated that DOE’s marginal ratemaking procedures. (Laclede, No. rate structures that could decrease monthly natural gas prices are much 0141 at p. 5) marginal rates further. AGA further higher than actual marginal prices DOE acknowledges that the Reference stated that DOE should revise its because they are an average across case projection of natural gas prices in economic analysis to incorporate multiple blocks. Laclede stated that true AEO 2015 may seem high in the light of marginal gas price factors calculated marginal pricing uses the tail block tariff recent natural gas market conditions. with tariff data provided by AGA. (AGA, rate. (Laclede, No. 0141 at pp. 18–19) However, it is important to bear in mind No. 0118 at pp. 21–23) Vectren stated Laclede compared actual marginal tail that the AEO is focused on long-term that AGA calculated marginal gas prices block tariff rates in five States and found projections. The LCC analysis requires a based on actual tariff data, and found DOE’s prices to be two to three times projection for a period of approximately that DOE’s estimated national averages higher. (Laclede, No. 0141 at pp. 29–30) 20 years beginning in 2022, and market are between 6 and 11 percent too high, In response, DOE finds that the use of conditions in that period may be quite depending on the season. (Vectren, No. tail blocks with low rates for some different from the present situation. 0111 at pp. 3–4) The GTI report utilities, as the commenter recommends, DOE acknowledges that the EIA submitted by SoCalGas stated that does not provide sufficient information generally overestimated natural gas DOE’s marginal gas prices differ from to determine the marginal prices that prices in AEO 2006 through AEO 2012, gas company tariff data. (SoCalGas, No. consumers pay. The information but before that there was a tendency to 0132–7 at p. v) required is: What tariff structures are underestimate.91 There also has been a To evaluate AGA’s tariff-based used most commonly by utilities; how tendency to underestimate electricity marginal gas price factors, DOE many consumers are on each tariff, and prices, but beginning with AEO 2008, developed seasonal marginal price for those consumers, what block is the underestimates have been slight. factors for 23 gas tariffs provided by the relevant to their monthly consumption Given the difficulty of projecting the Gas Technology Institute for the 2016 level. The EIA data that DOE used to two key drivers—the world oil price and residential boilers energy conservation estimate marginal gas prices implicitly the macroeconomic growth baseline— standards rulemaking,90 and compared incorporate this information. that are determined exogenously to the them to marginal price factors Accordingly, DOE is maintaining its model used to prepare the AEO, DOE developed by DOE from the EIA data. existing methodology, because it is maintains that the patterns of difference equivalent to a consumption-weighted The winter price factors used by DOE between AEO projections and actual average marginal price across all are generally comparable to those energy prices do not reflect a systematic computed from the tariff data, households in the State. To estimate energy prices in future bias in the model used to prepare the indicating that DOE’s marginal price years for the March 2015 NOPR, DOE AEO or the assumptions. DOE expects estimates are reasonable at average multiplied the average regional energy to use energy price projections from usage levels. The summer price factors prices by the forecast of annual change AEO 2016, which will incorporate the are also generally comparable. Of the 23 in national-average residential energy latest available information, for the final tariffs analyzed, eight have multiple price in the Reference case from rule. tiers, and of these eight, six have AEO2014, which has an end year of The Joint Consumer Commenters ascending rates and two have 2040. 80 FR 13120, 13150 (March 12, surmised that reduced demand for descending rates. The tariff-based 2015). natural gas due to increased furnace marginal factors use an average of the AGA stated that DOE should use AEO efficiency would lower the price of the two tiers as the commodity price. A full 2015 energy price forecasts instead of fuel. The Joint Consumer Commenters tariff-based analysis would require those from AEO 2014 because of the stated that given the size of the information about the household’s total significant impacts of the updated residential gas heating market and the baseline gas usage (to establish which energy price data on the LCC results. magnitude of the reduction in demand, tier the consumer is in), and a weight (AGA, No. 0118 at pp. 5, 23) DOE the reduction in price for natural gas factor for each tariff that determines updated the energy price forecasts to could raise the consumer benefits how many customers are served by that AEO 2015 for the September 2015 significantly. (Joint Consumer utility on that tariff. These data are NODA and the SNOPR. To estimate Commenters, No. 0123 at pp. 21–23) generally not available in the public price trends after 2040, DOE used the DOE acknowledges that reduced domain. DOE’s use of EIA State-level average annual rate of change in prices demand for natural gas due to increased data effectively averages overall from 2020 to 2040. furnace efficiency could put downward consumer sales in each State, and so Laclede stated that gas prices have pressure on the price of natural gas, incorporates information about all remained relatively low over the past 3 which could provide additional years, and there is nothing that has consumer benefits. However, the 90 GTI provided a reference located in the docket occurred to indicated that they will be growing use of revenue decoupling, of DOE’s rulemaking to develop energy which decouples a utility’s revenues conservation standards for residential furnaces. materially higher in the future. (Laclede, (Docket No. EERE–2014–BT–STD–0031–0118) No. 0141 at p. 12) Laclede commented (Available at www.regulations.gov/ that the AEO has overstated gas prices 91 Each year, EIA produces an AEO Retrospective #!documentDetail;D=EERE-2014-BT-STD-0031- for the past 10 years and understated Review document, which presents a comparison 0118). DOE is also including this information in the between realized energy outcomes and the docket for the present rulemaking at electricity prices for the past 16 years. Reference case projections included in previous www.regulations.gov/#!documentDetail;D=EERE- (Laclede, No. 0141 at p. 20) Laclede editions of the AEO. (Available at: https:// 2012-BT-STD-0047-0068. stated that DOE overestimated the www.eia.gov/forecasts/aeo/retrospective/).

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from its volume of sales,92 makes it condensing furnaces. (Johnson, No. Means,96 manufacturer literature, and difficult to predict the magnitude of an 0190 at p. 1) Carrier stated that information from expert consultants. effect on retail natural gas prices. In condensing and non-condensing For repair costs, DOE accounted for addition, DOE has previously noted that furnaces have different service and repair of the ignition, gas valve, when gas prices drop in response to maintenance requirements that are not controls, and inducer fan, as well as the lower demand, which in turn results in accounted for in the LCC analysis. furnace fan blower. To determine lower output of existing natural gas Carrier stated that according to components’ service lifetime, DOE used production capacity, consumers benefit contractors, condensing furnaces take 60 a Gas Research Institute (GRI) study.97 but producers suffer. In economic terms, minutes to maintain, while non- For standby mode and off mode the situation represents a benefits condensing furnaces only require 30 standard, DOE assumed that no transfer to consumers (whose minutes. Carrier stated that condensing additional repair is required. expenditures fall) from producers furnaces are more complex than non- Darling stated that inadequate (whose revenue falls equally).93 If the condensing furnaces because of ductwork is likely to be present in most revenues and costs of producers both additional components like the households and may restrict the airflow, fall, the change in natural gas prices condensate management system and thereby causing the main blower motor represents a net gain to society. secondary heat exchanger, which need to fail after only a few years of Determining what takes place in the gas to be maintained. Carrier stated that operation. Darling commented that the production sector when gas prices utilizing the most common contractor cost of these high-efficiency motors is decline is complex, and at this time, hourly rates of $70/hour, $90/hour, or much greater than the difference in cost DOE is not able to reasonably determine $110/hour, homeowners will pay between a non-condensing furnace and the extent of transfers associated with a between $35 and $55 more annually to a condensing furnace. (Darling, No. decrease in gas prices that may result properly maintain a condensing furnace 0065 at p. 1) In response, DOE from appliance standards. compared to a non-condensing furnace. accounted for the repair of the furnace (Carrier, No. 0116 at pp. 31–32) fan based on the technologies that are 5. Maintenance and Repair Costs For the March 2015 NOPR and required to meet the 2019 furnace fan Maintenance costs are associated with September 2015 NODA, DOE estimated standard. The lifetime distribution maintaining the operation of the on average the labor hours for a non- accounts for a fraction of furnace fans product. Repair costs are associated condensing furnace maintenance to be that fail after only a few years. DOE with repairing or replacing product 1.65 hours (which includes a 0.5 hour notes that the 2019 furnace fan components that fail in an appliance. trip charge). For condensing furnaces, standards require constant-torque BPM For the March 2015 NOPR and DOE added 0.155 hours to check the motors (commonly referred to as X13) September 2015 NODA, DOE estimated secondary heat exchanger and for both non-condensing and maintenance costs for residential condensate system (including the condensing NWGFs, which maintain a furnaces at each considered efficiency condensate neutralizer). Based on RS predetermined torque in each airflow- level using a variety of sources, Means 2013, the national average labor control setting as operating conditions including 2013 RS Means,94 cost used for maintenance and repair change. Thus, the motors are not manufacturer literature, and information was $78/hour in 2013$. For the SNOPR, impacted by the quality of the from expert consultants. DOE estimated DOE reexamined the issue of ductwork. For MHGFs, the 2019 furnace the frequency of annual maintenance maintenance costs but found little fan standard is an improved PSC design, using data from RECS 2009 and a 2008 evidence that currently contractors are which is the most common design for consumer survey 95 to derive the charging more for maintenance of both non-condensing and condensing frequency with which furnace owners condensing compared to non- furnaces. DOE notes that the ductwork perform maintenance. DOE assumed condensing furnaces. Nevertheless, DOE issues such as airflow restrictions are that condensing furnaces require more also updated its labor costs to 2015 RS much less common for mobile homes. maintenance than non-condensing Means (with a national average of $82 Goodman commented that because furnaces. DOE also accounted for in 2015$) and the overall cost estimates the technologies associated with the checking the condensate withdrawal fall within typical $70–200 maintenance max-tech level for standby mode and off system and regular replacement of the charges from different online sources mode are new to the market, data on the condensate neutralizer, if present. For listed in appendix 8F of the SNOPR failure modes and repair costs are the standby mode and off mode TSD. limited. (Goodman, No. 0135 at pp. 4– standard, DOE assumed that no Southside Heating and Air 5) Goodman stated that DOE failed to additional maintenance is required. Conditioning stated that a new account for the new technology Laclede stated that DOE significantly condensate neutralizer with a 1-year associated with standby mode and off understated the incremental costs to lifetime costs $50. (Southside Heating mode that entails an additional learning maintain a condensing furnace and Air Conditioning, No. 0044 at p. curve for contractors, which may compared to a non-condensing furnace. 244) For the March 2015 NOPR and increase maintenance and repair costs. (Laclede, No. 0141 at p. 5) Johnson September 2015 NODA, DOE applied a (Goodman, No. 0135 at p. 4) In stated that DOE failed to take into $56 cost of the neutralizer (which is also account the higher service costs of included in the installation cost) with 96 RS Means Company Inc., RS Means Facilities an average 3 year lifetime. For the Maintenance & Repair Cost Data. Kingston, MA 92 See discussion of revenue decoupling in SNOPR, revised the neutralizer cost to (2013). section IV.M. $58, but kept the 3-year average lifetime 97 Jakob, F.E., J.J. Crisafulli, J.R. Menkedick, R.D. 93 See discussion in the June 2011 DFR. 76 FR Fischer, D.B. Philips, R.L. Osbone, J.C. Cross, G.R. 37408, 37487–88 (June 27, 2011). based on several sources listed in Whitacre, J.G. Murray, W.J. Sheppard, D.W. 94 RS Means Company Inc., RS Means Facilities appendix 8F of the SNOPR TSD. DeWirth, and W.H. Thrasher, Assessment of Maintenance & Repair Cost Data. Kingston, MA For the March 2015 NOPR and Technology for Improving the Efficiency of (2015). September 2015 NODA, DOE estimated Residential Gas Furnaces and Boilers, Volume I and 95 Decision Analysts, 2008 American Home repair costs for residential furnaces at II—Appendices (September 1994) Gas Research Comfort Study: Online Database Tool 2009) Institute, Report No. GRI–94/0175 (Available at (Available at: www.decisionanalyst.com/ each considered efficiency level using a www.gastechnology.org/reports_software/Pages/ Syndicated/HomeComfort.dai). variety of sources, including 2013 RS default.aspx).

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response, DOE notes that the LL–LTX stated that its lifetime estimates for available sources from AHRI,103 the U.S. technology, which is intended to furnaces are closer to 16 or 18 years. Census’s American Housing Survey address standby mode and off mode (NAHB, No. 0044 at p. 318) Vectren (AHS) from 1974–2011,104 and RECS energy use, is not very different from stated that the bulk of furnace lifetime from 1990 to 2009.105 The historical LTX technology that is found in most estimates from DOE’s literature review shipments (using AHRI data prior to furnaces today. The primary difference are between 15 and 18 years. (Vectren, 1996) are also provided in DOE’s is that LL–LTX technology is slightly No. 0111 at p. 5) SoCalGas stated that analytical tools for the NOPR and larger and heavier than LTX. Canada used a product lifetime of 15 NODA. DOE also conducted a Furthermore, there are many furnace years in its furnace efficiency standard sensitivity analysis using different models on the market with standby analysis in January 2014. (SoCalGas, No. furnace lifetime scenarios (see appendix consumption less than the proposed 0132–2 at p. 5; SoCalGas, No. 0132–6 at 8G in the SNOPR TSD). In addition for standard levels for standby mode and p. 9) the SNOPR, to better account for off mode. Therefore, DOE does not In response, DOE was unable to differences in lifetime due to furnace believe that the standby mode and off obtain data to substantiate the cited utilization, DOE determined separate mode max-tech technology would industry estimates. The furnace lifetime lifetimes for the North and South for the require additional maintenance or estimates from DOE’s literature review, shipments analysis. The average lifetime repair. which includes Appliance Magazine, used in the SNOPR is 20.1 years in the For this SNOPR, DOE updated the RS range between 15 and 20 years,99 which North and 23.4 years in the South for Means data to 2015.98 For more details is below the average lifetime estimated both NWGFs and MHGFs, compared to on DOE’s methodology for calculating for the NOPR and NODA, but the basis 21.5 years nationally in the NOPR and repair costs, see appendix 8F of the for these estimates is often not clear. NODA. SNOPR TSD. DOE found that the Canadian analysis AGL Resources also stated that DOE 100 6. Product Lifetime used an average lifetime of 20 years. used very high present-day fuel DOE believes that its method described switching trends to determine furnace Product lifetime is the age at which an in a journal article,101 which uses a lifespan. AGL Resources stated that appliance is retired from service. DOE combination of actual shipment and higher rates of fuel switching lead to an conducted an analysis of furnace survey data, is more reliable, and also overestimation of product lifetime in the lifetimes using a combination of data on better suited to provide a distribution of DOE model as retired furnaces are shipments and the furnace stock (see lifetimes that is appropriate for U.S. replaced by heat pumps and never section IV.G) and RECS data on the age conditions. In response to AGL counted as a ‘‘failure’’ in the DOE of furnaces in the sampled homes. The Resources’ statement that DOE’s lifetime model. (AGL Resources, No. 0112 at p. data allowed DOE to develop a survival estimate for residential gas furnaces is 3) The lifetime methodology takes into function, which provides a range from significantly higher than previous DOE account indirectly the impact of product minimum to maximum lifetime, as well values, the mean lifetime estimated in switching that has occurred in the past as an average lifetime. The average the March 2015 NOPR and September by accounting for the actual number of lifetime estimated for the NOPR and 2015 NODA (21.5 years) is lower than furnace installations over time from NODA was 21.5 years for NWGFs and the mean lifetime of 23.6 years for non- AHS and RECS (which includes early MHGFs. weatherized gas furnaces used in the replacements, non-replacements, Several stakeholders expressed 2011 DFR, which is based on more product switching, demolitions, etc.). concern that DOE’s estimated average recent data. Rheem and AGL Resources stated that lifetime is too high. AGA, AGL AGL Resources criticized DOE for the lifetime is dependent on furnace Resources, Vectren, and SoCalGas stated using a proprietary method to determine usage. (Rheem, No. 0142 at p. 9; AGL that DOE overestimated the average the lifetime and relying on what it Resources, No. 0112 at p. 3) The lifetime of NWGFs compared to argued were questionable assumptions distribution of furnace lifetimes used in industry estimates. AGA stated that and on incomplete AHRI unitary the LCC analysis accounts for a wide industry estimates of residential gas shipment data to arrive at its estimate. range of furnace utilization. furnace lifetime are 15 or 16 years. (AGL Resources, No. 0039 at p. 2; AGL AGL Resources stated that historical (AGA, No. 0036 at p. 3; AGA, No. 0040– Resources, No. 0112 at p. 3) lifetime data primarily track non- 2 at p. 3; AGL Resources, No. 0039 at For the March 2015 NOPR and condensing furnaces that had little p. 2; AGL Resources, No. 0112 at p. 3; electronic control, a simple heat Vectren, No. 0111 at pp. 4–5; SoCalGas, September 2015 NODA, DOE No. 0132–2 at p. 5; SoCalGas, No. 0132– determined the lifetime based on the methodology described in a recent at: www.tandfonline.com/doi/abs/10.1080/ 6 at p. 9) AGA stated that DOE 10789669.2011.558166). journal paper 102 and using publicly- overestimated the average lifetime of 103 Air-Conditioning Heating and Refrigeration residential gas furnaces compared to the Institute. Historical Shipments Data (Available at: 99 See appendix 8G of the SNOPR TSD for a http://www.ahrinet.org/site/497/Resources/ lifetimes included in DOE’s literature listing of the sources. Statistics/Historical-Data/Furnaces-Historical- review. (AGA, No. 0118 at pp. 5, 23–24) 100 Rosalyn Cochrane, Team Leader Standards Data). AGL Resources stated that DOE’s Development HVAC–R, Energy Sector, Natural 104 U.S. Census Bureau: Housing and Household lifetime estimate for residential gas Resources Canada/Government of Canada. Personal Economic Statistics Division, American Housing furnaces is significantly higher than communication, May 18, 2016. Survey, Multiple Years (1974, 1975, 1976, 1977, 101 Lutz, J., A. Hopkins, V. Letschert, V. Franco, 1978, 1979, 1980, 1981, 1983, 1985, 1987, 1989, previous DOE values and other furnace and A. Sturges, Using national survey data to 1991, 1993, 1995, 1997, 1999, 2001, 2003, 2005, lifetime estimates from Appliance estimate lifetimes of residential appliances. 2007, 2009, and 2011) (Last accessed March, 2014) Magazine and NAHB of 15–17.5 years. HVAC&R Research, 2011. 17(5): pp. 28 (Available (Available at: www.census.gov/programs-surveys/ (AGL Resources, No. 0039 at p. 2; AGL at: www.tandfonline.com/doi/abs/10.1080/ ahs/). 10789669.2011.558166) (Last Accessed: April 26, 105 U.S. Department of Energy: Energy Resources, No. 0112 at p. 3) NAHB 2016). Information Administration, Residential Energy 102 Lutz, J., A. Hopkins, V. Letschert, V. Franco, Consumption Survey (RECS), Multiple Years (1990, 98 RS Means Company Inc., RS Means Facilities and A. Sturges, Using national survey data to 1993, 1997, 2001, 2005, and 2009) (Last accessed Maintenance & Repair Cost Data. Kingston, MA estimate lifetimes of residential appliances, January 7, 2015) (Available at: www.eia.gov/ (2015) (available at http://www.rsmeans.com/). HVAC&R Research (2011) 17(5): pp. 28 (Available consumption/residential/).

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exchanger design, and atmospheric 1995, 1998, 2001, 2004, 2007, and 2010. discount rate if the consumer were venting. AGL Resources stated that Using the SCF and other sources, DOE restricted from re-balancing their debt condensing furnaces have more developed a distribution of rates for and asset holdings (by redistributing components that can fail, so data for each type of debt and asset by income debt and assets based on the relative non-condensing models cannot be used group to represent the rates that may interest rates available) over the entire to estimate condensing furnace life apply in the year in which amended or time period modeled in the LCC expectancy. (AGL Resources, No. 0112 new standards would take effect. DOE analysis. The LCC is not analyzing a at p. 3) Laclede suggested that assigned each sample household a marginal decision; rather, it estimates condensing furnaces have shorter specific discount rate drawn from one of net present value over the lifetime of the lifetimes by stating that moving to an the distributions. For the March 2015 product, so the discount rate needs to all-condensing furnace market would NOPR, DOE tentatively determined that reflect the opportunity cost of both the decrease furnace life. (Laclede, No. 0141 the average residential discount rate money flowing in (through operating at p. 32) across all types of household debt and cost savings) and out (through upfront DOE acknowledges that the data it equity and income groups, weighted by cost expenditures) of the net present used to derive furnace lifetimes the shares of each class, is 4.5 percent. value calculation. In the context of the primarily refer to non-condensing 80 FR 13120, 13151 (March 12, 2015). LCC analysis, the consumer is not only furnaces. However, the one source it AHRI stated that DOE inappropriately discounting based on their opportunity found on lifetime of condensing uses average, not marginal, sources of cost of money spent today, but instead, furnaces 106 shows the same lifetime (18 funds to calculate discount rates. AHRI they are also discounting the stream of years) as other sources provide for non- commented that there is no evidence future benefits. On the one hand, a condensing furnaces. In addition, DOE that consumers draw from or add to consumer could pay for an appliance reviewed warranty information their collection of debt and asset with cash, thereby forgoing putting that primarily related to heat exchangers and holdings approximately in proportion to same amount of money into one of the did not find any significant differences their current holdings, as DOE claims; interest earning assets to which they between condensing and non- rather, consumers have very limited might have access. On the other hand, condensing furnaces. If manufacturers options to raise funds, particularly in a consumer could pay for the initial expect condensing furnaces to have a the magnitude of $3,000–$54,000 for a purchase by going into debt. If they do shorter lifetime than non-condensing new furnace. AHRI argued that only a this, they will face the cost of capital at furnaces, it seems likely that the minority of consumers will be able to the interest relevant for that purchase; warranty periods would be different. use cash or other savings to pay for a however, they will receive a stream of Based on the information reviewed, furnace replacement. AHRI stated that future benefits in terms of energy DOE maintained the same lifetime for except for minor purchases, most savings that they could either put condensing and non-condensing households access additional funds towards paying off that or other debts, furnaces in the SNOPR. from credit card debt. AHRI stated that or towards assets, depending on the Chapter 8 of the SNOPR TSD provides refinancing a mortgage is impractical to restrictions they face in their debt further details on the methodology and purchase a new appliance, and other payment requirements and the relative sources DOE used to develop furnace equity types are not liquid, so other size of the interest rates on their debts lifetimes. forms of consumer debt are the only and assets. All those interest rates are marginal source of funds available. 7. Discount Rates relevant, as they all reflect direct costs AHRI stated that surveys demonstrate of borrowing, or opportunity costs of In the calculation of LCC, DOE that consumers have little savings to money either now or in the future. DOE applies discount rates appropriate to finance a furnace purchase, and that 55 maintains that the best proxy for this re- households to estimate the present percent of consumers use some sort of optimization of debt and asset holdings value of future operating costs. The financing to purchase HVAC equipment. over the lifetime of the LCC analysis is discount rate used in the LCC analysis AHRI stated that the true marginal to assume that the distribution of debts represents the rate from an individual discount rates for consumers are much and assets in the future will be consumer’s perspective. DOE estimated more likely to cluster around 8–9 proportional to the distribution of debts a distribution of residential discount percent than around 3–5 percent, as and assets historically. Given the long rates for NWGFs and MHGFs based on DOE assumed in the NOPR. (AHRI, No. time horizon modeling in the LCC, the the opportunity cost of funds related to 0159 at pp. 38–43) Rheem stated that application of a marginal rate alone appliance energy cost savings and the LCC analysis uses unrealistically would be inaccurate. DOE’s maintenance costs. low consumer discount rates when methodology for deriving residential To establish residential discount rates consumers are known to be unable to discount rates is in line with the for the LCC analysis, DOE identified all meet emergencies from cash or savings, weighted-average cost of capital used to relevant household debt or asset classes and the actual marginal source of funds estimate commercial discount rates. For in order to approximate a consumer’s is high interest debt. (Rheem, No. 0142 these reasons, DOE is maintaining its opportunity cost of funds related to at p. 4) existing approach to discount rates, but appliance energy cost savings and In response, DOE maintains that the it included data from the 2013 SCF and maintenance costs. For the NOPR, DOE interest rate associated with the specific updated several other data sources. The estimated the average percentage shares source of funds used to purchase a average rate in the SNOPR analysis of the various types of debt and equity furnace (i.e., the marginal rate) is not the across all types of household debt and by household income group using data appropriate metric to measure the equity and income groups, weighted by from the Federal Reserve Board’s Survey discount rate as defined for the LCC the shares of each type, is 4.3 percent of Consumer Finances 107 (SCF) for analysis. The marginal interest rate for NWGFs and 4.7 percent for MHGFs. alone would only be the relevant 106 NAHB stated that a mortgage rate does http://www.neep.org/sites/default/files/ not capture a market participant’s time resources/A5_Mid_Atlantic_TRM_V2_FINAL_0.pdf. and 2010) (Available at: www.federalreserve.gov/ 107 The Federal Reserve Board, Survey of pubs/oss/oss2/scfindex.html) (Last accessed March value of money, as mortgage rates are Consumer Finances (1995, 1998, 2001, 2004, 2007 15, 2016). determined by institutional factors.

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NAHB also commented that rates on costs). The implicit discount rate such have increased the sales of high- liquid assets or assets that trade as those estimated in the cited literature efficiency furnaces to estimate base-case frequently and easily in well-established is appropriate for use when modeling a efficiency distributions for the secondary markets are equally consumer’s purchase decision (as in the considered products. DOE started with inappropriate for housing. NAHB shipments model). However, in the data provided by AHRI on historical argued that once installed, it is difficult context of the LCC analysis, many shipments for each product class. DOE and costly to disconnect and sell a contributing components of the implicit reviewed AHRI data from 1992 to 2009 furnace like one could sell a mutual discount rate are not relevant. Factors (which includes both NWGF and MHGF fund or withdraw funds from a money such as transaction costs are likely to shipments data), detailing the market market account. NAHB stated that for influence a consumer’s decision about shares of non-condensing (80-percent owner-occupied housing, a reasonable whether or not to purchase an AFUE) and condensing (90-percent choice for a nominal rate would be the appliance, but in the LCC, these factors AFUE and greater) furnaces by rate households pay on credit card debt. are sunk costs (meaning they are costs region.112 DOE also compiled data on (NAHB, No. 0124 at p. 3) that have already been incurred and can the national market shares of non- The time value of money (particularly no longer be changed within the context condensing and condensing gas for the LCC) is the opportunity cost of of the analysis), which are rationally furnaces from 2010 to 2012 from the that money: The value it would have excluded from calculations valuing ENERGY STAR program.113 With these had, had it been applied to another future costs and benefits associated with data, DOE derived historic trends for 30 110 investment or used to pay off another the appliance. RECS regions and 9 CBECS Census debt. DOE agrees that a mortgage rate by To establish commercial discount Divisions, by using the 1992–2003 non- itself does not capture a market rates for the small fraction where condensing and condensing shipments participant’s time value of money, but a businesses are using residential by State provided by AHRI. For the consumer’s choice of composition of furnaces, DOE estimated the weighted- September 2015 NODA, DOE extended their debt and asset portfolio provides average cost of capital using data from its historical data to be include insight into a consumer’s time value of Damodaran Online.111 The weighted- money. Also, while a furnace itself is average cost of capital is commonly shipments data for non-condensing and condensing shipments data provide by not a readily tradable commodity, the used to estimate the present value of 114 money used to purchase it and the cash flows to be derived from a typical AHRI for 2010–2014. energy cost savings accruing to it over company project or investment. Most To project trends from 2011 to 2021 time flow from and to a household’s companies use both debt and equity for the March 2015 NOPR, DOE only pool of debt and assets, including capital to fund investments, so their cost used the trends from 1993 to 2004 mortgages, mutual funds, money market of capital is the weighted average of the because from 2005 to 2011, there was a accounts, etc. Thus, the weighted- cost to the firm of equity and debt sharp increase in the share of average interest rate on debts and assets financing. DOE estimated the cost of condensing furnaces primarily due to provides a reasonable proxy for a equity using the capital asset pricing Federal tax credits, which was followed household’s opportunity cost (and model, which assumes that the cost of by a sharp decrease in 2012. DOE discount rate) relevant to future energy equity for a particular company is determined that excluding these years savings. proportional to the systematic risk faced provides a more reasonable projection. Laclede stated that DOE’s discount by that company. For the September 2015 NODA, DOE rates are very low. Laclede cited See chapter 8 of the SNOPR TSD for used the data from 2012 to 2014 to Ruderman et al.108 for what it argues are further details on the development of project the trends from 2014 to 2021, a range of more realistic discount rates consumer discount rates. which excludes the Federal tax for different residential appliances from 8. Efficiency Distribution in the No- incentive years. The maximum share of 1972 to 1980. Laclede stated that DOE New-Standards Case condensing shipments for each region is should use discount rates ranging from assumed to be 95 percent. In other To accurately estimate the share of 25 percent to 100 percent in increments words, at least five percent of NWGF consumers that would be affected by a of 25 percent. (Laclede, No. 0141 at pp. and MHGF furnace shipments will be potential energy conservation standard 16–18) non-condensing. The condensing In response, DOE notes that at a particular efficiency level, DOE’s LCC analysis considered the projected market share for MHGFs was estimated Ruderman et al. and its citations (e.g., to be half the fraction estimated for 109 distribution (i.e., market shares) of Hausman) address implicit discount NWGFs. rates, which are not appropriate in the product efficiencies under the no-new- framework of the LCC analysis. The standards case (i.e., the case without DOE used data on the distribution of implicit discount rate is inferred from amended or new energy conservation models in AHRI’s Directory of Certified consumer purchase data and generally standards). incorporates many influences on For the March 2015 NOPR and 112 The market share of furnaces with AFUE consumer decision-making (e.g., rates of September 2015 NODA, to estimate the between 80 and 90 percent is well below 1 percent efficiency distribution of NWGFs and due to the very high installed cost of 81-percent return, uncertainty, and transaction AFUE furnaces, compared with condensing designs, MHGFs in 2021, DOE considered and concerns about safety of operation. The data 108 Ruderman, Henry, Mark D. Levine and James incentives and other market forces that prior to 1992 were not disaggregated by region. E. McMahon (1987), ‘‘The Behavior of the Market 113 ENERGY STAR Unit Shipment Data (2012) for Energy Efficiency in Residential Appliances 110 For example, since the LCC analysis starts (Available at: https://www.energystar.gov/ Including Heating and Cooling Equipment,’’ The from the moment of installation, transaction costs index.cfm?c=partners.unit_shipment_data). Energy Journal, 8(1): 101–124 (Available at: related to researching furnace models have no 114 For the March 2015 NOPR, the AHRI www.jstor.org/stable/pdf/41322248.pdf?_ bearing on the future stream of energy cost savings, shipments data were not available, and DOE instead =1461360117831). and ought not to be incorporated into the discount relied on shipments data from the ENERGY STAR 109 Hausman, J.A. (1979), Individual Discount rate. program to derive its estimates. Based on the AHRI Rates and the Purchase and Utilization of Energy- 111 Damodaran Online, Data Page: Costs of shipments data, DOE’s estimate of the condensing Using Durables, The Bell Journal of Economics, Capital by Industry Sector (2016) (Available at: furnace market share in 2021 increased from 47 10(1), 33–54 (Available at: www.jstor.org/stable/ http://pages.stern.nyu.edu/∼adamodar/) (Last percent in the March 2015 NOPR to 53 percent in 3003318?seq=1#page_scan_tab_contents). accessed April, 2016). the September 2015 NODA.

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Product Performance 115 to disaggregate model is inappropriate because it uses The Joint Consumer Commenters the condensing-level shipments among a random assignment of furnace choice stated that a well-designed performance condensing efficiency levels. Based on to model a non-random environment. standard that raises the efficiency of gas stakeholder input, DOE assumed that for (AHRI, No. 0159 at p. 35) furnaces can address important market furnace replacements, the fraction of 95- AGA, Vectren, SoCalGas, Rheem, and imperfections that are difficult to correct percent AFUE and above shipments in the GTI report submitted by SoCalGas with other policies. (Joint Consumer the replacement market would be similarly criticized DOE’s LCC model Commenters, No. 0123 at pp. 25–26) double the fraction in the new for randomly assigning furnace In response, DOE notes that the construction market. DOE also assumed efficiency in the absence of standards assignment of furnace efficiency in the that the fraction of 95-percent AFUE without any regard to consumer costs no-new-standards case is not entirely and above shipments would be higher and benefits. (AGA, No. 0118 at p. 4; random. Assignment of furnace in the North compared to the South, Vectren, No. 0111 at p. 3; SoCalGas, No. efficiency is done in two steps, first at because the ENERGY STAR level in the 0132–2 at p. 5; SoCalGas, No. 0132–7 at the regional level, then the building North is 95-percent AFUE compared to p. v, 10; Rheem, No. 0142 at p. 4; specific level. Furnace efficiencies are 90-percent AFUE in the South. The SoCalGas, No. 0132–7 at p. 10; first assigned for the 30 RECS and 9 resulting distributions by 30 RECS SoCalGas, No. 0177–1 at p. 2) AGA, CBECS regions. The market share of regions and 9 CBECS Census Divisions Vectren, and the GTI report submitted each efficiency level at the regional divided by replacement and new by SoCalGas stated that the random level is based on historical shipments construction in 2021 was then used to assignment methodology misallocates data and an estimation of trends assign the AFUE of each sampled the fraction of consumers who use between 2014 and the compliance year. household or building in the no-new- economic criteria for their decisions, The historic market shares are standards case. resulting in higher LCC savings influenced by factors that affect the cost- Commenting on the NOPR, a number compared to use of rational economic effectiveness of condensing furnaces, of parties stated that based on new decision making criteria. (AGA, No. including climate, the characteristics of AHRI shipments data, the projected 0036 at pp. 3–4; AGA, No. 0040–2 at p. the housing stock, natural gas prices, shipments of condensing furnaces in the 3; Vectren, No. 0111 at pp. 3–4; and the presence of incentives to absence of any revised standard is SoCalGas, No. 0132–7 at p. 10) Lennox purchase a condensing furnace. significantly underestimated. (AHRI, and the GTI report submitted by AGA No. 0159 at pp. 67–68; AGA, No. 0118 Furnace efficiency is then allocated to and APGA stated that the September specific RECS households or CBECS at p. 20; AGL Resources, No. 0112 at p. 2015 NODA LCC model did not address 5; Vectren, No. 0111 at p. 4; Ingersoll buildings located within each of the 30 the random no-new-standards case RECS or 9 CBECS regions. The building- Rand, No. 0156 at p. 67; Laclede, No. furnace efficiency assignment 0141 at p. 32) specific assignment is not entirely methodology used in the March 2015 The September 2015 NODA analysis random either. If a household’s existing NOPR. (AGA, No. 0175–3 at p. 11; incorporated the new AHRI shipments furnace is estimated to be a condensing data.116 The update resulted in an APGA, No. 0180 (attachment) at p. 11; gas furnace, the replacement furnace is increase in the fraction of consumers Lennox, No. 0201 at p. 2) assumed to be condensing as well. (The already purchasing a condensing ACEEE and the Efficiency Advocates assignment of condensing furnace furnaces in the no-new-standards case. stated that site-specific economics efficiency—92-, 95-, or 98-percent Several stakeholders commented on should enter into the determination of AFUE—was random, adding up to the the methodology DOE used to assign the base-case furnace efficiency, but market share of these types of furnaces efficiencies to sample households in the economics is only one of the factors for that region.) no-new-standards case. influencing the choice of furnace. DOE acknowledges that furnace AHRI stated that the use of a ACEEE stated that only using economics efficiency choice is affected by randomized Monte Carlo analysis that to assign efficiency in the no-new- economic factors. However, it is DOE’s does not account for consumer standards case ignores consumers who position that the method of assignment, preferences based on climate, income upgrade for environmental reasons which is in part random, may simulate levels, and physical constraints of despite poor economics or because of actual behavior as well as assigning existing buildings, does not analyze the utility incentives. ACEEE recommended furnace efficiency based solely on real-world market for these products. including site-specific economics as imputed cost-effectiveness. This is (AHRI, No. 0159 at p. 13) AHRI well as non-economic decision making because there are a variety of aspects of suggested that DOE should assign criteria in the Monte Carlo simulation. consumer preference, as well as furnace efficiency by ranking (ACEEE, No. 0113 at pp. 5–6; Efficiency documented and relevant market households based on the benefit from Advocates, No. 0196 at p. 3) failures, which complicate the relevant purchasing a condensing furnace as NRDC stated that the GTI Report on process of consumer choice. the March 2015 NOPR appears to shown by the LCC savings calculation. First, consumers are motivated by suggest that DOE should have assumed (AHRI, No. 0159 at pp. 30–31) AHRI more than simple financial trade-offs. a greater level of optimal economic stated that relying on the current LCC There are consumers who are willing to decision making by customers. pay a premium for more energy-efficient 115 However, NRDC stated that the real Air Conditioning, Heating, and Refrigeration products because they are Institute, Directory of Certified Performance: world data and literature on which DOE environmentally conscious.117 Furnaces (2013), (Available at: based the NOPR shows that many www.ahridirectory.org/). Additionally, there are systematic purchasers do not make the most 116 For the March 2015 NOPR, the AHRI market failures that are likely to economic decision because of market shipments data were not available, and DOE instead contribute further complexity to the way relied on shipments data from the ENERGY STAR barriers like split incentives and program to derive its estimates. Based on the AHRI bounded rationality. NRDC stated that shipments data, DOE’s estimate of the condensing 117 Ward, D.O., Clark, C.D., Jensen, K.L., Yen, furnace market share in 2021 increased from 47 GTI provided no basis on which to S.T., & Russell, C.S. (2011): ‘‘Factors influencing percent in the March 2015 NOPR to 53 percent in assume that future consumers will be willingness-to pay for the ENERGY STAR® label,’’ the September 2015 NODA. different. (NRDC, No. 0134 at p. 1) Energy Policy, 39(3), 1450–1458.

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products are chosen by consumers, as that the nature of the information appear to purchase appliances without explained in the following paragraphs. available to consumers from the taking into account their energy The first of these market failures—the EnergyGuide labels posted on air efficiency and operating costs at all. split incentive, or principal-agent, conditioning equipment results in an DOE recognizes that its approach to problem—is likely to affect furnaces inefficient allocation of energy allocating the efficiency level of a new even more than many other types of efficiency across households with gas furnace across RECS households appliances. The principal-agent problem different usage levels. Their findings within States may not fully reflect is a market failure that results when the indicate that households are likely to actual consumer behavior. However, it consumer that purchases the equipment make decisions about the efficiency of is far from clear that allocating the does not internalize all of the costs the climate control equipment of their efficiency of furnaces based solely on associated with operating the homes that do not result in the highest estimated cost-effectiveness is likely to equipment. Instead, the user of the net present value for their specific usage be any more accurate than the method product, who has no control over the pattern (i.e., their decision is based on currently used by DOE. An attempt to purchase decision, pays the operating imperfect information, and therefore is more explicitly model consumer choices costs. There is a high likelihood of split not necessarily optimal). across furnace efficiency would have to incentive problems in the case of rental In part because of the way take into account the non-monetary properties where the landlord makes the information is presented, and in part preferences and market failures outlined choice of furnace to install, but the because of the way people process above, in addition to the economic renter is responsible for paying energy information, there is also a market tradeoffs. At the present time, DOE does bills. In addition, given that the type of failure consisting of a systematic bias in not have a method to include site- furnace that can be installed in a home the perception of equipment energy specific economics as well as non- is often dependent on structural and usage, which can affect consumer economic decision making criteria in design decisions made when the choices. Attari, Krantz, and Weber 119 the Monte Carlo simulation, as building was constructed, builders end show that consumers tend to suggested by ACEEE. However, this is up influencing the type of furnace used underestimate the energy use of large an issue that DOE intends to investigate, in many homes. Finally, contractors energy-intensive appliances, but and it welcomes suggestions as to how install a large share of furnaces in overestimate the energy use of small it might incorporate economic and other replacement situations, and they can appliances. This means that it is likely relevant factors in its assignment of exert a high degree of influence over the consumers systematically underestimate furnace efficiency in its analyses. type of furnace purchased. the energy use associated with furnaces, The estimated market shares for the In addition to the split-incentive resulting in less cost-effective furnace no-new-standards case for NWGFs and problem, there are other market failures purchases. MHGFs in 2022 are shown in Table that are likely to affect the choice of These market failures affect a sizeable IV.16 and Table IV.17. See chapter 8 of furnace energy efficiency level made by share of the consumer population. A the SNOPR TSD for further information consumers. Davis and Metcalf 118 study by Houde 120 indicates that there on the derivation of the efficiency conducted an experiment demonstrating is a significant subset of consumers that distributions.

