[Federal Register: October 6, 2006 (Volume 71, Number 194)]
[Proposed Rules]
[Page 59203-59259]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr06oc06-17]
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Part II
Department of Energy
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Office of Energy Efficiency and Renewable Energy
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10 CFR Part 430
Energy Conservation Program for Consumer Products: Energy Conservation
Standards for Residential Furnaces and Boilers; Proposed Rule
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DEPARTMENT OF ENERGY
Office of Energy Efficiency and Renewable Energy
10 CFR Part 430
[Docket Number EE-RM/STD-01-350]
RIN 1904-AA78
Energy Conservation Program for Consumer Products: Energy
Conservation Standards for Residential Furnaces and Boilers
AGENCY: Office of Energy Efficiency and Renewable Energy, Department of
Energy.
ACTION: Notice of proposed rulemaking and public meeting.
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SUMMARY: The Energy Policy and Conservation Act (EPCA or the Act)
prescribes energy conservation standards for various consumer products
and commercial and industrial equipment, and requires the Department of
Energy (DOE or the Department) to determine if amendments to increase
the stringency of the standards are technologically feasible and
economically justified, and if they would save a significant amount of
energy. In this notice, the Department is proposing to amend the energy
conservation standards for residential furnaces and boilers and is
announcing a public meeting.
DATES: The Department will hold a public meeting on October 30, 2006,
from 9 a.m. to 4 p.m., in Washington, DC. The Department must receive
requests to speak at the public meeting before 4 p.m., October 16,
2006. The Department must receive a signed original and an electronic
copy of statements to be given at the public meeting before 4 p.m.,
October 16, 2006.
The Department will accept comments, data, and information
regarding the notice of proposed rulemaking (NOPR) before and after the
public meeting, but no later than January 15, 2007. See section VII,
``Public Participation,'' of this notice for details.
ADDRESSES: You may submit comments, identified by docket number EE-RM/
STD-01-350 and/or regulatory information number (RIN) 1904-AA78, by any
of the following methods:
1. Federal eRulemaking Portal: http://www.regulations.gov. Follow
the instructions for submitting comments.
2. E-mail: ResidentialFBNOPR[fxsp0]Comments@ee.doe.gov. Include
docket number EE-RM/STD-01-350 and/or RIN number 1904-AA78 in the
subject line of the message.
3. Mail: Ms. Brenda Edwards-Jones, U.S. Department of Energy,
Building Technologies Program, Mailstop EE-2J, NOPR for Residential
Furnaces and Boilers, Docket Number EE-RM/STD-01-350 and/or RIN number
1904-AA78, 1000 Independence Avenue, SW., Washington, DC 20585-0121.
Please submit one signed original paper copy.
4. Hand Delivery/Courier: Ms. Brenda Edwards-Jones, U.S. Department
of Energy, Building Technologies Program, Room 1J-018, 1000
Independence Avenue, SW., Washington, DC 20585-0121. Telephone: (202)
586-2945. Please submit one signed original paper copy.
Instructions: All submissions received must include the agency name
and Docket Number or RIN for this rulemaking. For detailed instructions
on submitting comments and additional information on the rulemaking
process, see section VII, ``Public Participation,'' of this notice for
details.
Docket: For access to the docket to read background documents or
comments received, visit the U.S. Department of Energy, Forrestal
Building, Room 1J-018 (Resource Room of the Building Technologies
Program), 1000 Independence Avenue, SW., Washington, DC 20585-0121,
(202) 586-2945, between 9 a.m. and 4 p.m., Monday through Friday,
except Federal holidays. Please call Ms. Brenda Edwards-Jones at the
above telephone number for additional information regarding visiting
the Resource Room. Please note: The Department's Freedom of Information
Reading Room (formerly Room 1E-190 at the Forrestal Building) is no
longer housing rulemaking materials.
FOR FURTHER INFORMATION CONTACT: Mohammed Khan, Project Manager, Energy
Conservation Standards for Residential Furnaces and Boilers, U.S.
Department of Energy, Energy Efficiency and Renewable Energy, Building
Technologies Program, EE-2J, 1000 Independence Avenue, SW., Washington,
DC 20585-0121, (202) 586-7892, e-mail: Mohammed.Khan@ee.doe.gov.
Francine Pinto, Esq., U.S. Department of Energy, Office of the
General Counsel, GC-72, 1000 Independence Avenue, SW., Washington, DC
20585-0121, (202) 586-9507, e-mail: Francine.Pinto@hq.doe.gov.
SUPPLEMENTARY INFORMATION:
Table of Contents
I. Summary of the Proposed Rule
II. Introduction
A. Consumer Overview
B. Authority
C. Background
1. Current Standards
2. History of Standards Rulemaking for Residential Furnaces and
Boilers
3. Process Improvement
D. Negotiated Boiler Standards Agreement
III. General Discussion
A. General Issues
1. Impact of Furnace and Boiler Standards on Future Natural Gas
Prices
2. Inclusion of Electricity Consumption in Furnace and Boiler
Standards
3. Separate Standards for Equipment Installed in New Homes and
as Replacements
4. Separate Standards for Different Regions
B. Test Procedures
C. Technological Feasibility
1. General
2. Maximum Technologically Feasible Levels
D. Energy Savings
1. Determination of Savings
2. Significance of Savings
E. Economic Justification
1. Specific Criteria
a. Economic Impact on Manufacturers and Consumers
b. Life-Cycle Costs
c. Energy Savings
d. Lessening of Utility or Performance of Products
e. Impact of Any Lessening of Competition f. Need of the Nation
to Conserve Energy
g. Other Factors
2. Rebuttable Presumption
IV. Methodology and Discussion of Comments
A. Product Classes
B. Engineering Analysis
1. Manufacturing Costs
2. Markups
3. Installation Costs
a. Non-Weatherized Gas Furnaces
b. Other Product Classes
4. Maintenance Costs
5. Rebuttable-Presumption Payback Period
C. Life-Cycle Cost and Payback Period Analysis
1. Equipment Prices
2. Installation Costs
3. Household Annual Energy Consumption
4. Energy Prices
5. Maintenance Costs
6. Equipment Lifetime
7. Discount Rates
8. Effective Date of the New Standards
9. Inputs to Payback Period Analysis
10. Base-Case Equipment
D. National Impact Analysis--National Energy Savings and Net
Present Value Analysis
1. Shipments, National Energy Savings, and Net Present Value
2. Annual Unit Energy Consumption
3. Site-to-Source Conversion Factors
4. Installed Equipment Costs
5. Maintenance Costs
6. Energy Prices
7. Discount Rates
E. Consumer Subgroup Analysis
F. Manufacturer Impact Analysis
1. General Description
2. Industry Profile
3. Industry Cash Flow Analysis
4. Subgroup Impact Analysis
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5. Government Regulatory Impact Model Analysis
6. Manufacturer Interviews
a. Issues
b. GRIM Scenarios and Key Inputs
1. Shipments Forecast
2. Markups
3. Product and Capital Conversion Costs
G. Employment Impact Analysis
H. Utility Impact Analysis
I. Environmental Analysis
V. Analytical Results