TABLE IV.16—AFUE DISTRIBUTION IN THE NO-NEW-STANDARDS CASE FOR NON-WEATHERIZED GAS FURNACES

2022 Market share in percent Efficiency, AFUE National North, repl North, new South, repl South, new

80 ...... 46.5 25.6 30.2 70.0 64.5 90 ...... 5.9 5.6 10.0 4.6 6.5 92 ...... 21.2 18.4 33.5 18.4 24.4 95 ...... 25.4 48.7 25.7 6.6 4.4 98 ...... 0.9 1.7 0.7 0.4 0.2 ‘‘Repl’’ means ‘‘replacement.’’

TABLE IV.17—AFUE DISTRIBUTION IN THE NO-NEW-STANDARDS CASE FOR MOBILE HOME GAS FURNACES

2022 Market share in percent Efficiency, AFUE National North, repl North, new South, repl South, new

80 ...... 71.4 62.8 60.9 85.9 87.4 92 ...... 13.4 6.6 23.3 10.5 11.3 95 ...... 15.0 30.2 15.6 3.6 1.3 97 ...... 0.2 0.4 0.2 0.0 0.0 ‘‘Repl’’ means ‘‘replacement.’’

118 Davis, L.W., and G.E. Metcalf (2014): ‘‘Does 119 Attari, S.Z., M.L. DeKay, C.I. Davidson, and W. 120 Houde, S. (2014): ‘‘How Consumers Respond better information lead to better choices? Evidence Bruine de Bruin (2010): ‘‘Public perceptions of to Environmental Certification and the Value of from energy-efficiency labels,’’ National Bureau of energy consumption and savings.’’ Proceedings of Energy Information,’’ National Bureau of Economic Economic Research Working Paper No. 20720. the National Academy of Sciences 107(37), 16054– Research Working Paper No. 20019. 16059.

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

TABLE IV.18—STANDBY MODE AND OFF MODE BASE-CASE EFFICIENCY DISTRIBUTION IN 2022 FOR NON-WEATHERIZED GAS FURNACES AND MOBILE HOME GAS FURNACES

Standby/off NWGF market MHGF market Efficiency level mode share in share in (watts) percent percent

Baseline ...... 11.0 61 5 1 ...... 9.5 0 0 2 ...... 9.2 17 1 3 ...... 8.5 22 94

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

121 Scott Pigg, Electricity Use by New Furnaces: 122 Electric furnaces are estimated to have the accounting, DOE annualized the installed cost of a A Wisconsin Field Study, Energy Center of same lifetime as NWGFs (21.5 years), but heat second heat pump and multiplied the annualized Wisconsin (2003) (Available at: www.ecw.org/ pumps have an estimated average lifetime of 19 cost by the difference in lifetime between the heat publications/electricity-use-new-furnaces- years, which is 2.5 years less than the estimated pump and a NWGF in a particular switching wisconsin-field-study). average lifetime of NWGFs. To ensure comparable situation.

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Other stakeholders pointed out whether DOE accounted for the impact 2011 direct final rule for residential limitations to the opportunity for fuel of new efficiency standards that took central air conditioners and residential switching due to local codes and effect in 2015 on heat pump prices. furnaces. 76 FR 37408. From these data regulations. For example, PG&E ASAP further argued that heat pump and RECS billing data, DOE deduced commented that fuel switching is prices will be affected by the next that consumers on average would unlikely in California, given the revision to the DOE heat pump require a payback period of 3.5 years or requirements of the State’s building standard, which could take effect as less for a more-expensive but more- energy efficiency standards. (PG&E, No. soon as 2021, and also by refrigerant efficient product. 0153 at p. 3) Von Harz stated that Iowa’s phase outs mandated by EPA. (ASAP, The consumer choice model HVAC System Adjusted and Verified No. 0154–1 at p. 4) APPA and EEI stated calculates the PBP between the higher- Efficiency program, despite requiring that the analysis should account for efficiency NWGF in each standards case high-efficiency furnaces, did not increases in heat pump efficiency compared to the electric heating options experience significant levels of fuel standards in 2006 and 2015. (APPA, No. using the total installed cost and first- switching. (von Harz, No. 0080 at p. 1) 0149 at pp. 2–3; EEI, No. 0179 at pp. 4– year operating cost as estimated for each Southern Company stated that the 5) EEI stated that it is very likely that sample household or building. For estimated level of switching to electric new energy efficiency standards for switching to occur, the total installed furnaces is unreasonably high, even in residential heat pumps will be effective cost of the electric option must be less the South. Southern Company stated in 2021 at the latest. (EEI, No. 0160, pp. than the NWGF standards case option. that contrary to DOE’s results, it would 10–11; EEI, No. 0179 at p. 5) EEI stated The model assumes that a consumer expect much less switching to electric that the analysis does not take into will switch to an electric heating option furnaces over heat pumps in the South account the new water heater standards if the PBP of the condensing NWGF and minimal switching to electric that took effect in 2015 and the relative to the electric heating option is furnaces over heat pumps in the North. associated cost increases of heat pump greater than 3.5 years or the PBP is (Southern Company, No. 0044 at pp. and condensing water heaters above 55 negative. In the case of switching to an 290–291) In response, DOE recognizes gallons. (EEI, No. 0160, pp. 11–12) electric heating option, the model that in some areas switching to electric For the SNOPR, DOE used updated selects the most economically beneficial heating, and electric furnaces in CAC and heat pump prices from the case. current rulemaking for CACs and heat particular, may be minimal. The SNOPR Several stakeholders commented on pumps.124 These prices account for analysis projects only a small amount of the criteria used to determine whether refrigerant phase outs mandated by switching to electric furnaces (1.1 a household would switch space heating EPA. DOE estimated the price of electric percent of all NWGF consumers) for the products. AGA stated that the product furnaces in the engineering analysis. standards proposed in this SNOPR. switching methodology assumes As noted previously, the consumer DOE used the same data for water switching will not take place in cases choice model considered the total heaters as for the March 2015 NOPR and where the payback period is less than installed costs associated with the the September 2015 NODA, which different product options. For the March accounted for the standards that took 3.5 years; however, in the LCC model, 2015 NOPR and September 2015 NODA, effect in 2015. if the payback for the specified DOE used efficiencies and consumer efficiency level is less than 3.5 years, b. Product Switching Decision Criteria prices for heat pumps and CACs that switching does take place if switching meet the energy conservation standards The decision criteria in the model options with paybacks over 3.5 years are that took effect on January 1, 2015 (10 were based on proprietary data from present. (AGA, No. 0040–2 at p. 4) To CFR 430.32(c)(3)). For electric furnaces, Decision Analysts,125 which identified clarify, DOE notes that if the PBP of a DOE used an efficiency of 98-percent for a representative sample of specific condensing NWGF efficiency and a consumer price based on 2013 RS consumers their willingness to purchase level relative to a specific electric Means. For water heaters, it used more-efficient space-conditioning heating option is less than 3.5 years, efficiency and consumer prices for systems (non-proprietary data of a switching does not take place. models that meet the standards that took similar nature were not available). Each AGA and NPGA stated that it is effect on April 16, 2015. (10 CFR of the four surveys that DOE used, unrealistic to use the same criteria for 430.32(d)) For situations where a which span the period 2006 to 2013, every consumer to determine fuel household with a NWGF might switch involved approximately 30,000 switching. (AGA, No. 0118 at p. 13; to an electric space heating appliance, homeowners. The surveys asked NPGA, No. 0130 at p. 4) NPGA stated DOE determined the total installed cost respondents the maximum price they that the factors considered by of the electric heating options, including would be willing to pay for a product consumers are multiple and varying a separate circuit up to 100 amps that that was 25 percent more efficient than according to the consumer’s rationale, would need to be installed to power the their existing product, which DOE personal finances, home construction, electric resistance heater within an assumed is equivalent to a 25-percent region, etc. (NPGA, No. 0130 at p. 4) electric furnace or heat pump, as well as decrease in annual energy costs. DOE DOE acknowledges that different a cost for upgrading the electrical also used Decision Analyst data for consumers are likely to use different service panel for a fraction of consumer choice model in the June 27, criteria when considering fuel households. For all installations, DOE switching, but the survey used by DOE 124 U.S. Department of Energy—Office of Energy does not provide sufficient information used regional labor rates from RS Means Efficiency and Renewable Energy, Residential 123 to derive a distribution of required 2015 data. Central Air Conditioners and Heat Pumps Some stakeholders commented on the (Available at: https://www1.eere.energy.gov/ payback periods that is transferable to product prices used in the March 2015 buildings/appliance_standards/ DOE’s methodology. Commenters did NOPR for alternative space heating standards.aspx?productid=48&action=viewlive) not provide any additional data on this (Last accessed May 2, 2016). point, nor did they suggest a more products. ASAP stated that it is unclear 125 Decision Analysts, 2006, 2008, 2010, and 2013 American Home Comfort Studies (Available at suitable source. As DOE is not aware of 123 RS Means Company, Inc., RS Means www.decisionanalyst.com/Syndicated/ any better data source, it maintained its Residential Cost Data 2015 (2014). HomeComfort.dai). existing approach for this SNOPR.

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EEI, ACEEE, ASAP, and the Efficiency See appendix 8J of the SNOPR for commented that the mobile home Advocates stated that DOE more details on the decision criteria market is particularly price sensitive, so overestimated the amount of fuel used in the product switching model. the higher initial cost of a condensing switching likely to occur as a result of furnace will drive many builders from c. Summary of Product Switching increased furnace efficiency standards. natural gas to electric heating products. Model ACEEE stated that many decision (JCI, No. 0148 at pp. 6–7) makers will not make an investment at The key parameters of the product For replacement MHGFs, DOE has the 3.5-year payback threshold. switching model includes product tentatively concluded that the Furthermore, ACEEE, ASAP, and Rheem switching options, payback criteria, installation costs of switching to electric would expect consumers, particularly in installation cost, and operating costs. heating (which include increasing the the North, to be reluctant to switch to DOE analyzed product switching electrical requirements) and high electricity, which has a reputation for scenarios that represent the most electricity prices in some regions would high bills, less reliability, less comfort, common combinations of space tend to discourage owners of MHGFs and, in some areas, greater risk of conditioning and water heating from switching. For MHGFs in the new outages. (EEI, No. 0160 at p. 3; EEI, No. products that could be used in the case construction market, the estimated 0050 at pp. 56–59; ACEEE, No. 0113 at of a condensing NWGF energy average incremental cost of a 92-percent pp. 2–3; ASAP, No. 0154–1 at pp. 3–4; efficiency standard. The consumer AFUE condensing furnace is $150. Rheem, No. 0142 at p. 12; EEI, No. 0179 choice model calculates the PBP According to the recently issued Notice at p. 4; Efficiency Advocates, No. 0196 between the higher-efficiency NWGF in of Proposed Rulemaking 126 for at p. 3) ASAP stated that the changes each standards case compared to the manufactured housing, DOE estimates required to switch to an electric space electric heating options using the total that a baseline single section heating appliance are complex, and installed cost and first-year operating manufactured home costs $45,000 and a consumers may face considerable cost cost as estimated for each sample baseline double section manufactured and uncertainty about the impacts of household or building. For switching to home costs $82,000. Based on this, DOE changing gas and electric utility occur, the total installed cost of the has tentatively concluded that a cost of services. ASAP stated that the consumer electric option must be less than the this magnitude would be unlikely to survey data used to determine the NWGF standards case option. cause producers of manufactured homes switching criterion do not directly The product switching model is based to make furnace-related design changes. address the consumer choice to switch on the payback of a higher efficiency heating fuels, as the decision to buy a furnace in comparison to the heat pump 10. Payback Period more expensive but more efficient and electric furnace alternatives. Based The payback period is the amount of product is very different than the on data from consumer surveys, DOE time it takes the consumer to recover the decision to switch from one heating fuel applied payback criteria of 3.5 years for additional installed cost of more- to another. (ASAP, No. 0154–1 at pp. 3– all consumers. In order to characterize efficient products, compared to baseline 4) the uncertainty associated with the products, through energy cost savings. DOE acknowledges that the consumer payback criteria value, DOE conducted Payback periods are expressed in years. survey data it used to determine the sensitivity analyses using higher and Payback periods that exceed the life of switching criterion do not directly lower payback criteria. Whereas the the product mean that the increased address the consumer choice to switch primary estimate uses a consumer total installed cost is not recovered in heating fuels, but in the absence of any decision metric involving expectation of reduced operating expenses. data directly associated with fuel a payback period of 3.5 years or less for The inputs to the PBP calculation for switching, DOE believes that the a more-expensive but more-efficient each efficiency level are the change in payback criterion is broadly reflective of product, the sensitivity analyses use total installed cost of the product and the potential consumer response. In payback periods that are one year higher the change in the first-year annual addition to the primary estimate, DOE or lower than 3.5 years (i.e., 2.5 years operating expenditures relative to the conducted sensitivity analyses using and 4.5 years). The results of the baseline. The PBP calculation uses the higher and lower levels of switching. sensitivity analyses on the estimated same inputs as the LCC analysis, except Whereas the primary estimate uses a extent of product switching and on the that discount rates are not needed. consumer decision metric involving LCC and PBP results are given in section As noted above in section III.E.2, expectation of a payback period of 3.5 V.B.1.a, and the results on the national EPCA, as amended, establishes a years or less for a more-expensive but energy savings and NPV are given in rebuttable presumption that a standard more-efficient product, the sensitivity section V.B.3. is economically justified if the Secretary analyses use payback periods that are d. Switching Resulting from Standards finds that the additional cost to the one year higher or lower than 3.5 years for Mobile Home Gas Furnaces consumer of purchasing a product (i.e., 2.5 years and 4.5 years). complying with an energy conservation ASAP stated that no fuel switching is For the March 2015 NOPR, DOE standard level will be less than three a more realistic assumption, but at a concluded that fuel switching would be times the value of the first year’s energy minimum, DOE should use the low- unlikely for MHGFs. 80 FR 13120, savings resulting from the standard, as switching scenario described in the 13164 (March 12, 2015). Nortek and calculated under the applicable test switching appendix, which is based on Mortex responded that the higher total procedure. (42 U.S.C. 6295(o)(2)(B)(iii)) what ASAP stated is a slightly more installed cost of a condensing MHGF For each considered efficiency level, realistic payback threshold. (ASAP, No. would likely force consumers to switch DOE determined the value of the first 0154–1 at pp. 3–4) ACEEE also to a less-efficient electric furnace, year’s energy savings by calculating the recommended using the low-switching resulting in higher monthly utility bills. energy savings in accordance with the scenario. (ACEEE, No. 0113 at pp. 2–3) (Nortek, No. 0137 at p. 4; Mortex, No. applicable DOE test procedure, and Given the concerns about switching 0157 at p. 3) AHRI also stated that DOE multiplying those savings by the average raised by many stakeholders, DOE is should consider product switching from reluctant to rely on the low-switching MHGFs to other space heating products. 126 See: http://energy.gov/sites/prod/files/2016/ scenario for its primary estimate. (AHRI, No. 0050 at pp. 67–68) JCI 05/f31/Manufactured%20Housing%20NOPR_1.pdf.

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energy price forecast for the year in shipment data. (SoCalGas, No. 0132–7 at existing products in the housing stock, which compliance with the amended or p. v) DOE disagrees with this comment, which are tracked by vintage. new standards would be required. because DOE did use the latest-available To project shipments to the new shipments data from AHRI in its G. Shipments Analysis housing market, DOE utilized a forecast analysis. For the September 2015 NODA of new housing construction and 1. Shipments Model and Inputs and this SNOPR, DOE used the 2010– historic saturation rates of furnace DOE uses forecasts of annual product 2014 shipments data provided by AHRI, product types in new housing. DOE shipments to calculate the national with disaggregated non-condensing and used AEO 2014 for forecasts of new condensing shipments.132 For the impacts of potential amended or new housing for the March 2015 NOPR.138 SNOPR, DOE used updated total 2015 energy conservation standards on DOE estimated future furnace saturation shipments data from AHRI,133 but energy use, NPV, and future rates in new housing based on a 127 disaggregated data by non-condensing manufacturer cash flows. The weighted-average of U.S. Census and condensing shipments for 2015 was shipments model takes an accounting Bureau’s Characteristics of New approach, tracking market shares of not available for the SNOPR analysis. Housing 139 values from 1990 through each product class and the vintage of For the March 2015 NOPR and 2013. For the September 2015 NODA units in the stock. Stock accounting uses September 2015 NODA, DOE and this SNOPR, DOE used AEO 2015 product shipments as inputs to estimate disaggregated MHGF shipments from the gas furnace total by using a for forecasts of new housing from the the age distribution of in-service 140 product stocks for all years. The age combination of data from the U.S. NOPR and added the U.S. Census distribution of in-service product stocks Census 134 and American Housing Bureau’s Characteristics of New 141 is a key input to calculations of both the Survey (AHS).135 Disaggregated Housing values from 2014 to 2015. NES and NPV, because operating costs condensing and non-condensing gas For the March 2015 NOPR and the for any year depend on the age furnace shipments by region from 1992 September 2015 NODA, to project distribution of the stock. to 2009 were used to estimate shipments shipments to new owners of NWGFs, DOE developed shipment projections by region before 1992 and after 2009. DOE used the shipments model together based on historical data and an analysis For the SNOPR, DOE updated to the with data in the American Home of key market drivers for each product. latest U.S. Census 136 and AHS data.137 Comfort Survey 142 to estimate that the DOE estimated gas furnace shipments Mortex stated that the number of annual total amounts to ten percent of by projecting shipments in three market MHGFs manufactured in 2014 was NWGF replacement shipments in 2021. segments: (1) Replacements; (2) new estimated to be about 54,000, and about AHRI stated that the population of housing; and (3) new owners in two-thirds were sold to the replacement buildings that did not previously have new owners is by definition an ever market. Mortex stated that MHGF sales decreasing base and should not have a NWGF. DOE also considered whether have not been growing. (Mortex, No. standards that require more-efficient constant shipments. (AHRI, No. 0050 at 0157 at p. 3) For the SNOPR, DOE pp. 54–55) In response, DOE notes that furnaces would have an impact on revised its data for current MHGF new houses are continually being built, furnace shipments. shipments to align with the estimate some without NWGFs. Some of these For the March 2015 NOPR, DOE from Mortex. homeowners could potentially install a assembled historic shipments data for To project furnace replacement NWGF at a later point, so the new NWGFs and MHGFs from Appliance shipments, DOE developed retirement 128 129 owner market may not necessarily Magazine, AHRI, and Census functions from the furnace lifetime 130 decrease. Mobile Home. For the September estimates and applied them to the 2015 NODA, DOE added the 2014 For shipments of NWGFs to 131 shipments from AHRI. 132 Air-Conditioning, Heating, and Refrigeration commercial applications, DOE The GTI report submitted by Institute, Non-Condensing and Condensing developed no-new-standards case SoCalGas stated that DOE’s condensing Regional Gas Furnace Shipments for 2010–2014 shipments forecasts for each of the four furnace shipment forecasts are based on (2015), Air-Conditioning, Heating, and Refrigeration Institute: Arlington, VA. (Available at: Census regions that, in turn, were assumed current market conditions that www.regulations.gov/#!documentDetail;D=EERE- aggregated to produce regional and differ from AHRI condensing furnace 2014-BT-STD-0031-0052) (Last accessed January 6, national forecasts. DOE estimated that 2016). the fraction of residential NWGFs 127 DOE uses data on manufacturer shipments as 133 Air-Conditioning, Heating, & Refrigeration a proxy for national sales, as aggregate data on sales Institute, Furnace Historical Shipments Data. are lacking. In general one would expect a close (1996–2015) (Available at: http://www.ahrinet.org/ 138 U.S. Department of Energy, Energy correspondence between shipments and sales. site/497/Resources/Statistics/Historical-Data/ Information Administration, Annual Energy 128 Appliance Historical Statistical Review: 1954– Furnaces-Historical-Data) (Last accessed April 26, Outlook 2014, Table 20 (Available at: www.eia.gov/ 2012, Appliance Magazine (2014). 2016). forecasts/aeo/ 129 Air-Conditioning, Heating, & Refrigeration 134 U.S. Census Bureau, Manufactured Homes data.cfm?filter=macroeconomic#macroeconomic) Institute, Furnace Historical Shipments Data. Survey (June 1, 2013) (Available at: https:// (Last accessed July 29, 2014). (1994–2013) (Available at: http://www.ahrinet.org/ www.census.gov/construction/mhs/mhsindex.html) 139 U.S. Census Bureau, Characteristics of New site/497/Resources/Statistics/Historical-Data/ (Last accessed July 9, 2015). Housing (Available at: www.census.gov/const/www/ Furnaces-Historical-Data) (Last accessed October 135 U.S. Census Bureau—Housing and Household charindex.html) (Last accessed Aug. 19, 2014). 15, 2014). Economic Statistics Division, 2011 American 140 U.S. Department of Energy, Energy 130 U.S. Census. Manufactured Homes Survey: Housing Survey (2011) (Available: www.census.gov/ Information Administration, Annual Energy Historical Data. (Available at: http:// programs-surveys/ahs/data.2011.html) (Last Outlook 2015, Table 20 (Available at: www.eia.gov/ www.census.gov/construction/mhs/mhsindex.html accessed June 30, 2015). forecasts/aeo/ (Last accessed April 26, 2016.). 136 U.S. Census Bureau, Manufactured Homes data.cfm?filter=macroeconomic#macroeconomic) 131 Air-Conditioning, Heating, and Refrigeration Survey (Available at: https://www.census.gov/ (Last accessed July 29, 2015). Institute, Non-Condensing and Condensing construction/mhs/mhsindex.html) (Last accessed 141 U.S. Census Bureau, Characteristics of New Regional Gas Furnace Shipments for 2010–2014 August 26 2015). Housing (Available at: www.census.gov/const/www/ (2015), Air-Conditioning, Heating, and Refrigeration 137 U.S. Census Bureau—Housing and Household charindex.html) (Last accessed April 26, 2016). Institute: Arlington, VA. (Available at: Economic Statistics Division, 2013 American 142 Decision Analysts, 2008 American Home www.regulations.gov/#!documentDetail;D=EERE- Housing Survey (2013) (Available at: Comfort Study: Online Database Tool (Available at: 2014-BT-STD-0031-0052) (Last accessed January 6, www.census.gov/programs-surveys/ahs/ www.decisionanalyst.com/Syndicated/ 2016.). data.2013.html) (Last accessed June 30, 2015). HomeComfort.dai) (Last accessed April 26, 2016).

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shipped to the commercial sector is of additional heat pumps and electric low-income consumers or owners of approximately three percent.143 furnaces shipped in each year. multi-family homes could use a small Mortex questioned if DOE’s forecast of AHRI stated that in the shipments furnace and, thus, could install a new declining MHGF shipments means that analysis, DOE concluded that higher non-condensing furnace. consumers are not replacing their prices for condensing furnaces would Because measures to limit standby MHGFs, given that there are a lot of not significantly affect shipments, but at mode and off mode power consumption older MHGFs, and DOE assumes that the same time, DOE concluded that have a very small impact on the total there is no switching to other products. higher NWGF prices would lead installed cost and do not impact (Mortex, No. 0157 at p. 3) As mentioned consumers to switch products to avoid consumer utility, and thus have a before, DOE revised its data for current the LCC and PBP cost impacts from a minimal effect on consumer purchase MHGF shipments to align with the higher-efficiency furnace. (AHRI, No. decisions, DOE assumed that NWGF estimate from Mortex. These revised 0159 at p. 22) DOE clarifies that the shipments in the no-new-standards case shipments show a slight increase. DOE’s estimated degree of switching away would be unaffected by new standby analysis assumes that some MHGFs are from NWGFs under each TSL is mode and off mode standards. not replaced because the lifetime of a reflected in a decrease in shipments. For details on DOE’s shipments mobile home is often similar to that of AHRI stated that increasing the analysis of product and fuel switching, a MHGF. installed cost would impact the see chapter 9 of the SNOPR TSD. projected shipments due to price H. National Impact Analysis 2. Impact of Potential Standards on elasticity. (AHRI, No. 0159 at p. 48) Shipments Goodman expects that a standard would The NIA assesses the national energy savings (NES) and the national net For the March 2015 NOPR, to estimate decrease shipments. (Goodman, No. 0135 at p. 8) For NWGFs, DOE present value (NPV) from a national the impact on NWGF shipments of maintains that the response to an perspective of total consumer costs and product switching that may be increase in installed cost would savings that would be expected to result incentivized by potential standards, primarily be in the form of product from new or amended standards at DOE applied the consumer choice switching. Therefore, rather than specific efficiency levels.145 model described in section IV.F.9. The applying a price elasticity parameter to (‘‘Consumer’’ in this context refers to options available to each sample relate increase in installed cost to the consumers of the product being household or building are to purchase demand for furnaces, DOE accounted for regulated.) DOE calculates the NES and and install: (1) The NWGF that meets a the impact of such increase by NPV for the potential standard levels particular standard level, (2) a heat considered based on projections of 144 incorporating product switching in the pump, or (3) an electric furnace. shipments model. This approach annual product shipments, along with As applied in the LCC and PBP captures not only the decrease in NWGF the annual energy consumption and analysis, the model considers product shipments, but also the increase in total installed cost data from the energy prices in the compliance year and shipments (and use) of heat pumps and use and LCC analyses.146 For the energy prices over the lifetime of electric furnaces resulting from present NIA analysis, DOE forecasted products installed in that year. The switching. For MHGFs, DOE has the energy savings, operating cost shipments model considers the tentatively concluded that either the savings, product costs, and NPV of switching that might occur in each year impact of price elasticity or product consumer benefits over the lifetime of of the analysis period (2022–2051). To switching in response to amended NWGFs and MHGFs sold from 2022 do so, DOE estimated the switching in standards would be minimal, since the through 2051. the final year of the analysis period installation cost differential is small DOE evaluates the impacts of (2051) and derived trends from 2022 to between non-condensing and amended or new standards by 2051. First, DOE applied the NWGF condensing MHGFs. comparing a case without such product price trend described above to Many stakeholders stated that due to standards with standards-case project prices in 2051. DOE used the the high cost of condensing furnaces, projections. The no-new-standards case appropriate energy prices over the consumers (particularly low- and characterizes energy use and consumer lifetime of products installed in each moderate-income consumers) may costs for each product class in the year. Although the inputs vary, the choose to repair existing non- absence of new or amended energy decision criteria, as described in section condensing furnaces instead of conservation standards. For this IV.F.9, were the same in each year. For replacing them with a condensing projection, DOE considers historical each considered standard level, the furnace. (Carrier, No. 0116 at pp. 9, 11; trends in efficiency and various forces number of NWGFs shipped in each year PGW, No. 0003–2 at pp. 5–6; PGW, No. that are likely to affect the mix of is equal to the base shipments in the no- 0122 at p. 3; AGL Resources, No. 0112 efficiencies over time. DOE compares new-standards case minus the number at p. 7; Gas Authority, No. 0086 at pp. the no-new-standards case with of NWGF buyers who switch to either a 4–5; Laclede, No. 0141 at p. 37; Questar projections characterizing the market for heat pump or an electric furnace. The Gas, No. 0151 at p. 1; Allied Air, No. each product class if DOE adopted new shipments model also tracks the number 0044 at p. 267; Nayes, No. 0055 at p. 1; or amended standards at specific energy AHRI, No. 0159 at pp. 15, 23) DOE notes efficiency levels (i.e., the TSLs or 143 The results derived from RECS 2009 and that replacement of a furnace in the standards cases) for that class. For the CBECS 2003 show there are 45.6 and 1.2 million shipments model is generally associated standards cases, DOE considers how a residential furnaces in residential and commercial with failure of major components such given standard would likely affect the buildings, respectively. DOE assumed that the share as the heat exchanger. Because such market shares of products with of shipments is similar to the share in the stock. efficiencies greater than the standard. 144 DOE also accounted for situations when repair is a large expense, DOE believes installing a condensing furnace could leave an that relatively few consumers would ‘‘orphaned’’ gas water heater that would require choose to undertake such a repair, given 145 The NIA accounts for impacts in the 50 states expensive re-sizing of the vent system. Rather than concerns that other major repairs may and U.S. territories. incurring this cost, the consumer could choose to 146 For the NIA, DOE adjusts the installed cost purchase an electric water heater along with a new soon follow. In addition, under the data from the LCC analysis to exclude sales tax, furnace. currently-proposed standards, many which is a transfer.

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

TABLE IV.19—SUMMARY OF INPUTS AND METHODS FOR THE NATIONAL IMPACT ANALYSIS FOR THE SNOPR

Inputs Method

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

1. Product Efficiency Trends year that standards are assumed to that will foster market share growth for A key component of the NIA is the become effective (2022). In this condensing furnaces exceeding any new trend in energy efficiency projected for scenario, the market shares of products standard. (ACEEE, No. 0113 at p. 2; the no-new-standards case and each of in the no-new-standards case that do not ASAP, No. 0154–1 at pp. 3, 5–6) To the standards cases. Section IV.F.8 of meet the standard under consideration develop standards case efficiency trends this notice describes how DOE would ‘‘roll up’’ to meet the new after 2022, DOE estimated growth in developed an energy efficiency standard level, and the market share of shipment-weighted efficiency in the distribution for the no-new-standards products above the standard would standards cases, except in the max-tech case (which yields a shipment-weighted remain unchanged. For the March 2015 standards case. The estimated growth average efficiency) for the considered NOPR, in the standards case with a 90- accounts for potential changes in product classes in the year of percent AFUE national standard, DOE ENERGY STAR criteria and the anticipated compliance with an estimated that many consumers will response of manufacturers to minimum amended or new standard (2022). To purchase a 92-percent AFUE furnace standards in the condensing range. project the trend in efficiency absent rather than a 90-percent AFUE furnace DOE did not have a basis on which to amended standards for NWGFs and because the extra installed cost is predict a change in efficiency trend for MHGFs over the entire 30-year minimal, and the market has already standby mode and off mode power shipments projection period, DOE moved significantly toward the 92- consumption, so DOE assumed that the extrapolated the historical trends in percent level. efficiency distribution would not efficiency that were described in section ACEEE and ASAP commented that a change after the first year of compliance. IV.F.8. DOE estimated that the national ‘‘roll up’’ scenario is overly conservative The efficiency trends are further market share of condensing products and stated that DOE should use a ‘‘shift’’ described in chapter 10 of the SNOPR would grow from 53 percent in 2022 to scenario for all TSLs. (A ‘‘shift’’ scenario TSD. assumes increases in the market share of 65 percent by 2051 for NWGFs, and 2. National Energy Savings from 26 percent to 32 percent for products at efficiencies above the MHGFs. The market shares of the standard level following an increase in The national energy savings analysis different condensing efficiency levels the standard level.) DOE acknowledges involves a comparison of national (i.e., 90-, 92-, 95-, and 98-percent AFUE that there could be some increase in the energy consumption of the considered for NWGF and 92-, 95-, and 97-percent market share of products at efficiencies products between each potential AFUE for MHGF) are maintained in the above the standard level in the standards case (TSL) and the case with same proportional relationship as in compliance year, but DOE has found the no new or amended energy conservation 2022. roll-up approach to provide a standards. DOE calculated the national Due to the lack of historical efficiency conservative estimate of the potential energy consumption by multiplying the data for standby mode and off mode energy savings in the standards case. As number of units (stock) of each product power consumption, DOE estimated that described below, DOE did project (by vintage or age) by the unit energy the efficiency distribution would remain increase in the market share of products consumption (also by vintage). DOE the same throughout the forecast period. at efficiencies above the standard level calculated annual NES based on the For the standards cases, DOE used a after the compliance year. difference in national energy ‘‘roll-up’’ scenario to establish the ACEEE and ASAP stated that there are consumption for the no-new standards shipment-weighted efficiency for the many market forces and public policies case and for each higher-efficiency

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standard case. DOE estimated energy from the furnace fan standards and will be generating electricity after 2030. consumption and savings based on site account for those reduced savings in (EEI, No. 0179 at p. 10) In response, the energy and converted any electricity this rulemaking. (AHRI, No. 0159 at p. site-to-primary energy factors that DOE consumption or savings to primary 65) DOE does not agree with AHRI’s derived based on AEO 2015 show a energy (i.e., the energy consumed by reasoning or its recommendation. DOE relatively flat trend between 2030 and power plants to generate site electricity) acknowledges that the standards 2040, so it is reasonable to use the 2040 using annual conversion factors derived proposed for NWGFs in this document value for years after 2040. DOE from the AEO. For natural gas and LPG, may result in slightly lower replacement interprets EEI’s comment as suggesting DOE assumed that site energy of furnaces with PSC motors by furnaces that expected growth in renewable consumption is the same as primary with higher efficiency motors than energy would result in a fuel mix to energy consumption. projected in the furnace fan rulemaking. generate electricity that would affect the The per-unit annual energy use is However, the purpose of DOE’s analysis site-to-primary energy factors. However, adjusted with the building shell is to accurately estimate the impacts of the growing penetration of renewable improvement index, which results in a the proposed standards, and not to electricity generation has little effect on decline of 8 percent in the heating load incorporate any adjustments associated the trend in site-to-primary energy from 2022 to 2051, and the climate with past rulemakings for a different factors because EIA uses an average index, which results in a decline of 7 product (i.e., furnace fans).148 fossil fuel heat to characterize the percent in the heating load. Cumulative DOE incorporated a rebound effect for primary energy associated with energy savings are the sum of the NES NWGFs and MHGFs by reducing the site renewable generation. DOE has recently for each year over the timeframe of the energy savings in each year by 15 issued a Request for Information analysis. percent. (RFI) 150 regarding site-to-primary Commenting on the energy DOE used a multiplicative factor to energy factors and may revisit these consumption for each efficiency level in convert site electricity consumption (at factors in the future based on responses the NIA, AHRI stated that the average the home or commercial building) into to the RFI. energy demand in buildings with primary energy consumption (the AGA, Vectren, and NPGA stated that condensing NWGFs in the absence of energy required to convert and deliver after correcting for DOE’s analytical standards is almost certainly higher the site electricity). These conversion errors, fuel switching to electricity will than the average energy use of the factors account for the energy used at increase primary energy consumption buildings with non-condensing NWGFs power plants to generate electricity and because increased electricity demand absent standards.147 AHRI stated that energy losses during transmission and outweighs the reduced natural gas use. using average energy consumption of all distribution. The factors vary over time (AGA, No. 0118 at pp. 3, 5–6; Vectren, buildings for each efficiency level in the due to changes in generation sources No. 0111 at p. 2; NPGA, No. 0171 at pp. NIA substantially overestimates the (i.e., the power plant types projected to 2–3) Indiana and Carrier stated that the energy savings. (AHRI, No. 0159 at pp. provide electricity to the country) proposed standard may increase energy 64–65) In response, DOE’s approach for projected in AEO 2015.149 The factors usage due to fuel switching by the modeling of unit energy that DOE developed are marginal consumers who choose lower-cost, less- consumption (UEC) in the no-new- values, which represent the response of efficient space heating products. standards case reflects a matching the electricity sector to an incremental (Indiana, No. 0094 at p. 1; Carrier, No. between the UEC for each efficiency decrease in consumption associated 0116 at p. 10) On this point, DOE would level and the subset of homes that are with potential appliance standards. first note that switching to electric estimated to install furnaces at each Because AEO projections end in 2040, heating products was significantly AFUE level. See chapter 10 of the DOE maintained the 2040 value for higher under the standards proposed in SNOPR TSD for details. years after 2040. the March 2015 NOPR than it is under In the standards cases, there are fewer NRDC stated that the source energy the standards proposed in this shipments of NWGFs or MHGFs factor for electricity from AEO 2014 SNOPR.151 Even so, these comments compared to the no-new-standards case does not accurately account for lost sight of the overall landscape of because of product switching, but there marginal, rather than average, energy savings associated with amended are additional shipments of heat pumps, generation source energy. NRDC argued standards by focusing solely on the electric furnaces, and electric water that a marginal factor is much more differences in primary energy use heaters. DOE incorporated the per-unit appropriate measure because fuel between gas and electric home heating annual energy use of the heat pumps switching happens at the margin of products for that small portion of and electric furnaces that was calculated electricity generation. (NRDC, No. 0134 consumers who would engage in fuel in the LCC and PBP analysis (based on at pp. 2, 7–8) For the SNOPR, DOE uses switching. Although switching to the specific sample households that marginal factors to convert site electric heating products does increase switch to these products) into the NIA electricity consumption into primary primary energy consumption relative to model. energy consumption. use of NWGFs, the savings in primary AHRI stated that the increased cost of EEI pointed out that the conversion natural gas resulting from the currently- a furnace as a result of this rulemaking factor increases slightly from 2035 to proposed standards far outweigh the would mean that the replacement of 2040 without explanation but shows no increase in energy use due to switching. furnaces with PSC motors by furnaces improvement from 2040 on. EEI stated In 2011, in response to the with higher-efficiency motors would be that this post-2035 increase does not recommendations of a committee on lower than projected in the furnace fan comport with the expected fuel mix that rulemaking. AHRI argued that DOE 150 See: https://www.regulations.gov/ must recalculate the projected savings 148 DOE’s analysis of potential standards for #!docketDetail;D=EERE-2016-OT-0010. NWGFs and MHGFs fully accounts for the 151 The main reason why the estimated switching 147 DOE’s understanding of AHRI’s reasoning is standards for furnace fans that take effect in 2019. is lower under the standards proposed in this that homes purchasing a condensing furnace in the 149 U.S. Department of Energy, Energy SNOPR is because of the creation of a product class no-new-standards case would tend to have a higher Information Administration, Annual Energy for small furnaces for which a non-condensing heating load because a condensing furnace would Outlook 2015 (Available at: www.eia.gov/forecasts/ furnace would meet the standard. In this case, there tend to be more cost-effective in such cases. aeo/data.cfm) (Last accessed July 29, 2015). is less incentive for switching.

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‘‘Point-of-Use and Full-Fuel-Cycle difference between the no-new- are too low because the 3-percent rate is Measurement Approaches to Energy standards case and each standards case lower than the consumer rate actually Efficiency Standards’’ appointed by the in terms of total savings in operating used in the LCC and the 7-percent rate National Academy of Sciences, DOE costs versus total increases in installed is lower than the rate that DOE should announced its intention to use full-fuel- costs. DOE calculates operating cost use in the LCC. (AHRI, No. 0159 at p. cycle (FFC) measures of energy use and savings over the lifetime of each product 64) Regarding this point, DOE notes that greenhouse gas and other emissions in shipped during the forecast period. the discount rates used in the NIA the national impact analyses and As discussed in section IV.F.1, DOE reflect a national perspective, which is emissions analyses included in future used an experience curve method to distinct from the consumer perspective energy conservation standards project future product price trends. used in the LCC analysis. DOE uses 3- rulemakings. 76 FR 51281 (August 18, Application of the price index results in percent and 7-percent discount rates in 2011). After evaluating the approaches a decline of 17 percent in furnace prices accordance with guidance provided by discussed in the August 18, 2011 notice, from 2022 to 2051. In addition to the the Office of Management and Budget DOE published a statement of amended default trend described in section (OMB) to Federal agencies on the policy in the Federal Register in which IV.F.1, which shows a modest rate of development of regulatory analysis.154 DOE explained its determination that decline, DOE performed price trend The 7-percent real value is an estimate EIA’s National Energy Modeling System sensitivity calculations in the NIA to of the average before-tax rate of return (NEMS) is the most appropriate tool for examine the dependence of the to private capital in the U.S. economy. its FFC analysis and its intention to use analytical results on different analytical The 3-percent real value represents the NEMS for that purpose. 77 FR 49701 assumptions. The price trend sensitivity ‘‘social rate of time preference,’’ which (August 17, 2012). NEMS is a public analysis considered a trend with a is the rate at which society discounts domain, multi-sector, partial- greater rate of decline than the default future consumption flows to their equilibrium model of the U.S. energy trend and a trend with constant prices. present value. sector 152 that EIA uses to prepare its The derivation of these trends is As noted above, in determining Annual Energy Outlook. The FFC factors described in appendix 10C of the national energy savings, DOE is incorporate losses in production and SNOPR TSD. accounting for the rebound effect delivery in the case of natural gas The operating cost savings are energy associated with more-efficient (including fugitive emissions) and cost savings, which are calculated using furnaces.155 Because consumers have additional energy used to produce and the estimated energy savings in each foregone a monetary savings in energy deliver the various fuels used by power year and the projected price of the expenses, it is reasonable to conclude plants. The approach used for deriving appropriate form of energy. To estimate that the value of the increased utility is FFC measures of energy use and energy prices in future years, DOE equivalent to the monetary value of the emissions is described in appendix 10B multiplied the average regional energy energy savings that would have of the SNOPR TSD.153 prices by the forecast of annual occurred without the rebound effect. NPGA commented that there is no national-average residential energy price Therefore, the economic impacts on indication that DOE applied FFC changes in the Reference case from AEO consumers with or without the rebound analysis to the electric alternatives that 2015, which has an end year of 2040. To effect, as measured in the NPV, are the are likely to increase as consumers estimate price trends after 2040, DOE same. switch fuels due to the retrofit and used the average annual rate of change redesign costs of propane-powered in prices from 2020 to 2040. As part of I. Consumer Subgroup Analysis furnaces. (NPGA, No. 0130 at p. 5) In the NIA, DOE also analyzed scenarios In analyzing the potential impact of response, DOE did determine the FFC that used inputs from the AEO 2015 new or amended energy conservation energy use associated with the projected Low Economic Growth and High standards on consumers, DOE evaluates increase in electricity use resulting from Economic Growth cases. Those cases the impact on identifiable subgroups of fuel switching. have higher and lower energy price consumers that may be trends compared to the Reference case. 3. Net Present Value Analysis disproportionately affected by a new or NIA results based on these cases are amended national standard. The The inputs for determining the NPV presented in appendix 10C of the purpose of a subgroup analysis is to of the total costs and benefits SNOPR TSD. determine the extent of any such experienced by consumers are: (1) Total As mentioned previously, in the disproportional impacts. DOE evaluates annual installed cost; (2) total annual standards cases, there are fewer impacts on particular subgroups of operating costs (energy costs and repair shipments of NWGFs or MHGFs than in consumers by analyzing the LCC and maintenance costs); and (3) a the base case because of product impacts and PBP for those particular discount factor to calculate the present switching, but there are additional consumers from alternative standard value of costs and savings. DOE shipments of heat pumps and electric levels. DOE analyzed the impacts of the calculates net savings each year as the furnaces. For these products, the considered standard levels on two appropriate annual operating costs and subgroups: (1) Low-income households 152 For more information on NEMS, refer to The installed costs that were calculated in National Energy Modeling System: An Overview, and (2) senior-only households. The DOE/EIA–0581 (98) (Feb.1998) (Available at: the LCC and PBP analysis were analysis used subsets of the RECS 2009 www.eia.gov/oiaf/aeo/overview/). incorporated into the NIA model. sample comprised of households that 153 DOE generally does not include possible In calculating the NPV, DOE indirect impacts of standards on energy use outside multiplies the net savings in future 154 United States Office of Management and of the full-fuel-cycle. Such indirect impacts could years by a discount factor to determine include changes in the energy used to manufacture Budget. Circular A–4: Regulatory Analysis (Sept. and transport covered products, or in the energy their present value. DOE estimates the 17, 2003), section E. (Available at used to process material inputs to covered products. NPV of consumer benefits using both a www.whitehouse.gov/omb/memoranda/m03- DOE maintains that such indirect impacts fall 3-percent and a 7-percent real discount 21.html). outside of the EPCA mandate for DOE to to consider 155 As previously discussed in section IV.E.1, the the total projected energy savings that are expected rate. rebound effect provides consumers with increased to result directly from the standard. (42 U.S.C. AHRI stated that the 3-percent and 7- utility (e.g., a more comfortable indoor 6295(o)(2)(B)(i)(III)) percent discount rates used in the NIA environment).

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meet the criteria for the two subgroups very competitive in terms of rental rates. possible impacts under different for both NWGFs and MHGFs. DOE used To the extent that such transfer does not manufacturer markup scenarios. the LCC and PBP spreadsheet model to occur, low-income renters would benefit The qualitative part of the MIA estimate the impacts of the considered more than is shown by DOE’s analysis. addresses manufacturer characteristics efficiency levels on these subgroups. Chapter 11 in the SNOPR TSD and market trends. Specifically, the MIA Some stakeholders questioned the describes the consumer subgroup considers such factors as manufacturing discount rates that DOE used for low- analysis and its results. capacity, competition within the income households and senior-only industry, the cumulative regulatory households. J. Manufacturer Impact Analysis burden of other DOE and non-DOE AHRI stated that DOE did not address 1. Overview regulations, and impacts on the higher cost of capital for the DOE performed a manufacturer manufacturer subgroups. The complete subgroups relative to the average impact analysis (MIA) to determine the MIA is outlined in chapter 12 of the residential discount rate. (AHRI, No. SNOPR TSD. financial impact of amended energy 0159 at pp. 13–14) As described in DOE conducted the MIA for this conservation standards on section IV.F.7, DOE developed a rulemaking in three phases. In the first manufacturers of NWGFs and MHGFs distribution of discount rates by income phase of the MIA, DOE prepared a group. The low-income households and and to estimate the potential impacts of profile of the NWGF and MHGF senior-only households in the subgroup such standards on domestic manufacturer industry based on the samples are identified by income, and employment, manufacturing capacity, market and technology assessment and they are assigned a discount rate from and cumulative regulatory burden for publicly available information. This the appropriate income category. The those manufacturers. The MIA has both included a top-down cost analysis of average rate is higher for the low- quantitative and qualitative aspects. The NWGF and MHGF manufacturers in income subgroup compared to the quantitative part of the MIA includes order to derive preliminary financial overall average. analyses of forecasted industry cash inputs for the GRIM (e.g., selling, AGA stated that DOE’s discount rate flows to calculate the INPV, additional general, and administration (SG&A) underweights low-income consumer investments in research and expenses; research and development reliance on credit cards and other high- development (R&D) and manufacturing (R&D) expenses; and tax rates). DOE interest forms of financing. (AGA, No. capital necessary to comply with used public sources of information, 0118 at p. 28) AGL Resources stated that amended standards, and the potential including company SEC 10–K filings,156 in order to purchase and install furnaces impact on domestic manufacturing corporate annual reports, the U.S. that comply with the standards employment. Additionally, the MIA Census Bureau’s Economic Census,157 proposed in the NOPR, many low- seeks to qualitatively determine how and Hoover’s reports 158 to conduct this income and fixed-income homeowners amended energy conservation standards analysis. would borrow money at high interest might affect manufacturers’ capacity In the second phase of the MIA, DOE rates due to sub-par credit, further and competition, as well as how prepared a framework industry cash- diminishing any benefits derived from standards contribute to manufacturers’ flow analysis to quantify the potential lower utility bills. (AGL Resources, No. overall regulatory burden. Finally, the impacts of new energy conservation 0112 at p. 8) DOE uses a weighted- MIA serves to identify any standards. The GRIM uses several average cost of capital that is distinct disproportionate impacts on factors to determine a series of annual from the financing that may be used to manufacturer subgroups, including cash flows starting with the directly purchase a furnace. As small business manufacturers. announcement of the standards and discussed in the response to comments The quantitative part of the MIA extending over a 30-year period in section IV.F.7, DOE maintains that primarily relies on the GRIM, an following the compliance date of the the interest rate associated with the industry cash flow model with inputs standards. These factors include annual specific source of funds used to specific to this rulemaking. The key expected revenues, costs of sales, SG&A purchase a furnace (i.e., the marginal GRIM inputs include data on the and R&D expenses, taxes, and capital rate) is not the appropriate metric to industry cost structure, unit production expenditures. In general, energy measure the discount rate as defined for costs, product shipments, manufacturer conservation standards can affect the LCC analysis. See section IV.F.7 for markups, and investments in R&D and manufacturer cash flow in three distinct elaboration of DOE’s reasoning. manufacturing capital required to ways: (1) Create a need for increased NRDC stated that if a significant produce compliant products. The key investment; (2) raise production costs fraction of low-income households are GRIM outputs are INPV, which is the per unit; and (3) alter revenue due to renters rather than owners, the NOPR sum of industry annual cash flows higher per-unit prices and changes in may overestimate consumer costs, as throughout the analysis period sales volumes. renters have limited and indirect discounted using the industry-weighted In addition, during the second phase, exposure to installed costs, although average cost of capital, and the impact DOE developed an interview guide to they are often responsible for paying on domestic manufacturing distribute to NWGF and MHGF utility bills. (NRDC, No. 0134 at pp. 2, employment. The model uses standard manufacturers in order to develop other 8) DOE acknowledges that it assumed accounting principles to estimate the key GRIM inputs, including product and that the cost of a product incurred by a impacts of amended energy landlord is passed on to the tenant who conservation standards on the NWGF 156 U.S. Securities and Exchange Commission, pays the utility bills may overestimate and MHGF manufacturing industry by Annual 10–K Reports (Various Years), available at: http://www.sec.gov/edgar/searchedgar/ the costs actually incurred by renters. comparing changes in INPV and companysearch.htm (last accessed August 1, 2014)l. Although economic theory would domestic production employment 157 U.S. Census Bureau, Annual Survey of suggest that landlords do pass on their between the no-new-standards case and Manufacturers: General Statistics: Statistics for costs through increased rent, the extent each of the standard levels. To capture Industry Groups and Industries (2014), available at: http://factfinder.census.gov/faces/nav/jsf/pages/ and timing of such pass-through is not the uncertainty relating to manufacturer searchresults.xhtml?refresh=t. well understood, given that rental pricing strategy following amended 158 Hoovers Inc. Company Profiles, Various markets can be either rent controlled or standards, the GRIM estimates a range of Companies, available at: http://www.hoovers.com.

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capital conversion costs, and to gather result in either a higher or lower INPV parameters can be found in chapter 12 additional information on the potential for the standards cases compared to the of the SNOPR TSD. impacts of amended energy no-new-standards case. The GRIM a. Capital and Product Conversion Costs conservation standards on revenue, analysis uses a standard annual cash direct employment, capital assets, flow analysis that incorporates Amended energy conservation industry competitiveness, and manufacturer costs, manufacturer standards could cause manufacturers to manufacturer subgroup impacts. markups, shipments, and industry incur one-time conversion costs to bring In the third phase of the MIA, DOE financial information as inputs. It then their production facilities and product conducted structured, detailed models changes in costs, investments, designs into compliance. DOE evaluated interviews with NWGF and MHGF and manufacturer margins that result the level of conversion-related manufacturers. During these interviews, from new energy conservation expenditures that would be required to DOE discussed engineering, standards. The GRIM uses these inputs comply with each analyzed efficiency manufacturing, procurement, and to calculate a series of annual cash flows level in each product class. For the MIA, financial topics to validate assumptions beginning with the reference year of the DOE classified these conversion costs used in the GRIM. DOE also solicited analysis, 2016, and continuing to the into two major groups: (1) Capital information about manufacturers’ views terminal year of the analysis, 2051. DOE conversion costs; and (2) product of the industry as a whole and their key calculates INPV by summing the stream conversion costs. Capital conversion concerns regarding this rulemaking. of annual discounted cash flows costs are one-time investments in Additionally, in the third phase, DOE throughout the analysis period. property, plant, and equipment evaluated subgroups of manufacturers DOE used a real discount rate of 6.4 necessary to adapt or change existing that may be disproportionately percent for NWGF and MHGF production facilities such that new impacted by amended standards or that manufacturers. The discount rate compliant product designs can be may not be accurately represented by estimate was derived from industry fabricated and assembled. Product the average cost assumptions used to corporate annual reports to the conversion costs are one-time investments in research, development, develop the industry cash-flow analysis. Securities and Exchange Commission testing, marketing, and other non- For example, small manufacturers, (SEC 10-Ks) and then modified capitalized costs necessary to make niche players, or manufacturers according to feedback received during product designs comply with amended exhibiting a cost structure that largely manufacturer interviews. More differs from the industry average could energy conservation standards. information on the derivation of the be more negatively affected by amended To evaluate the level of capital manufacturers’ discount rate can be energy conservation standards. The conversion expenditures manufacturers found in chapter 12 of the TSD. small business subgroup is discussed in could incur to comply with amended DOE seeks comment on its use of 6.4 section VI.B, ‘‘Review under the AFUE energy conservation standards, percent as a discount rate for NWGF and Regulatory Flexibility Act’’ and in DOE used manufacturer interviews to chapter 12 of the SNOPR TSD. MHGF manufacturers (see section gather data on the anticipated level of To identify small businesses for this VII.E). capital investment that would be analysis, DOE applied the small Many GRIM inputs came from the required at each efficiency level. Based business size standards published by engineering analysis, the NIA, on this manufacturer feedback, DOE the Small Business Administration manufacturer interviews, and other developed a market-share weighted (SBA) to determine whether a company research conducted during the MIA. The average capital expenditure per is considered a small business. The size major GRIM inputs are described in manufacturer. DOE then scaled the standards are codified at 13 CFR part detail in the following sections. number to estimate total industry 121. To be categorized as a small For consideration of standby mode capital conversion costs. DOE validated business under North American and off mode regulations, DOE modeled manufacturer comments with estimates Industry Classification System (NAICS) the impacts of the technology options of capital expenditure requirements code 333415, ‘‘Air-Conditioning and for reducing electricity usage discussed derived from the product teardown Warm Air Heating Equipment and in the engineering analysis (chapter 5 of analysis and engineering analysis Commercial and Industrial Refrigeration the TSD). The GRIM analysis described in chapter 5 of the SNOPR Equipment Manufacturing,’’ a NWGF incorporates the increases in MPCs and TSD. and or MHGF manufacturer and its changes in markups into the results DOE assessed the product conversion affiliates may employ a maximum of from the standby mode and off mode costs at each considered AFUE 1,250 employees. The 1,250 employee requirements. Due to the small cost of efficiency level by integrating data from threshold includes all employees in a standby mode and off mode components quantitative and qualitative sources. business’ parent company and any relative to the overall cost of a NWGF DOE considered market-share weighted subsidiaries. Based on this or MHGF, DOE assumed that standby feedback regarding the potential costs at classification, DOE identified three mode and off mode standards alone each efficiency level from multiple NWGF and or MHGF companies that would not significantly impact product manufacturers to estimate product qualify as domestic small businesses. shipment numbers. DOE determined conversion costs. Manufacturer data was The NWGF and MHGF small that the impacts of the standby and off aggregated to better reflect the industry manufacturer subgroup is discussed in mode standard are substantially smaller as a whole and to protect confidential section VI.B of this document and in than the impacts of the AFUE standard. information. chapter 12 of the SNOPR TSD. Therefore, DOE’s analysis focused DOE calculated the conversion costs primarily on impacts of the AFUE for the standby mode and off mode 2. Government Regulatory Impact Model standard. standards separately from the AFUE Analysis and Key Inputs The GRIM results for both the AFUE conversion costs. DOE anticipated that DOE uses the GRIM to quantify the standards and the standby mode and off manufacturers would incur minimal changes in cash flows over time due to mode standards are discussed in section capital conversion costs to comply with amended energy conservation V.B.2. Additional details about the standby and off mode standards, as the standards. These changes in cash flows GRIM, discount rate, and other financial engineering analysis indicates that all

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the design options that improve standby analysis from 2016 (the reference year) markup scenario and the per-unit and off mode performance are to 2051 (the terminal year of the preservation of operating profit markup component swaps which would not analysis period). In the shipments scenario represents the lower bound. require new investments in production analysis, DOE estimates the distribution Under the preservation of gross lines. However, the standby and off of efficiencies in the no-new-standards margin percentage markup scenario, mode standards may require product case and standards cases for all product DOE applied a single uniform ‘‘gross conversion costs related to testing new classes. To account for a regional margin percentage’’ markup across all components and component standard at TSL 3, shipment values in efficiency levels, which assumes that configurations as well as one-time the GRIM are broken down by region, following amended standards, updates to marketing materials. DOE ‘‘north’’ and ‘‘rest of country,’’ for the manufacturers would be able to estimated these product conversion NWGF product classes. maintain the same amount of profit as costs based on the engineering analysis The NIA assumes that product a percentage of revenue at all efficiency and feedback collected during efficiencies in the no-new-standards levels within a product class. As manufacturer interviews. In general, case that do not meet the energy production costs increase with DOE assumed that all conversion- conservation standard in the standards efficiency, this scenario implies that the related investments occur between the case either ‘‘roll up’’ to meet the absolute dollar markup will increase as year of publication of the final rule and amended standard or switch to another well. Based on publicly-available the compliance year. The conversion product such as a heat pump or electric financial information for NWGF and cost estimates used in the GRIM can be furnace. In other words, the market MHGF manufacturers, as well as found in section V.B.2. share of products that are below the comments from manufacturer DOE seeks comment on its energy conservation standard is added interviews, DOE assumed the average methodology used to calculate capital to the market share of products at the non-production cost markup—which and product conversion costs (see minimum energy efficiency level includes SG&A expenses, R&D section VII.E). allowed under each standard case. The expenses, interest, and profit—to be For additional information on how market share of products above the 1.34 for NWGFs and 1.27 for MHGFs. DOE estimated product and capital energy conservation standard is DOE assumes that this markup scenario conversion costs, see chapter 12 of the assumed to be unaffected by the represents the upper bound of the SNOPR TSD. standard in the compliance year. For a NWGF and MHGF industry’s b. Manufacturer Production Costs complete description of the shipments profitability in the standards case analysis see section IV.G. because manufacturers are able to fully Manufacturing a higher-efficiency pass on additional costs due to d. Manufacturer Markup Scenarios product is typically more expensive standards to consumers. than manufacturing a baseline product As discussed in section IV.J.2.b, MSPs In the per-unit preservation-of- due to the use of more complex include direct manufacturing operating-profit markup scenario, as the components, which are typically more production costs (i.e., labor, materials, cost of production increases in the expensive than baseline components. and overhead estimated in DOE’s MPCs) standards case, manufacturers reduce The higher MPCs of more efficient and all non-production costs (i.e., their markups to a level that maintains products can affect revenue and gross SG&A, R&D, and interest), along with no-new-standards case operating profit. margin, which will then affect the total profit. To calculate the MSPs in the In this scenario, the industry maintains volume of future shipments, and cash GRIM, DOE applied non-production its operating profit in absolute dollars flows of NWGF and MHGF cost markups to the MPCs estimated in after the standard but not on a manufacturers. To calculate the MPCs the engineering analysis for each percentage basis, as seen in the for NWGFs and MHGFs at and above the product class and efficiency level. For preservation of gross margin markup baseline, DOE performed teardowns for the MIA, DOE modeled three standards- scenario. Manufacturer markups are set representative units. The data generated case markup scenarios to represent the so that operating profit in the standards from these analyses were then used to uncertainty regarding the potential case is the same as in the no-new- estimate the incremental materials, impacts on prices and profitability for standards case one year after the labor, depreciation, and overhead costs manufacturers following the compliance date of the amended energy for products at each efficiency level. implementation of amended energy conservation standards. As a result, These cost breakdowns and product conservation standards: (1) A manufacturers are not able to earn markups were validated and revised preservation of gross margin markup additional operating profit from the with input from manufacturers during scenario; (2) a preservation of per-unit increased production costs and the manufacturer interviews and with input operating profit markup scenario; and investments that are required to comply from NOPR and NODA written (3) a tiered markup. These scenarios with amended standards. However, comments. For a complete description lead to different markup values that, manufacturers are able to maintain the of the MPCs, see chapter 5 of the when applied to the MPCs, result in same operating profit in the standards SNOPR TSD. varying revenue and cash-flow impacts. case that was earned in the no-new- The industry cash flow analysis results standards case. Therefore, in percentage c. Shipment Scenarios in section V.B.2.a present the impacts of terms, the operating margin is reduced DOE used the GRIM to estimate the upper and lower bound markup between the no-new-standards case and industry revenues based on total unit scenarios on INPV. For the AFUE the standards cases. shipment forecasts and the distribution standards, the preservation of gross DOE also modeled a tiered markup of these values by efficiency level. margin markup scenario represents the scenario, which reflects the industry’s Changes in sales volumes and efficiency upper bound markup scenario and the ‘‘good, better, best’’ pricing structure. distribution can significantly affect tiered markup scenario represents the DOE implemented the tiered markup manufacturer finances over the course lower bound markup scenario. For the scenario because multiple of the analysis period. For this analysis, standby and off mode standards, manufacturers stated in interviews that DOE used the NIA’s annual shipment preservation of gross margin markup they offer multiple tiers of product lines forecasts derived from the shipments scenario represents the upper bound that are differentiated, in part, by

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efficiency level. Higher efficiency is one single package vertical air conditioners appropriate, these testing costs are differentiator of premium products over and heat pumps were already included accounted for as one-time expenses or the baseline product. As a result, higher in the March 2015 NOPR. 80 FR 13172. as conversion costs in the analysis of the efficiency products generally command Other energy conservation standards energy conservation standard. Thus, the a higher markup than lower efficiency requested by manufacturers were costs of test procedure rulemakings products. Several manufacturers intentionally excluded from the were captured in this SNOPR. suggested that amended standards cumulative regulatory burden analysis. Manufacturers also expressed concern would lead to a reduction in premium As outlined in appendix A to 10 CFR that DOE did not quantify the markups and reduce the profitability of part 430, subpart C, DOE considers cumulative negative INPV impacts of higher efficiency products. During ‘‘other significant product-specific rulemakings considered in the interviews, manufacturers provided regulations that will take effect within cumulative regulatory burden analysis information on the range of typical three years of the effective date of the in the March 2015 NOPR. (Goodman, efficiency levels in the ‘‘good, better, standard under consideration and will No. 0135 at p. 9; Ingersoll Rand, No. best’’ tiers. DOE used this information to affect significantly the same 0156 at pp. 9–10). Goodman provided a estimate markups for NWGFs and manufacturers.’’ (Section 10(g)(2), 10 specific list—citing the Small, Large, MHGFs under a tiered pricing strategy CFR part 430, subpart C, appendix A.) and Very Large Commercial Package Air in the no-new-standards case. In the At the time of the residential furnaces Conditioners and Heating Equipment,159 standards cases, DOE modeled the NOPR publication, the compliance years Furnace Fans,160 Packaged Terminal Air situation in which amended standards of energy conservation standards for Conditioners and Heat Pumps,161 and result in a reduction of product package terminal air conditioners and Commercial Warm Air Furnaces 162 differentiation, compression of the heat pumps (2017), commercial energy conservation standards as markup tiers, and an overall reduction refrigeration equipment (2017), electric examples of rulemakings that have in profitability. motors (2016), and walk-in coolers and significant projected changes in INPV. freezers (2017) fell outside of the 2018 For this SNOPR, DOE estimates that the 3. Discussion of Comments to 2024 cumulative regulatory burden potential net INPV impacts of these During the NOPR public meeting, window, based on the proposed rule’s rules range from a decrease of $530.2 interested parties commented on the 2021 compliance year. For the SNOPR, million to an increase of $38.6 million, assumptions and results of the NOPR the cumulative regulatory burden or a decrease of 24.7 percent to an analysis. Interested parties also window has changed, now ranging from increase of 1.8 percent. DOE notes that submitted written comments addressing 2019 to 2025 based on this SNOPR’s these manufacturer impacts are several topics including markup proposed 2022 compliance year. As a balanced by net consumer benefit scenarios, alternative heating products, result, compliance with regulations for projections of $25 billion using a 7- direct employment impacts, lessening of residential air conditioners and heat percent discount rate and $78 billion competition, cumulative regulatory pumps has been added to the using a 3-percent discount rate as well burden, compliance date of amended cumulative regulatory burden list for as net projected carbon dioxide standards, regulatory flexibility this SNOPR. The compliance dates for emission reductions of 1,075.6 million analysis, and the impacts of the 2014 package terminal air conditioners and metric tons. furnace fan final rule on the GRIM. heat pumps, commercial refrigeration equipment, electric motors, and walk-in c. Impacts of the July 2014 Furnace Fan a. Direct Employment Impacts coolers and freezers still fall outside of Final Rule on GRIM Lennox and Metal-Fab commented the 2019 to 2025 cumulative regulatory In its comments, AHRI asserted that that DOE should factor the lower bound burden window and are not included in DOE underestimated in the March 2015 of employment impacts into the this cumulative regulatory burden NOPR the adverse impact on economic justification of the standard analysis. Similarly, the regional manufacturers in its modeling of the (Lennox, No. 0125 at p. 11; Metal-Fab, standards enforcement rulemaking has a GRIM. AHRI suggested DOE was not No. 0192 at pp. 1–2). DOE considered 2016 compliance year and falls outside fully recognizing the impacts of the the entire range of potential of the scope of this rule’s cumulative overlap between the furnace fan and employment impacts, including the regulatory burden time frame. NWGF and MHGF rules. In particular, lower bound, for this SNOPR. The Additionally, the rulemakings for AHRI expressed concern about the Department analyzed direct commercial and industrial fans and decline in free cash flow due to the employment impacts in section V.B.2.b blowers and regional standards successive redesigns associated with the of both the 2015 March NOPR and this enforcement were in preliminary stages 2014 furnace fan final rule and NWGF SNOPR. at the time of the residential furnaces and MHGF rule. (AHRI, No. 0159 at pp. NOPR publication. There was b. Cumulative Regulatory Burden 66–67) insufficient information to determine For this SNOPR, DOE considered the Lennox, Goodman, and Rheem the effective dates and potential July 2014 furnace fan final rule in its provided a list of rulemakings that they cumulative regulatory impact of these NWGF and MHGF analysis. It was requested be incorporated into DOE’s rules. For this SNOPR, DOE has explicitly noted in the conclusion cumulative regulatory burden analysis. included the commercial and industrial section of V.C of the March 2015 NOPR (Lennox, No. 125 at p. 5, 13–14) fans and blowers rulemaking in the list that DOE factored the cumulative (Goodman, No. 0135 at pp. 8–9) (Rheem, of regulations that could present impacts of the furnace fan final rule in No. 142 at p. 13). cumulative regulatory burden in section its selection of a proposed standard Of the rulemakings these V.B.2.e. level. 80 FR 13119, 13176 (March 12, manufacturers requested DOE include DOE recognizes that changes to test 2015). in the cumulative regulatory burden procedures can result in increases in analysis, the energy conservation certification costs above typical annual 159 81 FR 2420 (Jan. 15, 2016). standards for commercial warm-air spending due to the need to re-certify 160 79 FR 38129 (July 3, 2014). furnaces, furnace fans, commercial air large numbers of basic models within a 161 80 FR 43162 (July 21, 2015). conditioners and heat pumps, and limited period of time. When 162 81 FR 2420 (Jan. 15, 2016).

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In the March 2015 NOPR, the proposed rule; and provide an analysis emissions (direct leakage to the modeling of the GRIM incorporated of alternatives that would reduce the atmosphere) of CH4 and CO2. changes in variable costs for the furnace burden of regulation on small entities. AGL Resources stated that DOE fan. Changes to the variable costs from In this SNOPR, DOE also presents a overestimated the upstream benefits of the furnace fan standard are reflected as revised IRFA to reflect the standards the proposed rule by using much higher changes to manufacturer production proposed in this SNOPR with additional fugitive methane emissions values than cost in the NWGF and MHGF GRIM. discussion of significant alternatives are typically used in Federal estimates. Manufacturer production costs in the and includes discussion of possible AGL Resources stated that EPA’s 2013 GRIM increase in 2019 to reflect the exclusion criteria for certain small U.S. Greenhouse Gas Inventory and implementation of the 2014 furnace fan businesses. The complete IRFA recent research by NOAA and the final rule. Changes to the fixed costs discussion is provided in section VI.B of University of Colorado Boulder report from the 2014 furnace fan final rule this notice. methane leakage rates of around 1 were found in the CRB review, in AHRI also noted an inconsistency in percent. (AGL Resources, No. 0039 at section V.B.2 of the NOPR. In this the number of small businesses p. 3; AGL Resources, No. 0112 at p. 6) SNOPR, DOE integrated both the identified by DOE in the March 2015 In response, DOE uses an estimate of variable cost impacts and fixed cost NOPR. 80 FR 13119, 13172 (March 12, upstream emissions of methane based impacts of the 2014 furnace fan final 2015). AHRI went on to comment that on Burnham et al. (2012) 164 which, if it rule into the GRIM. The SNOPR GRIM small businesses may account for more were translated to a leakage rate, would incorporates an adjustment to the MPCs than 30-percent of the market if the be equivalent to 1.3 percent, close to the (variable cost impacts) in the standard number of small businesses identified is value cited by AGL Resources. Actual year of the 2014 furnace fan final rule, actually five instead of four (AHRI, No. leakage rates of methane at various 2019, to reflect the changes in furnace 0159 at p. 7). DOE acknowledges the stages of the production process are fan selection. The SNOPR GRIM also inconsistency in the NOPR notice and highly variable and the subject of includes the conversion costs from the has corrected the inconsistency in this ongoing research. DOE reviews and non-weatherized, non-condensing gas SNOPR. DOE confirms that it has updates the FFC factors annually, and as furnace fans; non-weatherized, identified five small NWGF and or part of this review, data such as condensing gas furnace fans; MHGF manufacturers, three of which methane leakage rates are updated manufactured home non-weatherized, are domestic manufacturers. according to the current scientific non-condensing gas furnace fans; and consensus. manufactured home non-weatherized, K. Emissions Analysis APPA and EEI stated that DOE only condensing gas furnace product classes The emissions analysis consists of considered the upstream emissions due from the 2014 furnace fan final rule. two components. The first component to electricity generation, ignoring the Those conversion costs (fixed cost estimates the effect of potential energy upstream emissions due to the impacts) total $24.4 million between the conservation standards on power sector production of natural gas, propane, or years 2016 and 2019. Those furnace fan and site (where applicable) combustion fuel oil. (APPA, No. 0149 at p. 4; EEI, conversion costs are in addition the emissions of CO2, NOX, SO2, and Hg. No. 0160 at pp. 8–9; EEI, No. 0179 at pp. today’s proposed rule’s conversion The second component estimates the 2–3) Contrary to what these commenters costs, which total $54.7 million between impacts of potential standards on contend, DOE did calculate the the years 2018 and 2022. By emissions of two additional greenhouse upstream emissions for natural gas, incorporating the variable and fixed cost gases, CH4 and N2O, as well as the LPG, and fuel oil, which includes the impacts of the 2014 furnace fan final reductions to emissions of all species upstream emissions from fuel rule, the SNOPR GRIM models the due to ‘‘upstream’’ activities in the fuel production. The methodology is further impact of amended MWGF and MHGF production chain. These upstream explained in chapter 13 of the SNOPR standards while taking into account the activities comprise extraction, TSD. cash flow impacts of the 2014 furnace processing, and transporting fuels to the The emissions intensity factors are fan final rule on the NWGF and MHGF site of combustion. The associated expressed in terms of physical units per industry. emissions are referred to as upstream MWh or MMBtu of site energy savings. Total emissions reductions (or d. Regulatory Flexibility Analysis emissions. For this SNOPR, the analysis of power increases) are estimated using the In its comments on the March 2015 sector emissions uses marginal energy savings (or the increase in NOPR, Mortex stated that DOE did not emissions factors that were derived from electricity use) calculated in the prepare a regulatory flexibility analysis data in AEO 2015. The methodology is national impact analysis. Because (Mortex, No. 0157 at p. 4). AHRI and described in chapter 13 and chapter 15 product switching is accounted for in HARDI both were critical of the of the SNOPR TSD. the NIA, the emissions analysis discussion of the regulatory flexibility accounts for the impacts of product Combustion emissions of CH4 and analysis provided in the March 2015 N O are estimated using emissions switching on emissions. 2 For CH and N O, DOE calculated NOPR (AHRI, No. 0159 at p. 8; HARDI, intensity factors published by the EPA: 4 2 emissions reduction in tons and also in No. 0131 at p. 2). HARDI’s comments GHG Emissions Factors Hub.163 The terms of units of carbon dioxide were generic in nature and FFC upstream emissions are estimated equivalent (CO eq). Gases are converted characterized the NOPR Regulatory based on the methodology described in 2 to CO eq by multiplying each ton of gas Flexibility Analysis as ‘‘very brief’’ but chapter 13 of the SNOPR TSD. The 2 by the gas’s global warming potential offered no additional data for analysis. upstream emissions include both AHRI cited select requirements of the (GWP) over a 100-year time horizon. emissions from fuel combustion during Based on the Fifth Assessment Report of Regulatory Flexibility Act, including the extraction, processing, and requirements for DOE to describe the transportation of fuel, and ‘‘fugitive’’ small entities to which the proposed 164 Burnham, A., J. Han, C.E. Clark, M. Wang, J.B. rule will apply; describe the projected Dunn, and I. Palou-Rivera. 2012. ‘‘Life-Cycle 163 Available at www.epa.gov/climateleadership/ Greenhouse Gas Emissions of Shale Gas, Natural reporting, recordkeeping and other center-corporate-climate-leadership-ghg-emission- Gas, Coal, and Petroleum.’’ Environmental Science compliance requirements of the factors-hub. & Technology 46 (2): 619–27.

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the Intergovernmental Panel on Climate 25162 (May 12, 2005). CAIR created an SO2 emissions by any regulated EGU. In Change,165 DOE used GWP values of 28 allowance-based trading program that past rulemakings, DOE recognized that for CH4 and 265 for N2O. operates along with the Title IV there was uncertainty about the effects Because the on-site operation of program. In 2008, CAIR was remanded of efficiency standards on SO2 NWGFs and MHGFs requires to EPA by the U.S. Court of Appeals for emissions covered by the existing cap- combustion of fossil fuels and results in the District of Columbia Circuit, but it and-trade system, but it concluded that emissions of CO2, NOX, and SO2 at the remained in effect.168 In 2011, EPA negligible reductions in power sector sites where these appliances are used, issued a replacement for CAIR, the SO2 emissions would occur as a result DOE also accounted for the reduction in Cross-State Air Pollution Rule (CSAPR). of standards. these site emissions and the associated 76 FR 48208 (August 8, 2011). On Beginning in 2016, however, SO2 upstream emissions due to potential August 21, 2012, the D.C. Circuit issued emissions will fall as a result of the standards. Site emissions of these gases a decision to vacate CSAPR,169 and the Mercury and Air Toxics Standards were estimated using emissions court ordered EPA to continue (MATS) for power plants.173 77 FR 9304 intensity factors from an EPA administering CAIR. On April 29, 2014, (Feb. 16, 2012). In the MATS final rule, publication.166 the U.S. Supreme Court reversed the EPA established a standard for hydrogen Rheem commented that low-NOX judgment of the D.C. Circuit and chloride as a surrogate for acid gas furnace designs have been available for remanded the case for further hazardous air pollutants (HAP), and also more than 25 years. As a result, Rheem proceedings consistent with the established a standard for SO2 (a non- argued that DOE should include the Supreme Court’s opinion.170 On July 28, HAP acid gas) as an alternative sales of low-NOX furnaces in the 2015, the D.C. Circuit issued its opinion equivalent surrogate standard for acid emissions analysis, and emission regarding CSAPR on remand from the gas HAP. The same controls are used to savings should be reduced Supreme Court. The court largely reduce HAP and non-HAP acid gas; proportionally. (Rheem, No. 0142 at p. upheld CSAPR, but remanded to EPA thus, SO2 emissions will be reduced as 13) For the SNOPR, DOE accounted for without vacatur certain States’ emission a result of the control technologies 171 low-NOX furnaces. For the fraction of budgets for reconsideration. On installed on coal-fired power plants to the market projected to install October 23, 2014, the D.C. Circuit lifted comply with the MATS requirements 172 residential furnaces with low-NOX the stay of CSAPR. Pursuant to this for acid gas. AEO 2015 assumes that, in burners, DOE used a lower, technology action, CSAPR went into effect (and order to continue operating, coal plants specific emission factor.167 CAIR ceased to be in effect) as of must have either flue gas The AEO incorporates the projected January 1, 2015. desulfurization or dry sorbent injection impacts of existing air quality EIA was not able to incorporate systems installed by 2016. Both regulations on emissions. AEO 2015 CSAPR into AEO 2015, so it assumes technologies, which are used to reduce implementation of CAIR. Although generally represents current legislation acid gas emissions, also reduce SO2 and environmental regulations, DOE’s analysis used emissions factors emissions. Under the MATS, emissions including recent government actions, for that assume that CAIR, not CSAPR, is will be far below the cap established by the regulation in force, the difference which implementing regulations were CAIR, so it is unlikely that excess SO2 available as of October 31, 2014. DOE’s between CAIR and CSAPR is not emissions allowances resulting from the estimation of impacts accounts for the significant for the purpose of DOE’s lower electricity demand would be presence of the emissions control analysis of emissions impacts from needed or used to permit offsetting energy conservation standards and does programs discussed in the following increases in SO2 emissions by any paragraphs. not affect the outcome of the cost- regulated EGU. Therefore, DOE believes SO2 emissions from affected electric benefit analysis. The attainment of that energy conservation standards that generating units (EGUs) are subject to emissions caps is typically flexible decrease electricity generation will nationwide and regional emissions cap- among EGUs and is enforced through generally reduce SO2 emissions in 2016 and-trade programs. Title IV of the the use of emissions allowances and and beyond. Clean Air Act sets an annual emissions tradable permits. Under existing EPA CAIR established a cap on NOX cap on SO2 for affected EGUs in the 48 regulations, any excess SO2 emissions emissions in 28 eastern States and the contiguous States and the District of allowances resulting from the lower Columbia (DC). (42 U.S.C. 7651 et seq.) electricity demand caused by the 173 DOE notes that on June 29, 2015, the U.S. SO2 emissions from 28 eastern States adoption of an efficiency standard could Supreme Court ruled that the EPA erred when the and DC were also limited under the be used to permit offsetting increases in agency concluded that cost did not need to be Clean Air Interstate Rule (CAIR). 70 FR considered in the finding that regulation of hazardous air pollutants from coal- and oil-fired 168 See North Carolina v. EPA, 550 F.3d 1176 electric utility steam generating units (EGUs) is 165 (D.C. Cir. 2008); North Carolina v. EPA, 531 F.3d IPCC (2013), Climate Change 2013: The appropriate and necessary under section 112 of the 896 (D.C. Cir. 2008). Physical Science Basis. Contribution of Working Clean Air Act (CAA). Michigan v. EPA, 135 S. Ct. 169 Group I to the Fifth Assessment Report of the See EME Homer City Generation, LP v. EPA, 2699 (2015). The Supreme Court did not vacate the Intergovernmental Panel on Climate Change, 696 F.3d 7, 38 (D.C. Cir. 2012), cert. granted, 81 MATS rule, and DOE has tentatively determined Stocker, T.F., D. Qin, G.-K. Plattner, M. Tignor, S.K. U.S.L.W. 3567, 81 U.S.L.W. 3696, 81 U.S.L.W. 3702 that the Court’s decision on the MATS rule does not Allen, J. Boschung, A. Nauels, Y. Xia, V. Bex and (U.S. June 24, 2013) (No. 12–1182). change the assumptions regarding the impact of 170 P.M. Midgley (eds.), Cambridge University Press, See EPA v. EME Homer City Generation, 134 energy conservation standards on SO2 emissions. Cambridge, United Kingdom and New York, NY, S. Ct. 1584, 1610 (U.S. 2014). The Supreme Court Further, the Court’s decision does not change the USA. Chapter 8. held in part that EPA’s methodology for quantifying impact of the energy conservation standards on 166 U.S. Environmental Protection Agency, emissions that must be eliminated in certain States mercury emissions. The EPA, in response to the Compilation of Air Pollutant Emission Factors, AP– due to their impacts in other downwind States was U.S. Supreme Court’s direction, has now 42, Fifth Edition, Volume I: Stationary Point and based on a permissible, workable, and equitable considered cost in evaluating whether it is Area Sources (Chapter 1) (Available at interpretation of the Clean Air Act provision that appropriate and necessary to regulate coal- and oil- www.epa.gov/ttn/chief/ap42/index.html). provides statutory authority for CSAPR. fired EGUs under the CAA. EPA concluded that a 167 Environmental Protection Agency, Emission 171 EME Homer City Generation, LP v. EPA, 795 consideration of cost does not alter the EPA’s Factor Details (Available at: https://cfpub.epa.gov/ F.3d 118 (D.C. Cir. 2015). previous determination that regulation of hazardous webfire/ 172 See EME Homer City Generation, LP v. EPA, air pollutants, including mercury, from coal- and index.cfm?action=fire.showfactor&factorid=25416) Order (D.C. Cir. filed October 23, 2014) (No. 11– oil-fired EGUs is appropriate and necessary. 79 FR (Last accessed April 10, 2016). 1302). 24420 (April 25, 2016).