A. Trial Standard Levels
B. Economic Justification and Energy Savings
1. Economic Impacts on Consumers
a. Life-Cycle Cost and Payback Period
b. Consumer Subgroup Analysis
c. Rebuttable-Presumption Payback
2. Economic Impacts on Manufacturers
a. Industry Cash Flow Analysis Results
i. Non-Weatherized Gas Furnaces
ii. Weatherized Gas Furnaces
iii. Mobile Home Gas Furnaces
iv. Oil-Fired Furnaces
v. Gas Boilers
vi. Oil-Fired Boilers
b. Impacts on Manufacturing Capacity
c. Impacts on Subgroups of Manufacturers
d. Cumulative Regulatory Burden
3. National Impact Analysis
a. Significance of Energy Savings
b. Net Present Value
c. Impacts on Employment
4. Impact on Utility or Performance of Products
5. Impact of Any Lessening of Competition
6. Need of the Nation to Conserve Energy
7. Other Factors
C. Proposed Standard
VI. Procedural Issues and Regulatory Review
A. Review Under Executive Order 12866
B. Review Under the Regulatory Flexibility Act
C. Review Under the Paperwork Reduction Act
D. Review Under the National Environmental Policy Act
E. Review Under Executive Order 13132
F. Review Under Executive Order 12988
G. Review Under the Unfunded Mandates Reform Act of 1995
H. Review Under the Treasury and General Government
Appropriations Act of 1999
I. Review Under Executive Order 12630
J. Review Under the Treasury and General Government
Appropriations Act of 2001
K. Review Under Executive Order 13211
L. Review Under the Information Quality Bulletin for Peer Review
M. Review Under Executive Order 12898
VII. Public Participation
A. Attendance at Public Meeting
B. Procedure for Submitting Requests to Speak
C. Conduct of Public Meeting
D. Submission of Comments
E. Issues on Which DOE Seeks Comment
VIII. Approval of the Office of the Secretary
I. Summary of the Proposed Rule
The Energy Policy and Conservation Act (EPCA or the Act), as
amended, specifies that any new or amended energy conservation standard
the Department of Energy (DOE or the Department) prescribes for
consumer products shall be designed to ``achieve the maximum
improvement in energy efficiency * * * which the Secretary determines
is technologically feasible and economically justified.'' (42 U.S.C.
6295(o)(2)(A)) Furthermore, the new or amended standard must ``result
in significant conservation of energy.'' (42 U.S.C. 6295(o)(3)(B)) In
accordance with these and other statutory criteria discussed in this
notice, the Department proposes to amend the residential furnace and
boiler energy conservation standards and raise efficiency levels as
shown in Table I.1. The proposed standards would apply to all covered
furnaces and boilers offered for sale in the United States, effective
on January 1, 2015.
Table I.1.--Proposed Standard Levels for Furnaces and Boilers
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Product class AFUE (%)
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Non-weatherized gas furnaces................................. 80
Weatherized gas furnaces..................................... 83
Mobile home gas furnaces..................................... 80
Oil-fired furnaces........................................... 82
Gas boilers.................................................. 84
Oil-fired boilers............................................ 83
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AFUE = annual fuel utilization efficiency.
The Department's analyses indicate that the proposed standards
would save a significant amount of energy--an estimated 0.41
quadrillion British thermal units (Btu), or quads, of cumulative energy
over 24 years (2015-2038). For comparison, approximately six quads are
used annually for space heating in U.S. homes. The economic impacts on
consumers--i.e., the average life-cycle cost (LCC) savings--are
positive.
The cumulative national net present value (NPV) of total consumer
costs and savings of the proposed standard (DOE's trial standard level
2, or TSL2) from 2015 to 2038, in 2004$, ranges from $650 million
(seven-percent discount rate) to $2.48 billion (three-percent discount
rate). This is the estimated total value of future operating-cost-
savings minus the estimated increased equipment costs, discounted to
2004. The Department estimated the furnace and boiler industry net
present value (INPV) to be approximately $1.6 billion in 2004$. If the
Department adopts the proposed standard, it expects manufacturers will
lose 4.1 to 7 percent of the INPV, which is approximately $65-114
million. The NPV for consumers (at the seven-percent discount rate)
exceeds industry losses due to energy efficiency standards by about
seven times.
The proposed standard will lead to reductions in greenhouse gas
emissions, resulting in cumulative (undiscounted) emission reductions
of 19.6 million tons (Mt) of carbon dioxide (CO2) from 2015
to 2038. Additionally, the standard would result in 13.0 thousand tons
(kt) of nitrogen oxides (NOX) emissions reductions or
generate a similar amount of NOX emissions allowance credits
in areas where such emissions are subject to emissions caps. The
standard would also generate 1.5 kt of sulfur dioxide (SO2)
emissions reductions from 2015 to 2038. Most of the energy saved is
natural gas. In addition, the Department expects the energy savings
from the proposed standards to eliminate the need for approximately 14
megawatts (MW) of generating capacity by 2030.
The above results reflect the Department's use of energy price
projections from the U.S. Energy Information Administration (EIA)'s
Annual Energy Outlook 2005 (AEO2005). In addition, the Department
performed a sensitivity analysis to assess the impacts of the standard
using the Annual Energy Outlook 2006 (AEO2006) energy price forecasts.
In this sensitivity analysis, the proposed standards would save the
same amount of energy (0.41 quads) over 2015-2038. The cumulative NPV
of total consumer costs and savings of the proposed standard from 2015
to 2038, in 2004$, ranges from $820 million (seven-percent discount
rate) to $3.02 billion (three-percent discount rate). The other results
are approximately the same as in the analysis using AEO2005.
The Department has found the proposed standard represents the
maximum improvement in energy efficiency that is technologically
feasible and economically justified. The Department found the benefits
to the Nation of the proposed standard (energy savings, consumer
average LCC savings, national NPV increase, and emission reductions)
outweigh the costs (loss of manufacturer NPV, and LCC increases for
some consumers). The Department considered higher energy efficiency
levels as trial standard levels; however, it found the burdens of the
higher efficiency levels (loss of manufacturer NPV, LCC increases for
some consumers, and safety concerns) outweigh the benefits (energy
savings, LCC savings for some consumers, national NPV increase, and
emission reductions). The Department concludes that the proposed
standard is economically justified. Furthermore, DOE has found that the
proposed standard is technologically feasible since products achieving
these
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efficiencies already are commercially available.
II. Introduction
A. Consumer Overview
The Department is proposing to raise the energy conservation
standard levels for residential furnaces and boilers as shown above in
Table II.1. The proposed efficiency standard would apply to all covered
furnaces and boilers offered for sale in the United States, effective
on January 1, 2015. Relative to the current standard levels, the
proposed levels for residential furnaces and boilers represent an
improvement in energy efficiency of one to five percent, depending on
the product class.
Table II.1.--Proposed Standard Levels for Furnaces and Boilers
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AFUE
Product class (%)
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Non-weatherized gas furnaces................................... 80
Weatherized gas furnaces....................................... 83
Mobile home gas furnaces....................................... 80
Oil-fired furnaces............................................. 82
Gas boilers.................................................... 84
Oil-fired boilers.............................................. 83
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AFUE = annual fuel utilization efficiency.
B. Authority
Title III of EPCA sets forth a variety of provisions designed to
improve energy efficiency. Part B of title III (42 U.S.C. 6291-6309)
provides for the Energy Conservation Program for Consumer Products
other than Automobiles. The program covers consumer products (referred
to hereafter as ``covered products''), including residential furnaces
and boilers. (42 U.S.C. 6292(a)(5))
Under the Act, the program consists essentially of these parts:
Testing, labeling, and Federal energy conservation standards. The
Federal Trade Commission (FTC) is responsible for labeling, and DOE
implements the remainder of the program. Section 323 of the Act
authorizes the Department, with assistance from the National Institute
of Standards and Technology (NIST) and subject to certain criteria and
conditions, to develop test procedures to measure the energy
efficiency, energy use, or estimated annual operating cost of each
covered product. (42 U.S.C. 6293) The furnace and boiler test
procedures appear at Title 10 of the Code of Federal Regulations (CFR)
part 430, subpart B, Appendix N.
EPCA provides criteria for prescribing new or amended standards for
covered products. As indicated above, any new or amended standard for a
covered product must be designed to achieve the maximum improvement in
energy efficiency that is technologically feasible and economically
justified. (42 U.S.C. 6295(o)(2)(A)) EPCA precludes the Department from
adopting any standard that would not result in significant conservation
of energy. (42 U.S.C. 6295(o)(3)(B)) Moreover, the Department may not
prescribe a standard: (1) For certain products, if no test procedure
has been established for the product, or (2) if DOE determines by rule
that the standard is not technologically feasible or economically
justified. (42 U.S.C. 6295(o)(3)(B) The Act (42 U.S.C.
6295(o)(2)(B)(i)) also provides that, in deciding whether a standard is
economically justified, DOE must, after receiving comments on the
proposed standard, determine whether the benefits of the standard
exceed its burdens by considering, to the greatest extent practicable,
the following seven factors:
(1) The economic impact of the standard on manufacturers and
consumers of the products subject to the standard;
(2) The savings in operating costs throughout the estimated
average life of the covered products in the type (or class) compared
to any increase in the price, initial charges, or maintenance
expenses for the covered products that are likely to result from the
imposition of the standard;
(3) The total projected amount of energy savings likely to
result directly from the imposition of the standard;
(4) Any lessening of the utility or the performance of the
covered products likely to result from the imposition of the
standard;
(5) The impact of any lessening of competition, as determined in
writing by the Attorney General, that is likely to result from the
imposition of the standard;
(6) The need for national energy conservation; and
(7) Other factors the Secretary considers relevant.
EPCA contains what is commonly known as an ``anti-backsliding''
provision. (42 U.S.C. 6295(o)(1)) This provision mandates that the
Secretary not prescribe any amended standard that either increases the
maximum allowable energy use or decreases the minimum required energy
efficiency of a covered product. Also, the Secretary may not prescribe
an amended or a new standard if interested persons have established by
a preponderance of the evidence that the standard is likely to result
in the unavailability in the United States of any covered product type
(or class) with performance characteristics, features, sizes,
capacities, and volume that are substantially the same as those
generally available in the United States. (42 U.S.C. 6295 (o)(4))
In addition, section 325(o)(2)(B)(iii) of EPCA establishes a
rebuttable-presumption that a standard is economically justified if the
Secretary finds that ``the additional cost to the consumer of
purchasing a product complying with an energy efficiency standard level
will be less than three times the value of the energy * * * savings
during the first year that the consumer will receive as a result of the
standard, as calculated under the applicable test procedure * * *.''
The rebuttable-presumption test is an alternative path to establishing
economic justification. (42 U.S.C. 6295(o)(2)(B)(iii))
Section 325(q)(1) of EPCA is applicable to promulgating a standard
for a type or class of covered product that has two or more
subcategories. The Department must specify a different standard level
than that which applies generally to such type or class of products
``for any group of covered products which have the same function or
intended use, if * * * products within such group--(A) Consume a
different kind of energy from that consumed by other covered products
within such type (or class); or (B) have a capacity or other
performance-related feature which other products within such type (or
class) do not have and such feature justifies a higher or lower
standard'' that applies or will apply to the other products. (42
U.S.C.6295(q)(l)) In determining whether a performance-related feature
justifies such a different standard for a group of products, the
Department must consider ``such factors as the utility to the consumer
of such a feature'' and other factors DOE deems appropriate. Any rule
prescribing such a standard must include an explanation of the basis on
which such higher or lower level was established. (42 U.S.C.
6295(q)(2))
Federal energy conservation requirements generally supersede State
laws or regulations concerning energy conservation testing, labeling,
and standards. (42 U.S.C. 6297 (a)-(c)) The Department can, however,
grant waivers of preemption for particular State laws or regulations,
in accordance with the procedures and other provisions of section
327(d) of the Act. (42 U.S.C. 6297(d)) Specifically, States with a
regulation that provides for an energy conservation standard for any
type of covered product for which there is a Federal energy
conservation standard may petition the Secretary for a DOE rule that
allows the State regulation to become effective with respect to such
covered product. The Department must prescribe a rule granting the
petition if the State establishes by a preponderance
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of the evidence that its regulation is needed to meet ``unusual and
compelling State or local energy * * * interests.'' (42 U.S.C.