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174 District of Columbia. Energy In response, DOE notes that AEO 2015 CO2 and NOX that are expected to result conservation standards are expected to incorporates the MATS rule, but not the from each of the TSLs considered. To have little effect on NOX emissions in Clean Power Plan, which was issued make this calculation analogous to the those States covered by CAIR because well after AEO 2015 was finalized. At calculation of the NPV of consumer excess NOX emissions allowances the time the SNOPR analysis was benefit, DOE considered the reduced resulting from the lower electricity conducted, AEO 2015 was the only emissions expected to result over the demand could be used to permit source that provides a comprehensive lifetime of products shipped in the offsetting increases in NOX emissions projection of emissions that allows forecast period for each TSL. This from other facilities. However, derivation of marginal emissions factors. section summarizes the basis for the standards would be expected to impact DOE acknowledges that if the Clean monetary values used for CO2 and NOX NOX emissions in the States not affected Power Plan is fully implemented emissions and presents the values by the caps, so DOE estimated NOX following the court challenges, considered in this SNOPR. emissions impacts from the standards projected emissions of CO2 would be For this SNOPR, DOE is relying on a considered in this SNOPR for these below those projected in AEO 2015. In set of values for the social cost of carbon States. the context of the current rulemaking, (SCC) that was developed by an The MATS limit mercury emissions however, accounting for the Clean interagency process. A summary of the from power plants, but they do not Power Plan is of only slight relevance basis for those values is provided in the include emissions caps, and as such, because DOE is not projecting any following subsection, and a more DOE’s energy conservation standards reduction in electricity generation to detailed description of the would likely impact Hg emissions. DOE result from the proposed standards. methodologies used is provided in estimated mercury emissions impacts DOE intends to use AEO 2016, which is appendices 14A and 14B of the SNOPR using emissions factors based on AEO expected to incorporate the Clean Power TSD. 2015, which incorporates the MATS. Plan, for the final rule. 1. Social Cost of Carbon EEI stated that because the AEO only EEI questioned DOE’s conclusion that addresses final environmental some emissions will increase due to The SCC is an estimate of the standards, it often makes predictions higher electricity use. EEI stated that monetized damages associated with an about the future composition of the based on current trends in power plant incremental increase in carbon electric generating fleet and the related retirements, additions of new zero- emissions in a given year. It is intended emissions that are unlikely to be borne emission electricity generation, and to include (but is not limited to) out by actual experience. EEI reductions in the use of electricity in climate-change-related changes in net agricultural productivity, human health, commented that the EPA MATS rule nearly all end-use applications, property damages from increased flood and the Clean Power Plan are estimated emissions from electric generation will risk, and the value of ecosystem to significantly reduce coal-based decrease, not increase. (EEI, No. 0160 at services. Estimates of the SCC are electricity generation, thus reducing pp. 8–9; EEI, No. 0179 at pp. 2–3) In provided in dollars per metric ton of emissions from the power sector after response, it may be true that on a CO . A domestic SCC value is meant to 2020. (EEI, No. 0160, pp. 4–5, 8; EEI, national level, emissions from 2 reflect the value of damages in the No. 0179 at pp. 2–3) EEI stated that electricity generation will decrease. The United States resulting from a unit because of the Clean Power Plan, there AEO 2015 projections include changes change in CO emissions, while a global will be no physical reduction of in the composition and emissions 2 SCC value is meant to reflect the value greenhouse gas emissions from electric intensity of power plants across the generation as a result of energy of damages worldwide. Nation. The analysis for this rulemaking Under section 1(b)(6) of Executive conservation standards, as DOE has considers only the change in emissions Order 12866, ‘‘Regulatory Planning and stated with other emissions that have due to amended or new furnace energy Review,’’ 58 FR 51735 (Oct. 4, 1993), upstream mass-based caps or cap-and- conservation standards, as compared to agencies must, to the extent permitted trade systems. (EEI, No. 0189–1 at p. 1) 176 the AEO 2015 projections. by law, assess both the costs and the Because AEO 2015 does not account for benefits of the intended regulation and, the Clean Power Plan, EEI requested L. Monetizing Carbon Dioxide and Other recognizing that some costs and benefits that DOE consider information found in Emissions Impacts are difficult to quantify, propose or a recent EPRI/NRDC report that As part of the development of this adopt a regulation only upon a reasoned provides updated modeling information supplemental proposed rule, DOE determination that the benefits of the reflecting the current and future electric considered the estimated monetary intended regulation justify its costs. The grid, which incorporates the rapid benefits from the reduced emissions of purpose of the SCC estimates presented decreases in CO SO , and NO 2, 2 X here is to allow agencies to incorporate emissions occurring as a result of Greenhouse Gas Emissions (Sept. 17, 2015) (EPRI/ the monetized social benefits of various Federal and State policies.175 NRDC Vol. 2) (Available at: www.epri.com/ abstracts/Pages/ProductAbstract.aspx?productId= reducing CO emissions into cost- (EEI, No. 0179 at pp. 2–3) 2 00000000302006876); see also, EPRI/NRDC, benefit analyses of regulatory actions. Environmental Assessment of a Full Electric 174 The estimates are presented with an CSAPR also applies to NOX and it supersedes Transportation Portfolio, Volume 3: Air Quality the regulation of NOX under CAIR. As stated Impacts (Sept. 17, 2015) (EPRI/NRDC Vol. 3) acknowledgement of the many previously, the current analysis assumes that CAIR, (Available at: www.epri.com/abstracts/Pages/ uncertainties involved and with a clear not CSAPR, is the regulation in force. The ProductAbstract.aspx?productId= understanding that they should be difference between CAIR and CSAPR with regard to 00000000302006880). 176 updated over time to reflect increasing DOE’s analysis of NOX emissions is slight. Under the Clean Power Plan, emissions of CO2 175 EPRI/NRDC, Environmental Assessment of a electricity generation would be significantly knowledge of the science and Full Electric Transportation Portfolio, Volume 1: reduced. If the Clean Power Plan is accounted for, economics of climate impacts. Background, Methodology, and Best Practices (Sept. DOE expects that the increase in emissions from As part of the interagency process that 17, 2015) (EPRI/NRDC Vol. 1) (Available at: electricity generation that is projected to result from developed these SCC estimates, www.epri.com/abstracts/Pages/Product the proposed standards (due to fuel switching) Abstract.aspx?productId=00000000302006875); see would be less than projected for this SNOPR. DOE technical experts from numerous also, EPRI/NRDC, Environmental Assessment of a intends to use AEO 2016, which is expected to agencies met on a regular basis to Full Electric Transportation Portfolio, Volume 2: incorporate the Clean Power Plan, for the final rule. consider public comments, explore the

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technical literature in relevant fields, It is important to emphasize that the Intergovernmental Panel on Climate and discuss key model inputs and current SCC values reflect the Change (IPCC). Each model was given assumptions. The main objective of this interagency group’s best assessment, equal weight in the SCC values that process was to develop a range of SCC based on current data, of the societal were developed. values using a defensible set of input effect of CO2 emissions. The interagency Each model takes a slightly different assumptions grounded in the existing process is committed to updating these approach to model how changes in scientific and economic literatures. In estimates as the science and economic emissions result in changes in economic this way, key uncertainties and model understanding of climate change and its damages. A key objective of the differences transparently and impacts on society improves over time. interagency process was to enable a consistently inform the range of SCC In the meantime, the interagency group consistent exploration of the three estimates used in the rulemaking will continue to explore the issues models, while respecting the different process. raised by this analysis and consider approaches to quantifying damages a. Monetizing Carbon Dioxide Emissions public comments as part of the ongoing taken by the key modelers in the field. interagency process. An extensive review of the literature When attempting to assess the was conducted to select three sets of b. Development of Social Cost of Carbon incremental economic impacts of CO2 input parameters for these models: Values emissions, the analyst faces a number of Climate sensitivity, socio-economic and challenges. A report from the National In 2009, an interagency process was emissions trajectories, and discount Research Council points out that any initiated to offer a preliminary rates. A probability distribution for assessment will suffer from uncertainty, assessment of how best to quantify the climate sensitivity was specified as an speculation, and lack of information benefits from reducing carbon dioxide input into all three models. In addition, about: (1) Future emissions of GHGs; (2) emissions. To ensure consistency in the interagency group used a range of the effects of past and future emissions how benefits are evaluated across scenarios for the socio-economic on the climate system; (3) the impact of Federal agencies, the Administration parameters and a range of values for the changes in climate on the physical and sought to develop a transparent and discount rate. All other model features biological environment; and (4) the defensible method, specifically were left unchanged, relying on the translation of these environmental designed for the rulemaking process, to model developers’ best estimates and 177 impacts into economic damages. As a quantify avoided climate change judgments. result, any effort to quantify and damages from reduced CO2 emissions. In 2010, the interagency group monetize the harms associated with The interagency group did not selected four sets of SCC values for use climate change will raise questions of undertake any original analysis. Instead, in regulatory analyses. Three sets of science, economics, and ethics and it combined SCC estimates from the values are based on the average SCC should be viewed as provisional. existing literature to use as interim from the three integrated assessment Despite the limits of both values until a more comprehensive models, at discount rates of 2.5 percent, quantification and monetization, SCC analysis could be conducted. The 3 percent, and 5 percent. The fourth set, estimates can be useful in estimating the outcome of the preliminary assessment which represents the 95th-percentile social benefits of reducing CO2 by the interagency group was a set of SCC estimate across all three models at emissions. Although any numerical five interim values: Global SCC a 3-percent discount rate, was included estimate of the benefits of reducing estimates for 2007 (in 2006$) of $55, to represent higher-than-expected carbon dioxide emissions is subject to $33, $19, $10, and $5 per metric ton of impacts from climate change further out some uncertainty, that does not relieve CO2. These interim values represented in the tails of the SCC distribution. The DOE of its obligation to attempt to factor the first sustained interagency effort values grow in real terms over time. those benefits into its cost-benefit within the U.S. government to develop Additionally, the interagency group analysis. Moreover, the interagency an SCC estimate for use in regulatory determined that a range of values from group’s SCC estimates are well analysis. The results of this preliminary 7 percent to 23 percent should be used supported by the existing scientific and effort were presented in several to adjust the global SCC to calculate economic literature. As a result, DOE proposed and final rules issued by DOE domestic effects,178 although preference has relied on the interagency group’s and other agencies. is given to consideration of the global SCC estimates in quantifying the social benefits of reducing CO emissions. c. Current Approach and Key 2 benefits of reducing CO2 emissions. Table IV.20 presents the values in the Assumptions Specifically, DOE estimated the benefits 2010 interagency group report,179 which from reduced (or costs from increased) After the release of the interim values, is reproduced in appendix 14A of the emissions in any future year by the interagency group reconvened on a SNOPR TSD. multiplying the change in emissions in regular basis to generate improved SCC that year by the SCC values appropriate estimates. Specially, the group 178 It is recognized that this calculation for for that year. The NPV of the benefits considered public comments and domestic values is approximate, provisional, and can then be calculated by multiplying further explored the technical literature highly speculative. There is no a priori reason why domestic benefits should be a constant fraction of each of these future benefits by an in relevant fields. The interagency group appropriate discount factor and net global damages over time. relied on three integrated assessment 179 Social Cost of Carbon for Regulatory Impact summing across all affected years. models commonly used to estimate the Analysis Under Executive Order 12866, Interagency SCC: The FUND, DICE, and PAGE Working Group on Social Cost of Carbon, United 177 National Research Council, Hidden Costs of States Government (February 2010) (Available at: Energy: Unpriced Consequences of Energy models. These models are frequently www.whitehouse.gov/sites/default/files/omb/ Production and Use, National Academies Press: cited in the peer-reviewed literature and inforeg/for-agencies/Social-Cost-of-Carbon-for- Washington, DC (2009). were used in the last assessment of the RIA.pdf).

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TABLE IV.20—ANNUAL SCC VALUES FROM 2010 INTERAGENCY REPORT, 2010–2050

[2007$ per metric ton CO2]

Discount rate Year 5% 3% 2.5% 3% Average Average Average 95th percentile

2010 ...... 4.7 21.4 35.1 64.9 2015 ...... 5.7 23.8 38.4 72.8 2020 ...... 6.8 26.3 41.7 80.7 2025 ...... 8.2 29.6 45.9 90.4 2030 ...... 9.7 32.8 50.0 100.0 2035 ...... 11.2 36.0 54.2 109.7 2040 ...... 12.7 39.2 58.4 119.3 2045 ...... 14.2 42.1 61.7 127.8 2050 ...... 15.7 44.9 65.0 136.2

The SCC values used for this SNOPR from the latest interagency update (i.e., SCC across models at the 3-percent were generated using the most recent the 2013 update, as revised in July 2015) discount rate. However, for purposes of versions of the three integrated in 5-year increments from 2010 to 2050. capturing the uncertainties involved in assessment models that have been The full set of annual SCC values regulatory impact analysis, the published in the peer-reviewed between 2010 and 2050 is reported in interagency group emphasizes the literature, as described in the 2013 the 2013 interagency update (as revised importance of including all four sets of update from the interagency working in July 2015), which is reproduced in SCC values. group (revised July 2015).180 Table IV.21 appendix 14B of the SNOPR TSD. The shows the updated sets of SCC estimates central value that emerges is the average

TABLE IV.21—ANNUAL SCC VALUES FROM 2013 INTERAGENCY UPDATE (REVISED JULY 2015), 2010–2050

[2007$ per metric ton CO2]

Discount rate Year 5% 3% 2.5% 3% Average Average Average 95th percentile

2010 ...... 10 31 50 86 2015 ...... 11 36 56 105 2020 ...... 12 42 62 123 2025 ...... 14 46 68 138 2030 ...... 16 50 73 152 2035 ...... 18 55 78 168 2040 ...... 21 60 84 183 2045 ...... 23 64 89 197 2050 ...... 26 69 95 212

It is important to recognize that a effects. There are a number of analytical values from the 2013 interagency report number of key uncertainties remain, and challenges that are being addressed by (revised July 2015), adjusted to 2015$ that current SCC estimates should be the research community, including using the implicit price deflator for treated as provisional and revisable research programs housed in many of gross domestic product (GDP) from the because they will evolve with improved the Federal agencies participating in the Bureau of Economic Analysis. For each scientific and economic understanding. interagency process to estimate the SCC. of the four sets of SCC cases specified, The interagency group also recognizes The interagency group intends to the values for emissions in 2015 were that the existing models are imperfect periodically review and reconsider $12.4, $40.6, $63.2, and $118 per metric and incomplete. The National Research those estimates to reflect increasing ton avoided (values expressed in Council report mentioned previously knowledge of the science and 2015$). DOE derived values after 2050 points out that there is tension between economics of climate impacts, as well as based on the trend in 2010–2050 in each the goal of producing quantified improvements in modeling.181 of the four cases in the interagency estimates of the economic damages from In summary, in considering the update. an incremental ton of carbon and the potential global benefits resulting from DOE multiplied the CO2 emissions limits of existing efforts to model these reduced CO2 emissions, DOE used the reduction estimated for each year by the

180 Technical Update of the Social Cost of Carbon www.whitehouse.gov/sites/default/files/omb/ have been developed over many years, and with for Regulatory Impact Analysis Under Executive inforeg/scc-tsd-final-july-2015.pdf). input from the public. In November 2013, OMB Order 12866, Interagency Working Group on Social 181 Although uncertainties remain, the revised announced a new opportunity for public comment Cost of Carbon, United States Government (May estimates used for this SNOPR are based on the best on the interagency technical support document 2013; revised July 2015) (Available at: available scientific information on the impacts of underlying the revised SCC estimates. 78 FR 70586 climate change. The current estimates of the SCC (Nov. 26, 2013).

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SCC value for that year in each of the SCC estimate, regulators would by sensitivity, as well as other model four cases. To calculate a present value default be using a value of zero for the inputs such as economic growth and of the stream of monetary values, DOE benefits of reducing carbon pollution, emissions trajectories, are discussed and discounted the values in each of the thereby implying that carbon pollution the reasons for the specific input four cases using the specific discount has no costs. The Joint Advocates stated assumptions chosen are explained. rate that had been used to obtain the that it would be arbitrary for a Federal However, the three integrated SCC values in each case. agency to weigh the societal benefits assessment models used to estimate the DOE received several comments on and costs of a rule with significant SCC are frequently cited in the peer- the development of and the use of the carbon pollution effects but to assign no reviewed literature and were used in the SCC values in the March 2015 NOPR value at all to the considerable benefits last assessment of the IPCC. In addition, and the September 2015 NODA of reducing carbon pollution. (Joint new versions of the models that were analyses. A group of trade associations Advocates, No. 0126 at p. 3) used in 2013 to estimate revised SCC led by the U.S. Chamber of Commerce The Joint Advocates stated that values were published in the peer- objected to DOE’s continued use of the assessment and use of the IAMs in reviewed literature (see appendix 14B of SCC in the cost-benefit analysis and developing the SCC values has been the SNOPR TSD for discussion). stated that the SCC calculation should transparent. The Joint Advocates further Although uncertainties remain, the not be used in any rulemaking until it noted that the Government revised estimates that were issued in undergoes a more rigorous notice, Accountability Office (GAO) found that November 2013 are based on the best review, and comment process. (U.S. the IWG’s processes and methods used available scientific information on the Chamber of Commerce, No. 0078 at p. consensus-based decision making, impacts of climate change. The current 41) AHRI stated that the interagency relied on existing academic literature estimates of the SCC have been process was not transparent and that the and models, and took steps to disclose developed over many years, using the estimates were not subjected to peer limitations and incorporate new best science available, and with input review. (AHRI, No. 0159 at p. 24) AHRI information. The Joint Advocates stated from the public. DOE notes that not and the Cato Institute criticized DOE’s that repeated opportunities for public using SCC estimates because of use of SCC estimates on the basis that comment demonstrate that the IWG’s uncertainty would be tantamount to they are subject to considerable SCC estimates were developed and are assuming that the benefits of reduced uncertainty. AHRI also stated that the being used transparently. (Joint carbon emissions are zero, which is interagency SCC analysis relied on Advocates, No. 0126 at p. 4) The Joint inappropriate. Furthermore, the arbitrary damages functions. The Cato Advocates stated that (1) the IAMs used commenters have not offered alternative Institute criticized several aspects of the reflect the best available, peer-reviewed estimates of the SCC that they believe determination of the SCC values by the science to quantify the benefits of are more accurate. IWG as being discordant with the best carbon emission reductions; (2) As noted previously, in November climate science, highly sensitive to uncertainty is not a valid reason for 2013, OMB announced a new input parameters and scope of the rejecting the SCC analysis, and (3) the opportunity for public comment on the models, and not reflective of climate IWG was rigorous in addressing interagency technical support document change impacts. The Cato Institute uncertainty inherent in estimating the underlying the revised SCC estimates. stated that until the integrated economic cost of pollution. (Joint 78 FR 70586 (Nov. 26, 2013). In July assessment models (IAMs) are made Advocates, No. 0126 at pp. 5, 17–18, 2015, OMB published a detailed consistent with mainstream climate 18–19) The Joint Advocates added that summary and formal response to the science, the SCC should be barred from the increase in the SCC estimate in the many comments that were received. use in this and all other Federal 2013 update reflects the growing DOE stands ready to work with OMB rulemakings. (AHRI, No. 0159 at p. 24; scientific and economic research on the and the other members of the IWG on Cato Institute, No. 0081 at pp. 1–4, 15– risks and costs of climate change, but is further review and revision of the SCC 16) HARDI questioned the use of the still very likely an underestimate of the estimates as appropriate.182 SCC as part of the economic analysis, SCC. (Joint Advocates, No. 0126 at p. 4) AGA stated that DOE overstated the stating that the science and rationale The Joint Advocates stated that recent benefit of CO2 reductions by reporting behind this metric have been questioned research suggests that CO2 fertilization estimates from a global, not national, at length in this and previous is overestimated and may be cancelled perspective. AGA and Laclede argued rulemakings. (HARDI, No. 0131 at p. 2) out by negative impacts on agriculture. that national benefits from reducing CO2 In contrast, the Joint Advocates stated (Joint Advocates, No. 0126 at p. 16) would be a fraction of the global SCC that only a partial accounting of the In response to the comments on the value. In addition, AGA and AHRI costs of climate change (those most SCC, in conducting the interagency stated that while global benefits may be easily monetized) can be provided, process that developed the SCC values, informative, they should be excluded which inevitably involves incorporating technical experts from numerous from DOE’s calculation of net benefits. elements of uncertainty. The Joint agencies met on a regular basis to (AGA, No. 0118 at pp. 31–32; AHRI, No. Advocates commented that accounting consider public comments, explore the 0159 at p. 176; Laclede, No. 0141 at p. for the economic harms caused by technical literature in relevant fields, 22) NPGA commented that the value of climate change is a critical component and discuss key model inputs and CO2 emission reductions is based on a of sound benefit-cost analyses of assumptions. Key uncertainties and global value, whereas estimated regulations that directly or indirectly model differences transparently and operating savings of the proposed limit greenhouse gases. The Joint consistently inform the range of SCC standards are calculated in terms of U.S. Advocates stated that several Executive estimates. These uncertainties and domestic consumer savings. NPGA Orders direct Federal agencies to model differences are discussed in the consider non-economic costs and IWG’s reports, which are reproduced in 182 See https://www.whitehouse.gov/blog/2015/ benefits, such as environmental and appendices 14A and 14B of the SNOPR 07/02/estimating-benefits-carbon-dioxide- emissions-reductions. OMB also stated its intention public health impacts. (Joint Advocates, TSD, as are the major assumptions. to seek independent expert advice on opportunities No. 0126 at pp. 2–3) Furthermore, the Specifically, uncertainties in the to improve the estimates, including many of the Joint Advocates argued that without an assumptions regarding climate approaches suggested by commenters.

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expressed concern that this unequal interagency group concluded that a DOE is maintaining its current comparison overestimates the economic global measure of the benefits from approach. value of potential CO emission reducing U.S. emissions is preferable. 2 2. Social Cost of Other Air Pollutants reductions. (NPGA, No. 0130 at p. 6) On DOE’s approach is not in contradiction the other hand, the Joint Advocates of the requirement to weigh the need for As noted previously, DOE has stated that a global SCC value must be national energy conservation, as one of estimated how the considered energy used to design the economically the main reasons for national energy conservation standards would reduce efficient policies necessary to address conservation is to contribute to efforts to site NOX emissions nationwide and climate change. The Joint Advocates mitigate the effects of global climate decrease power sector NOX emissions in stated that because greenhouse gases do change. DOE notes that the use of those 22 States not affected by the CAIR. not stay within geographic borders, CO2 domestic rather than global SCC DOE estimated the monetized value of emitted by the United States not only estimates would not affect DOE’s NOX emissions reductions from creates domestic harms, but also selection of proposed standards for electricity generation using benefit per imposes additional and large NWGFs and MHGFs. ton estimates from the Regulatory externalities on the rest of the world, AHRI criticized DOE’s inclusion of Impact Analysis for the Clean Power Plan Final Rule, published in August including disproportionate harms to CO2 emissions impacts over a time some of the least-developed nations. period that it asserts greatly exceeds that 2015 by EPA’s Office of Air Quality 183 The Joint Advocates stated that if all used to measure the economic costs of Planning and Standards. The report countries set their greenhouse gas the proposed standards. (AHRI, No. includes high and low values for NOX emission levels based on only their 0159 at pp. 16–18) DOE disagrees. For (as PM2.5) for 2020, 2025, and 2030 domestic costs and benefits, ignoring the analysis of all national costs and using discount rates of 3 percent and 7 the large global externalities, the benefits of standards, DOE considers the percent; these values are presented in collective result would be substantially lifetime impacts of products shipped in appendix 14C of the SNOPR TSD. DOE sub-optimal climate protections and the period 2022–2051. With respect to primarily relied on the low estimates to 184 significantly increased risks of severe energy cost savings, impacts continue be conservative. The national average harms to all nations, including to the until all of the equipment shipped in low values for 2020 (in 2015$) are United States. (Joint Advocates, No. the analysis period is retired, which $3,187/ton at a 3-percent discount rate 0126 at pp. 6–7) could occur well after 2051. With and $2,869/ton at a 7-percent discount rate. DOE developed values specific to In response, DOE’s analysis estimates respect to the benefits of CO2 emissions the end-use category for NWGFs and both global and domestic benefits of reductions, DOE likewise evaluates the MHGFs using a method described in CO emissions reductions. Following impacts for products shipped during the 2 appendix 14C of the SNOPR TSD. For the recommendation of the IWG, DOE analysis period and used until they are this analysis DOE used linear places more focus on a global measure retired. Because CO2 emissions in a interpolation to define values for the of SCC. As discussed in appendix 14A given year (e.g., 2050) have a long years between 2020 and 2025 and of the SNOPR TSD, the climate change residence time in the atmosphere, they between 2025 and 2030; for years problem is highly unusual in at least contribute to radiative forcing, which affects global climate, for a long time. beyond 2030 the value is held constant. two respects. First, it involves a global DOE estimated the monetized value of externality: Emissions of most Accordingly, emissions reductions NO emissions reductions from gas greenhouse gases contribute to damages occurring in a given year in which X furnaces using benefit-per-ton estimates around the world even when they are products are operated (e.g., 2050), will from the EPA’s ‘‘Technical Support emitted in the United States. have environmental benefits not only in Document Estimating the Benefit per Consequently, to address the global that year, but also in many years to Ton of Reducing PM–2.5 Precursors nature of the problem, the SCC must come. The SCC estimates developed by from 17 Sectors.’’ 185 Although none of incorporate the full (global) damages the IWG are meant to capture these the sectors refers specifically to caused by GHG emissions. The other benefits extending over many years by residential and commercial buildings, factors DOE considers (such as representing the full discounted value DOE believes that the sector called operating savings) do not have such a (using an appropriate range of discount ‘‘Area sources’’ would be a reasonable global externality, and thus it is not rates) of emissions reductions occurring proxy for residential and commercial necessary or appropriate to consider in a given year. Thus, in the case of both buildings. ‘‘Area sources’’ represents all those factors globally. Second, climate consumer economic costs and benefits emission sources for which States do change presents a problem that the and the value of CO2 emissions not have exact (point) locations in their United States alone cannot solve. Even reductions, DOE is accounting for the lifetime impacts of products shipped in if the United States were to reduce its 183 Available at www.epa.gov/cleanpowerplan/ greenhouse gas emissions to zero, that the same analysis period. clean-power-plan-final-rule-regulatory-impact- step would be far from enough to avoid Laclede stated that market prices best analysis. See Tables 4A–3, 4A–4, and 4A–5 in the substantial climate change. Other reflect the cost of CO2 reduction benefits report. 184 countries would also need to take action to U.S. residents, which are around or For the monetized NOX benefits associated with PM2.5, the related benefits are primarily based to reduce emissions if significant lower than DOE’s lowest SCC value. on an estimate of premature mortality derived from changes in the global climate are to be (Laclede, No. 0141 at p. 22) In response, the ACS study (Krewski et al. 2009), which is the avoided. Emphasizing the need for a DOE notes that market prices are simply lower of the two EPA central tendencies. Using the global solution to a global problem, the a reflection of the conditions in specific lower value is more conservative when making the policy decision concerning whether a particular United States has been actively involved emissions markets in which emissions standard level is economically justified. If the in seeking international agreements to caps have been set. Neither the caps nor benefit-per-ton estimates were based on the Six reduce emissions and in encouraging the resulting prices of traded emissions Cities study (Lepuele et al. 2012), the values would other nations, including emerging major are intended to reflect the full range of be nearly two-and-a-half times larger. (See chapter 14 of the SNOPR TSD for citations for the studies economies, to take significant steps to domestic and global impacts from mentioned above.) reduce emissions. When these anthropogenic climate change over the 185 www.epa.gov/sites/production/files/2014-10/ considerations are taken as a whole, the appropriate time scales. Consequently, documents/sourceapportionmentbpttsd.pdf.

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emissions inventories. Since exact the changes to electricity sector regulation, the revenues of regulated locations would tend to be associated generation, installed capacity, fuel natural gas utilities are essentially fixed with larger sources, ‘‘area sources’’ consumption, and emissions in the AEO by the public utility commission. If a would be fairly representative of small Reference case and various side cases. utility’s actual revenues are above the dispersed sources like homes and Details of the methodology are provided fixed level due to a larger volume of businesses. The EPA Technical Support in the appendices to chapters 13 and 15 sales than expected, customers receive a Document provides high and low of the SNOPR TSD. credit from the utility for the difference; estimates for 2016, 2020, 2025, and 2030 The output of this analysis is a set of if actual revenues are below the fixed at 3-percent and 7-percent discount time-dependent coefficients that capture level due to a smaller volume of sales rates. As with the benefit-per-ton the change in electricity generation, than expected, the utility issues a estimates for NOX emissions reductions primary fuel consumption, installed customer surcharge for the difference. from electricity generation, DOE capacity, and power sector emissions To this end, a utility’s revenues are primarily relied on the low estimates to due to a unit reduction in demand for decoupled from its volume of sales be conservative. a given end use. These coefficients are because its revenues are fixed as sales DOE multiplied the emissions multiplied by the stream of electricity fluctuate. With revenue decoupling, a reduction (metric tons) in each year by savings calculated in the NIA to provide decrease in gas sales due to energy the associated $/metric ton values, and estimates of selected utility impacts of conservation standards would not then discounted each series using new or amended energy conservation necessarily have a negative impact on discount rates of 3 percent and 7 standards. gas utilities. DOE welcomes comments percent as appropriate. DOE will EEI stated that DOE should consider on how energy conservation standards continue to evaluate the monetization of the impacts of the Clean Power Plan may affect gas utilities in the context of avoided NOX emissions and will make when assessing impacts on the utility growing use of revenue decoupling. any appropriate updates for the final sector. (EEI, No. 0160 at pp. 4–5) As With respect to retail natural gas rule. discussed above, AEO 2015 does not prices, DOE finds it implausible that a AGA and AGL Resources stated that incorporate the Clean Power Plan, and decrease in gas consumption (from use DOE failed to monetize the impacts of at the time the SNOPR analysis was of more-efficient furnaces and switching increased Hg, SO2, and N2O emissions conducted, AEO 2015 was the only away from gas furnaces) would increase as it did for the reductions in CO2 and source that provides data that allows gas prices. As discussed in section NOX emissions. (AGA, No. 0118 at p. derivation of coefficients that DOE uses IV.F.4 of this SNOPR, the more likely 30; AGL Resources, No. 0112 at p. 6) in the utility impact analysis. DOE effect would be a decrease in prices. DOE is still evaluating the appropriate intends to use AEO 2016, which will DOE recognizes that switching away monetization of SO2, N2O, and Hg incorporate the Clean Power Plan, for from gas on a very large scale would emissions in energy conservation the final rule. mean that fixed costs would be standards rulemakings. DOE notes that Several gas utilities and gas utility distributed among a smaller customer it has also not monetized the impacts of associations stated that DOE should base, thereby putting upward pressure the projected decrease in methane analyze the impact of the proposed rule on prices, but with the modest degree of emissions, but this benefit would far on natural gas utilities, especially switching projected to result from the outweigh the costs of increased SO2, currently-proposed standards, such an 186 because of the potential for switching N2O, and Hg emissions. away from natural gas to other energy outcome is highly unlikely. NPGA stated that mass switching M. Utility Impact Analysis sources. (AGL Resources, No. 0112 at away from propane would severely The utility impact analysis estimates pp. 7–8; AGA, No. 0118 at pp. 6, 42; APGA, No. 0106 at p. 12; CGS, No. 0098 impact many retail propane marketers, several effects on the electric power over 95 percent of whom are small generation industry that would result at p. 1; Vectren, No. 0111 at p. 1, 6; Laclede, No. 0141 at p. 36) AGA stated businesses. (NPGA, No. 0130 at p. 5) In from the adoption of new or amended response, the extent of switching from that the Process Rule requires DOE to energy conservation standards. The LPG-fired furnaces projected to result analyze the impact of standards on gas utility impact analysis estimates the from the currently-proposed standards utilities. (AGA, No. 0118 at pp. 41–42) changes in installed electrical capacity is significantly less than was the case AGA, APGA, CGS, and Vectren stated and generation that would result for with the standards proposed in the that DOE should also consider the each TSL. The analysis is based on March 2015 NOPR. Although DOE impact on natural gas local distribution published output from the NEMS expects that the impact on retail companies and retail natural gas associated with AEO 2015. NEMS, propane marketers would be small, DOE customers, who may see increased which is a public domain, multi- does not have sufficient information to natural gas prices due to fuel switching. sectored, partial equilibrium model of reliably estimate the potential impact. If the U.S. energy sector, produces the (AGA, No. 0118 at pp. 6, 42; APGA, No. stakeholders are able to provide relevant AEO Reference case, as well as a 0106 at p. 16; CGS, No. 0098 at p. 1; data, including annual propane sales (in number of side cases that estimate the Vectren, No. 0111 at p. 1, 6) gallons and dollars) for a representative economy-wide impacts of changes to In response to the comments, DOE sample of retail propane marketers, DOE energy supply and demand. DOE uses conducted a preliminary evaluation of will undertake an evaluation as it published side cases to estimate the the potential impact of the currently- prepares the final rule. marginal impacts of reduced energy proposed standards on gas utilities. DOE AGL Resources and Camilla stated demand on the utility sector. These found that such evaluation is that by disproportionally raising the marginal factors are estimated based on complicated by the upward trend in the minimum efficiency of NWGFs relative use of natural gas revenue to electric heat pumps and electric 187 186 The total estimated reduction in methane decoupling. With revenue decoupling furnaces, and by causing a significant emissions from the proposed AFUE standards is 2.8 amount of fuel switching, DOE has put 187 billion tons, while the total estimated increase is 77 Natural Gas Revenue Decoupling Regulation: natural gas utilities in a position of thousand tons for SO2 emissions, 1.07 thousand Impacts on Industry (July 2010) (Available at: tons for N2O emissions, and 0.3 tons for Hg http://www1.eere.energy.gov/manufacturing/states/ competitive disadvantage. (AGL emissions (see Table V.30). pdfs/nat-gas-revenue-decoupling-final.pdf). Resources, No. 0039 at pp. 1, 3–4 ; AGL

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Resources, No. 0112 at pp. 7–8; Camilla, economy.189 There are many reasons for economic multipliers, thus accelerating No. 0092 at p. 1) In response, DOE these differences, including wage economic growth. The Joint Consumer disagrees that the proposed standards differences and the fact that the utility Commenters stated that greater would be disproportionally raised for sector is more capital-intensive and less economic activity from the increase in NWGFs. On the contrary, the efficiency labor-intensive than other sectors. consumer disposable income raises standards for CACs and heat pumps Energy conservation standards have the employment levels in other sectors. have been raised several times over the effect of reducing consumer utility bills. (Joint Consumer Commenters, No. 0123 past two decades, while standards for Because reduced consumer at pp. 23–24) In response, increasing NWGFs did not change during the same expenditures for energy likely lead to consumer disposable income does not period. Furthermore, DOE is currently increased expenditures in other sectors necessarily result in greater economic undertaking a rulemaking to consider of the economy, the general effect of activity. To the extent that the economy amended energy conservation standards efficiency standards is to shift economic approaches full employment, additional for residential central air conditioners activity from a less labor-intensive stimulus from a shift in spending and heat pumps. See, 80 FR 81785 sector (i.e., the utility sector) to more toward more labor-intensive sectors is (December 31, 2015). labor-intensive sectors (e.g., the retail not likely to significantly add to economic growth. In the context of the N. Employment Impact Analysis and service sectors). Thus, the BLS data suggest that net national employment total economy, the long-run potential DOE considers employment impacts may increase due to shifts in economic stimulus from an energy conservation in the domestic economy as one factor activity resulting from amended energy standard would be extremely difficult to in selecting a proposed standard. conservation standards for NWGFs and measure. Employment impacts from new or MHGFs. AHRI stated that DOE provides no amended energy conservation standards DOE estimated indirect national reason for its selection of a short-run include both direct and indirect employment impacts for the amended model to evaluate the indirect impacts. Direct employment impacts are NWGFs and MHGFs standard levels employment impact analysis. AHRI any changes in the number of considered in this NOPR using an stated that qualitatively discussing the employees of manufacturers of the input/output model of the U.S. economy long-run impacts means that the cost are products subject to standards, their called Impact of Sector Energy not adequately considered in the suppliers, and related service firms. The Technologies version 4 (ImSET).190 quantitative analysis and are MIA addresses those impacts. Indirect ImSET is a special-purpose version of consequently underestimated. (AHRI, employment impacts are changes in the ‘‘U.S. Benchmark National Input- No. 0159 at p. 18) national employment that occur due to Output’’ (I–O) model, which was In response, DOE has tentatively the shift in expenditures and capital designed to estimate the national concluded that the primary options investment caused by the purchase and employment and income effects of available to estimate employment operation of more-efficient appliances. energy-saving technologies. The ImSET impacts of energy efficiency policies are Indirect employment impacts from software includes a computer-based I–O sectoral multipliers, input-output standards consist of the net jobs created model having structural coefficients that models, and macroeconomic (i.e., or eliminated in the national economy, characterize economic flows among 187 general equilibrium) simulation models. other than in the manufacturing sector sectors most relevant to industrial, Macroeconomic simulation models being regulated, caused by: (1) Reduced commercial, and residential building allow for the most flexibility of the three spending by consumers on energy; (2) energy use. options, particularly in portraying reduced spending on new energy supply DOE notes that ImSET is not a general differential impacts over time, but this by the utility industry; (3) increased equilibrium forecasting model, and temporal detail comes at the cost of consumer spending on the products to understands the uncertainties involved sectoral detail. The developers of ImSET which the new standards apply and in projecting employment impacts, evaluated several macroeconomic other goods and services; and (4) the especially changes in the later years of simulation models used by other effects of those three factors throughout the analysis. Because ImSET does not Federal agencies and found none well- the economy. incorporate price changes, the suited to the kinds of sectoral One method for assessing the possible employment effects predicted by ImSET relationships and impacts following the effects on the demand for labor of such adoption of an energy efficiency may over-estimate actual job impacts shifts in economic activity is to compare standard. Although it is a static model, over the long run for this rule. sector employment statistics developed ImSET captures the complexities of Therefore, for the SNOPR, DOE used by the Labor Department’s Bureau of intersectoral buying-selling ImSET only to generated results for a Labor Statistics (BLS).188 BLS regularly relationships. Additionally, by near-term timeframe (2022–2027), publishes its estimates of the number of streamlining the temporal aspects of the jobs per million dollars of economic where these uncertainties are reduced. The Joint Consumer Commenters model, it is possible to track the activity in different sectors of the stated that DOE did not account for the differential impacts of changes in energy economy, as well as the jobs created cost as compared to changes in capital macroeconomic benefit of stimulating elsewhere in the economy by this same or maintenance cost, each of which can the economy by reducing the cost of economic activity. Data from BLS impact sectoral multipliers in different energy and diverting spending to other indicate that expenditures in the utility ways. DOE is reluctant to use ImSET to things that tend to have higher sector generally create fewer jobs (both quantify long-run impacts, because directly and indirectly) than ImSET relies on fixed sectoral capital- 189 See Bureau of Economic Analysis, Regional expenditures in other sectors of the Multipliers: A User Handbook for the Regional labor coefficients, while in practice Input-Output Modeling System (RIMS II), U.S. these coefficients may shift in the long 188 Data on industry employment, hours, labor Department of Commerce (1992). run in response to price effects compensation, value of production, and the implicit 190 Livingston, OV, SR Bender, MJ Scott, and RW following energy efficiency standards. price deflator for output for these industries are Schultz (2015). ImSET 4.0: Impact of Sector Energy available upon request by calling the Division of Technologies Model Description and User’s Guide. Since input/output models are Industry Productivity Studies (202–691–5618) or by Pacific Northwest National Laboratory. PNNL– fundamentally short-run disequilibrium sending a request by email to [email protected]. 24563. models, DOE provides quantitative

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results only for the first and fifth year percent AFUE. TSL 5 consists of TSL 1 represents efficiency level 1 for of the standards. intermediate efficiency levels at 92- both product classes. AGL Resources stated that DOE’s percent AFUE for both product classes. model did not account for fuel For NWGFs, TSL 4 consists of the TABLE V.2—TRIAL STANDARD LEVELS switching in the employment impact efficiency level that represents 80- FOR NON-WEATHERIZED GAS FUR- analysis. (AGL Resources, No. 0112 at p. percent AFUE for small NWGFs at or NACE AND MOBILE HOME GAS FUR- 7) In response, DOE notes that because below an input capacity of 60 kBtu/h NACE STANDBY MODE AND OFF the employment impact analysis uses and the efficiency level that represents MODE STANDARDS the results of the NIA, it accounts for 92-percent AFUE for large NWGFs. For product switching that is captured in all MHGFs, TSL 4 consists of the Standby and off the NIA. efficiency level that represents 92- mode For more details on the employment percent AFUE. TSL 3 consists of the electrical power impact analysis, see chapter 16 of the efficiency levels that represent 95- consumption SNOPR TSD. (watts) percent AFUE for the Northern region TSL V. Analytical Results and Conclusions for both product classes, and the Non- baseline efficiency level (80-percent weather- Mobile The following section addresses the AFUE) for the Rest of Country. For ized home gas results from DOE’s analyses with gas fur- furnace NWGFs, TSL 2 consists of the efficiency respect to the considered energy nace level that represents 80-percent AFUE conservation standards for NWGFs and for small NWGFs at or below an input 1 ...... 9.5 9.5 MHGFs. It addresses the TSLs examined capacity of 70 kBtu/h and the efficiency 2 ...... 9.2 9.2 by DOE, the projected impacts of each level that represents 92-percent AFUE 3 ...... 8.5 8.5 of these levels if adopted as energy for large NWGF. For all MHGFs, TSL 2 conservation standards for NWGFs and consists of the efficiency level that B. Economic Justification and Energy MHGFs, and the standards levels that represents 92-percent AFUE. For Savings DOE is proposing to adopt in this NWGFs, TSL 1 consists of the efficiency SNOPR. Additional details regarding 1. Economic Impacts on Individual level that represents 80-percent AFUE DOE’s analyses are contained in the Consumers for small NWGFs at or below an input SNOPR TSD supporting this notice. DOE analyzed the economic impacts capacity of 80 kBtu/h and the efficiency on NWGF and MHGF consumers by A. Trial Standard Levels level that represents 92-percent AFUE looking at the effects potential standards for large NWGFs. For all MHGFs, TSL DOE analyzed the benefits and at each TSL would have on the LCC and 1 consists of the efficiency level that burdens of nine AFUE TSLs and three PBP. DOE also examined the impacts of represents 92-percent AFUE standard. separate standby mode and off mode potential standards on selected TSLs for NWGFs and MHGFs. These consumer subgroups. These analyses are TABLE V.1—TRIAL STANDARD LEVELS TSLs were developed by combining discussed below. specific efficiency levels for each of the FOR NON-WEATHERIZED GAS FUR- product classes analyzed by DOE. TSLs NACE AND MOBILE HOME GAS FUR- a. Life-Cycle Cost and Payback Period are numbered in order of ascending NACE AFUE STANDARDS In general, higher-efficiency products national energy savings. DOE presents affect consumers in two ways: (1) the results for the TSLs in this AFUE Purchase price increases, and (2) annual document, while the results for all TSL Non-weatherized gas Mobile home gas operating costs decrease. In addition, efficiency levels that DOE analyzed are furnace furnace some consumers may choose to switch in the SNOPR TSD. 1 ...... 92% (>80 kBtu/h) ...... 92%. to an alternative heating system rather Table V.1 presents the AFUE TSLs 80% (≤80 kBtu/h). than purchase and install a NWGF if and the corresponding efficiency levels 2 ...... 92% (>70 kBtu/h) ...... 92%. they judge the economics to be for NWGFs and MHGFs that DOE has 80% (≤70 kBtu/h). favorable. DOE estimated the extent of identified for potential amended energy 3 ...... 95% (North) ...... 95% (North). switching at each TSL using the 80% (Rest of Country) 80% (Rest of conservation standards for these Country). consumer choice model discussed in products. TSL 9 represents the 4 ...... 92% (>60 kBtu/h) ...... 92%. section IV.F.9. maximum technologically feasible 80% (≤60 kBtu/h). Inputs used for calculating the LCC (‘‘max-tech’’) energy efficiency for both 5 ...... 92% ...... 92%. and PBP include total installed costs product classes and therefore maximum 6 ...... 92% (>55kBtu/h) ...... 92%. 80% (≤55 kBtu/h). (i.e., product price plus installation potential national energy savings. TSL 8 7 ...... 95% ...... 95%. costs), and operating costs (i.e., annual consists of an efficiency level at 80- 8 ...... 95% (>55 kBtu/h) ...... 95%. energy use, energy prices, energy price percent AFUE for small NWGFs at or 80% (≤ 55 kBtu/h). trends, repair costs, and maintenance below an input capacity of 55 kBtu/h 9 ...... 98% ...... 96%. costs). The LCC calculation also uses and an efficiency level at 95-percent product lifetime and a discount rate. In AFUE for large NWGFs. For all MHGFs, Table V.2 presents the standby mode cases where consumers are predicted to TSL 8 consists of the efficiency level and off mode TSLs and the switch, the inputs include the total that represents 95-percent AFUE. TSL 7 corresponding efficiency levels (values installed costs, operating costs, and consists of intermediate efficiency levels expressed in watts) that DOE considered product lifetime for the chosen heating at 95-percent AFUE for both product for NWGFs and MHGFs. DOE system. Chapter 8 of the SNOPR TSD classes. For NWGFs, TSL 6 consists of considered three efficiency levels. TSL provides detailed information on the an efficiency level at 80-percent AFUE 3 represents the maximum LCC and PBP analyses. for small NWGFs at or below an input technologically feasible (‘‘max-tech’’) Key outputs of the LCC analysis are capacity of 55 kBtu/h and an efficiency energy efficiency for both product the average LCC savings (or cost) level at 92-percent AFUE for large classes, TSL 2 represents efficiency relative to the no-new-standards case NWGFs. For all MHGFs, TSL 6 is 92- level 2 for both product classes, and efficiency distribution for each product

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class of residential NWGFs and MHGFs, efficiency for a specific consumer equals V.3 for each TSL for NWGFs. The degree and the percentage of consumers for or exceeds the efficiency at a given TSL; of switching increases at higher- whom the LCC under an amended a standard would have no effect because efficiency TSLs where the installed cost standard would increase (net cost). the product installed would be at or of a NWGF is very high for some DOE also performed a PBP analysis as above that standard level without consumers. As discussed in section part of the consumer impact analysis. amended standards. IV.F.9, DOE also conducted sensitivity The PBP is the number of years it would For NWGFs, the LCC and PBP results analysis using high and low switching take for the consumer to recover the at each efficiency level include estimates (based on paybacks of 2.5 and increased costs of a higher-efficiency consumers that would purchase and 4.5 years, respectively around the product as a result of energy savings. install a NWGF at that level, and also reference value of 3.5 years). Table V.4 The PBP is an economic benefit-cost consumers that would choose to switch presents the projected amount of measure that uses benefits and costs to an alternative heating product rather switching in 2022 for the high and low without discounting. than purchase and install a NWGF at switching scenarios, as well as the no The simple payback is measured that level.191 The impacts for consumers switching and default switching relative to the baseline product. In that switch depend on the product that scenarios. For the proposed standards contrast, the LCC savings are measured they choose (heat pump or electric (TSL 6), the total switching is 6.0% in relative to the no-new-standards case furnace) and the NWGF that they would the low case and 7.9% in the high case; efficiency distribution in the purchase in the no-new-standards case. the total switching in the default case in compliance year. No impacts occur The extent of projected product/fuel 6.9%. See appendix 8J of the SNOPR when the no-new-standards case switching (in 2022) is shown in Table TSD for more details.

TABLE V.3—RESULTS OF FUEL SWITCHING ANALYSIS FOR NON-WEATHERIZED GAS FURNACES IN 2022 [% of consumers]

Trial standard level Consumer option 1 2 3 4 5 6 7 8 9 (%) (%) (%) (%) (%) (%) (%) (%) (%)

Purchase NWGF at Standard Level ...... 98.5 96.6 98.0 95.9 88.5 93.2 86.5 91.6 84.1 Switch to Heat Pump* ...... 1.2 2.9 1.6 3.4 9.7 5.8 11.6 7.2 13.6 Switch to Electric Furnace* ...... 0.3 0.5 0.5 0.7 1.8 1.1 2.0 1.2 2.4

Total ...... 100 100 100 100 100 100 100 100 100 * Includes switching from a gas water heater to an electric water heater. Note: Components may not sum due to rounding.

TABLE V.4—COMPARISON OF RESULTS FOR FUEL SWITCHING SCENARIOS FOR NON-WEATHERIZED GAS FURNACES IN 2022

Fraction of consumers switching to Fraction of consumers switching to TSL Heat pump, % * Electric furnace, % * No Low High Ref. No Low High Ref.

1 ...... 0.0 0.9 1.5 1.2 0.0 0.3 0.3 0.3 2 ...... 0.0 2.4 3.4 2.9 0.0 0.5 0.5 0.5 3 ...... 0.0 1.3 2.0 1.6 0.0 0.5 0.5 0.5 4 ...... 0.0 2.8 4.0 3.4 0.0 0.7 0.8 0.7 5 ...... 0.0 8.6 10.9 9.7 0.0 1.5 2.2 1.8 6 ...... 0.0 5.0 6.7 5.8 0.0 1.0 1.2 1.1 7 ...... 0.0 10.5 12.9 11.6 0.0 1.7 2.5 2.0 8 ...... 0.0 6.5 8.4 7.2 0.0 1.1 1.4 1.2 9 † ...... 0.0 12.4 15.2 13.6 0.0 2.0 3.0 2.4 * Includes switching from a gas water heater to an electric water heater. Note: ‘‘No’’ means no switching scenario; Low means low switching scenario (2.5 year payback); High means high switching scenario (4.5 year payback); and Ref. means DOE’s default switching case (3.5 year payback).

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

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

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

TABLE V.5—AVERAGE LCC AND PBP RESULTS FOR NON-WEATHERIZED GAS FURNACE AFUE STANDARDS

Average costs (2015$) Simple Average TSL AFUE (%) First year’s Lifetime payback lifetime Installed cost operating cost operating cost LCC (years) (years)

1 ...... 92/80 * ...... 2,375 652 10,512 12,887 6.1 21.5 2 ...... 92/80 * ...... 2,469 635 10,244 12,714 6.0 21.5 3 ...... 95/80 ** ...... 2,552 625 10,108 12,661 6.4 21.5 4 ...... 92/80 * ...... 2,512 628 10,126 12,638 5.9 21.5 5 ...... 92 † ...... 2,635 612 9,859 12,493 6.4 21.5 6 ...... 92/80 * ...... 2,576 618 9,971 12,547 6.1 21.5 7 ...... 95 † ...... 2,742 597 9,608 12,350 6.5 21.5 8 ...... 95/80 * ...... 2,672 604 9,737 12,410 6.2 21.5 9 ...... 98 (Max-Tech) † .... 2,858 586 9,403 12,261 6.9 21.5 * The first number refers to the standard for large NWGFs; the second refers to the standard for small NWGFs. The input capacity threshold definitions for small NWGFs are as follows: TSL 1: 80 kBtu/h; TSL 2: 70 kBtu/h; TSL 4: 60 kBtu/h; TSL 6: 55 kBtu/h; TSL 8: 55 kBtu/h. ** The first number refers to the efficiency level for the North; the second number refers to the efficiency level for the Rest of Country. † Refers to national standards. Note: The results for each TSL are calculated assuming that all consumers use products at that efficiency level. The PBP is measured relative to the baseline product.

TABLE V.6—AVERAGE LCC SAVINGS RELATIVE TO THE NO-NEW-STANDARDS CASE FOR NON-WEATHERIZED GAS FURNACE AFUE STANDARDS

Life-cycle cost savings Percentage of consumers that TSL AFUE % Average LCC savings experience (2015$) net cost (%)

1 ...... 92/80 * ...... 676 2.1 2 ...... 92/80 * ...... 730 4.7 3 ...... 95/80 ** ...... 597 6.7 4 ...... 92/80 * ...... 741 6.6 5 ...... 92 † ...... 617 17.1 6 ...... 92/80 * ...... 692 11.1 7 ...... 95 † ...... 561 22.2 8 ...... 95/80 * ...... 609 15.2 9 ...... Max Tech † .... 506 34.2 * The first number refers to the standard for large NWGFs; the second refers to the standard for small NWGFs. The input capacity threshold definitions for small NWGFs are as follows: TSL 1: 80 kBtu/h; TSL 2: 70 kBtu/h; TSL 4: 60 kBtu/h; TSL 6: 55 kBtu/h; TSL 8: 55 kBtu/h. ** The first number refers to the efficiency level for the North; the second number refers to the efficiency level for the Rest of Country. † Refers to national standards. Note: The savings represent the average LCC for affected consumers.

TABLE V.7—AVERAGE LCC AND PBP RESULTS FOR MOBILE HOME GAS FURNACE AFUE STANDARDS

Average costs (2015$) Simple Average TSL AFUE (%) First year’s Lifetime payback lifetime Installed cost operating cost operating cost LCC (years) (years)

1, 2, 4, 5, 6 ...... 92 ...... 1,667 698 10,924 12,591 1.7 21.5 3 ...... 95/80 * ...... 1,691 707 11,062 12,752 2.3 21.5 7, 8 ...... 95 ...... 1,800 680 10,643 12,443 2.7 21.5 9 ...... 96 (Max Tech) ...... 1,846 677 10,599 12,445 3.1 21.5 * The first number refers to the efficiency level for the North; the second number refers to the efficiency level for the Rest of Country. Note: The results for each TSL are calculated assuming that all consumers use products at that efficiency level. The PBP is measured relative to the baseline product.

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TABLE V.8—AVERAGE LCC SAVINGS RELATIVE TO THE NO-NEW-STANDARDS CASE FOR MOBILE HOME GAS FURNACE AFUE STANDARDS

Life-cycle cost savings Percentage of TSL AFUE % Average LCC consumers savings that (2015$) experience net cost

1, 2, 4, 92 ...... 1,049 8.2 5, 6. 3 ...... 95/80* ...... 1,275 5.0 7, 8 ...... 95 ...... 1,020 13.8 9 ...... 96 (Max Tech) ...... 864 25.2 * The first number refers to the efficiency level for the North; the second number refers to the efficiency level for the Rest of Country. Note: The savings represent the average LCC for affected consumers.

TABLE V.9—COMPARISON OF LCC SAVINGS AND PBP FOR PRODUCT SWITCHING SCENARIOS FOR NON-WEATHERIZED GAS FURNACE AFUE STANDARDS

Average LCC savings Simple payback period % of Consumers experiencing net cost 2015$ Years TSL % No Low High Ref. No Low High Ref. No Low High Ref.

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

TABLE V.10—AVERAGE LCC AND PBP RESULTS FOR NON-WEATHERIZED GAS FURNACE STANDBY MODE AND OFF MODE STANDARDS

Average costs (2015$) Simple Average TSL Watts payback lifetime First year’s Lifetime (years) (years) Installed cost operating cost operating cost LCC

1 ...... 9.5 ...... 2 10 152 153 1.2 21.5 2 ...... 9.2 ...... 17 10 147 164 9.1 21.5 3 ...... 8.5 (Max Tech) ..... 18 9 135 154 7.0 21.5 Note: The results for each TSL are calculated assuming that all consumers use products at that efficiency level. The PBP is measured relative to the baseline product.

TABLE V.11—AVERAGE LCC SAVINGS RELATIVE TO THE NO-NEW-STANDARDS CASE FOR MOBILE HOME GAS FURNACE STANDBY MODE AND OFF MODE STANDARDS

Life-cycle cost savings Percentage of TSL Watts Average LCC consumers savings * that (2015$) experience net cost

1 ...... 9.5 ...... 22 2.4 2 ...... 9.2 ...... 12 13.0

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TABLE V.11—AVERAGE LCC SAVINGS RELATIVE TO THE NO-NEW-STANDARDS CASE FOR MOBILE HOME GAS FURNACE STANDBY MODE AND OFF MODE STANDARDS—Continued

Life-cycle cost savings Percentage of TSL Watts Average LCC consumers savings * that (2015$) experience net cost

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

TABLE V.12—AVERAGE LCC AND PBP RESULTS FOR MOBILE HOME GAS FURNACE STANDBY MODE AND OFF MODE STANDARDS

Average costs (2013$) Simple Average TSL Watts payback lifetime First year’s Lifetime (years) (years) Installed cost operating cost operating cost LCC

1 ...... 9.5 ...... 2 10 145 146 1.2 21.5 2 ...... 9.2 ...... 16 9 140 156 8.9 21.5 3 ...... 8.5 (Max Tech) ..... 17 9 129 147 6.9 21.5 Note: The results for each TSL are calculated assuming that all consumers use products at that efficiency level. The PBP is measured relative to the baseline product.

TABLE V.13—AVERAGE LCC SAVINGS RELATIVE TO THE NO-NEW-STANDARDS CASE FOR MOBILE HOME GAS FURNACE STANDBY MODE AND OFF MODE STANDARDS

Life-cycle cost savings Percentage of TSL Watts Average LCC consumers savings * that (2015$) experience net cost

1 ...... 9.5 ...... 21 0.4 2 ...... 9.2 ...... 12 1.0 3 ...... 8.5 (Max Tech) ..... 19 0.8 * The savings represent the average LCC for affected consumers.

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

TABLE V.14—COMPARISON OF LCC SAVINGS AND PBP FOR CONSUMER SUBGROUPS AND ALL HOUSEHOLDS FOR NON- WEATHERIZED GAS FURNACE AFUE STANDARDS

Average life-cycle cost savings Simple payback period (2015$) (years) TSL Low-income Senior-only All Low-income Senior-only All households households households households households households

1 * ...... 505 793 676 6.8 6.8 6.1 2 * ...... 572 750 730 5.7 5.7 6.0 3 ** ...... 458 657 597 7.4 5.9 6.4

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

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TABLE V.14—COMPARISON OF LCC SAVINGS AND PBP FOR CONSUMER SUBGROUPS AND ALL HOUSEHOLDS FOR NON- WEATHERIZED GAS FURNACE AFUE STANDARDS—Continued

Average life-cycle cost savings Simple payback period (2015$) (years) TSL Low-income Senior-only All Low-income Senior-only All households households households households households households

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

TABLE V.15—COMPARISON OF LCC SAVINGS AND PBP FOR CONSUMER SUBGROUPS AND ALL HOUSEHOLDS FOR MOBILE HOME GAS FURNACE AFUE STANDARDS

Average life-cycle cost savings Simple payback period (2015$) (years) TSL Low-income Senior-only All Low-income Senior-only All households households households households households households

1, 2, 4, 5, 6 ...... 771 642 1,049 3.0 3.3 1.7 3 ...... 1,344 1,040 1,275 3.3 3.4 2.3 3, 7, 8 ...... 782 609 1,020 4.0 4.5 2.7 9 ...... 649 486 864 4.4 5.0 3.1 Note: The savings represent the average LCC for affected consumers. The PBP is measured relative to the baseline product.

c. Rebuttable Presumption Payback values, and, as required by EPCA, based but the NWGF AFUE TSLs do not. Period the energy use calculation on the DOE While DOE examined the rebuttable- test procedure for residential furnaces presumption criterion, DOE routinely As discussed in section III.E.2, EPCA and boilers. Id. In contrast, the PBPs conducts an economic analysis that establishes a rebuttable presumption presented in section V.B.1.a of this considers the full range of impacts to that an energy conservation standard is SNOPR were calculated using the consumer, manufacturer, Nation, economically justified if the increased distributions that reflect the range of and environment under 42 U.S.C. purchase cost for a product that meets energy use in the field. 6295(o)(2)(B)(i). The results of that the standard is less than three times the Table V.16 and Table V.17 present the analysis serve as the basis for DOE to value of the first-year energy savings rebuttable-presumption payback periods definitively evaluate the economic resulting from the standard. (42 U.S.C. for the considered AFUE and standby 6295(o)(2)(B)(iii)) In calculating a mode/off mode TSLs for NWGFs and justification for a potential standard rebuttable presumption payback period MHGFs, respectively. The payback level, thereby supporting or rebutting for each of the considered TSLs for periods for all MHGF AFUE TSLs meet the results of any preliminary NWGFs and MHGFs, DOE used discrete the rebuttable-presumption criterion, determination of economic justification.

TABLE V.16—REBUTTABLE-PRESUMPTION PAYBACK PERIODS (YEARS) FOR NWGF AND MHGF AFUE STANDARDS

Non- TSL weatherized Mobile home gas furnaces gas furnaces

1 ...... 3.28 0.91 2 ...... 3.56 0.91 3 ...... 3.08 1.50 4 ...... 3.65 0.91 5 ...... 3.88 0.91 6 ...... 3.74 0.91 7 ...... 4.03 1.43 8 ...... 3.89 1.43 9 ...... 4.45 1.50

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TABLE V.17—REBUTTABLE-PRESUMPTION PAYBACK PERIODS (YEARS) FOR NWGF AND MHGF STANDBY MODE AND OFF MODE STANDARDS

Standby and off mode elec- Non- TSL trical power weatherized Mobile home consumption gas furnaces gas furnaces (Watts)

1 ...... 9.5 1.33 1.20 2 ...... 9.2 9.99 9.01 3 ...... 8.5 7.71 6.95

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

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

TABLE V.18—MANUFACTURER IMPACT ANALYSIS: AFUE STANDARDS RESULTS FOR NON-WEATHERIZED GAS FURNACES AND MOBILE HOME GAS FURNACES—PRESERVATION OF GROSS MARGIN PERCENTAGE MARKUP SCENARIO

Trial standard level Units No-new-stand- ards case 1 2 3 4

INPV ...... 2015$ millions...... 1,104.3 1,097.0 1,101.7 1,104.6 1,119.2 Change in INPV ...... 2015$ millions ...... (7.3) (2.7) 0.3 14.8 % ...... (0.7) (0.2) 0.0 1.3 FCF (2021) ...... 2015$ millions ...... 69.3 56.8 52.8 43.4 50.7 Change in FCF ...... % ...... (18.0) (23.8) (37.4) (26.9) Product Conversion Costs ...... 2015$ millions ...... 18.2 18.2 26.9 18.2 Capital Conversion Costs ...... 2015$ millions ...... 15.9 24.8 40.1 29.5 Total Conversion Costs ...... 2015$ millions ...... 34.1 43.0 67.0 47.8

Trial standard level Units 5 6 7 8 9

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

TABLE V.19—MANUFACTURER IMPACT ANALYSIS: AFUE STANDARDS RESULTS FOR NON-WEATHERIZED GAS FURNACES AND MOBILE HOME GAS FURNACES—THREE-TIER MARKUP SCENARIO

Trial standard level Units No-new-stand- ards case 1 2 3 4

INPV ...... 2015$ millions ...... 1,104.3 1,031.6 1,005.8 846.8 1,007.0 Change in INPV ...... 2015$ millions ...... (72.8) (98.5) (257.6) (97.4) % ...... (6.6) (8.9) (23.3) (8.8) FCF (2021) ...... 2015$ millions ...... 69.3 56.8 52.8 43.4 50.7 Change in FCF ...... % ...... (18.0) (23.8) (37.4) (26.9) Product Conversion Costs ...... 2015$ millions ...... 18.2 18.2 26.9 18.2 Capital Conversion Costs ...... 2015$ millions ...... 15.9 24.8 40.1 29.5 Total Conversion Costs ...... 2015$ millions ...... 34.1 43.0 67.0 47.8

Trial standard level Units 5 6 7 8 9

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

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

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

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

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and product conversion costs estimated conversion costs that DOE estimates DOE considered the impacts of for each AFUE standard TSL. NWGF and MHGF manufacturers would standby mode and off mode features incur at each TSL. The impacts of under two markup scenarios to Cash-Flow Analysis Results for Non- standby mode and off mode features represent the upper and lower bounds Weatherized Gas Furnaces and Mobile were analyzed for the same product of industry impacts: (1) A preservation Home Gas Furnaces Standby Mode and classes as the amended AFUE standards, of gross margin percentage scenario, and Off Mode Standards but at different efficiency levels, which (2) a per-unit preservation of operating Table V.20 and Table V.21 present the correspond to a different set of profit scenario. The preservation of financial impacts of standby mode and technology options for reducing standby gross margin percentage scenario off mode standards on NWGF and mode and off mode energy represents the upper bound of impacts MHGF manufacturers. These impacts consumption. Therefore, the TSLs in the (less severe), while the preservation of are represented by changes in INPV and standby mode and off mode analysis do per-unit operating profit scenario free cash flow (FCF) in the year before not correspond to the TSLs in the AFUE represents the lower bound of impacts the standard (2021) as well as by the analysis. (more severe).

TABLE V.20—MANUFACTURER IMPACT ANALYSIS: STANDBY MODE AND OFF MODE STANDARDS RESULTS FOR NON- WEATHERIZED GAS FURNACE AND MOBILE HOME GAS FURNACE STANDARDS—PRESERVATION OF GROSS MARGIN PERCENTAGE MARKUP SCENARIO

No-new- Trial standard level Units standards case 1 2 3

INPV ...... 2015$ millions .. 1,104.3 1,104.1 1,108.5 1,110.1 Change in INPV ...... 2015$ millions ...... (0.2) 4.1 5.7 % ...... (0.0) 0.4 0.5 Product Conversion Costs ...... 2015$ millions ...... 1.5 1.6 2.1 FCF (2021) ...... 2015$ millions .. 69.3 68.9 68.8 68.7 Change in FCF ...... % ...... (0.6) (0.7) (0.9) Capital Conversion Costs ...... 2015$ millions ......

Total Conversion Costs ...... 2015$ millions ...... 1.5 1.6 2.1 Note: Parentheses indicate negative values.

TABLE V.21—MANUFACTURER IMPACT ANALYSIS: STANDBY MODE AND OFF MODE STANDARDS RESULTS FOR NON- WEATHERIZED GAS FURNACE AND MOBILE HOME GAS FURNACE STANDARDS—PER-UNIT PRESERVATION OF OPER- ATING PROFIT SCENARIO

No-new- Trial standard level Units standards case 1 2 3

INPV ...... 2015$ millions .. 1,104.3 1,104.1 1,101.8 1,100.9 Change in INPV ...... 2015$ millions ...... (0.2) (2.5) (3.4) % ...... (0.0) (0.2) (0.3) FCF (2021) ...... 2015$ millions .. 69.3 68.9 68.8 68.7 Change in FCF ...... % ...... - (0.6) (0.7) (0.9) Product Conversion Costs ...... 2015$ millions .. 1.5 1.6 2.1 Capital Conversion Costs ...... 2015$ millions ......

Total Conversion Costs ...... 2015$ millions ...... 1.5 1.6 2.1 Note: Parentheses indicate negative values.

At TSL 1, DOE estimates impacts on of less than one percent to an increase less than one percent compared to the INPV for NWGF and MHGF of less than one percent. At this no-new-standards case value of $69.3 manufacturers to decrease by less than potential standard level, industry free million in 2021. DOE expects one percent in both markup scenarios cash flow is estimated to decrease by conversion costs for standby mode and (preservation of gross margin and per- less than one percent compared to the off mode to be $2.1 million. unit preservation of operating profit). At no-new-standards case value of $69.3 DOE seeks comments, information, this potential standard level, industry million in 2021. DOE expects and data on the capital conversion costs free cash flow is estimated to decrease conversion costs for standby mode and and product conversion costs estimated by less than one percent compared to off mode to be $1.6 million. for each standby mode and off mode the no-new-standards case value of At TSL 3, DOE estimates impacts on TSL. $69.3 million in 2021. DOE expects INPV for NWGF and MHGF b. Direct Impacts on Employment conversion costs for standby mode and manufacturers to range from a decrease off mode to be $1.5 million. of less than one percent to an increase To quantitatively assess the potential At TSL 2, DOE estimates impacts on of less than one percent. At this impacts of amended energy INPV for NWGF and MHGF potential standard level, industry free conservation standards on direct manufacturers to range from a decrease cash flow is estimated to decrease by employment in the NWGF and MHGF

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industry, DOE used the GRIM to the analysis period. The total labor that are closely associated with estimate the domestic labor expenditures in each year are calculated production operations, such as materials expenditures and number of direct by multiplying the MPCs by the labor handling tasks using forklifts, are also employees in the no-new-standards case percentage of MPCs. included as production labor. DOE’s and in each of the standards cases The total labor expenditures in the estimates only account for production during the analysis period. DOE used GRIM were then converted to domestic workers who manufacture the specific statistical data from the U.S. Census production employment levels by products covered by this rulemaking. Bureau’s 2014 Annual Survey of dividing production labor expenditures The total direct employment impacts 193 by the annual payment per production Manufacturers, the results of the calculated in the GRIM are represented engineering analysis, and interviews worker (production worker hours times by changes in the total number of with manufacturers to determine the the labor rate found in the U.S. Census production workers between the no- inputs necessary to calculate industry- Bureau’s 2014 Annual Survey of wide labor expenditures and domestic Manufacturers). The production worker new-standards case and the standards direct employment levels. Labor estimates in this section only cover cases for NWGFs and MHGFs. Table expenditures related to manufacturing workers up to the line-supervisor level V.22 shows the range of potential of the product are a function of the labor who are directly involved in fabricating impacts of potential amended energy intensity of the product, the sales and assembling a product within an conservation standards on U.S. volume, and an assumption that wages original equipment manufacturer (OEM) production workers involved in the remain fixed in real terms throughout facility. Workers performing services manufacturing of NWGFs and MHGFs. TABLE V.22—POTENTIAL CHANGES IN THE TOTAL NUMBER OF NON-WEATHERIZED GAS FURNACE AND MOBILE HOME GAS FURNACE PRODUCTION WORKERS IN 2022

Trial standard level No-New-Standards case 1 2 3 4

Potential Domestic Production Workers in 2022 ...... 1,709 ...... 1,709 to 1,770 ...... 1,709 to 1,799 ...... 1,709 to 1,825 ...... 1,709 to 1,867. Potential Change in Domestic Production Workers in ...... (1,709) to 61 ...... (1,709) to 90 ...... (1,709) to 116 ...... (1,709) to 158. 2022 *.

Trial standard level 5 6 7 8 9

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

In the absence of amended energy DOE notes that its estimates of the c. Impacts on Manufacturing Capacity conservation standards, DOE estimates impacts on direct employment are based that the residential furnace industry on the analysis of amended AFUE According to manufacturer feedback, would employ 1,709 domestic energy conservation standards only. current production facilities may not be production workers in 2022. The upper Standby mode and off mode technology able to accommodate a large shift to end of the range estimates an increase options considered in the engineering condensing NWGFs, if such shift were in the number of domestic workers analysis would result in component required by an amended energy conservation standard. However, producing NWGF and MHGF after swaps, which would not make the manufacturers would be able to add implementation of an amended energy product significantly more complex and capacity and adjust product designs in conservation standard at each TSL. It would not be difficult to implement. the five year period between the assumes manufacturers would continue While some product development effort announcement year of the standard and to produce the same scope of covered would be required, DOE does not expect the standby mode and off mode the compliance year of the standard. products within the United States and standard to significantly affect the DOE interviewed manufacturers would require some additional labor to amount of labor required in production. representing over 50 percent of industry produce more-efficient products. To Therefore, DOE did not conduct a sales. None of the interviewed establish a conservative lower bound, quantitative domestic manufacturing manufacturers expressed concern over DOE assumes the entire industry shifts employment impact analysis for the the industry’s ability increase the production to foreign countries. Some proposed standby mode and off mode capacity of production lines that meet large manufacturers are currently standards. required efficiency levels at TSLs 1 producing covered products in These employment impact through 8 to meet consumer demand. At countries with lower labor costs, and an conclusions are independent of TSL 9, technical uncertainty was amended standard that necessitates conclusions regarding indirect expressed by manufacturers that do not large increases in labor content or large employment impacts in the broader offer 98-percent AFUE products today, expenditures to re-tool facilities could United States economy, which are as they were unsure of what production cause other manufacturers to re-evaluate discussed in chapter 15 of the SNOPR lines changes would be needed to meet production siting options. TSD. an amended standard set at max-tech.

193 U.S. Census Bureau, Annual Survey of Industry Groups and Industries (2014) (Available at http://www.census.gov/manufacturing/asm/ Manufacturers: General Statistics: Statistics for index.html).

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d. Impacts on Subgroups of Regulatory Flexibility Analysis. In affecting the same manufacturer can Manufacturers summary, the Small Business strain profits and can lead companies to Administration (SBA) defines a ‘‘small abandon product lines or markets with Using average cost assumptions to business’’ as having 1,250 employees or lower expected future returns than develop an industry cash-flow estimate less for NAICS 333415, ‘‘Air- is not adequate for assessing differential competing products. For these reasons, Conditioning and Warm Air Heating impacts among subgroups of DOE conducts an analysis of cumulative Equipment and Commercial and regulatory burden as part of its manufacturers. Small manufacturers, Industrial Refrigeration Equipment niche players, or manufacturers rulemakings pertaining to appliance Manufacturing.’’ Based on this efficiency. exhibiting a cost structure that differs identification, DOE found three For the cumulative regulatory burden substantially from the industry average domestic manufacturers in the industry analysis, DOE examines other could be affected disproportionately. that qualify as a small business. For a regulations that could affect NWGF and DOE used the results of the industry discussion of the impacts on the small characterization to group manufacturers business manufacturer subgroup, see the MHGF manufacturers that will take exhibiting similar characteristics. Regulatory Flexibility Analysis in effect approximately three years before Specifically, DOE identified small section VI.B of this SNOPR and chapter or after the 2022 compliance date or businesses as a manufacturer subgroup 12 of the SNOPR TSD. during the period between publication that it believes could be of the amended energy conservation disproportionally impacted by energy e. Cumulative Regulatory Burden standards for NWGF and MHGF and conservation standards and would While any one regulation may not when compliance with such standards require a separate analysis in the MIA. impose a significant burden on is required. In interviews, DOE did not identify any other manufacturers, the combined effects of manufacturers cited Federal regulations adversely impacted manufacturer several recent or impending regulations on equipment other than NWGF and subgroups for this rulemaking based on may have serious consequences for MHGF that contribute to their the results of the industry some manufacturers, groups of cumulative regulatory burden. The characterization. manufacturers, or an entire industry. compliance years and expected industry DOE analyzes the impacts on small Assessing the impact of a single conversion costs of relevant energy businesses in a separate analysis in regulation may overlook this cumulative conservation standards are presented in section VI.B of this SNOPR as part of the regulatory burden. Multiple regulations Table V.23.

TABLE V.23—COMPLIANCE DATES AND EXPECTED CONVERSION COSTS OF FEDERAL ENERGY CONSERVATION STANDARDS AFFECTING NON-WEATHERIZED GAS FURNACE AND MOBILE HOME GAS FURNACE MANUFACTURERS

Number of Number of manufacturers Approximate Industry Industry Federal energy conservation standards manufacturers * from today’s standards conversion conversion rule affected ** year costs costs/revenue ***

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

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

TABLE V.24—POTENTIAL AFUE STANDARDS: CUMULATIVE NATIONAL ENERGY SAVINGS FOR NON-WEATHERIZED GAS FURNACES AND MOBILE HOME GAS FURNACES SHIPPED IN 2022–2051 [Quads]

Trial standard level Energy savings 1 2 3 4 5 6 7 8 9

Primary energy...... 0.77 1.51 1.53 1.95 2.17 2.40 3.37 3.52 4.66 FFC energy...... 0.88 1.75 1.81 2.27 2.78 2.86 4.17 4.15 5.72

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

TABLE V.25—POTENTIAL AFUE STANDARDS: CUMULATIVE FULL-FUEL-CYCLE NATIONAL ENERGY SAVINGS FOR NON- WEATHERIZED GAS FURNACES AND MOBILE HOME GAS FURNACES SHIPPED IN 2022–2051); PRODUCT SWITCHING SENSITIVITY ANALYSIS [Quads]

Trial standard level Switching case 1 2 3 4 5 6 7 8 9

Default ...... 0.88 1.75 1.81 2.27 2.78 2.86 4.17 4.15 5.72 No Switching...... 0.99 2.12 2.35 2.78 4.89 3.95 6.65 5.49 8.59 High ...... 0.84 1.66 1.70 2.15 2.44 2.60 3.81 3.81 5.29

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TABLE V.25—POTENTIAL AFUE STANDARDS: CUMULATIVE FULL-FUEL-CYCLE NATIONAL ENERGY SAVINGS FOR NON- WEATHERIZED GAS FURNACES AND MOBILE HOME GAS FURNACES SHIPPED IN 2022–2051); PRODUCT SWITCHING SENSITIVITY ANALYSIS—Continued [Quads]

Trial standard level Switching case 1 2 3 4 5 6 7 8 9

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

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

TABLE V.26—POTENTIAL STANDBY MODE AND OFF MODE STANDARDS: CUMULATIVE NATIONAL ENERGY SAVINGS FOR NON-WEATHERIZED GAS FURNACES AND MOBILE HOME GAS FURNACES SHIPPED IN 2022–2051 [Quads]

Trial standard level Energy savings TSL 1 TSL 2 TSL 3

Primary energy ...... 0.15 0.18 0.27 FFC energy ...... 0.16 0.19 0.28

OMB Circular A–4 194 requires product shipments. The choice of a Thus, such results are presented for agencies to present analytical results, nine-year period is a proxy for the informational purposes only and are not including separate schedules of the timeline in EPCA for the review of indicative of any change in DOE’s monetized benefits and costs that show certain energy conservation standards analytical methodology. The NES the type and timing of benefits and and potential revision of and sensitivity analysis results based on a 9- costs. Circular A–4 also directs agencies compliance with such revised year analytical period for the AFUE 195 to consider the variability of key standards. The review timeframe TSLs are presented in Table V.27.196 elements underlying the estimates of established in EPCA is generally not The impacts are counted over the benefits and costs. For this rulemaking, synchronized with the product lifetime, lifetime of NWGFs and MHGFs DOE undertook a sensitivity analysis product manufacturing cycles, or other purchased in 2022–2030. using nine, rather than 30, years of factors specific to NWGFs and MHGFs.