6297(d)(1)(B))
C. Background
1. Current Standards
EPCA established an energy conservation standard for residential
furnaces and boilers.\1\ It set the standard in terms of the annual
fuel utilization efficiency (AFUE) descriptor at a minimum value of 78
percent for most furnaces. It set the minimum AFUE at 75 percent for
gas steam boilers and 80 percent for other boilers. For mobile home
furnaces, EPCA set the minimum AFUE at 75 percent. These standards
became effective on January 1, 1992, with the exception of the standard
for mobile home furnaces, for which the effective date was September 1,
1990. (42 U.S.C. 6295(f)(1)-(2))
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\1\ EPCA states that a ``furnace'' includes forced-air and
gravity central furnaces and low-pressure steam and hot water
boilers, and that it must have a heat input rate of less than
225,000 Btu/h for forced-air and gravity central furnaces, and less
than 300,000 Btu/h for boilers. (42 U.S.C. 6291(23)) However, in
this notice, DOE has adopted the terminology used in the heating,
ventilating, and air conditioning industry, which considers furnaces
and boilers as separate categories.
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2. History of Standards Rulemaking for Residential Furnaces and Boilers
For ``small'' gas furnaces (those having an input rate of less than
45,000 Btu per hour), the Department published a final rule on November
17, 1989, in which it set the minimum AFUE for these products at 78
percent, effective January 1, 1992. 54 FR 47916.
For mobile home furnaces, the Department issued an advance notice
of proposed rulemaking (ANOPR) on September 28, 1990 (55 FR 39624),
followed by a proposed rule on March 4, 1994. 59 FR 10464. The Interior
and Related Agencies Appropriations for Fiscal Year 1996 (Pub. L. 104-
34) included a moratorium on appliance standards rulemakings,
preventing DOE from finalizing the standards on mobile home furnaces.
The Department responded to the moratorium by developing an improved
process, known as the Process Rule, for its energy conservation
standards rulemakings (Procedures for Consideration of New or Revised
Energy Conservation Standards for Consumer Products, Title 10 CFR part
430, Subpart C, Appendix A). 61 FR 36974. The Process Rule provided
guidance on how DOE prioritizes its standards rulemakings. As a result,
the Department pursued standards rulemakings for other products rather
than finalizing the proposed standard for mobile home furnaces.
Therefore, the Department did not publish a final rule for amending
mobile home furnace standards and the minimum energy conservation
standard remained at 75 percent AFUE.
The Act also directed the Department to publish a final rule to
determine whether the standards should be amended for all furnaces and
boilers. (42 U.S.C. 6295(f)(3)(B)) On September 8, 1993, the Department
published an ANOPR (hereafter referred to as the September 1993 ANOPR)
in which it presented the product classes for furnaces that it planned
to analyze, and a detailed discussion of the analytical methodology
that it expected to use in this rulemaking. 58 FR 47326. The Department
invited stakeholders to submit comments and data on the planned
methodology. However, the 1996 moratorium on appliance standards
rulemakings prevented DOE from proceeding further with the rulemaking
process.\2\
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\2\ Pub. L. 104-34, the Department of the Interior and Related
Agencies Appropriations Act for Fiscal Year 1996 which included a
moratorium on proposing or issuing energy conservation appliance
standard for FY 1996.
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In the fiscal year 2001 Priority Setting for the Appliance
Rulemaking Process, DOE assigned a high level of priority to a
rulemaking to consider amendments to the energy conservation standards
for residential furnaces and boilers, including mobile home furnaces.
On June 13, 2001, DOE published a Framework Document for Residential
Furnaces and Boilers Standards Rulemaking (Framework Document). The
Department held a public meeting on July 17, 2001, to discuss the
procedural and analytical approaches in this rulemaking, and to seek
stakeholder comments on the Framework Document.
The Department held another public meeting on May 8, 2002, to
receive and discuss comments on issues related to venting
installations. In June 2002, the Gas Appliance Manufacturers
Association (GAMA) commented on DOE's analysis of manufacturing costs.
In August 2002, GAMA convened a meeting with DOE and the American
Council for an Energy-Efficient Economy (ACEEE) to discuss approaches
for analyzing electricity use in furnaces. In September 2002, the
Department posted its engineering analysis and received stakeholder
comments. The Department published an ANOPR on July 29, 2004 (hereafter
referred to as the 2004 ANOPR), and held a public meeting on September
29, 2004, to present the methodology and results of the ANOPR analyses.
69 FR 45419.
As set forth in the updated rulemaking timeline published in the
Department's Semi-annual Regulatory Agenda on December 13, 2004, DOE
expects to issue a final rule in 2007. 69 FR 72713. The effective date
for any new standards for furnaces and boilers published in 2007 would
be 2015, or eight years after publication as a final rule in the
Federal Register. (42 U.S.C. 6295 (f)(3)(B))
3. Process Improvement
The Process Rule applies to the development of energy conservation
standards for all consumer products, including those for residential
furnaces and boilers. 61 FR 36974. In this notice, the Department
describes the framework and methodologies by which it is developing the
standard. The framework and methodologies reflect improvements made and
steps taken in accordance with the Process Rule, including the use of
improved economic models and analytical tools. The rulemaking process
is dynamic, and as timely new data, models, or tools that enhance the
development of standards become available, the Department will
incorporate them into the rulemaking.
In response to the DOE's 2004 ANOPR, the American Gas Association
(AGA) asserted that the spreadsheets used by the Department do not meet
the requirements of the Process Rule, which specifies the use of
transparent and robust analytical methods ``that are fully documented
for the public and that produce results that can be explained and
reproduced * * *.'' AGA suggested that DOE (1) explore simpler
analytical methods for its analyses, or (2) provide stakeholders with
more direct means of testing alternate assumptions and sensitivities.
(AGA, No. 78 at p. 2) \3\ Southern Company (Southern) commented that it
would be helpful if DOE provided tools for the review of its analysis
results that could be used more easily. (Southern, No. 71 at p. 3)
After the 2004 ANOPR, DOE improved the design and user-friendliness of
the analytical spreadsheets by creating process diagrams and by adding
additional summary worksheets, help screens to assist the user, and
input screens to allow the testing of alternate assumptions. The
Department also expanded its documentation by adding
[[Page 59208]]
appendices that explain in detail the design and use of the
spreadsheets.
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\3\ A notation in the form ``AGA, No. 78 at p. 2'' identifies a
written comment the Department has received and has included in the
docket of this rulemaking. This particular notation refers to a
comment (1) By the American Gas Association (AGA), (2) in the
document number 78 in the docket of this rulemaking (maintained in
the Resource Room of the Building Technologies Program), and (3)
appear on page 2 of document number 78.
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GAMA commented that there should be more informal communication
between DOE and the furnace industry during the course of the
rulemaking. (GAMA, No. 67 at p. 8) In accordance with the Process Rule,
DOE sought stakeholder review at several points in the rulemaking and
organized public meetings, webcasts, and conference calls to discuss
important issues. The Department recognizes the value of having
informal, open communication with stakeholders, as stakeholder input
can contribute significantly to the quality of the Department's
analyses and improve the Department's decision making. However, the
open nature of the process has introduced substantial delays in the
Department's rulemaking schedules. Such delays have been an unintended
consequence of the Process Rule. The Department therefore, recognizes
the need for a balance in the allowance of stakeholder input and
maintaining rulemaking schedules, and will better integrate stakeholder
input and expert review within the scope of the structured notice-and-
comment rulemaking process.
D. Negotiated Boiler Standards Agreement
On July 14, 2006, GAMA and ACEEE, on behalf of 28 residential
boiler manufacturers and four energy efficiency organizations,
submitted a negotiated agreement recommending new national standards
for residential boilers that would consist of a performance requirement
(minimum AFUE levels) and design requirements. The recommended
performance levels are the maximum that the industry feels would
safeguard against corrosion and ensure safe venting. Both GAMA and
ACEEE believe that the design requirements would bring about
additional, non-trivial energy savings.
For gas-fired boilers, both water and steam types, the agreement
calls for a ban on standing pilots. For gas-fired water boilers only,
there are two design requirements. In addition to the ban on standing
pilots, the agreement also requires a ``temperature reset'' feature
that automatically adjusts the boiler output according to the outdoor
ambient air temperature. For oil-fired water boilers, the agreement
contains the design requirement for the same ``temperature reset''
feature.
The Department sincerely appreciates the effort stakeholders have
made to propose an agreement for the boiler portion of this rulemaking.
However, the Department has determined that the recommended standards
in the negotiated agreement are beyond the scope of its legal
authority. The Energy Policy and Conservation Act (EPCA) authorizes the
Secretary to amend energy conservation standards for specified
products. (42 U.S.C. 6295) Section 321(6) of the EPCA defines the term
``energy conservation standard'' as
(A) A performance standard which prescribes a minimum level of
energy efficiency or a maximum quantity of energy use, * * * or
(B) A design requirement for the products specified in paragraphs
(6), (7), (8), (10), (15), (16), (17), and (19) of section 322(a) * * *
[of this title.]
(42 U.S.C. 6291(6))
The language of EPCA authorizes the Department to establish a
performance standard or a single design standard. EPCA's list of
specified products for which a design standard can be established does
not include residential furnaces and boilers. As such, a standard that
establishes both a performance standard and a design requirement is
beyond the scope of the Department's legal authority. In the case of
gas-fired water boilers, the agreement recommends two design
requirements which is contrary to EPCA's limit of one design
requirement for the specified covered products.
The Department's staff met with representatives from GAMA and ACEEE
on August 1, 2006, and August 7, 2006, respectively, to discuss the
Department's legal position on the negotiated agreement. The Department
regrets that this negotiated agreement does not meet the statutory
criteria in EPCA and therefore cannot be accepted. The Department
strongly encourages stakeholders to continue to work together to
propose agreements to the Department in the future, understanding that
the Department must comply with EPCA's statutory requirements.
III. General Discussion
A. General Issues
The Department received comments on several general issues related
to the furnace and boiler rulemaking. Those issues are related to the
impact of the standards on future natural gas prices, furnace
electricity consumption, separate standards for equipment in new homes
and replacements, and separate standards for different regions.
1. Impact of Furnace and Boiler Standards on Future Natural Gas Prices
The Natural Resources Defense Council (NRDC), American Chemistry
Council (ACC), ACEEE, and Dow Chemical Company commented that more
stringent furnace and boiler standards may result in lower natural gas
prices in the future, and that DOE should account for the associated
benefit for all gas consumers. (NRDC, No. 52 at p. 2; ACC, No. 62 at p.
3; ACEEE, No. 84 at p. 9; and Joint Comment by NRDC and Dow, No. 64 at
p. 3) The impact of appliance standards on energy prices has not
historically been a part of DOE's analysis. Estimating such impacts
would require new analytical methods. The Department evaluated a recent
study that includes consideration of the impacts of furnace and boiler
standards on natural gas prices.\4\ While this study finds that
standards could result in a small decrease in natural gas prices, the
Department's review of the study reveals that there is no conclusive
evidence that furnace and boiler standards will affect overall natural
gas prices. If the stakeholders' assertion is correct, then consumer
gas prices will decrease, in turn decreasing the income of gas
utilities--resulting in a transfer of benefits from the natural gas
producers to the consumers. However, on a societal level, there is no
clear evidence that there will be any impact on natural gas prices
resulting from the furnace and boiler standards. Furthermore, DOE
believes it is currently impossible, within the framework of a
standards rulemaking, to estimate the possible impact of energy
conservation standards on utility prices. Therefore, the Department did
not consider these impacts in the current rulemaking.
---------------------------------------------------------------------------
\4\ Wiser, R., M. Bolinger, M. St. Clair. Easing the Natural Gas
Crisis: Reducing Natural Gas Prices through Increased Deployment of
Renewable Energy and Energy Efficiency. LBNL. January 2005. (http://eetd.lbl.gov/EA/EMP/reports/56756.pdf
).
---------------------------------------------------------------------------
2. Inclusion of Electricity Consumption in Furnace and Boiler Standards
The Department received a number of comments regarding the
inclusion of furnace and boiler electricity consumption in amended
standards for furnaces and boilers. The Department was recently given
authority to regulate the electricity consumed by furnaces for the
purposes of circulating air by the Energy Policy Act of 2005, Pub. L.
104-58 (EPACT 2005). EPACT 2005, section 135(c), amended section 325 of
EPCA (42 U.S.C. 6295(f)(3)) to include the following: ``[T]he Secretary
may consider and prescribe energy conservation standards or energy use
standards for electricity used for purposes of circulating air through
duct work.'' However, at the November 15, 2005, public meeting to
discuss DOE's appliance-standards-program schedule-setting, the
Department received comments from GAMA and the
[[Page 59209]]
Appliance Standards Awareness Project (ASAP) urging the Department to
complete the AFUE standard rulemaking as soon as possible. Furthermore,
GAMA and ASAP expressed their preference that DOE address furnace
blower electricity consumption separately from the AFUE standard
rulemaking. Since adding electricity consumption standards to this
rulemaking would likely cause further substantial delay in the
rulemaking process, the Department accepts the recommendations from
GAMA and ASAP and has decided not to address furnace electricity
consumption in this rulemaking. It will consider furnace electricity
consumption separately to enable it complete the furnace and boiler
AFUE rulemaking as expeditiously as possible.