TABLE V.27—POTENTIAL AFUE STANDARDS: CUMULATIVE NATIONAL ENERGY SAVINGS FOR NON-WEATHERIZED GAS FURNACES AND MOBILE HOME GAS FURNACES; NINE YEARS OF SHIPMENTS (2022–2030) [Quads]

Trial standard level Energy savings 1 2 3 4 5 6 7 8 9

Primary energy...... 0.23 0.45 0.46 0.57 0.57 0.69 0.93 1.02 1.35 FFC energy...... 0.27 0.52 0.56 0.68 0.77 0.83 1.18 1.22 1.69

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

194 U.S. Office of Management and Budget, compliance date of the previous standards. While 196 DOE presents results based on a nine-year ‘‘Circular A–4: Regulatory Analysis’’ (Sept. 17, adding a 6-year review to the 3-year compliance analytical period only for the AFUE TSLs; the 2003) (Available at www.whitehouse.gov/omb/ period adds up to 9 years, DOE notes that it may percentage difference between nine-year and 30- _ _ circulars a004 a-4/). undertake reviews at any time within the 6 year year results for the standby mode and off mode 195 Section 325(m) of EPCA requires DOE to period and that the 3-year compliance date may TSLs is the same as for the AFUE TSLs. review its standards at least once every 6 years, and yield to the 6-year backstop. A 9-year analysis 197 requires, for certain products, a 3-year period after period may not be appropriate given the variability U.S. Office of Management and Budget, any new standard is promulgated before that occurs in the timing of standards reviews and ‘‘Circular A–4: Regulatory Analysis,’’ section E, compliance is required, except that in no case may the fact that for some consumer products, the (Sept. 17, 2003) (Available at www.whitehouse.gov/ any new standards be required within 6 years of the compliance period is 5 years rather than 3 years. omb/circulars_a004_a-4/).

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TABLE V.28—POTENTIAL AFUE STANDARDS: CUMULATIVE NET PRESENT VALUE OF CONSUMER BENEFITS FOR NON- WEATHERIZED GAS FURNACES AND MOBILE HOME GAS FURNACES SHIPPED IN 2022–2051

Trial standard level Discount rate 1 2 3 4 5 6 7 8 9

(Billion 2015$)

3 percent...... 6.3 12.9 15.7 17.0 23.8 21.7 31.8 29.0 39.5 7 percent...... 1.8 3.7 4.5 4.8 5.6 5.6 7.5 7.4 9.0

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

TABLE V.29—POTENTIAL AFUE STANDARDS: CUMULATIVE NET PRESENT VALUE OF CONSUMER BENEFITS FOR NON- WEATHERIZED GAS FURNACES AND MOBILE HOME GAS FURNACES SHIPPED IN 2022–2051); PRODUCT SWITCHING SENSITIVITY ANALYSIS (2015$)

Trial standard levels Switching case 1 2 3 4 5 6 7 8 9

3-percent Discount Rate

Default ...... 6.3 12.9 15.7 17.0 23.8 21.7 31.8 29.0 39.5 No Switching...... 6.1 12.5 13.8 16.1 24.7 21.7 34.0 30.3 43.2 High ...... 6.3 12.7 14.9 16.5 20.8 20.4 28.9 27.8 35.7 Low ...... 6.4 13.0 16.1 17.3 26.2 22.2 34.0 29.6 41.7

7-percent Discount Rate

Default ...... 1.8 3.7 4.5 4.8 5.6 5.6 7.5 7.4 9.0 No Switching...... 1.8 3.5 4.0 4.5 6.0 5.8 8.3 8.0 10.1 High ...... 1.8 3.5 4.2 4.5 4.5 5.1 6.4 6.9 7.6 Low ...... 1.9 3.7 4.7 4.9 6.5 5.9 8.3 7.7 9.8

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

TABLE V.30—POTENTIAL STANDBY MODE AND OFF MODE STANDARDS: CUMULATIVE NET PRESENT VALUE OF CONSUMER BENEFITS FOR NON-WEATHERIZED GAS FURNACES AND MOBILE HOME GAS FURNACES SHIPPED IN 2022–2051

Trial standard level Discount rate 1 2 3

(billion 2015$)

3 percent ...... 2.5 2.5 4.0 7 percent ...... 0.9 0.8 1.3

The NPV results for AFUE standards the lifetime of products purchased in indicative of any change in DOE’s based on the aforementioned 9-year 2022–2030. As mentioned previously, analytical methodology or decision analytical period are presented in Table such results are presented for criteria. V.31.198 The impacts are counted over informational purposes only and are not

198 DOE presents results based on a nine-year percentage difference between nine-year and 30- year results for the standby mode and off mode analytical period only for the AFUE TSLs; the TSLs is the same as for the AFUE TSLs.

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TABLE V.31—POTENTIAL AFUE STANDARDS: CUMULATIVE NET PRESENT VALUE OF CONSUMER BENEFITS FOR NON- WEATHERIZED GAS FURNACES AND MOBILE HOME GAS FURNACES; NINE YEARS OF SHIPMENTS (2022–2030)

Trial standard levels Discount rate 1 2 3 4 5 6 7 8 9

(billion 2015$)

3 percent...... 2.1 4.2 5.2 5.5 6.9 6.7 9.3 8.9 11.4 7 percent...... 0.8 1.6 2.0 2.1 2.2 2.4 2.9 3.1 3.4

The above results reflect the use of the jobs is so small that it would be regarding these potential impacts. See default, moderately decreasing price imperceptible in national labor statistics the ADDRESSES section for information trend to estimate the change in product and might be offset by other, to send comments to DOJ. price for NWGFs and MHGFs over the unanticipated effects on employment. 6. Need of the Nation To Conserve analysis period (see section IV.F.1 of Chapter 16 of the SNOPR TSD presents Energy this document). DOE also conducted a detailed results regarding anticipated sensitivity analysis that considered one indirect employment impacts. Enhanced energy efficiency, where scenario with a constant trend and one 4. Impact on Utility or Performance of economically justified, improves the scenario with a slightly higher rate of Products Nation’s energy security, strengthens the price decline than the reference case. economy, and reduces the The results of these alternative cases are As discussed in sections III.A and environmental impacts (costs) of energy presented in appendix 10C of the IV.B of this notice, DOE has tentatively production. Chapter 15 in the SNOPR SNOPR TSD. In the high-price-decline concluded that the standards proposed TSD presents the estimated impacts on case, the NPV of consumer benefits is in this SNOPR would not lessen the electricity generating capacity, relative higher than in the default case. In the utility or performance of the NWGFs to the no-new-standards case, for the constant price trend case, the NPV of and MHGFs under consideration in this TSLs that DOE considered in this consumer benefits is lower than in the rulemaking. Manufacturers of these rulemaking. default case. products currently offer units that meet or exceed the proposed standards. Energy conservation resulting from c. Indirect Impacts on Employment potential standards for NWGFs and 5. Impact of Any Lessening of MHGFs is expected to yield DOE expects that amended energy Competition environmental benefits in the form of conservation standards for NWGFs and DOE considered any lessening of reduced emissions of certain air MHGFs would reduce energy bills for competition that would be likely to pollutants and greenhouse gases. Table consumers of those products, with the result from new or amended standards. V.32 provides DOE’s estimate of resulting net savings being redirected to As discussed in section III.E.1.e, the cumulative emissions reductions other forms of economic activity. These Attorney General determines the expected to result from the AFUE TSLs expected shifts in spending and impact, if any, of any lessening of considered in this rulemaking. Table economic activity could affect the competition likely to result from a V.32 includes site and power sector demand for labor. As described in proposed standard, and transmits such emissions and upstream emissions. The section IV.N of this document, DOE determination in writing to the increase in emissions of SO2, Hg, and used an input/output model of the U.S. Secretary, together with an analysis of N2O is due to a fraction of NWGF economy to estimate indirect the nature and extent of such impact. To consumers that are projected to switch employment impacts of the TSLs that assist the Attorney General in making from gas furnaces to electric heat pumps DOE considered in this rulemaking. this determination, DOE has provided and electric furnaces in response to the DOE understands that there are DOJ with copies of this SNOPR and the potential standards. Table V.33 provides uncertainties involved in projecting accompanying TSD for review. DOE will DOE’s estimate of cumulative emissions employment impacts, especially consider DOJ’s comments on the reductions expected to result from the changes in the later years of the proposed rule in determining whether standby mode and off mode TSLs analysis. Therefore, DOE generated to proceed to a final rule, and if so, DOE considered in this rulemaking. Table results for near-term timeframes (2022– will publish and respond to DOJ’s V.33 includes both power sector 2027), where these uncertainties are comments in that document. DOE emissions and upstream emissions. All reduced. invites comment from the public of the emissions were calculated using The results suggest that the proposed regarding the competitive impacts that the multipliers discussed in section standards would be likely to have a are likely to result from this proposed IV.K. DOE reports annual emissions negligible impact on the net demand for rule. In addition, stakeholders may also reductions for each TSL in chapter 13 of labor in the economy. The net change in provide comments separately to DOJ the SNOPR TSD.

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TABLE V.32—POTENTIAL AFUE STANDARDS: CUMULATIVE EMISSIONS REDUCTION FOR NON-WEATHERIZED GAS FURNACES AND MOBILE HOME GAS FURNACES SHIPPED IN 2022–2051

Trial standard level 1 2 3 4 5 6 7 8 9

Site and Power Sector Emissions

CO2 (million metric tons) ...... 39.3 75.8 74.3 97.5 90.5 115 151 173 212 SO2 (thousand tons)...... (7.74) (25.2) (41.1) (37.1) (155) (75.7) (176) (86.7) (221) NOX (thousand tons)...... 66.9 136 144 177 251 232 359 329 486 Hg (tons)...... (0.0) (0.1) (0.2) (0.1) (0.6) (0.3) (0.7) (0.3) (0.8) CH4 (thousand tons)...... (0.1) (1.25) (3.04) (2.13) (15.3) (6.04) (16.4) (6.09) (20.1) N2O (thousand tons) ...... (0.1) (0.3) (0.6) (0.4) (2.46) (1.06) (2.70) (1.14) (3.36)

Upstream Emissions

CO2 (million metric tons)...... 6.84 14.7 16.8 19.6 35.6 27.7 47.5 37.7 63.0 SO2 (thousand tons)...... (0.1) (0.4) (0.6) (0.5) (2.43) (1.14) (2.73) (1.29) (3.43) NOX (thousand tons)...... 111 239 275 319 595 455 788 618 1,042 Hg (tons)...... (0.0) (0.0) (0.0) (0.0) (0.0) (0.0) (0.01) (0.0) (0.0) CH4 (thousand tons)...... 669 1,451 1,678 1,939 3,668 2,783 4,841 3,764 6,400 N2O (thousand tons) ...... 0.01 0.01 0.001 0.01 (0.04) (0.00) (0.04) 0.01 (0.04)

Total FFC Emissions

CO2 (million metric tons)...... 46.1 90.5 91.1 117 126 143 198 211 275 SO2 (thousand tons)...... (7.84) (25.6) (41.7) (37.6) (157) (76.8) (179) (88.0) (225) NOX (thousand tons)...... 178 375 419 496 846 687 1,147 947 1,528 Hg (tons)...... (0.03) (0.1) (0.2) (0.1) (0.6) (0.3) (0.7) (0.3) (0.8) CH4 (thousand tons)...... 669 1,450 1,675 1,937 3,653 2,777 4,825 3,758 6,380 CH4 (million tons CO2eq) * ...... 18.7 40.6 46.9 54.2 102.3 77.7 135.1 105.2 178.6 N2O (thousand tons)...... (0.05) (0.3) (0.6) (0.4) (2.50) (1.07) (2.74) (1.13) (3.40) N2O (thousand tons CO2eq) * ...... (12.6) (71.9) (147) (114) (664) (283) (727) (300) (900)

*CO2eq is the quantity of CO2 that would have the same global warming potential (GWP). Note: Parentheses indicate negative values (an increase in emissions).

TABLE V.33—POTENTIAL STANDBY MODE AND OFF MODE STANDARDS: CUMULATIVE EMISSIONS REDUCTION FOR NON- WEATHERIZED GAS FURNACES AND MOBILE HOME GAS FURNACES SHIPPED IN 2022–2051

Trial standard level 1 2 3

Power Sector Emissions

CO2 (million metric tons) ...... 8.58 10.3 15.4 SO2 (thousand tons) ...... 5.01 6.01 9.01 NOX (thousand tons) ...... 9.52 11.4 17.1 Hg (tons) ...... 0.02 0.02 0.03 CH4 (thousand tons) ...... 0.7 0.9 1.30 N2O (thousand tons) ...... 0.1 0.1 0.2

Upstream Emissions

CO2 (million metric tons) ...... 0.5 0.6 0.9 SO2 (thousand tons) ...... 0.1 0.1 0.2 NOX (thousand tons) ...... 7.14 8.57 12.8 Hg (tons) ...... 0.0002 0.0002 0.0004 CH4 (thousand tons) ...... 39.5 47.4 71.0 N2O (thousand tons) ...... 0.0 0.0 0.0

Total FFC Emissions

CO2 (million metric tons) ...... 9.07 10.9 16.3 SO2 (thousand tons) ...... 5.10 6.12 9.17 NOX (thousand tons) ...... 16.7 20.0 30.0 Hg (tons) ...... 0.02 0.02 0.03 CH4 (thousand tons) ...... 40.2 48.2 72.3 CH4 (thousand tons CO2eq) * ...... 1,126 1,351 2,025 N2O (thousand tons) ...... 0.1 0.1 0.2 N2O (thousand tons CO2eq) * ...... 28.3 33.9 50.9

*CO2eq is the quantity of CO2 that would have the same global warming potential (GWP).

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As part of the analysis for this uses a 5-percent discount rate), $40.6/ AFUE TSL. Table V.35 presents the supplemental proposed rule, DOE metric ton (the average value from a global value of CO2 emissions estimated monetary benefits likely to distribution that uses a 3-percent reductions at each standby mode and off result from the reduced emissions of discount rate), $63.2/metric ton (the mode TSL. For each of the four cases, CO2 and NOX that DOE estimated for average value from a distribution that DOE calculated a present value of the each of the considered TSLs for NWGFs uses a 2.5-percent discount rate), and stream of annual values using the same and MHGFs. As discussed in section $118/metric ton (the 95th-percentile discount rate as was used in the studies IV.L of this document, for CO2, DOE value from a distribution that uses a 3- upon which the dollar-per-ton values used the most recent values for the SCC percent discount rate). The values for are based. DOE calculated domestic developed by an interagency process. later years are higher due to increasing values as a range from 7 percent to 23 The four sets of SCC values for CO 2 damages (public health, economic, and percent of the global values; these emissions reductions in 2015 resulting environmental) as the projected results are presented in chapter 14 of from that process (expressed in 2015$) magnitude of climate change increases. are represented by $12.4/metric ton (the Table V.34 presents the global value the SNOPR TSD. average value from a distribution that of CO2 emissions reductions at each

TABLE V.34—POTENTIAL AFUE STANDARDS: ESTIMATES OF GLOBAL PRESENT VALUE OF CO2 EMISSIONS REDUCTION FOR NON-WEATHERIZED GAS FURNACES AND MOBILE HOME GAS FURNACES SHIPPED IN 2022–2051

SCC case * TSL 5% Discount rate, 3% Discount rate, 2.5% Discount rate, 3% Discount rate, average average average 95th percentile

(million 2015$)

Site and Power Sector Emissions

1 ...... 239 1,156 1,862 3,524 2 ...... 453 2,208 3,564 6,734 3 ...... 464 2,229 3,582 6,806 4 ...... 580 2,831 4,572 8,634 5 ...... 497 2,514 4,092 7,678 6 ...... 671 3,302 5,342 10,071 7 ...... 856 4,264 6,918 13,014 8 ...... 1,019 4,994 8,072 15,232 9 ...... 1,226 6,062 9,816 18,499

Upstream Emissions

1 ...... 42.0 202 325 616 2 ...... 89.4 432 696 1,317 3 ...... 105 503 808 1,535 4 ...... 119 575 927 1,752 5 ...... 218 1,049 1,690 3,198 6 ...... 168 814 1,312 2,480 7 ...... 289 1,397 2,251 4,258 8 ...... 229 1,109 1,786 3,378 9 ...... 386 1,858 2,992 5,663

Total FFC Emissions

1 ...... 281 1,358 2,188 4,140 2 ...... 542 2,640 4,260 8,050 3 ...... 569 2,733 4,391 8,341 4 ...... 699 3,406 5,499 10,387 5 ...... 715 3,564 5,783 10,875 6 ...... 839 4,116 6,653 12,551 7 ...... 1,145 5,662 9,169 17,272 8 ...... 1,248 6,103 9,858 18,610 9 ...... 1,612 7,920 12,808 24,162 * For each of the four cases, the corresponding SCC value for emissions in 2015 is $12.4, $40.6, $63.2, and $118 per metric ton (2015$). The values are for CO2 only (i.e., not CO2eq of other greenhouse gases).

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TABLE V.35—POTENTIAL STANDBY MODE AND OFF MODE STANDARDS: ESTIMATES OF GLOBAL PRESENT VALUE OF CO2 EMISSIONS REDUCTION FOR NON-WEATHERIZED GAS FURNACES AND MOBILE HOME GAS FURNACES SHIPPED IN 2022–2051

SCC Case * TSL 5% Discount rate, 3% Discount rate, 2.5% Discount rate, 3% Discount rate, average average average 95th percentile

(million 2015$)

Power Sector Emissions

1 ...... 51.8 251 404 764 2 ...... 62.1 301 485 917 3 ...... 93.1 451 728 1,375

Upstream Emissions

1 ...... 2.96 14.4 23.3 44.0 2 ...... 3.56 17.3 28.0 52.8 3 ...... 5.33 26.0 42.0 79.2

Total FFC Emissions

1 ...... 54.7 265 428 808 2 ...... 65.7 318 513 970 3 ...... 98.4 477 770 1,454 * For each of the four cases, the corresponding SCC value for emissions in 2015 is $12.4, $40.6, $63.2, and $118 per metric ton (2015$). The values are for CO2 only (i.e., not CO2eq of other greenhouse gases).

DOE is well aware that scientific and well as other methodological MHGFs. The dollar-per-ton values that economic knowledge about the assumptions and issues. Consistent with DOE used are discussed in section IV.L contribution of CO2 and other GHG DOE’s legal obligations, and taking into of this document. Table V.36 presents emissions to changes in the future account the uncertainty involved with the cumulative present values for NOX global climate and the potential this particular issue, DOE has included emissions reductions for each AFUE resulting damages to the world economy in this proposed rule the most recent TSL calculated using 7-percent and 3- continues to evolve rapidly. Thus, any SCC values resulting from the percent discount rates. Table V.37 value placed on reduced CO2 emissions interagency review process. DOE notes, presents the cumulative present values in this rulemaking is subject to change. however, that the proposed standards for NO emissions for each standby DOE, together with other Federal X would be economically justified even mode and off mode TSL calculated agencies, will continue to review without inclusion of monetized benefits using 7-percent and 3-percent discount various methodologies for estimating of reduced CO and NO emissions. 2 X rates. These tables present values that the monetary value of reductions in CO2 DOE also estimated the cumulative and other GHG emissions. This ongoing monetary value of the economic benefits use the low dollar-per-ton values, which reflect DOE’s primary estimate. Results review will consider the comments on associated with NOX emissions this subject that are part of the public reductions anticipated to result from the that reflect the range of NOX dollar-per- record for this and other rulemakings, as considered TSLs for NWGFs and ton values are presented in Table V.40.

TABLE V.36—POTENTIAL AFUE STANDARDS: ESTIMATES OF PRESENT VALUE OF NOX EMISSIONS REDUCTION FOR NON- WEATHERIZED GAS FURNACES AND MOBILE HOME GAS FURNACES SHIPPED IN 2022–2051 *

TSL 3% Discount rate 7% Discount rate

(million 2015$)

Site and Power Sector Emissions

1 ...... (24.5) (9.29) 2 ...... (78.7) (29.6) 3 ...... (126) (46.8) 4 ...... (116) (43.3) 5 ...... (479) (179) 6 ...... (235) (87.7) 7 ...... (545) (203) 8 ...... (269) (100.5) 9 ...... (684) (254)

Upstream Emissions

1 ...... 179 62.3 2 ...... 384 133 3 ...... 456 163

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TABLE V.36—POTENTIAL AFUE STANDARDS: ESTIMATES OF PRESENT VALUE OF NOX EMISSIONS REDUCTION FOR NON- WEATHERIZED GAS FURNACES AND MOBILE HOME GAS FURNACES SHIPPED IN 2022–2051 *—Continued

TSL 3% Discount rate 7% Discount rate

(million 2015$)

4 ...... 511 177 5 ...... 958 334 6 ...... 730 252 7 ...... 1,267 440 8 ...... 990 341 9 ...... 1,685 587

Total FFC Emissions

1 ...... 155 53.1 2 ...... 305 103 3 ...... 330 116 4 ...... 396 133 5 ...... 480 155 6 ...... 495 165 7 ...... 722 237 8 ...... 720 241 9 ...... 1,000 333 * Results are based on the low benefit-per-ton values. Note: Parentheses indicate negative values (an increase in emissions).

TABLE V.37—POTENTIAL STANDBY MODE AND OFF MODE STANDARDS: ESTIMATES OF PRESENT VALUE OF NOX EMIS- SIONS REDUCTION FOR NON-WEATHERIZED GAS FURNACES AND MOBILE HOME GAS FURNACES SHIPPED IN 2022– 2051 *

TSL 3% Discount rate 7% Discount rate

(million 2015$)

Power Sector Emissions

1 ...... 14.9 5.1 2 ...... 17.9 6.1 3 ...... 26.8 9.1

Upstream Emissions

1 ...... 11.2 3.7 2 ...... 13.4 4.5 3 ...... 20.1 6.7

Total FFC Emissions

1 ...... 26.0 8.8 2 ...... 31.2 10.6 3 ...... 46.8 15.8 * Results are based on the low benefit-per-ton values.

7. Other Factors can be viewed as a complement to the presents the NPV values that result from The Secretary of Energy, in NPV of the consumer savings calculated adding the estimates of the potential determining whether a standard is for each TSL considered in this economic benefits resulting from economically justified, may consider rulemaking. Table V.38 presents the reduced CO2 and NOX emissions in each any other factors that the Secretary NPV values that result from adding the of four valuation scenarios to the NPV deems to be relevant. (42 U.S.C. estimates of the potential economic of consumer savings calculated for each 6295(o)(2)(B)(i)(VII)) No other factors benefits resulting from reduced CO2 and standby mode and off mode TSL for were considered in this analysis. NOX emissions in each of four valuation NWGFs and MHGFs considered in this scenarios to the NPV of consumer rulemaking, at both a 7-percent and 3- 8. Summary of National Economic savings calculated for each AFUE TSL percent discount rate. The CO2 values Impacts for NWGFs and MHGFs considered in used in the columns of each table The NPV of the monetized benefits this rulemaking, at both a 7-percent and correspond to the four sets of SCC associated with emissions reductions 3-percent discount rate. Table V.39 values discussed above.

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TABLE V.38—POTENTIAL AFUE STANDARDS: NET PRESENT VALUE OF CONSUMER SAVINGS COMBINED WITH PRESENT VALUE OF MONETIZED BENEFITS FROM CO2 AND NOX EMISSIONS REDUCTIONS *

Consumer NPV at 3% discount rate added with: TSL SCC case $12.4/t ton SCC case $40.6/t and SCC case $63.2/t and SCC case $118/t and and 3% low NOX values 3% low NOX values 3% low NOX values 3% low NOX values

(billion 2015$)

1 ...... 6.78 7.86 8.69 10.6 2 ...... 13.8 15.9 17.5 21.3 3 ...... 16.6 18.7 20.4 24.4 4 ...... 18.1 20.8 22.9 27.8 5 ...... 25.0 27.8 30.1 35.1 6 ...... 23.0 26.3 28.8 34.7 7 ...... 33.7 38.2 41.7 49.8 8 ...... 30.9 35.8 39.6 48.3 9 ...... 42.1 48.4 53.3 64.6

Consumer NPV at 7% Discount Rate added with:

TSL SCC case $12.4/t and SCC case $40.6/t and SCC case $63.2/t and SCC case $118/t and 7% low NOX values 7% low NOX values 7% low NOX values 7% low NOX values

(billion 2015$)

1 ...... 2.17 3.25 4.08 6.03 2 ...... 4.31 6.41 8.03 11.8 3 ...... 5.20 7.36 9.02 13.0 4 ...... 5.60 8.30 10.4 15.3 5 ...... 6.51 9.36 11.6 16.7 6 ...... 6.65 9.92 12.5 18.4 7 ...... 8.90 13.4 16.9 25.0 8 ...... 8.91 13.8 17.5 26.3 9 ...... 10.9 17.2 22.1 33.5

* The SCC case values represent the global SCC in 2015, in 2015$, for each case. The low NOX value in 2022, in 2015$, is $3,814/ton in the 3-percent discount rate case and $3,476/ton in the 7-percent discount rate case. The high NOX value in 2022, in 2015$, is $8695/ton in the 3- percent discount rate case and $7,837/ton in the 7-percent discount rate case.

TABLE V.39—POTENTIAL STANDBY MODE AND OFF MODE STANDARDS: NET PRESENT VALUE OF CONSUMER SAVINGS COMBINED WITH PRESENT VALUE OF MONETIZED BENEFITS FROM CO2 AND NOX EMISSIONS REDUCTIONS

Consumer NPV at 3% discount rate added with: TSL SCC case $12.4/t ton SCC case $40.6/t and SCC case $63.2/t and SCC case $118/t and and 3% low NOX values 3% low NOX values 3% low NOX values 3% low NOX values

(Billion 2015$)

1 ...... 2.60 2.81 2.97 3.35 2 ...... 2.57 2.82 3.01 3.47 3 ...... 4.11 4.49 4.78 5.46

Consumer NPV at 7% Discount Rate added with:

TSL SCC case $12.4/t and SCC case $40.6/t and SCC case $63.2/t and SCC case $118/t and 7% Low NOX values 7% Low NOX values 7% Low NOX values 7% Low NOX values (billion 2015$)

1 ...... 1.0 1.16 1.33 1.71 2 ...... 0.9 1.11 1.30 1.76 3 ...... 1.42 1.80 2.09 2.77

* The SCC case values represent the global SCC in 2015, in 2015$, for each case. The low NOX value in 2022, in 2015$, is $3,814/ton in the 3-percent discount rate case and $3,476/ton in the 7-percent discount rate case. The high NOX value in 2022, in 2015$, is $8,695/ton in the 3- percent discount rate case and $7,837/ton in the 7-percent discount rate case.

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

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CO2-emissions impacts that continue DOE also notes that the economics does not explicitly control for through 2300. In addition, the CO2 literature provides a wide-ranging heterogeneity in consumer preferences, reduction is a benefit that accrues discussion of how consumers trade off preferences across subcategories of globally. upfront costs and energy savings in the products or specific features, or absence of government intervention. consumer price sensitivity variation C. Conclusion Much of this literature attempts to according to household income.199 When considering new or amended explain why consumers appear to While DOE is not prepared at present energy conservation standards, the undervalue energy efficiency standards that DOE adopts for any type to provide a fuller quantifiable improvements. There is evidence that framework for estimating the benefits (or class) of covered product must be consumers undervalue future energy designed to achieve the maximum and costs of changes in consumer savings as a result of: (1) A lack of purchase decisions due to an energy improvement in energy efficiency that information; (2) a lack of sufficient the Secretary determines is conservation standard, DOE is salience of the long-term or aggregate committed to developing a framework technologically feasible and benefits; (3) a lack of sufficient savings that can support empirical quantitative economically justified. (42 U.S.C. to warrant delaying or altering tools for improved assessment of the 6295(o)(2)(A)) In determining whether a purchases; (4) excessive focus on the consumer welfare impacts of appliance standard is economically justified, the short term, in the form of inconsistent standards. DOE has posted a paper that Secretary must determine whether the weighting of future energy cost savings discusses the issue of consumer welfare benefits of the standard exceed its relative to available returns on other impacts of appliance energy burdens by, to the greatest extent investments; (5) computational or other conservation standards, and potential practicable, considering the seven difficulties associated with the enhancements to the methodology by statutory factors discussed previously. evaluation of relevant tradeoffs; and (6) which these impacts are defined and (42 U.S.C. 6295(o)(2)(B)(i)) The new or a divergence in incentives (for example, 200 amended standard must also result in between renters and owners, or builders estimated in the regulatory process. significant conservation of energy. (42 and purchasers). Having less than DOE welcomes comments on how to U.S.C. 6295(o)(3)(B)) perfect foresight and a high degree of more fully assess the potential impact of For this SNOPR, DOE considered the uncertainty about the future, consumers energy conservation standards on impacts of new and amended standards may trade off these types of investments consumer choice and how to quantify for NWGFs and MHGFs at each TSL, at a higher than expected rate between this impact in its regulatory analysis in beginning with the maximum current consumption and uncertain future rulemakings. technologically feasible level, to future energy cost savings. 1. Benefits and Burdens of TSLs determine whether that level was In DOE’s current regulatory analysis, Considered for Non-Weatherized Gas economically justified. Where the max- potential changes in the benefits and Furnace and Mobile Home Gas Furnace tech level was not justified, DOE then costs of a regulation due to changes in AFUE Standards considered the next-most-efficient level consumer purchase decisions are and undertook the same evaluation until included in two ways. First, if Table V.40 and Table V.41 summarize it reached the highest efficiency level consumers forgo the purchase of a the quantitative impacts estimated for that is both technologically feasible and product in the standards case, this each AFUE TSL for NWGFs and economically justified and saves a decreases sales for product MHGFs. The national impacts are significant amount of energy. manufacturers, and the impact on measured over the lifetime of NWGFs To aid the reader as DOE discusses manufacturers attributed to lost revenue and MHGFs purchased in the 30-year the benefits and/or burdens of each TSL, is included in the MIA. Second, DOE period that begins in the anticipated tables in this section present a summary accounts for energy savings attributable year of compliance with amended of the results of DOE’s quantitative only to products actually used by standards (2022–2051). The energy analysis for each TSL. In addition to the consumers in the standards case; if a savings, emissions reductions, and quantitative results presented in the standard decreases the number of value of emissions reductions refer to tables, DOE also considers other products purchased by consumers, this full-fuel-cycle results, and include the burdens and benefits that affect decreases the potential energy savings impacts of projected fuel switching economic justification. These include from an energy conservation standard. discussed in section IV.F.9 and chapter the impacts on identifiable subgroups of DOE provides estimates of shipments 8 of the SNOPR TSD. The efficiency consumers who may be and changes in the volume of product levels contained in each TSL are disproportionately affected by a national purchases in chapter 9 of the SNOPR described in section V.A of this standard and impacts on employment. TSD. However, DOE’s current analysis document. TABLE V.40—SUMMARY OF ANALYTICAL RESULTS FOR NON-WEATHERIZED GAS FURNACE AND MOBILE HOME GAS FURNACE AFUE TSLS: NATIONAL IMPACTS

Trial standard level 1 2 3 4 5 6 7 8 9

Cumulative FFC Energy Savings 0.9 ...... 1.7 ...... 1.8 ...... 2.3 ...... 2.8 ...... 2.9 ...... 4.2 ...... 4.1 ...... 5.7. (quads).

NPV of Consumer Costs and Benefits (2015$ billion)

3% discount rate ...... 6.3 ...... 12.9 ...... 15.7 ...... 17.0 ...... 23.8 ...... 21.7 ...... 31.8 ...... 29.0 ...... 39.5.

199 P.C. Reiss and M.W. White, Household 200 Alan Sanstad, Notes on the Economics of (2010). (Available at http://www1.eere.energy.gov/ Electricity Demand, Revisited, Review of Economic Household Energy Consumption and Technology buildings/appliance_standards/pdfs/consumer_ee_ Studies (2005) 72, 853–883. Choice. Lawrence Berkeley National Laboratory theory.pdf.)

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TABLE V.40—SUMMARY OF ANALYTICAL RESULTS FOR NON-WEATHERIZED GAS FURNACE AND MOBILE HOME GAS FURNACE AFUE TSLS: NATIONAL IMPACTS—Continued

Trial standard level 1 2 3 4 5 6 7 8 9

7% discount rate ...... 1.8 ...... 3.7 ...... 4.5 ...... 4.8 ...... 5.6 ...... 5.6 ...... 7.5 ...... 7.4 ...... 9.0.

Cumulative FFC Emissions Reduction

CO2 (million metric tons) ...... 46.1 ...... 90.5 ...... 91.1 ...... 117 ...... 126 ...... 143 ...... 198 ...... 211 ...... 275.. SO2 (thousand tons) ...... (7.84) ...... (25.6) ...... (41.7) ...... (37.6) ...... (157) ...... (76.8) ...... (179) ...... (88.0) ...... (225) NOX (thousand tons) ...... 178 ...... 375 ...... 419 ...... 496 ...... 846 ...... 687 ...... 1,147 ...... 947 ...... 1,528. Hg (tons) ...... (0.03) ...... (0.1) ...... (0.2) ...... (0.1) ...... (0.6) ...... (0.3) ...... (0.7) ...... (0.3) ...... (0.8). CH4 (thousand tons) ...... 669 ...... 1,450 ...... 1,675 ...... 1,937 ...... 3,653 ...... 2,777 ...... 4,825 ...... 3,758 ...... 6,380. CH4 (million tons CO2eq) * ...... 18.7 ...... 40.6 ...... 46.9 ...... 54.2 ...... 102.3 ...... 77.7 ...... 135.1 ...... 105.2 ...... 178.6. N2O (thousand tons) ...... (0.05) ...... (0.3) ...... (0.6) ...... (0.4) ...... (2.50) ...... (1.07) ...... (2.74) ...... (1.13) ...... (3.40). N2O (thousand tons CO2eq) * ...... (12.6) ...... (71.9) ...... (147) ...... (114) ...... (664) ...... (283) ...... (727) ...... (300) ...... (900).

Value of FFC Emissions Reduction

CO2 (2015$ billion) ** ...... 0.281 to 0.542 to 0.569 to 0.699 to 0.715 to 0.839 to 1.145 to 1.248 to 1.612 to 4.140. 8.050. 8.341. 10.387. 10.875. 12.551. 17.272. 18.610. 24.162 NOX–3% discount rate (2015$ million) .. 154.6 to 305.1 to 330.4 to 395.9 to 479.7 to 495.3 to 722.3 to 720.1 to 1000.5 to 352.5. 695.7. 753.3. 902.6. 1093.8. 1129.2. 1646.9. 1641.8. 2281.1. NOX–7% discount rate (2015$ million) .. 53.1 to 103.1 to 115.8 to 133.2 to 155.2 to 164.7 to 236.8 to 240.9 to 332.9 to 119.6. 232.5. 261.0. 300.4. 350.0. 371.3. 533.9. 543.1. 750.7. Note: Parentheses indicate negative (¥) values. *CO2eq is the quantity of CO2 that would have the same global warming potential (GWP). ** Range of the economic value of CO2 reductions is based on estimates of the global benefit of reduced CO2 emissions. Note: The standards for NWGFs and MHGFs for each TSL are as follows (and can also be found in Table V.1): TSL 1: NWGF (80% AFUE at or below and 92% AFUE above 80 kBtu/h) and MHGF (92% AFUE); TSL 2: NWGF (80% AFUE at or below and 92% AFUE above 70 kBtu/h) and MHGF (92% AFUE); TSL 3: NWGF (80% AFUE in the South and 95% AFUE in the North) and MHGF (92% AFUE); TSL 4: NWGF (80% AFUE at or below and 92% AFUE above 60 kBtu/h) and MHGF (92% AFUE); TSL 5: NWGF and MHGF (92% AFUE); TSL 6: NWGF (80% AFUE at or below and 92% AFUE above 55 kBtu/h) and MHGF (92% AFUE); TSL 7: NWGF and MHGF (95% AFUE); TSL 8: NWGF (80% AFUE at or below and 95% AFUE above 55 kBtu/h) and MHGF (95% AFUE); TSL 9: NWGF (98% AFUE) and MHGF (96% AFUE).

TABLE V.41—SUMMARY OF ANALYTICAL RESULTS FOR NON-WEATHERIZED GAS FURNACE AND MOBILE HOME GAS FURNACE AFUE TSLS: MANUFACTURER AND CONSUMER IMPACTS

Trial standard level Category 1 2 3 4 5 6 7 8 9

Manufacturer Impacts

Industry NPV (2015$ million) (no-new- 1,032 to 1,006 to 847 to 1,007 to 985 to 1,016 to 729 to 772 to 526 to standards case INPV = 1,104.3). 1,097. 1,102. 1,105. 1,119. 1,118. 1,143. 1,127. 1,147. 1,100. Industry NPV (% change) ...... (6.6) to (8.9) to (23.3) to (8.8) to 1.3 (10.8) to (8.0) to 3.5 (34.0) to (30.1) to (52.3) to (0.7). (0.2). 0.0. 1.2. 2.0. 3.9. (0.4).

Consumer Average LCC Savings (2015$)

Non-Weatherized Gas Furnaces ...... 676 ...... 730 ...... 597 ...... 741 ...... 617 ...... 692 ...... 561 ...... 609 ...... 506. Mobile Home Gas Furnaces ...... 1,049 ...... 1,049 ...... 1,275 ...... 1,049 ...... 1,049 ...... 1,049 ...... 1,020 ...... 1,020 ...... 864. Shipment-Weighted Average * ...... 682 ...... 735 ...... 608 ...... 746 ...... 624 ...... 698 ...... 568 ...... 615 ...... 512.

Consumer Simple PBP (years)

Non-Weatherized Gas Furnaces ...... 6.1 ...... 6.0 ...... 6.4 ...... 5.9 ...... 6.4 ...... 6.1 ...... 6.5 ...... 6.2 ...... 6.9. Mobile Home Gas Furnaces ...... 1.7 ...... 1.7 ...... 2.3 ...... 1.7 ...... 1.7 ...... 1.7 ...... 2.7 ...... 2.7 ...... 3.1. Shipment-Weighted Average * ...... 6.1 ...... 5.9 ...... 6.3 ...... 5.9 ...... 6.3 ...... 6.0 ...... 6.4 ...... 6.1 ...... 6.8.