3. Separate Standards for Equipment Installed in New Homes and as
Replacements
ACEEE suggested that DOE consider separate standards for new
construction and retrofits. (ACEEE, No. 53 at p. 5) EPCA directs the
Department to establish performance standards that prescribe minimum
levels of energy efficiency or maximum levels of energy use for covered
products. The Act does not authorize DOE to set multiple levels of
efficiency for a given covered product, depending on where the product
is installed--either in terms of a given region of the country or in
terms of home type, i.e., new or existing. (42 U.S.C. 6291(6)(A)) The
Department believes it does not have the authority to set separate
standards for furnaces and boilers for new homes and for existing homes
and, therefore, rejects the suggestion that it consider separate
standards for new construction and retrofits.
4. Separate Standards for Different Regions
The Department received numerous comments regarding the setting of
separate furnace and boiler standards for different regions of the
country. Some of the commentators expressed reasons why separate
standards would be beneficial or asked if DOE had the authority to set
regional standards. (Ohio Consumers' Counsel (OCC), No. 70 at p. 5;
Individuals, No. 73 at p. 1; Baltimore Gas and Electricity (BGE), No.
75 at p. 1; National Association of Regulatory Utility Commissioners
(NARUC), No. 77 at p. 5; ACEEE, No. 59.8 at pp. 36 \5\ and 165;
Individual, No. 87 at p. 1; Northeast Energy Efficiency Partnerships
(NEEP), No. 55 at pp. 2 and 3; NRDC, No. 59.8 at pp. 29 and 33, and No.
63 at p. 9; Oregon Department of Energy (ODOE), No. 61 at p. 2;
National Consumer Law Center (NCLC), No. 66 at pp. 7 and 8; New Jersey
Board of Public Utilities (NJBPU), No. 83 at p. 1; Izaak Walton League
of America (IWL), No. 88 at p. 1; Southern, No. 71 at p. 21 and No.
59.8 at p. 219; Trane, No. 59.8 at p. 207; GAMA, No. 59.8 at pp. 206
and 217; York, No. 65 at p. 2; Edison Electric Institute (EEI), No. 69
at p. 2; Manufactured Housing Institute (MHI), No. 89 at p. 2; National
Propane Gas Association (NPGA), No. 72 at p. 2; AGA, No. 59.8 at p. 40;
Alliance to Save Energy (ASE), No. 80 at p. 2; North American
Insulation Manufacturers Association (NAIMA), No. 60 at p. 1; and
Lennox, No. 79 at p. 3)
---------------------------------------------------------------------------
\5\ A notation in the form ``ACEEE, No. 59.8 at p. 36,''
identifies a comment in the transcript of the Public Meeting on
Standards for Furnaces and Boilers held in Washington, DC, 9/29/
2004, which is document number 59.8 in the docket of this
rulemaking. This particular notation refers to a comment (1) by the
American Council for an Energy-Efficient Economy (ACEEE), (2) in the
document number 59.8 in the docket of this rulemaking (maintained in
the Resource Room of the Building Technologies Program), and (3)
appearing on page 36 of document number 59.8.
---------------------------------------------------------------------------
As discussed in the 2004 ANOPR, the Department has determined that
EPCA does not authorize DOE to set regional energy conservation
standards; instead, the Department can only establish national
standards. 69 FR 45419. None of the comments received in response to
the 2004 ANOPR provided a basis for changing that determination.
However, the Department notes that EPCA allows states to seek from
the Department a waiver of Federal preemption of state or local energy
conservation standards. Section 327(d) of EPCA, ``Waiver of Federal
Preemption,'' states that, ``Any State * * * with a State regulation
which provides for any energy conservation standard * * * for any type
* * * of covered product for which there is a Federal energy
conservation standard * * * may file a petition with the Secretary
requesting a rule that such State regulation become effective with
respect to such covered product.'' (42 U.S.C. 6297(d)(1)(A)) Within a
maximum of one year, DOE must act on any such petition. (42 U.S.C.
6297(d)(2))
The Department must prescribe a rule granting a waiver from Federal
preemption if, subject to the condition specified in section 327(d),
the State establishes by a preponderance of the evidence that its
regulation is needed to meet ``unusual and compelling State or local
energy * * * interests.'' (42 U.S.C. 6297(d)(1)(B)) The statute states
that the phrase ``unusual and compelling State or local energy * * *
interests'' means interests which:
(i) Are substantially different in nature or magnitude than
those prevailing in the United States generally; and (ii) are such
that the costs, benefits, burdens, and reliability of energy * * *
savings resulting from the State regulation make such regulation
preferable or necessary when measured against the costs, benefits,
burdens, and reliability of alternative approaches to energy * * *
savings or production, including reliance on reasonably predictable
market-induced improvements in efficiency of all products subject to
the State regulation.
The factors described in clause (ii) shall be evaluated within
the context of the State's energy plan and forecast, and, with
respect to a State regulation for which a petition has been
submitted to the Secretary * * * [42 U.S.C. 6297(d)(1)(c)]
In evaluating the evidence that a State regulation is needed to
meet unusual and compelling State energy interests, the Department will
consider the factors described in 42 U.S.C. 6297(d)(1)(C)(i) and (ii).
It appears to the Department that in the context of residential
furnaces and boilers, where regional climatic effects can have
significant impact on whether a specified energy conservation standard
would be technologically feasible and economically justified in that
region, such regional climatic effects will be important in DOE's
assessment of whether there are ``unusual and compelling State or local
energy interests'' for State energy conservation standards. States
having higher-than-average, population-weighted heating degree days
(HDDs) based on long-term National Oceanic and Atmospheric
Administration data \6\ would seem to have the best prospects for
demonstrating ``unusual and compelling'' interests to support a waiver
of preemption in the particular circumstances presented here.\7\ (In
conducting its analysis, the Department used average heating degree
days within a State to divide States into groups for purposes of
assessing standards.) States with significantly higher heating
requirements have significantly higher furnace use. This may indicate
that, for
[[Page 59210]]
those States, a State energy conservation standard which is higher than
the Federal standard would be cost-effective and would provide
significantly more energy savings than the Federal standard. If those
States, particularly the ones most severely affected, adopted standards
higher than DOE's proposed standards, and sought waivers, it could
result in certain contiguous States with higher requirements, which
would lessen the impact on manufacturers.
---------------------------------------------------------------------------
\6\ State, Regional, And National Monthly Heating Degree Days
Weighted By Population (2000 Census), 1971--2000 (and previous
normal periods). Historical Climatography Series No. 5-1. National
Environmental Satellite, Data, and Information Service, National
Oceanic and Atmospheric Administration. Available at: http://www5.ncdc.noaa.gov/climatenormals/hcs/HCS_51.pdf
.