Consumer LCC Impacts: Percentage of Consumers That Experience a Net Cost

Non-Weatherized Gas Furnaces ...... 2.1% ...... 4.7% ...... 6.7% ...... 6.6% ...... 17.1% ...... 11.1% ...... 22.2% ...... 15.2% ...... 34.2%. Mobile Home Gas Furnaces ...... 8.2% ...... 8.2% ...... 5.0% ...... 8.2% ...... 8.2% ...... 8.2% ...... 13.8% ...... 13.8% ...... 25.2%. Shipment-Weighted Average * ...... 2.2% ...... 4.7% ...... 6.7% ...... 6.6% ...... 17.0% ...... 11.1% ...... 22.0% ...... 15.2% ...... 34.0%. * Weighted by shares of each product class in total projected shipments in 2022. Note: Parentheses indicate negative (¥) values. Note: The standards for NWGFs and MHGFs for each TSL are as follows (can also be found in Table V.1): TSL 1: NWGF (80% AFUE at or below and 92% AFUE above 80 kBtu/h) and MHGF (92% AFUE); TSL 2: NWGF (80% AFUE at or below and 92% AFUE above 70 kBtu/h) and MHGF (92% AFUE); TSL 3: NWGF (80% AFUE in the South and 95% AFUE in the North) and MHGF (92% AFUE); TSL 4: NWGF (80% AFUE at or below and 92% AFUE above 60 kBtu/h) and MHGF (92% AFUE); TSL 5: NWGF and MHGF (92% AFUE); TSL 6: NWGF (80% AFUE at or below and 92% AFUE above 55 kBtu/h) and MHGF (92% AFUE); TSL 7: NWGF and MHGF (95% AFUE); TSL 8: NWGF (80% AFUE at or below and 95% AFUE above 55 kBtu/h) and MHGF (95% AFUE); TSL 9: NWGF (98% AFUE) and MHGF (96% AFUE).

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DOE first considered the AFUE reduction in INPV. Consequently, the NPV of consumer benefit would be $7.7 standards at TSL 9, which represents Secretary has tentatively concluded that billion using a discount rate of 7 the max-tech efficiency levels. TSL 9 TSL 9 is not economically justified. percent, and $32.5 billion using a would save 5.7 quads of energy, an DOE then considered the AFUE discount rate of 3 percent. amount DOE considers significant. standards at TSL 8. TSL 8 would save The cumulative emissions reductions Under TSL 9, the NPV of consumer 4.15 quads of energy, an amount DOE at TSL 7 are 198 Mt of CO2, 1,147 benefit would be $9.0 billion using a considers significant. Under TSL 8, the thousand tons of NOX, and 4,825 discount rate of 7 percent, and $39.5 NPV of consumer benefit would be $7.4 thousand tons of CH4. Projected billion using a discount rate of 3 billion using a discount rate of 7 emissions show an increase of 179 percent. percent, and $29.0 billion using a thousand tons of SO2, 2.74 thousand The cumulative emissions reductions discount rate of 3 percent. tons of N2O, and 0.7 tons of Hg. The at TSL 9 are 275 Mt of CO2, 1,528 The cumulative emissions reductions increase is due to projected switching thousand tons of NOX, and 6,380 at TSL 8 are 211 Mt of CO2, 947 from gas furnaces to electric heat pumps thousand tons of CH4. Projected thousand tons of NOX, and 3,758 and electric furnaces under standards at emissions show an increase of 225 thousand tons of CH4. Projected TSL 7. The estimated monetary value of thousand tons of SO2, 3.40 thousand emissions show an increase of 88.0 the CO2 emissions reduction at TSL 7 tons of N2O, and 0.8 tons of Hg. The thousand tons of SO2, 1.13 thousand ranges from $1.145 million to $17.272 increase is due to projected switching tons of N2O, and 0.3 tons of Hg. The million. from gas furnaces to electric heat pumps increase is due to projected switching At TSL 7, the average LCC impact on and electric furnaces under standards at from gas furnaces to electric heat pumps affected consumers is a savings of $561 TSL 9. The estimated monetary value of and electric furnaces under standards at for NWGFs, and $1,020 for MHGFs. The the CO2 emissions reduction at TSL 9 TSL 8. The estimated monetary value of simple payback period for affected ranges from $1.612 million to $24.162 the CO2 emissions reduction at TSL 8 consumers is 6.5 years for NWGFs and million. ranges from $1.248 million to $18.610 2.7 years for MHGFs. The fraction of At TSL 9, the average LCC impact on million. consumers experiencing a net LCC cost affected consumers is a savings of $506 At TSL 8, the average LCC impact on is 22.2 percent for NWGFs and 13.8 for NWGFs and $864 for MHGFs. The affected consumers is a savings of $609 percent for MHGFs. simple payback period is 6.9 years for for NWGFs and $1,020 for MHGFs.201 At TSL 7, the projected changes in NWGFs and 3.1 years for MHGFs. The The simple payback period for affected INPV range from a decrease of $375.2 fraction of consumers experiencing a net consumers is 6.2 years for NWGFs and million to an increase of $22.5 million. LCC cost is 33.3 percent for NWGFs and 2.7 years for MHGFs. The fraction of If the larger decrease is reached, TSL 7 25.2 percent for MHGFs. consumers experiencing a net LCC cost could result in a net loss of 34.0 percent At TSL 9, the projected changes in is 15.2 percent for NWGFs, and 13.8 in INPV. Industry conversion costs total INPV range from a decrease of $577.9 percent for MHGFs. $107.6 million at this TSL. In the period million to a decrease of $4.3 million. If At TSL 8, the projected changes in from 2019 to 2021, the time period with the larger decrease is reached, TSL 9 INPV range from a decrease of $332.8 the greatest risk for negative cash-flow could result in a net loss of 52.3 percent million to an increase of $42.8 million. impacts due to impacts from the furnace in INPV. Industry conversion costs total If the larger decrease is reached, TSL 8 fan final rule and this proposed $327.9 million at this TSL. In the period could result in a net loss of 30.1 percent standard, the industry’s annual cash- from 2019 to 2021, the time period with in INPV. Industry conversion costs total flow remains positive. the greatest risk for negative cash-flow $94.2 million at TSL 8. In the period The Secretary tentatively concludes impacts due to impacts from the furnace from 2019 to 2021, the time period with that at TSL 7 for NWGFs and MHGFs fan final rule and today’s proposed the greatest risk for negative cash-flow AFUE standards, the benefits of energy standard, the industry’s annual cash- impacts due to impacts from the furnace savings, positive NPV of consumer flow drops below zero for the entire fan final rule and this proposed benefits at both 3-percent and 7-percent three year period. A negative industry standard, the industry’s annual cash- discount rates, emission reductions, and cash-flow suggests that some flow remains positive. the estimated monetary value of the manufacturers would need to access The Secretary tentatively concludes emissions reductions would be cash reserves or raise money in the that at TSL 8 for NWGFs and MHGFs outweighed by the economic burden on capital markets to fund operations for AFUE standards, the benefits of energy some consumers, and the impacts on the year. Manufacturers that have lower savings, positive NPV of consumer manufacturers, including the reduction cash reserves, more difficulty raising benefits at both 3-percent and 7-percent in INPV. Consequently, the Secretary capital, or a greater portion of products discount rates, emission reductions, and has tentatively concluded that TSL 7 is that require redesign would experience the estimated monetary value of the not economically justified. more business risk than their emissions reductions would be DOE then considered the AFUE competitors in the industry. outweighed by the economic burden on standards at TSL 6. TSL 6 would save The Secretary tentatively concludes some consumers, and the impacts on 2.8 quads of energy, an amount DOE that at TSL 9 for NWGFs and MHGFs manufacturers, including the reduction considers significant. Under TSL 6, the AFUE standards, the benefits of energy in INPV. Consequently, the Secretary NPV of consumer benefit would be $5.6 savings, positive NPV of consumer has tentatively concluded that TSL 8 is billion using a discount rate of 7 benefits at both 3-percent and 7-percent not economically justified. percent, and $21.6 billion using a discount rates, emission reductions, and DOE then considered the AFUE discount rate of 3 percent. the estimated monetary value of the standards at TSL 7. TSL 7 would save The cumulative emissions reductions emissions reductions would be 4.1 quads of energy, an amount DOE at TSL 6 are 143 Mt of CO2, 687 outweighed by the economic burden on considers significant. Under TSL 7, the thousand tons of NOX, and 2,777 a significant share of consumers, and thousand tons of CH4. Projected the impacts on manufacturers, including 201 Because consumers using small NWGFs are emissions show an increase of 76.8 the conversion costs and profit margin not affected by the standard at this TSL, the results thousand tons of SO2, 1.07 thousand impacts that could result in a large reflect only consumers using large NWGFs. tons of N2O, and 0.3 tons of Hg. The

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increase is due to projected switching consumers and on manufacturers. reductions of 117 million metric tons from gas furnaces to electric heat pumps Accordingly, the Secretary has over the analysis period. Under TSL 4, and electric furnaces under standards at tentatively concluded that TSL 6 would NWGF consumers would experience an TSL 6. The estimated monetary value of offer the maximum improvement in average life-cycle cost savings of $741, the CO2 emissions reduction at TSL 6 efficiency that is technologically with 6.6 percent of consumers ranges from $0.839 million to $12.551 feasible and economically justified, and negatively impacted (3.1 percent of low- million. would result in the significant income consumers), and 4.1 percent of At TSL 6, the average LCC impact on conservation of energy. DOE notes that shipments would be impacted by affected consumers is a savings of $692 this tentative conclusion holds product switching. for NWGFs and $1,049 for MHGFs.202 regardless of whether DOE considers the The simple payback period for affected environmental benefits expected to TABLE V.42—PROPOSED AMENDED consumers is 6.1 years for NWGFs, and result from the proposed standards. AFUE ENERGY CONSERVATION 1.7 years for MHGFs. The fraction of Therefore, based on the above consumers experiencing a net LCC cost considerations, DOE proposes to adopt STANDARDS FOR NON-WEATHERIZED is 11.1 percent for NWGFs and 8.2 the AFUE energy conservation GAS FURNACES AND MOBILE HOME percent for MHGFs. standards for NWGFs and MHGFs at GAS FURNACES At TSL 6, the projected changes in TSL 6. The proposed amended AFUE INPV ranges from a decrease of $88.0 energy conservation standards for Product class AFUE million to an increase of $38.5 million. NWGFs and MHGFs are presented in If the larger decrease is reached, TSL 6 Non-Weatherized Gas 92% (≤55 kBtu/h). Table V.42. However, DOE notes that ≤ could result in a net loss of 8.0 percent TSL 4, which is the same as TSL 6 Furnaces. 80% ( 55 kBtu/h). of INPV. Industry conversion costs total except that the small furnace threshold Mobile Home Gas 92%. Furnaces. $54.7 million at this TSL. In the period is at 60 kBtu/hr instead of 55 kBtu/hr, from 2019 to 2021, the time period with reduces the fuel switching impacts the greatest risk for negative cash-flow considerably relative to TSL 6 (see Table 2. Benefits and Burdens of TSLs impacts due to impacts from the furnace V.3), and has a significantly lower Considered for Non-Weatherized Gas fan final rule and this proposed fraction of consumers who would be Furnace and Mobile Home Gas Furnace standard, the industry’s annual cash- negatively impacted than at TSL 6 (see Standby Mode and Off Mode Standards flow remains positive. DOE notes that Table V.41). For this reason, DOE is also Table V.43 and Table V.44 summarize there is a significant reduction in seriously considering TSL 4 and the quantitative impacts estimated for potential negative impacts to industry at requests additional data and comment TSL 6 relative to TSLs 7 through 9. on the merits of adopting TSL 4 in place each standby mode and off mode TSL After considering the analysis and of TSL 6. (DOE is considering TSL 4 for NWGFs and MHGFs. The national weighing the benefits and burdens, the rather than TSL 5 because TSL 5 is the impacts are measured over the lifetime Secretary has tentatively concluded that approach outlined in the March 2015 of NWGFs and MHGFs purchased in the at TSL 6 for NWGFs and MHGFs AFUE NOPR, which DOE is no longer 30-year period that begins in the standards, the benefits of energy considering for the reasons described anticipated year of compliance with savings, positive NPV of consumer above.) new standards (2022–2051). The energy benefits at both 3-percent and 7-percent If DOE were to conclude that the costs savings, emissions reductions, and discount rates, emission reductions, the of TSL 6 outweighed the benefits of TSL value of emissions reductions refer to estimated monetary value of the 6, then DOE could consider factors in full-fuel-cycle results. The efficiency emissions reductions, positive average TSL 4 such as the national energy levels contained in each TSL are LCC savings, and favorable PBPs would savings of 2.3 quads, the NPV of $4.8 to described in section V.A of this outweigh the negative impacts on some $17.0 billion, and CO2 emission document.

TABLE V.43—SUMMARY OF ANALYTICAL RESULTS FOR NON-WEATHERIZED GAS FURNACE AND MOBILE HOME GAS FURNACE STANDBY MODE AND OFF MODE TSLS: NATIONAL IMPACTS

Trial standard level 1 2 3

Cumulative FFC Energy Savings (quads) ...... 0.16 ...... 0.19 ...... 0.28.

NPV of Consumer Costs and Benefits (2015$ billion)

3% discount rate ...... 2.52 ...... 2.47 ...... 3.96. 7% discount rate ...... 0.89 ...... 0.78 ...... 1.31.

Cumulative FFC Emissions Reduction

CO2 (million metric tons) ...... 9.07 ...... 10.9 ...... 16.3. SO2 (thousand tons) ...... 5.10 ...... 6.12 ...... 9.17. NOX (thousand tons) ...... 16.7 ...... 20.0 ...... 30.0. Hg (tons) ...... 0.019 ...... 0.023 ...... 0.034. CH4 (thousand tons) ...... 40.2 ...... 48.2 ...... 72.3. CH4(thousand tons CO2eq) * ...... 1,126 ...... 1,351 ...... 2,025. N2O (thousand tons) ...... 0.107 ...... 0.128 ...... 0.192.

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

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TABLE V.43—SUMMARY OF ANALYTICAL RESULTS FOR NON-WEATHERIZED GAS FURNACE AND MOBILE HOME GAS FURNACE STANDBY MODE AND OFF MODE TSLS: NATIONAL IMPACTS—Continued

Trial standard level 1 2 3

N2O (thousand tons CO2eq) * ...... 28.3 ...... 33.9 ...... 50.9.

Value of FFC Emissions Reduction

CO2 (2015$ million) ** ...... 0.055 to 0.808 .... 0.066 to 0.970 .... 0.098 to 1.454. NOX—3% discount rate (2015$ million) ...... 26.0 to 59.4 ...... 31.2 to 71.2 ...... 46.8 to 106.8. NOX—7% discount rate (2015$ million) ...... 8.8 to 19.8 ...... 10.6 to 23.8 ...... 15.8 to 35.7.

*CO2eq is the quantity of CO2 that would have the same global warming potential (GWP). ** Range of the economic value of CO2 reductions is based on estimates of the global benefit of reduced CO2 emissions.

TABLE V.44—SUMMARY OF ANALYTICAL RESULTS FOR NON-WEATHERIZED GAS FURNACE AND MOBILE HOME GAS FURNACE STANDBY MODE AND OFF MODE TSLS: MANUFACTURER AND CONSUMER IMPACTS

Trial standard level Category 1 2 3

Manufacturer Impacts

Industry NPV (2015$ million) (no-new stds case 1,104.1 ...... 1,101.8 to 1,108.5 ...... 1,100.9 to 1,110.1 INPV = 1,104.3). Industry NPV (% change) ...... (0.0) ...... (0.3) to 0.4 ...... (0.3) to 0.5

Consumer Average LCC Savings (2015$)

Non-Weatherized Gas Furnaces ...... 22 ...... 12 ...... 19 Mobile Home Gas Furnaces ...... 21 ...... 12 ...... 19 Shipment-Weighted Average * ...... 22 ...... 12 ...... 19

Consumer Simple PBP (years)

Non-Weatherized Gas Furnaces ...... 1.2 ...... 9.1 ...... 7.0 Mobile Home Gas Furnaces ...... 1.2 ...... 8.9 ...... 6.9 Shipment-Weighted Average * ...... 1.2 ...... 9.1 ...... 7.0

Consumer LCC Impacts: Percentage of Consumers that Experience a Net Cost

Non-Weatherized Gas Furnaces ...... 2.4 ...... 13.0 ...... 8.1% Mobile Home Gas Furnaces ...... 0.4 ...... 1.0 ...... 0.8% Shipment-Weighted Average * ...... 2.4 ...... 12.8 ...... 8.0% * Weighted by shares of each product class in total projected shipments in 2022. Note: Parentheses indicate negative values.

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

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TABLE V.45—PROPOSED STANDBY value of the benefits of CO2 and NOX reductions (for which DOE used a 3- MODE AND OFF MODE ENERGY emission reductions.203 percent discount rate along with the CONSERVATION STANDARDS FOR The national operating cost savings average SCC series corresponding to a NON-WEATHERIZED GAS FURNACES are domestic private U.S. consumer value of $40.6/metric ton in 2015 monetary savings that occur as a result (2015$)), the estimated cost of the AND MOBILE HOME GAS FURNACES of purchasing the covered products. The proposed AFUE standards for NWGFs national operating cost savings are and MHGFs is $500 million per year in PS,WB PW,OFF Product class (watts) (watts) measured for the lifetime of NWGFs and increased equipment costs, while the MHGFs shipped in 2022–2051, and estimated benefits are $1,138 million Non-Weatherized include savings that accrue from such per year in reduced equipment Gas Furnaces ...... 8.5 8.5 products after 2051. The benefits operating costs, $243 million per year in Mobile Home Gas associated with reduced carbon CO2 reductions, and $18.6 million per Furnaces ...... 8.5 8.5 emissions achieved as a result of the year in reduced NOX emissions. In this proposed standards are also calculated case, the net benefit would amount to 3. Summary of Annualized Benefits and based on the lifetime of NWGFs and $900 million per year. Costs of the Proposed Standards MHGFs shipped in 2022–2051. Because Using a 3-percent discount rate for all CO2 emissions have a very long benefits and costs and the average SCC The benefits and costs of the proposed residence time in the atmosphere, the series corresponding to a value of $40.6/ standards can also be expressed in terms SCC values for emissions in future years metric ton in 2015 (2015$), the of annualized values. The annualized reflect future CO2-emissions impacts estimated cost of the proposed AFUE net benefit is the sum of: (1) The that continue through 2300. The CO2 standards for NWGFs and MHGFs is annualized national economic value reduction is a benefit that accrues $504 million per year in increased (expressed in 2015$) of the benefits globally. equipment costs, while the estimated from operating products that meet the Table V.46 shows the annualized annual benefits are $1,785 million per proposed standards (consisting values for NWGF and MHGF AFUE year in reduced operating costs, $243 primarily of operating cost savings from standards under TSL 6, expressed in million per year in CO2 reductions, and using less energy, minus increases in 2015$. The results under the primary $29.3 million per year in reduced NOX product purchase costs, which is estimate are as follows. emissions. In this case, the net benefit another way of representing consumer Using a 7-percent discount rate for would amount to $1,553 million per NPV), and (2) the annualized monetary benefits and costs other than CO2 year.

TABLE V.46—ANNUALIZED BENEFITS AND COSTS OF PROPOSED AFUE STANDARDS FOR NON-WEATHERIZED GAS FURNACE AND MOBILE HOME GAS FURNACE [TSL 6]

Primary Low-net-benefits High-net-benefits Discount rate estimate (million estimate (million estimate (million (%) 2015$/year) * 2015$/year) * 2015$/year) *

Benefits

Consumer Operating Cost Savings ...... 7 ...... 1,138 ...... 1,007 ...... 1,353. 3 ...... 1,785 ...... 1,548 ...... 2,157. CO2 Reduction (using mean SCC at 5% discount rate) ** ... 5 ...... 69.7 ...... 62.2 ...... 80.8. CO2 Reduction (using mean SCC at 3% discount rate) ** ... 3 ...... 243 ...... 217 ...... 283. CO2 Reduction (using mean SCC at 2.5% discount rate) ** 2.5 ...... 360 ...... 320 ...... 418. CO2 Reduction (using 95th percentile SCC at 3% discount 3 ...... 742 ...... 661 ...... 862. rate) **. NOX Reduction † ...... 7 ...... 18.6 ...... 16.8 ...... 47.9. 3 ...... 29.3 ...... 26.3 ...... 76.8.

Total Benefits † ...... 7 plus CO2 range ...... 1,226 to 1,899 .... 1,086 to 1,684 .... 1,482 to 2,263. 7 ...... 1,400 ...... 1,240 ...... 1,684. 3 plus CO2 range ...... 1,884 to 2,557 .... 1,636 to 2,235 .... 2,315 to 3,096. 3 ...... 2,058 ...... 1,791 ...... 2,517.

Costs

Consumer Incremental Installed Costs ...... 7 ...... 500 ...... 554 ...... 452. 3 ...... 504 ...... 559 ...... 460.

Net Benefits

Total † ...... 7 plus CO2 range ...... 726 to 1,399 ...... 531 to 1,130 ...... 1,030 to 1,811. 7 ...... 900 ...... 686 ...... 1,232. 3 plus CO2 range ...... 1,380 to 2,052 .... 1,077 to 1,676 .... 1,855 to 2,637.

203 To convert the time-series of costs and benefits with each year’s shipments in the year in which the value of CO2 reductions, for which DOE used case- into annualized values, DOE calculated a present shipments occur (2020, 2030, etc.), and then specific discount rates. Using the present value, value in 2016, the year used for discounting the discounted the present value from each year to DOE then calculated the fixed annual payment over NPV of total consumer costs and savings. For the 2016. The calculation uses discount rates of 3 and a 30-year period, starting in the compliance year benefits, DOE calculated a present value associated 7 percent for all costs and benefits except for the that yields the same present value.

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TABLE V.46—ANNUALIZED BENEFITS AND COSTS OF PROPOSED AFUE STANDARDS FOR NON-WEATHERIZED GAS FURNACE AND MOBILE HOME GAS FURNACE—Continued [TSL 6]

Primary Low-net-benefits High-net-benefits Discount rate estimate (million estimate (million estimate (million (%) 2015$/year) * 2015$/year) * 2015$/year) *

3 ...... 1,553 ...... 1,231 ...... 2,057. * This table presents the annualized costs and benefits associated with NWGFs and MHGFs shipped in 2022–2051. These results include ben- efits to consumers which accrue after 2051 from the products shipped in 2022–2051.The incremental installed costs include incremental equip- ment cost as well as installation costs. The results account for the incremental variable and fixed costs incurred by manufacturers due to the standard, some of which may be incurred in preparation for the rule. The CO2 reduction benefits are global benefits due to actions that occur do- mestically. The Primary, Low-Net-Benefits, and High-Net-Benefits Estimates utilize projections of energy prices from the AEO 2015 Reference case, Low-Economic-Growth case, and High-Economic-Growth case, respectively. In addition, incremental product costs reflect a medium de- cline rate for projected product price trends in the Primary Estimate, a constant price trend in the Low-Net-Benefits Estimate, and a high decline rate for projected product price trends in the High-Net-Benefits Estimate. The methods used to derive projected price trends are explained in sec- tion IV.F.1. Note that the Benefits and Costs may not sum to the Net Benefits due to rounding. ** The CO2 reduction benefits are calculated using four different sets of SCC values. The first three use the average SCC calculated using 5- percent, 3-percent, and 2.5-percent discount rates, respectively. The fourth represents the 95th percentile of the SCC distribution calculated using a 3-percent discount rate. The SCC values are emission year specific. See section IV.L.1 for more details. † DOE estimated the monetized value of NOX emissions reductions associated with electricity savings using benefit per ton estimates from the Regulatory Impact Analysis for the Clean Power Plan Final Rule, published in August 2015 by EPA’s Office of Air Quality Planning and Stand- ards. (Available at www.epa.gov/cleanpowerplan/clean-power-plan-final-rule-regulatory-impact-analysis.) See section IV.L.2 for further discussion. For the Primary Estimate and Low-Net-Benefits Estimate, DOE used national benefit-per-ton estimates for NOX emitted from the Electric Gener- ating Unit sector based on an estimate of premature mortality derived from the ACS study (Krewski et al. 2009). For the High-Net-Benefits Esti- mate, the benefit-per-ton estimates were based on the Six Cities study (Lepuele et al. 2011); these are nearly two-and-a-half times larger than those from the ACS study. †† Total Benefits for both the 3-percent and 7-percent cases are presented using only the average SCC with a 3-percent discount rate. In the rows labeled ‘‘7 percent plus CO2 range’’ and ‘‘3 percent plus CO2 range,’’ the operating cost and NOX benefits are calculated using the labeled discount rate, and those values are added to the full range of CO2 values.

Table V.47 presents the annualized proposed standby mode and off mode series corresponding to a value of $40.6/ values for NWGF and MHGF standby standards for NWGFs and MHGFs is metric ton in 2015 (2015$), the mode and off mode standards under $40.7 million per year in increased estimated cost of the proposed standby TSL 3, expressed in 2015$. The results equipment costs, while the estimated mode and off mode standards for under the primary estimate are as benefits are $188 million per year in NWGFs and MHGFs is $41.4 million per follows. reduced equipment operating costs, year in increased equipment costs, Using a 7-percent discount rate for $28.2 million per year in CO2 while the estimated annual benefits are benefits and costs other than CO2 reductions, and $1.79 million per year $276 million per year in reduced reductions (for which DOE used a 3- in reduced NOX emissions. In this case, operating costs, $28.2 million per year percent discount rate along with the the net benefit would amount to $178 in CO2 reductions, and $2.77 million average SCC series corresponding to a million per year. per year in reduced NOX emissions. In value of $40.6/metric ton in 2015 Using a 3-percent discount rate for all this case, the net benefit would amount (2015$)), the estimated cost of the benefits and costs and the average SCC to $265 million per year.

TABLE V.47—ANNUALIZED BENEFITS AND COSTS OF PROPOSED STANDBY MODE AND OFF MODE STANDARDS FOR NON- WEATHERIZED GAS FURNACE AND MOBILE HOME GAS FURNACE (TSL 3)

Primary Low-net-benefits High-net-benefits Discount rate estimate (million estimate (million estimate (million % 2015$/year) * 2015$/year) * 2015$/year) *

Benefits

Consumer Operating Cost Savings ...... 7 ...... 188 ...... 169 ...... 219. 3 ...... 276 ...... 246 ...... 329. CO2 Reduction (using mean SCC at 5% discount rate) ** ...... 5 ...... 8.2 ...... 7.4 ...... 9.2. CO2 Reduction (using mean SCC at 3% discount rate) ** ...... 3 ...... 28.2 ...... 25.5 ...... 31.8. CO2 Reduction (using mean SCC at 2.5% discount rate) ** ...... 2.5 ...... 41.6 ...... 37.6 ...... 46.9. CO2 Reduction (using 95th percentile SCC at 3% discount 3 ...... 86.0 ...... 77.8 ...... 96.9. rate) **. NOX Reduction† ...... 7 ...... 1.8 ...... 1.6 ...... 4.5. 3 ...... 2.8 ...... 2.5 ...... 7.1. Total Benefits † ...... 7 plus CO2 range 198 to 276 ...... 178 to 249 ...... 233 to 321. 7 ...... 218 ...... 197 ...... 255. 3 plus CO2 range 287 to 365 ...... 256 to 326 ...... 345 to 433. 3 ...... 307 ...... 274 ...... 368.

Costs

Consumer Incremental Installed Costs ...... 7 ...... 40.7 ...... 37.2 ...... 45.4. 3 ...... 41.4 ...... 37.5 ...... 46.5.

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TABLE V.47—ANNUALIZED BENEFITS AND COSTS OF PROPOSED STANDBY MODE AND OFF MODE STANDARDS FOR NON- WEATHERIZED GAS FURNACE AND MOBILE HOME GAS FURNACE (TSL 3)—Continued

Primary Low-net-benefits High-net-benefits Discount rate estimate (million estimate (million estimate (million % 2015$/year) * 2015$/year) * 2015$/year) *

Net Benefits

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

To provide a complete picture of the reduction (for which DOE used a 3- Using a 3-percent discount rate for all overall impacts of this SNOPR, the percent discount rate along with the benefits and costs and the average SCC following combines and summarizes the average SCC series that has a value of series corresponding to a value of $40.6/ benefits and costs for both the amended $40.6/metric ton in 2015 (2015$)), the metric ton in 2015 (2015$), the AFUE standards and the new standby estimated cost of the NWGFs and estimated cost of the proposed NWGFs mode and off mode standards for MHGFs standards proposed in this rule and MHGFs standards is $546 million NWGFs and MHGFs. Table V.48 shows is $541 million per year in increased per year in increased equipment costs, the combined annualized benefit and equipment costs, while the estimated while the estimated benefits are $2,061 cost values for the proposed AFUE benefits are $1,326 million per year in million per year in reduced operating reduced equipment operating costs, standards and the standby mode and off costs, $272 million per year in CO $272 million per year in CO reductions, 2 mode standards for NWGFs and 2 reductions, and $32 million per year in MHGFs.204 The results under the and $20 million per year in reduced reduced NOX emissions. In this case, the primary estimate are as follows. NOX emissions. In this case, the net Using a 7-percent discount rate for benefit would amount to $1,077 million net benefit would amount to $1,819 million per year. benefits and costs other than CO2 per year.

TABLE V.48—ANNUALIZED BENEFITS AND COSTS OF PROPOSED AFUE (TSL 6) AND STANDBY MODE AND OFF MODE (TSL 3) ENERGY CONSERVATION STANDARDS FOR NON-WEATHERIZED GAS FURNACES AND MOBILE HOME GAS FUR- NACES *

Primary Low-net-benefits High-net-benefits Discount rate estimate (million estimate (million estimate (million (%) 2015$/year) 2015$/year) 2015$/year)

Benefits

Consumer Operating Cost Savings ...... 7 ...... 1326 ...... 1176 ...... 1572. 3 ...... 2061 ...... 1794 ...... 2486. CO2 Reduction (using mean SCC at 5% discount rate) ** ... 5 ...... 78 ...... 70 ...... 90. CO2 Reduction (using mean SCC at 3% discount rate) ** ... 3 ...... 272 ...... 242 ...... 315. CO2 Reduction (using mean SCC at 2.5% discount rate) ** 2.5 ...... 401 ...... 358 ...... 465. CO2 Reduction (using 95th percentile SCC at 3% discount 3 ...... 828 ...... 739 ...... 959. rate ) **. NOX Reduction † ...... 7 ...... 20 ...... 18 ...... 52.

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

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TABLE V.48—ANNUALIZED BENEFITS AND COSTS OF PROPOSED AFUE (TSL 6) AND STANDBY MODE AND OFF MODE (TSL 3) ENERGY CONSERVATION STANDARDS FOR NON-WEATHERIZED GAS FURNACES AND MOBILE HOME GAS FUR- NACES *—Continued

Primary Low-net-benefits High-net-benefits Discount rate estimate (million estimate (million estimate (million (%) 2015$/year) 2015$/year) 2015$/year)

3 ...... 32 ...... 29 ...... 84.

dagger; Total Benefits ...... 7 plus CO2 range ...... 1424 to 2175 ...... 1264 to 1933 ...... 1715 to 2584. 7 ...... 1618 ...... 1437 ...... 1939. 3 plus CO2 range ...... 2171 to 2921 ...... 1892 to 2561 ...... 2660 to 3529. 3 ...... 2364 ...... 2065 ...... 2884.

Costs

Consumer Incremental Product Costs ...... 7 ...... 541 ...... 592 ...... 497. 3 ...... 546 ...... 597 ...... 506.

Net Benefits

Total † ...... 7 plus CO2 range ...... 884 to 1634 ...... 673 to 1342 ...... 1217 to 2086. 7 ...... 1077 ...... 845 ...... 1442. 3 plus CO2 range ...... 1625 to 2375 ...... 1295 to 1964 ...... 2154 to 3023. 3 ...... 1819 ...... 1468 ...... 2378 * This table presents the annualized costs and benefits associated with NWGFs and MHGFs shipped in 2022–2051. These results include ben- efits to consumers which accrue after 2051 from the products shipped in 2022–2051. The incremental installed costs include incremental equip- ment cost as well as installation costs. The results account for the incremental variable and fixed costs incurred by manufacturers due to the standard, some of which may be incurred in preparation for the rule. The CO2 reduction benefits are global benefits due to actions that occur do- mestically. The Primary, Low-Net-Benefits, and High-Net-Benefits Estimates utilize projections of energy prices from the AEO 2015 Reference case, Low-Economic-Growth case, and High-Economic-Growth case, respectively. In addition, incremental product costs reflect a medium de- cline rate for projected product price trends in the Primary Estimate, a constant price trend in the Low-Net-Benefits Estimate, and a high decline rate for projected product price trends in the High-Net-Benefits Estimate. The methods used to derive projected price trends are explained in sec- tion IV.F.1. Note that the Benefits and Costs may not sum to the Net Benefits due to rounding. ** The CO2 reduction benefits are calculated using four different sets of SCC values. The first three use the average SCC calculated using 5- percent, 3-percent, and 2.5-percent discount rates, respectively. The fourth represents the 95th percentile of the SCC distribution calculated using a 3-percent discount rate. The SCC values are emission year specific. See section IV.L.1 for more details. † DOE estimated the monetized value of NOX emissions reductions associated with electricity savings using benefit per ton estimates from the Regulatory Impact Analysis for the Clean Power Plan Final Rule, published in August 2015 by EPA’s Office of Air Quality Planning and Stand- ards. (Available at www.epa.gov/cleanpowerplan/clean-power-plan-final-rule-regulatory-impact-analysis.) See section IV.L.2 for further discussion. For the Primary Estimate and Low-Net-Benefits Estimate, DOE used national benefit-per-ton estimates for NOX emitted from the Electric Gener- ating Unit sector based on an estimate of premature mortality derived from the ACS study (Krewski et al. 2009). For the High-Net-Benefits Esti- mate, the benefit-per-ton estimates were based on the Six Cities study (Lepuele et al. 2011); these are nearly two-and-a-half times larger than those from the ACS study. †† Total Benefits for both the 3-percent and 7-percent cases are presented using only the average SCC with a 3-percent discount rate. In the rows labeled ‘‘7 percent plus CO2 range’’ and ‘‘3 percent plus CO2 range,’’ the operating cost and NOX benefits are calculated using the labeled discount rate, and those values are added to the full range of CO2 values.

VI. Procedural Issues and Regulatory misaligned incentives between purchasers provided to OIRA: (i) The text of the Review and users. An example of such a case is when draft regulatory action, together with a the equipment purchase decision is made by reasonably detailed description of the A. Review Under Executive Orders a building contractor or building owner who need for the regulatory action and an 12866 and 13563 does not pay the energy costs. There are external benefits resulting from explanation of how the regulatory action Section 1(b)(1) of Executive Order improved energy efficiency of appliances and will meet that need; and (ii) An 12866, ‘‘Regulatory Planning and equipment that are not captured by the users assessment of the potential costs and Review,’’ 58 FR 51735 (Oct. 4, 1993), of such products. These benefits include benefits of the regulatory action, requires each agency to identify the externalities related to public health, including an explanation of the manner problem that it intends to address, environmental protection, and national in which the regulatory action is including, where applicable, the failures energy security that are not reflected in consistent with a statutory mandate. of private markets or public institutions energy prices, such as reduced emissions of air pollutants and greenhouse gases that DOE has included these documents in that warrant new agency action, as well the rulemaking record. as to assess the significance of that impact human health and global warming. DOE attempts to quantify some of the problem. The problems that the In addition, the Administrator of external benefits through use of social cost of OIRA has determined that the proposed proposed standards set forth in this carbon values. SNOPR are intended to address are as regulatory action is an ‘‘economically’’ follows: The Administrator of the Office of significant regulatory action under Information and Regulatory Affairs section (3)(f)(1) of Executive Order (1) Insufficient information and the high (OIRA) in the OMB has determined that 12866. Accordingly, pursuant to section costs of gathering and analyzing relevant 6(a)(3)(C) of the Order, DOE has information leads some consumers to miss the proposed regulatory action is a opportunities to make cost-effective significant regulatory action under provided to OIRA an assessment, investments in energy efficiency. section (3)(f) of Executive Order 12866. including the underlying analysis, of In some cases, the benefits of more- Accordingly, pursuant to section benefits and costs anticipated from the efficient equipment are not realized due to 6(a)(3)(B) of the Order, DOE has regulatory action, together with, to the

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extent feasible, a quantification of those B. Review Under the Regulatory level for ‘‘small’’ furnaces. 54 FR 47916 costs; and an assessment, including the Flexibility Act (Nov. 17, 1989). The standards underlying analysis, of costs and The Regulatory Flexibility Act (5 established by NAECA and the benefits of potentially effective and U.S.C. 601 et seq.) requires preparation November 1989 final rule for ‘‘small’’ reasonably feasible alternatives to the of an initial regulatory flexibility gas furnaces are still in effect for mobile planned regulation, and an explanation analysis (IRFA) for any rule that by law home oil-fired furnaces, weatherized why the planned regulatory action is must be proposed for public comment, oil-fired furnaces, and electric furnaces. preferable to the identified potential unless the agency certifies that the rule, Under EPCA, DOE was required to conduct two rounds of rulemaking to alternatives. These assessments can be if promulgated, will not have a consider amended energy conservation found in the technical support significant economic impact on a standards for furnaces. (42 U.S.C. document for this rulemaking. substantial number of small entities. As 6295(f)(4)(B) and (C)) In satisfaction of required by Executive Order 13272, DOE has also reviewed this regulation this first round of amended standards ‘‘Proper Consideration of Small Entities pursuant to Executive Order 13563, rulemaking under 42 U.S.C. in Agency Rulemaking,’’ 67 FR 53461 issued on January 18, 2011. 76 FR 3281 6295(f)(4)(B), as noted above, DOE (August 16, 2002), DOE published (Jan. 21, 2011). Executive Order 13563 published a final rule in the Federal procedures and policies on February 19, is supplemental to and explicitly Register on November 19, 2007 that 2003, to ensure that the potential reaffirms the principles, structures, and revised these standards for most definitions governing regulatory review impacts of its rules on small entities are furnaces, but left them in place for two established in Executive Order 12866. properly considered during the product classes (i.e., mobile home oil- To the extent permitted by law, agencies rulemaking process. 68 FR 7990. DOE fired furnaces and weatherized oil-fired are required by Executive Order 13563 has made its procedures and policies furnaces). The standards amended in to: (1) Propose or adopt a regulation available on the Office of the General the November 2007 Rule were to apply only upon a reasoned determination Counsel’s Web site (http://energy.gov/ to furnaces manufactured or imported that its benefits justify its costs gc/office-general-counsel). DOE has on and after November 19, 2015. 72 FR (recognizing that some benefits and prepared the following IRFA for the 65136. The energy conservation costs are difficult to quantify); (2) tailor products that are the subject of this standards in the November 2007 final regulations to impose the least burden rulemaking. rule consist of a minimum AFUE level on society, consistent with obtaining For manufacturers of NWGFs and for each of the six classes of furnaces. regulatory objectives, taking into MHGFs, the Small Business Id. at 65169. As previously noted, based account, among other things, and to the Administration (SBA) has set a size on the market analysis for the November extent practicable, the costs of threshold, which defines those entities 2007 final rule and the standards cumulative regulations; (3) select, in classified as ‘‘small businesses’’ for the established under that rule, the choosing among alternative regulatory purposes of the statute. DOE used the November 2007 final rule eliminated the approaches, those approaches that SBA’s small business size standards to distinction between furnaces based on maximize net benefits (including determine whether any small entities their certified input capacity, i.e., the potential economic, environmental, would be subject to the requirements of standards applicable to ‘‘small’ furnaces public health and safety, and other the rule. 65 FR 30836, 30848 (May 15, were established at the same level as the advantages; distributive impacts; and 2000), as amended at 65 FR 53533, corresponding class of furnace 53544 (Sept. 5, 2000) and codified at 13 equity); (4) to the extent feasible, specify generally. CFR part 121.205 Manufacturing of performance objectives, rather than Following DOE’s adoption of the NWGFs and MHGFs is classified under specifying the behavior or manner of November 2007 final rule, several NAICS 333415, ‘‘Air-Conditioning and compliance that regulated entities must parties jointly sued DOE in the United Warm Air Heating Equipment and adopt; and (5) identify and assess States Court of Appeals for the Second Commercial and Industrial Refrigeration available alternatives to direct Circuit (Second Circuit), seeking to Equipment Manufacturing.’’ The SBA regulation, including providing invalidate the rule. Petition for Review, sets a threshold of 1,250 employees or economic incentives to encourage the State of New York, et al. v. Department less for an entity to be considered as a desired behavior, such as user fees or of Energy, et al., Nos. 08–0311–ag(L); small business for this category. marketable permits, or providing 08–0312–ag(con) (2d Cir. filed Jan. 17, information upon which choices can be 1. Description of Reasons Why Action Is 2008). The petitioners asserted that the made by the public. Being Considered and Legal Basis standards for residential furnaces promulgated in the November 2007 Rule DOE emphasizes as well that Amendments to EPCA in the National did not reflect the ‘‘maximum Executive Order 13563 requires agencies Appliance Energy Conservation Act of improvement in energy efficiency’’ that to use the best available techniques to 1987 (NAECA; Pub. L. 100–12) ‘‘is technologically feasible and quantify anticipated present and future established EPCA’s original energy economically justified’’ under 42 U.S.C. benefits and costs as accurately as conservation standards for furnaces, 6295(o)(2)(A). On April 16, 2009, DOE possible. In its guidance, OIRA has consisting of the minimum AFUE levels filed with the Court a motion for emphasized that such techniques may described above for mobile home voluntary remand that the petitioners include identifying changing future furnaces and for all other furnaces did not oppose. The motion did not compliance costs that might result from except ‘‘small’’ gas furnaces. (42 U.S.C. state that the November 2007 rule technological innovation or anticipated 6295(f)(1)–(2)) Pursuant to 42 U.S.C. would be vacated, but indicated that behavioral changes. For the reasons 6295(f)(1)(B), in November 1989, DOE DOE would revisit its initial stated in the preamble, DOE believes adopted a mandatory minimum AFUE conclusions outlined in the November that this SNOPR is consistent with these 2007 Rule in a subsequent rulemaking principles, including the requirement 205 The size standards are listed by North action. DOE also agreed that the final that, to the extent permitted by law, American Industry Classification System (NAICS) code and industry description and are available at rule would address both regional benefits justify costs and that net https://www.sba.gov/sites/default/files/files/Size_ standards for furnaces, as well as the benefits are maximized. Standards_Table.pdf. effects of alternate standards on natural