\7\ Nationwide, the U.S. averages 5528 HDDs. The following
States average 6000 or more HDDs: Alaska, Colorado, Connecticut,
Idaho, Illinois, Iowa, Maine, Massachusetts, Michigan, Minnesota,
Montana, Nebraska, New Hampshire, New York, North Dakota, South
Dakota, Utah, Vermont, Wisconsin, and Wyoming.
---------------------------------------------------------------------------
Another way to address the benefits and costs of proposed State
regulations with higher energy conservation standards would be for a
State in its application for a waiver of preemption to identify the
saturation of homes with products that already meet those higher
standards. For example, a State could provide evidence that a
significant percentage of gas furnaces sold today in that State already
meets, for example, a 90-percent-AFUE condensing standard.
A State applying to DOE for a preemption waiver also could identify
any subsidies and/or incentives, such as tax rebates or purchase price
rebates, that the State or other entities are offering. To the extent
States demonstrate that these programs have not worked, they may be
able to show that ``the costs, benefits, burdens, and reliability'' of
energy savings from mandatory State energy conservation regulations
make such regulations preferable to their voluntary programs.
EPCA section 327(d)(3) further provides that DOE may not grant a
waiver if interested persons establish by a preponderance of the
evidence that the State regulation would significantly burden
manufacturing, marketing, distribution, sale, or servicing of the
covered product on a national basis. (42 U.S.C. 6297(d)(3)) In
determining whether the State regulation meets this criterion, the
Department must consider the extent to which the State regulation
addresses several factors.
The first factor is ``the extent to which the State regulation will
increase manufacturing or distribution costs of manufacturers,
distributors, and others * * *.'' (42 U.S.C. 6297(d)(3)(A)) In
addressing this factor, a State seeking a waiver of federal preemption
likely would want to address the extent to which manufacturers already
produce and sell products that would meet the State's proposed
standard. This description also could include information describing
how efficiencies of shipments to that State already vary from current
DOE efficiency levels.
The second factor is ``the extent to which the State regulation
will disadvantage smaller manufacturers, distributors, or dealers or
lessen competition in the sale of the covered product in the State * *
*.'' (42 U.S.C. 6297(d)(3)(B)) Similar to the prior factor, in
addressing this factor, a State seeking a waiver of federal preemption
might wish to provide evidence with its petition that demonstrates that
there are no, or just insignificant, differences between small and
large manufacturers with respect to producing and selling furnaces in
that State. A State also could offer other evidence as to why its
regulation would not disadvantage these entities or lessen competition,
based on the particular circumstances in that State. For example, a
State could seek to demonstrate that the differences (or lack of
differences) between small and large manufacturers, with respect to
producing and selling furnaces in that State, indicate that the
regulation would not disadvantage the smaller manufacturers.
The third factor is ``the extent to which the State regulation
would cause a burden to manufacturers to redesign and produce the
covered product type * * *, taking into consideration the extent to
which the regulation would result in a reduction (i) in the current
models, or in the projected availability of models, that could be
shipped on the effective date of the regulation to the State and within
the United States; or (ii) in the current or projected sales volume of
the covered product type * * * in the State and the United States * *
*.'' (42 U.S.C. 6297(d)(3)(c)) In addressing this factor, a State
seeking a waiver of federal preemption might seek to demonstrate that
high-efficiency heating equipment, such as condensing furnaces, already
have achieved significant market shares in that State. In some
relatively cold States with significant heating requirements, sales of
condensing furnaces are reported to be on the order of 50 percent. A
State also might wish to submit other information that addresses why it
believes its regulation would not affect sales volumes or the number of
models available (except for elimination of lower efficiency models).
The fourth factor is ``the extent to which the State regulation is
likely to contribute significantly to a proliferation of State
appliance efficiency requirements and the cumulative impact such
requirements would have.'' (42 U.S.C. 6297(d)(3)(D)) In addressing this
factor, a State seeking a waiver from DOE may wish to seek to
demonstrate, for example, the extent to which it has chosen identical
standard levels as other States that have developed proposed
regulations or States that have regulations already in place.
An additional factor DOE must consider is the extent to which ``the
State regulation is likely to result in the unavailability in the State
of any covered product type * * * of performance characteristics
(including reliability), features, sizes, capacities, and volumes that
are substantially the same as those generally available in the State *
* *.'' (42 U.S.C. 6297(d)(4)) A State seeking preemption waiver may
wish to explain in its petition or accompanying documents why it
believes its regulation would not affect the characteristics and
features (other than efficiency) of the furnaces that would be offered
for sale in that State. It might seek to demonstrate, for example, that
among products currently offered for sale in that or other States, high
efficiency furnaces already have all of the characteristics and
features available in less efficient furnaces sold in that State.
The Department recognizes that States have set, or are considering,
standards for furnaces and that some may wish to seek a determination
from DOE that their standards are needed to meet ``unusual and
compelling State or local energy interests.'' The Department encourages
States to coordinate among themselves the submission of any waiver
petitions they may wish to file. The Department will consider an
aggregate petition from multiple States as long as the petition
individually addresses the statutory criteria for each of the States.
The Department believes the approach taken in evaluating the regional
impacts of standards in its analysis represents a reasonable approach
for estimating the national impacts of having a Federal standard and
one or more higher State energy conservation standards for furnaces and
boilers. All petitions for waivers also must comply with requirements
as described in 10 CFR Part 430.41(a)(1).
B. Test Procedures
Section 7(b) of the Process Rule provides that the Department will
propose necessary modifications to the test procedures for a product
before issuing the proposed rule concerning energy conservation
standards for that product. For furnaces and boilers, the Department
believes modifications are not currently necessary, so it has not
proposed to modify the existing test procedure.
C. Technological Feasibility
1. General
The Department considers a design option to be technologically
feasible if it is in use by the respective industry or
[[Page 59211]]
if research has progressed to the development of a working prototype.
The Process Rule sets forth a definition of technological feasibility
as follows: ``Technologies incorporated in commercial products or in
working prototypes will be considered technologically feasible.'' 10
CFR part 430, Subpart C, Appendix A, section 4(a)(4)(i).
In each standards rulemaking, the Department conducts a screening
analysis, which it bases on information gathered regarding existing
technology options and prototype designs. In consultation with
manufacturers, design engineers, and other stakeholders, the Department
develops a list of design options for consideration in the rulemaking.
Once the Department has determined that a particular design option is
technologically feasible, it further evaluates each design option in
light of the other three criteria in the Process Rule. 10 CFR part 430,
Subpart C, Appendix A, section 4(a)(3) and (4). The three additional
criteria are: (a) Practicability to manufacture, install, and service,
(b) adverse impacts on product utility or availability, or (c) health
or safety concerns that cannot be resolved. All design options that
pass these screening criteria are candidates for further assessment.