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gas prices. The Second Circuit granted Flexibility Act and the procedures and MHGFs, and one small business DOE’s motion on April 21, 2009. policies published on February 19, manufactures NWGFs and MHGFs. DOE On June 27, 2011, DOE published a 2003. 68 FR 7990. DOE conducted a made several key assumptions to direct final rule (June 2011 DFR) market survey using available public estimate the conversion costs for small revising the energy conservation information to identify potential NWGF and MHGF manufacturers. First, standards for residential furnaces domestic small manufacturers. DOE’s DOE assumed capital conversion costs pursuant to the voluntary remand in research involved DOE’s Compliance are proportionate with sales volume. State of New York, et al. v. Department Certification Database,206 industry trade Using model listings as a proxy for of Energy, et al. 76 FR 37408. In the June association membership directories market share, DOE scaled industry 2011 DFR, DOE considered the (including AHRI),207 individual capital conversion costs down to a small amendment of the same six product company Web sites, and market manufacturer level based on percentage classes considered in the November research tools (e.g., Hoovers reports) 208 of industry model listings. Second, DOE 2007 final rule analysis plus electric to create a list of companies that assumed that product conversion costs furnaces. The June 2011 DFR amended manufacture or sell the NWGF and are proportionate to the number of the existing energy conservation MHGF products covered by this models requiring redesign and that standards for NWGFs, MHGFs, and non- rulemaking. DOE also asked industry manufacturers would redesign all failing weatherized oil furnaces, and amended representatives if they were aware of models. DOE scaled industry product the compliance date (but left the any other small manufacturers during conversion costs down to small existing standards in place) for manufacturer interviews. DOE reviewed manufacturer level based on percentage weatherized gas furnaces. The June 2011 publicly available data and contacted of failing models. Additionally, DOE DFR also established electrical standby domestic companies on its list, as obtained company revenue information mode and off mode standards for necessary, to determine whether they pulled from the business information NWGFs, non-weatherized oil furnaces, met the SBA’s definition of a small databases Hoovers 209 and Glassdoor.210 and electric furnaces. DOE confirmed business manufacturer of covered Relying on these assumptions and the standards and compliance dates NWGF and MHGF products. DOE information, DOE estimated the promulgated in the June 2011 final rule screened out companies that do not conversion costs relative to small in a notice of effective date and meet the definition of a ‘‘small manufacturer revenue. compliance dates published on October business’’ or are completely foreign- The small domestic manufacturer that 31, 2011. 76 FR 67037. owned and operated. DOE initially manufactures both NWGFs and MHGFs As noted earlier, following DOE’s identified a total of 13 potential accounts for just under one percent of adoption of the June 2011 DFR, APGA companies that sell NWGFs and MHGFs all NWGF listings and approximately filed a petition for review with the in the United States. After reviewing four percent of all MHGF listings in the United States Court of Appeals for the publicly available information on these DOE Certification Compliance Database. District of Columbia Circuit, seeking to potential residential furnace businesses, This small manufacturer has condensing invalidate the DOE rule as it pertained DOE determined that 10 were either furnace product offerings, with 93 to NWGFs. Petition for Review, large businesses or businesses that were percent of its NWGF models and 71 American Public Gas Association, et al. completely foreign owned and operated. percent of its MHGF models meeting the v. Department of Energy, et al., No. 11– DOE determined that the remaining 92-percent AFUE standard at TSL 6. 1485 (D.C. Cir. filed Dec. 23, 2011). On three companies were small businesses DOE estimates that conversion costs April 24, 2014, the Court granted a that manufacturer NWGFs or MHGFs in incurred to comply with the AFUE motion that vacated in part, DOE’s rule the United States. standard at TSL 6 would account for 0.1 and remanded the matter, consistent Before issuing this SNOPR, DOE percent of revenues over the 5-year with a settlement agreement reached attempted to contact all the small conversion period for this company. between DOE, APGA, and the various domestic business manufacturers of The small domestic manufacturer that intervenors in the case, in which DOE NWGFs and MHGFs it had identified. only manufactures NWGFs accounts for agreed to a remand of the NWGFs and None of the small businesses consented five percent of the listings in the DOE MHGFs portions of the June 2011 direct to formal MIA interviews. DOE also Certification Compliance Database. This final rule in order to conduct further attempted to obtain information about domestic small manufacturer has notice-and-comment rulemaking. small business impacts while condensing NWGF offerings, with 22 Accordingly, the Court’s order vacated interviewing large manufacturers. percent of its models meeting the the June 2011 DFR in part (i.e., those proposed 92-percent AFUE standard for 3. Description and Estimate of portions relating to NWGFs and large NWGFs at TSL 6. DOE estimates Compliance Requirements MHGFs) and remanded to the agency for that conversion costs incurred to further rulemaking. As part of the a. Non-Weatherized Gas Furnaces and comply with the AFUE standard at TSL settlement, DOE agreed to use best Mobile Home Gas Furnaces AFUE 6 would account for 2.8 percent of efforts to issue a notice of proposed Standards revenues over the 5-year conversion rulemaking within one year of the Of the three small domestic period for this company. remand, and to issue a final rule within manufacturers identified, one small The small domestic manufacturer that the later of two years of the issuance of business manufactures only NWGFs, only manufactures MHGFs accounts for remand, or one year of the issuance of one small business only manufacturers approximately 17 percent of listings in the proposed rule, including at least a the DOE Certification Compliance ninety-day public comment period. 206 DOE’s Compliance Certification Management Database. This domestic small System, http://www.regulations.doe.gov/ manufacturer does not offer condensing 2. Description and Estimated Number of certification-data/(last accessed Aug. 19, 2014). MHGFs, and none of their products Small Entities Regulated 207 AHRI Directory, https:// would meet the proposed standard. DOE DOE reviewed the proposed energy www.ahridirectory.org/ahridirectory/pages/ home.aspx (last accessed Aug. 19, 2014). estimates that conversion costs incurred conservation standards for NWGFs and 208 Hoovers | Company Information | Industry MHGFs considered in this SNOPR Information | Lists, http://www.hoovers.com/) (last 209 www.hoovers.com. under the provisions of the Regulatory accessed Aug 26, 2014). 210 www.glassdoor.com.

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to comply with the AFUE standard at businesses in the industry, the names of 5. A Description of Significant TSL 6 would account for 0.5 percent of those small businesses, and their market Alternatives to the Rule revenues over the 5-year conversion shares by product class. DOE also period for this company. requests comment on its assumptions The discussion in section Table VI.1 analyzes impacts on small businesses b. Weatherized Gas Furnaces and that capital conversion costs for small businesses scale with shipment that would result from DOE’s proposed Mobile Home Gas Furnaces Standby rule. In reviewing alternatives to the Mode and Off Mode Standards volumes, the assumption that product conversion costs scale with models that proposed rule, DOE examined energy The engineering analysis suggests that conservation standards set at higher and the design paths required to meet the require redesign, and the assumption that small manufacturers would lower efficiency levels; TSL 9, TSL 8, standby mode and off mode TSL 7, TSL 5, TSL 4, TSL 3, TSL 2 and requirements consist of relatively redesign all failing models to meet the new standard. Lastly, DOE requests TSL 1. Table V.14 presents a straight-forward component swaps. comparison of the net present value Additionally, the INPV and short-term comment on the potential impacts of the (NPV) of consumer benefits, energy cash flow impacts of the standby mode proposed AFUE standards and standby savings, carbon dioxide emissions, and and off mode requirements are dwarfed mode and off mode standards on small by the impacts of the AFUE standard. In manufacturers. small business conversion costs general, the impacts of the standby and between the proposed standard, TSL 6, 4. Identification of Duplication, off mode standard are significantly and each of the analyzed TSLs. The smaller than the impacts of the AFUE Overlap, and Conflict With Other Rules differences between the analyzed TSL standard. For this reason, the IRFA and Regulations and the proposed TSL are characterized as percentages. focuses on the impacts of the AFUE DOE is not aware of any rules or standard. regulations that duplicate, overlap, or DOE seeks comments, information, conflict with the proposed rule. and data on the number of small

TABLE VI.1—SIGNIFICANT ALTERNATIVES TO TSL 6

Trial standard level 1 2 3 4 5 6 7 8 9

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

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

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imposed on that manufacturer as a this proposed rule. DOE’s CX preemptive effect, if any; (2) clearly result of such rule. Manufacturers determination for this proposed rule is specifies any effect on existing Federal should refer to 10 CFR part 430, subpart available at http://energy.gov/nepa/ law or regulation; (3) provides a clear E, and part 1003 for additional details. categorical-exclusion-cx- legal standard for affected conduct determinations-cx/. while promoting simplification and C. Review Under the Paperwork burden reduction; (4) specifies the Reduction Act of 1995 E. Review Under Executive Order 13132 retroactive effect, if any; (5) adequately Manufacturers of NWGFs and MHGFs Executive Order 13132, ‘‘Federalism,’’ defines key terms; and (6) addresses must certify to DOE that their products 64 FR 43255 (Aug. 10, 1999), imposes other important issues affecting clarity comply with any applicable energy certain requirements on Federal and general draftsmanship under any conservation standards. In certifying agencies formulating and implementing guidelines issued by the Attorney compliance, manufacturers must test policies or regulations that preempt General. Section 3(c) of Executive Order their products according to the DOE test State law or that have Federalism 12988 requires Executive agencies to procedures for NWGFs and MHGFs, implications. The Executive Order review regulations in light of applicable including any amendments adopted for requires agencies to examine the standards in section 3(a) and section those test procedures. DOE has constitutional and statutory authority 3(b) to determine whether they are met established regulations for the supporting any action that would limit or it is unreasonable to meet one or certification and recordkeeping the policymaking discretion of the more of them. DOE has completed the requirements for all covered consumer States and to carefully assess the required review and determined that, to products and commercial equipment, necessity for such actions. The the extent permitted by law, this including NWGFs and MHGFs. 76 FR Executive Order also requires agencies proposed rule meets the relevant 12422 (March 7, 2011); 80 FR 5099 (Jan. to have an accountable process to standards of Executive Order 12988. 30, 2015). The collection-of-information ensure meaningful and timely input by requirement for the certification and State and local officials in the G. Review Under the Unfunded recordkeeping is subject to review and development of regulatory policies that Mandates Reform Act of 1995 approval by OMB under the Paperwork have Federalism implications. On Title II of the Unfunded Mandates Reduction Act (PRA). This requirement March 14, 2000, DOE published a Reform Act of 1995 (UMRA) requires has been approved by OMB under OMB statement of policy describing the each Federal agency to assess the effects control number 1910–1400. Public intergovernmental consultation process of Federal regulatory actions on State, reporting burden for the certification is it will follow in the development of local, and Tribal governments and the estimated to average 30 hours per such regulations. 65 FR 13735. DOE has private sector. Public Law 104–4, sec. response, including the time for examined this proposed rule and has 201 (codified at 2 U.S.C. 1531). For a reviewing instructions, searching tentatively determined that it would not proposed regulatory action likely to existing data sources, gathering and have a substantial direct effect on the result in a rule that may cause the maintaining the data needed, and States, on the relationship between the expenditure by State, local, and Tribal completing and reviewing the collection national government and the States, or governments, in the aggregate, or by the of information. on the distribution of power and private sector of $100 million or more Notwithstanding any other provision responsibilities among the various in any one year (adjusted annually for of the law, no person is required to levels of government. EPCA governs and inflation), section 202 of UMRA requires respond to, nor shall any person be prescribes Federal preemption of State a Federal agency to publish a written subject to a penalty for failure to comply regulations as to energy conservation for statement that estimates the resulting with, a collection of information subject the products that are the subject of this costs, benefits, and other effects on the to the requirements of the PRA, unless proposed rule. States can petition DOE national economy. (2 U.S.C. 1532(a), (b)) that collection of information displays a for exemption from such preemption to The UMRA also requires a Federal currently valid OMB Control Number. the extent, and based on criteria, set agency to develop an effective process forth in EPCA. (42 U.S.C. 6297) to permit timely input by elected D. Review Under the National Therefore, no further action is required officers of State, local, and Tribal Environmental Policy Act of 1969 by Executive Order 13132. governments on a proposed ‘‘significant Pursuant to the National intergovernmental mandate,’’ and F. Review Under Executive Order 12988 Environmental Policy Act (NEPA) of requires an agency plan for giving notice 1969, DOE has determined that the With respect to the review of existing and opportunity for timely input to proposed rule fits within the category of regulations and the promulgation of potentially affected small governments actions included in Categorical new regulations, section 3(a) of before establishing any requirements Exclusion (CX) B5.1 and otherwise Executive Order 12988, ‘‘Civil Justice that might significantly or uniquely meets the requirements for application Reform,’’ imposes on Federal agencies affect them. On March 18, 1997, DOE of a CX. See 10 CFR part 1021, App. B, the general duty to adhere to the published a statement of policy on its B5.1(b); 1021.410(b) and App. B, B(1)– following requirements: (1) Eliminate process for intergovernmental (5). The proposed rule fits within this drafting errors and ambiguity; (2) write consultation under UMRA. 62 FR category of actions because it is a regulations to minimize litigation; (3) 12820. DOE’s policy statement is also rulemaking that establishes energy provide a clear legal standard for available at http://energy.gov/sites/ conservation standards for consumer affected conduct rather than a general prod/files/gcprod/documents/umra_ products or industrial equipment, and standard; and (4) promote simplification 97.pdf. for which none of the exceptions and burden reduction. 61 FR 4729 (Feb. Although this supplemental proposed identified in CX B5.1(b) apply. 7, 1996). Regarding the review required rule, which proposes amended energy Therefore, DOE has made a CX by section 3(a), section 3(b) of Executive conservation standards for residential determination for this rulemaking, and Order 12988 specifically requires that furnaces, does not contain a Federal DOE does not need to prepare an Executive agencies make every intergovernmental mandate, it may Environmental Assessment or reasonable effort to ensure that the require expenditures of $100 million or Environmental Impact Statement for regulation: (1) Clearly specifies the more in any one year by the private

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sector. Such expenditures may include: prepare a Family Policymaking proposed standards are not likely to (1) Investment in research and Assessment. have a significant adverse effect on the development and in capital supply, distribution, or use of energy, I. Review Under Executive Order 12630 expenditures by NWGF and MHGF nor has it been designated as such by manufacturers in the years between the Pursuant to Executive Order 12630, the Administrator at OIRA. Accordingly, final rule and the compliance date for ‘‘Governmental Actions and Interference DOE has not prepared a Statement of the new standards, and (2) incremental with Constitutionally Protected Property Energy Effects on this proposed rule. Rights,’’ 53 FR 8859 (March 15, 1988), additional expenditures by consumers L. Information Quality to purchase higher-efficiency NWGFs DOE has determined that this proposed and MHGFs, starting at the compliance rule would not result in any takings that On December 16, 2004, OMB, in date for the applicable standard. might require compensation under the consultation with the Office of Science Section 202 of UMRA authorizes a Fifth Amendment to the U.S. and Technology Policy (OSTP), issued Federal agency to respond to the content Constitution. its Final Information Quality Bulletin for Peer Review (the Bulletin). 70 FR requirements of UMRA in any other J. Review Under the Treasury and 2664 (Jan. 14, 2005). The Bulletin statement or analysis that accompanies General Government Appropriations establishes that certain scientific the proposed rule. (2 U.S.C. 1532(c)) Act, 2001 information shall be peer reviewed by The content requirements of section Section 515 of the Treasury and 202(b) of UMRA relevant to a private qualified specialists before it is General Government Appropriations disseminated by the Federal sector mandate substantially overlap the Act, 2001 (44 U.S.C. 3516 note) provides Government, including influential economic analysis requirements that for Federal agencies to review most scientific information related to agency apply under section 325(o) of EPCA and disseminations of information to the regulatory actions. The purpose of the Executive Order 12866. The public under information quality bulletin is to enhance the quality and SUPPLEMENTARY INFORMATION section of guidelines established by each agency credibility of the Government’s this SNOPR and the TSD for this pursuant to general guidelines issued by scientific information. Under the supplementary proposed rule respond OMB. OMB’s guidelines were published Bulletin, the analyses underlying the to those requirements. at 67 FR 8452 (Feb. 22, 2002), and energy conservation standards Under section 205 of UMRA, the DOE’s guidelines were published at 67 rulemaking are ‘‘influential scientific Department is obligated to identify and FR 62446 (Oct. 7, 2002). DOE has information,’’ which the Bulletin consider a reasonable number of reviewed this SNOPR under the OMB defines as ‘‘scientific information the regulatory alternatives before and DOE guidelines and has concluded agency reasonably can determine will promulgating a rule for which a written that it is consistent with applicable have, or does have, a clear and statement under section 202 is required. policies in those guidelines. substantial impact on important public (2 U.S.C. 1535(a)) DOE is required to policies or private sector decisions.’’ Id. K. Review Under Executive Order 13211 select from those alternatives the most at FR 2667. cost-effective and least burdensome Executive Order 13211, ‘‘Actions In response to OMB’s Bulletin, DOE alternative that achieves the objectives Concerning Regulations That conducted formal peer reviews of the of the proposed rule unless DOE Significantly Affect Energy Supply, energy conservation standards publishes an explanation for doing Distribution, or Use,’’ 66 FR 28355 (May development process and the analyses otherwise, or the selection of such an 22, 2001), requires Federal agencies to that are typically used and prepared a alternative is inconsistent with law. As prepare and submit to OIRA at OMB, a Peer Review Report that describes that required by 42 U.S.C. 6295(d), (f), and Statement of Energy Effects for any peer review.211 Generation of this report (o), 6313(e), and 6316(a), this proposed proposed significant energy action. A involved a rigorous, formal, and rule would establish amended AFUE ‘‘significant energy action’’ is defined as documented evaluation using objective energy conservation standards and new any action by an agency that criteria and qualified and independent standby mode and off mode energy promulgates or is expected to lead to reviewers to make a judgment as to the conservation standards for NWGFs and promulgation of a final rule, and that: technical/scientific/business merit, the MHGFs that are designed to achieve the (1) Is a significant regulatory action actual or anticipated results, and the maximum improvement in energy under Executive Order 12866, or any productivity and management efficiency that DOE has determined to successor order; and (2) is likely to have effectiveness of programs and/or be both technologically feasible and a significant adverse effect on the projects. DOE has determined that the economically justified. A full discussion supply, distribution, or use of energy, or peer-reviewed analytical process of the alternatives considered by DOE is (3) is designated by the Administrator of continues to reflect current practice, and presented in chapter 17 of the TSD for OIRA as a significant energy action. For the Department followed that process this proposed rule. any proposed significant energy action, for developing energy conservation standards in the case of the present H. Review Under the Treasury and the agency must give a detailed statement of any adverse effects on NWGFs and MHGFs rulemaking. General Government Appropriations This peer review covered the basic Act, 1999 energy supply, distribution, or use should the proposal be implemented, analytical methods and models that Section 654 of the Treasury and and of reasonable alternatives to the DOE has used in the present NWGFs General Government Appropriations action and their expected benefits on and MHGFs rulemaking. In addition, Act, 1999 (Pub. L. 105–277) requires energy supply, distribution, and use. prior to the publication of the March Federal agencies to issue a Family DOE has tentatively concluded that 2015 NOPR, DOE provided a number of Policymaking Assessment for any rule this regulatory action, which proposes opportunities for stakeholders to that may affect family well-being. This amended AFUE energy conservation rule would not have any impact on the standards and new standby mode and 211 The 2007 ‘‘Energy Conservation Standards Rulemaking Peer Review Report’’ is available at the autonomy or integrity of the family as off mode energy conservation standards following Web site: http://energy.gov/eere/ an institution. Accordingly, DOE has for NWGFs and MHGFs, is not a buildings/downloads/energy-conservation- concluded that it is not necessary to significant energy action because the standards-rulemaking-peer-review-report-0.

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

TABLE VI.2—RECORD OF INTERACTIONS WITH STAKEHOLDERS IN RESIDENTIAL FURNACES RULEMAKING

Document name Date Notes Link

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

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TABLE VI.2—RECORD OF INTERACTIONS WITH STAKEHOLDERS IN RESIDENTIAL FURNACES RULEMAKING—Continued

Document name Date Notes Link

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

VII. Public Participation changes regarding identification (ID) B. Procedure for Submitting Prepared requirements for individuals wishing to General Statements for Distribution A. Attendance at the Public Meeting enter Federal buildings from specific The time, date, and location of the States and U.S. territories. As a result, Any person who has plans to present a prepared general statement may public meeting are listed in the DATES driver’s licenses from several States or request that copies of his or her and ADDRESSES sections at the beginning territory will not be accepted for statement be made available at the of this document. If you plan to attend building entry, and instead, one of the public meeting. Such persons may the public meeting, please notify the alternate forms of ID listed below will submit requests, along with an advance Appliance and Equipment Standards be required. DHS has determined that electronic copy of their statement in Staff at (202) 586–6636 or by email: regular driver’s licenses (and ID cards) _ _ _ PDF (preferred), Microsoft Word or Appliance Standards Public from the following jurisdictions are not Excel, WordPerfect, or text (ASCII) file [email protected]. acceptable for entry into DOE facilities: format, to the appropriate address Please note that foreign nationals Alaska, American Samoa, Arizona, shown in the ADDRESSES section at the visiting DOE Headquarters are subject to Louisiana, Maine, Massachusetts, beginning of this document. The request advance security screening procedures Minnesota, New York, Oklahoma, and which require advance notice prior to and advance copy of statements must be Washington. Acceptable alternate forms received at least one week before the attendance at the public meeting. If a of Photo-ID include: U.S. Passport or foreign national wishes to participate in public meeting and may be emailed, Passport Card; an Enhanced Driver’s hand-delivered, or sent by mail. DOE the public meeting, please inform DOE License or Enhanced ID-Card issued by of this fact as soon as possible by prefers to receive requests and advance the States of Minnesota, New York, or copies via email. Please include a contacting Ms. Regina Washington at Washington (Enhanced licenses issued (202) 586–1214 or by email telephone number to enable DOE staff to by these States are clearly marked make follow-up contact, if needed. ([email protected]) so that Enhanced or Enhanced Driver’s the necessary procedures can be License); a military ID or other Federal C. Conduct of the Public Meeting completed. government-issued Photo-ID card. DOE requires visitors to have laptops DOE will designate a DOE official to and other devices, such as tablets, In addition, you can attend the public preside at the public meeting and may checked upon entry into the Forrestal meeting via webinar. Webinar also use a professional facilitator to aid Building. Any person wishing to bring registration information, participant discussion. The meeting will not be a these devices into the building will be instructions, and information about the judicial or evidentiary-type public required to obtain a property pass. capabilities available to webinar hearing, but DOE will conduct it in Visitors should avoid bringing these participants will be published on DOE’s accordance with section 336 of EPCA. devices, or allow an extra 45 minutes to Web site at https:// (42 U.S.C. 6306) A court reporter will be check in. Please report to the visitor’s www1.eere.energy.gov/buildings/ present to record the proceedings and desk to have devices checked before appliance_standards/ prepare a transcript. DOE reserves the proceeding through security. standards.aspx?productid=59. right to schedule the order of Due to the REAL ID Act implemented Participants are responsible for ensuring presentations and to establish the by the Department of Homeland their systems are compatible with the procedures governing the conduct of the Security (DHS), there have been recent webinar software. public meeting. There shall not be

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discussion of proprietary information, contact information will not be publicly Include contact information each time costs or prices, market share, or other viewable except for your first and last you submit comments, data, documents, commercial matters regulated by U.S. names, organization name (if any), and and other information to DOE. If you anti-trust laws. After the public meeting, submitter representative name (if any). submit via mail or hand delivery/ interested parties may submit further If your comment is not processed courier, please provide all items on a comments on the proceedings, as well properly because of technical CD, if feasible, in which case it is not as on any aspect of the rulemaking, until difficulties, DOE will use this necessary to submit printed copies. No the end of the comment period. information to contact you. If DOE telefacsimiles (faxes) will be accepted. The public meeting will be conducted cannot read your comment due to Comments, data, and other in an informal, conference style. DOE technical difficulties and cannot contact information submitted to DOE will present summaries of comments you for clarification, DOE may not be electronically should be provided in received before the public meeting, able to consider your comment. PDF (preferred), Microsoft Word or allow time for prepared general However, your contact information Excel, WordPerfect, or text (ASCII) file statements by participants, and will be publicly viewable if you include format. Provide documents that are not encourage all interested parties to share it in the comment itself or in any secured, that are written in English, and their views on issues affecting this documents attached to your comment. that are free of any defects or viruses. rulemaking. Each participant will be Any information that you do not want Documents should not contain special allowed to make a general statement to be publicly viewable should not be characters or any form of encryption (within time limits determined by DOE), included in your comment, nor in any and, if possible, they should carry the before the discussion of specific topics. document attached to your comment. electronic signature of the author. DOE will allow, as time permits, other Otherwise, persons viewing comments Campaign form letters. Please submit participants to comment briefly on any will see only first and last names, campaign form letters by the originating general statements. organization names, correspondence organization in batches of between 50 to At the end of all prepared statements containing comments, and any 500 form letters per PDF or as one form on a topic, DOE will permit participants documents submitted with the letter with a list of supporters’ names to clarify their statements briefly and comments. compiled into one or more PDFs. This comment on statements made by others. reduces comment processing and Do not submit to www.regulations.gov Participants should be prepared to posting time. information for which disclosure is answer questions by DOE and by other Confidential Business Information. restricted by statute, such as trade participants concerning these issues. Pursuant to 10 CFR 1004.11, any person secrets and commercial or financial DOE representatives may also ask submitting information that he or she information (hereinafter referred to as questions of participants concerning believes to be confidential and exempt Confidential Business Information other matters relevant to this by law from public disclosure should (CBI)). Comments submitted through rulemaking. The official conducting the submit via email, postal mail, or hand www.regulations.gov cannot be claimed public meeting will accept additional delivery/courier two well-marked as CBI. Comments received through the comments or questions from those copies: One copy of the document Web site will waive any CBI claims for attending, as time permits. The marked ‘‘confidential’’ including all the the information submitted. For presiding official will announce any information believed to be confidential, information on submitting CBI, see the further procedural rules or modification and one copy of the document marked Confidential Business Information of the above procedures that may be ‘‘non-confidential’’ with the information section below. needed for the proper conduct of the believed to be confidential deleted. public meeting. DOE processes submissions made Submit these documents via email or on A transcript of the public meeting will through www.regulations.gov before a CD, if feasible. DOE will make its own be included in the docket, which can be posting. Normally, comments will be determination about the confidential viewed as described in the Docket posted within a few days of being status of the information and treat it section at the beginning of this notice submitted. However, if large volumes of according to its determination. and will be accessible on the DOE Web comments are being processed Factors of interest to DOE when site. In addition, any person may buy a simultaneously, your comment may not evaluating requests to treat submitted copy of the transcript from the be viewable for up to several weeks. information as confidential include: (1) transcribing reporter. Please keep the comment tracking A description of the items; (2) whether number that www.regulations.gov and why such items are customarily D. Submission of Comments provides after you have successfully treated as confidential within the DOE will accept comments, data, and uploaded your comment. industry; (3) whether the information is information regarding this proposed Submitting comments via email, hand generally known by or available from rule before or after the public meeting, delivery/courier, or mail. Comments and other sources; (4) whether the but no later than the date provided in documents submitted via email, hand information has previously been made the DATES section at the beginning of delivery/courier, or mail also will be available to others without obligation this proposed rule. Interested parties posted to www.regulations.gov. If you concerning its confidentiality; (5) an may submit comments, data, and other do not want your personal contact explanation of the competitive injury to information using any of the methods information to be publicly viewable, do the submitting person that would result described in the ADDRESSES section at not include it in your comment or any from public disclosure; (6) when such the beginning of this document. accompanying documents. Instead, information might lose its confidential Submitting comments via provide your contact information in a character due to the passage of time; and www.regulations.gov. The cover letter. Include your first and last (7) why disclosure of the information www.regulations.gov Web page will names, email address, telephone would be contrary to the public interest. require you to provide your name and number, and optional mailing address. It is DOE’s policy that all comments contact information. Your contact The cover letter will not be publicly may be included in the public docket, information will be viewable to DOE viewable as long as it does not include without change and as received, Building Technologies staff only. Your any comments. including any personal information

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provided in the comments (except 14. The reasonableness of its assumption to List of Subjects information deemed to be exempt from apply a decreasing trend to the manufacturer 10 CFR Part 429 public disclosure). selling price (in real dollars) of NWGFs and MHGFs, as well as any information that Administrative practice and E. Issues on Which DOE Seeks Comment would support the use of alternative procedure, Confidential business assumptions (see section IV.F.1). information, Energy conservation, Although DOE welcomes comments 15. DOE’s approach for determining on any aspect of this proposal, DOE is discount rates in the LCC analysis (see Household appliances, Reporting and particularly interested in receiving section IV.F.7). recordkeeping requirements. comments and views of interested 16. DOE’s approach for determining NWGF 10 CFR Part 430 parties concerning the following issues: and MHGF lifetime distribution (see section IV.F.6). Administrative practice and 1. DOE’s weighing of the benefits and 17. DOE’s current approach for calculating procedure, Confidential business burdens of the small NWGF product class the fraction of NWGF consumers that would information, Energy conservation, approach and whether a cut-off of 60 be expected to switch to other products in Household appliances, Imports, kBtu/h (or other capacity) would be more the standards cases (see section IV.F.9). Intergovernmental relations, Small appropriate than 55 kBtu/h, particularly in 18. The estimated market share of businesses. light of the consumer economic benefits of condensing NWGFs and MHGFs in 2022 in such a product class (see section III.A). the absence of amended AFUE energy Issued in Washington, DC, on September 2, 2. The technological feasibility of using conservation standards (see section IV.F.8). 2016. BPM control relays to reduce the energy 19. The estimated market share of NWGFs David J. Friedman, consumption of furnaces in standby/off and MHGFs that are used at each standby Acting Assistant Secretary, Energy Efficiency mode. In particular, DOE seeks feedback efficiency level in 2022 in the absence of and Renewable Energy. regarding the energy savings benefits of this amended energy conservation standards (see technology option, as well as potential For the reasons set forth in the section IV.F.8). preamble, DOE proposes to amend parts impacts on the reliability and lifetime of 20. The methodology and data sources furnace components (see section IV.A.2). used for projecting the future shipments of 429 and 430 of chapter II, subchapter D, 3. The appropriateness of treating standby NWGFs and MHGFs in the absence of of title 10 of the Code of Federal and off mode energy consumption as equal amended energy conservation standards (see Regulations, as set forth below: (see section IV.C.1.a). section IV.G). 4. Potential future furnace functions that 21. The potential impacts on product PART 429—CERTIFICATION, would operate in standby/off mode, as well shipments related to fuel and product COMPLIANCE, AND ENFORCEMENT as the energy consumption level of furnaces switching (see section IV.G.2). FOR CONSUMER PRODUCTS AND incorporating such functions in relation to 22. The reasonableness of the value that COMMERCIAL AND INDUSTRIAL the baseline standby/off mode energy DOE used to characterize the rebound effect EQUIPMENT consumption level used in the analyses for with higher-efficiency NWGFs and MHGFs this SNOPR (see section IV.C.1.a). (see section IV.E.1.d). ■ 1. The authority citation for part 429 5. Furnace design changes which may be 23. The approach for conducting the continues to read as follows: required in order to accommodate the emissions analysis for NWGFs and MHGFs implementation of LL–LTX as a technology (see section IV.K). Authority: 42 U.S.C. 6291–6317; 28 U.S.C. option for reducing the energy consumption 24. DOE’s approach for estimating 2461 note. of furnaces in standby/off mode (see section monetary benefits associated with emissions ■ 2. Section 429.18 is amended by IV.C.1.b). reductions (see section IV.L). revising paragraphs (a)(2)(vii) and 6. The technological feasibility of 25. DOE seeks comments, information, and (b)(2)(i) to read as follows: achieving the proposed standby/off mode data on the capital conversion costs and max-tech efficiency level of 8.5 watts (see product conversion costs estimated for each § 429.18 Residential furnaces. section IV.C.1.b). AFUE standard TSL. (See section V.B.2.a) (a) * * * 7. The anticipated percentage of NWGF 26. DOE requests comments on the (2) * * * models which could achieve the efficiency identified regulations and their contribution levels promulgated by the 2014 furnace fans (vii) Reported Values. The to cumulative regulatory burden. represented value of annual fuel rule via implementation of a constant-torque Additionally, DOE requests feedback on BPM motor paired with single-stage product-specific Federal regulations that take utilization efficiency must be truncated combustion, rather than being paired with effect between 2017 and 2025 that were not to the one-tenth of a percentage point two-stage combustion (see section IV.C.2.c). listed, including identification of the specific and the representative value of standby 8. The MPCs and incremental MPCs regulations and data quantifying the and off mode electrical power developed for the AFUE efficiency levels associated burdens. (See section V.B.2.e) consumption must be rounded up to the analyzed in this SNOPR (see section DOE seeks comments, information, and data next tenth of one watt. IV.C.2.c). on the number of small businesses in the (b) * * * 9. The electric furnace MPC estimates and industry, the names of those small (2) * * * methodology (see section IV.C.3). businesses, and their role in the market. DOE (i) Residential furnaces and boilers: 10. The installation costs for condensing also requests data on the market share of NWGFs and MHGFs. Specifically, the The annual fuel utilization efficiency small manufacturers in the NWGF and (AFUE) in percent (%) and the input estimated fraction of houses that would see MHGF markets and information on the a large impact for installing a condensing conversion costs small manufacturers expect capacity (nameplate maximum fuel furnace because of venting and/or condensate to invest. input rate) in British thermal units per withdrawal issues (see section IV.F.2). 27. DOE requests comment on the potential hour (Btu/h). For non-weatherized oil- 11. The costs associated with modifying impacts of the proposed AFUE standards and fired furnaces (including mobile home the existing vent systems and managing standby mode and off mode standards on oil furnaces) and electric furnaces, the condensate withdrawal to accommodate small manufacturers (see section VI.B). standby and off mode electrical power condensing gas furnaces in multi-family consumption in watts (W). On or after buildings (see section IV.F.2). VIII. Approval of the Office of the 12. DOE’s approach for sizing furnace Secretary [date 5 years after the publication of the equipment (see section IV.E.1.a). final rule], certification reports for non- 13. DOE’s approach for furnace downsizing The Secretary of Energy has approved weatherized gas furnaces (including in the standards cases with a small furnace publication of this notice of proposed mobile home gas furnaces) must also standard (see section IV.E.1.a). rulemaking. include the standby and off mode

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electrical power consumption in watts final rule]; mobile home gas furnaces (iii) The AFUE for non-weatherized (W). manufactured on or after November 19, gas (not including mobile home gas * * * * * 2015, but before [date 5 years after furnaces) manufactured on and after publication of the final rule]; non- [date 5 years after publication of the PART 430—ENERGY CONSERVATION weatherized oil-fired furnaces (not final rule]; and mobile home gas PROGRAM FOR CONSUMER including mobile home furnaces) furnaces manufactured on and after PRODUCTS manufactured on or after May 1, 2013, [date 5 years after publication of the mobile home oil-fired furnaces final rule], shall not be less than ■ 3. The authority citation for part 430 manufactured on or after January 1, indicated in the table below: continues to read as follows: 2015; weatherized oil-fired furnaces Authority: 42 U.S.C. 6291–6309; 28 U.S.C. manufactured on or after January 1, Product class AFUE 1 2461 note. 2015; weatherized oil-fired furnaces ■ 4. Section 430.32 is amended by: manufactured on or after January 1, (A) Non-weatherized gas furnaces ■ a. Revising paragraph (e)(1)(ii); 1992; and electric furnaces (not including mobile home gas ■ furnaces) with a certified input b. Redesignating paragraph (e)(1)(iii) manufactured on or after January 1, as (e)(1)(iv); capacity of greater than 55 ■ 1992; shall not be less than indicated in kBtu/hr ...... 92.0 c. Adding a new paragraph (e)(1)(iii); the table below: and (B) Non-weatherized gas furnaces ■ d. Revising newly redesignated (not including mobile home gas Product class AFUE 1 furnaces) with a certified input paragraph (e)(1)(iv). capacity of less than or equal to The additions and revisions read as (A) Non-weatherized gas furnaces 55 kBtu/hr ...... 80.0 follows: (not including mobile home fur- (C) Mobile home gas furnaces ..... 92.0 naces) ...... 80.0 § 430.32 Energy and water conservation (B) Mobile home gas furnaces ..... 80.0 1 Annual Fuel Utilization Efficiency, as deter- standards and their compliance dates. (C) Non-weatherized oil-fired fur- mined in § 430.23(n)(2) of this part. * * * * * naces (not including mobile (e) * * * home furnaces) ...... 83.0 (iv) Furnaces manufactured on and (1) * * * (D) Mobile home oil-fired furnaces 75.0 after the compliance date listed in the (ii) The AFUE for non-weatherized (E) Weatherized gas furnaces ...... 81.0 table below shall have an electrical gas furnaces (not including mobile (F) Weatherized oil-fired furnaces 78.0 standby mode power consumption (G) Electric furnaces ...... 78.0 home gas furnaces) manufactured on or (PW,SB) and electrical off mode power after November 19, 2015, but before 1 Annual Fuel Utilization Efficiency, as deter- consumption (PW,OFF) not more than the [date 5 years after publication of the mined in § 430.23(n)(2) of this part. following:

Maximum standby Maximum off mode electrical mode electrical Product class power power Compliance date consumption, consumption, (PW,SB) (watts) (PW,OFF) (watts)

(A) Non-weatherized oil-fired furnaces (including 11.0 11.0 May 1, 2013. mobile home oil-fired furnaces). (B) Electric furnaces ...... 10.0 10.0 May 1, 2013. (C) Non-weatherized gas furnaces (including mo- 8.5 8.5 Date 5 years after the publication of final rule. bile home gas furnaces).

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

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