As discussed in the 2004 ANOPR, the Department is not considering
the following design options because they do not meet one or more of
the screening criteria: self-generation of electric power, fuel-driven
heat pumps, flue-gas recirculation, and smart valves. 69 FR 45387. In
this notice, DOE has not changed the list of technology options that it
screened out of the analysis. (See the Technical Support Document (TSD)
accompanying this notice, Chapter 4.)
Lennox, Carrier, Trane, York, NPGA, Alagasco, and MHI commented
that the maximum efficiency level considered for non-condensing, non-
weatherized gas furnaces should be 80-percent AFUE. They contended
that, at 81-percent AFUE, there would be a significant increase of risk
to the consumer because of an increased potential for vent-system
failure. These comments cited concerns regarding corrosion in vents
from condensation, and noted that conditions under which consumers use
the product are much more severe than lab conditions. (Lennox, Public
Meeting Transcript, No. 59.8 at p. 27 and No. 79 at p. 1; Carrier,
Public Meeting Transcript, No. 59.8 at p. 188 and No. 68 at p. 1;
Trane, Public Meeting Transcript, No. 59.8 at p. 227; York, No. 65 at
p. 7; NPGA, No. 72 at p. 3; Alagasco, No. 82 at p. 2; and MHI, No. 89
at p. 4) NAIMA, OCC, and NJBPU disagreed with limiting consideration to
an 80-percent-AFUE level. (NAIMA, No. 60 at p. 1; OCC, No. 70 at p. 5;
and NJBPU, No. 83 at p. 2) The Department has reviewed the manufacturer
literature and found that products at 81-percent AFUE are available for
sale. It believes the fact that such products are being offered for
sale demonstrates that they are practicable to manufacture, install,
and service and cannot be excluded from consideration in this
rulemaking.
The Department recognizes that this AFUE level of 81 percent may
pose health or safety concerns in certain conditions, but it believes
that the concerns can likely be resolved with proper equipment and
venting system design, as discussed in section IV.B.3. Therefore, DOE
considered 81-percent AFUE in its analysis for non-weatherized gas
furnaces, and took into account the stakeholders' concerns.
The 2004 ANOPR analysis included non-weatherized gas furnaces at 82
and 83-percent AFUE. However, because it is well understood that
significant vent system corrosion problems, which can lead to potential
safety issues, may exist at these efficiency levels for non-weatherized
gas furnaces, the Department does not believe these products can be
mass-produced and be reliable to install and service on the scale
necessary to serve the relevant market by the effective date of the
proposed standard. Therefore, DOE did not consider non-weatherized gas
furnaces at 82 and 83-percent AFUE in the analysis for today's proposed
rule.
The evaluated technologies all have been used (or are being used)
in commercially available products or working prototypes. The designs
all incorporate materials and components that are commercially
available in today's furnace and boiler supply market. The Department
believes all of the efficiency levels evaluated in this notice are
technologically feasible.
2. Maximum Technologically Feasible Levels
In developing today's proposed rule, the Department followed the
provisions of section 325(p)(2) of the Act, which states that, when the
Department proposes to adopt, or to decline to adopt, an amended or new
standard for each type (or class) of covered product, ``the Secretary
shall determine the maximum improvement in energy efficiency or maximum
reduction in energy use that is technologically feasible * * * .'' The
Department determined the maximum technologically feasible (``max
tech'') efficiency level in the engineering analysis using the most
efficient design parameters that lead to the creation of the highest
equipment efficiencies achievable. (See TSD Chapter 6.) Table III.1
lists the max tech levels that the Department determined for this
rulemaking.
Table III.1.--Max Tech Levels Considered in Furnace and Boiler
Rulemaking
------------------------------------------------------------------------
Product class AFUE (%)
------------------------------------------------------------------------
Non-weatherized gas furnaces................................. 96
Weatherized gas furnaces..................................... 83
Mobile home gas furnaces..................................... 90
Oil-fired furnaces........................................... 85
Gas boilers.................................................. 99
Oil-fired boilers............................................ 95
------------------------------------------------------------------------
For all product classes, products with these efficiency levels
already are being sold in small quantities. (There is one weatherized
gas furnace listed in the GAMA directory at 82.8-percent AFUE.) No
production models or prototypes of equipment at higher efficiency
levels are currently available. For weatherized gas furnaces, the
Department recognizes that the 83-percent-AFUE level may pose health or
safety concerns in certain installations. DOE believes these concerns
can be resolved with proper equipment and system design and proper
installation.
D. Energy Savings
1. Determination of Savings
The Department used its national energy savings (NES) spreadsheet
to estimate energy savings from amended standards for furnaces and
boilers. (The NES Spreadsheet Model is described in section IV.D of
this notice.) The Department forecasted energy savings over the period
of analysis (beginning with 2015, the year that amended standards would
go into effect, and ending in 2038) for each trial standard level,
relative to the base case. It quantified the energy savings
attributable to amended energy conservation standards as the difference
in energy consumption between the standards case and the base case. The
base case represents the forecast of energy consumption in the absence
of amended energy conservation standards. The base case considers
market demand for more-efficient products; for example, in the case of
non-weatherized gas furnaces, the base case forecasts an increase in
the market share of condensing furnaces by 2015.
The NES Spreadsheet Model calculates the electricity savings in
``site energy'' expressed in kilowatt-hours
[[Page 59212]]
(kWh). Site energy is the energy directly consumed on location by the
furnace or boiler. The Department reports national energy savings in
terms of the source energy savings, which is the savings of the energy
that is used to generate and transmit the energy consumed at the site.
(See TSD, Chapter 10.) The Department derived these conversion factors,
which change with time, from the EIA's AEO2005.\8\
---------------------------------------------------------------------------
\8\ The Department conducted an energy price sensitivity
analysis using EIA's AEO2006. Section IV.C.4 provides further
explanation and details of the energy price sensitivity analysis.
---------------------------------------------------------------------------
AGA commented that DOE should consider the ``rebound effect'' that
may occur as a result of more intensive use of a more energy-efficient
appliance, leading to higher energy consumption. (AGA, No. 54 at p. 3)
ACEEE stated that the rebound effect has often been hypothesized, but
actual field experience indicates that there is rarely a rebound effect
resulting from use of more-efficient appliances. (ACEEE, No. 84 at p.
13)
The Department examined a summary of the literature regarding the
rebound effect in relation to space heating equipment.\9\ Based on five
studies chosen for their robust methodology, the summary concluded
that, for a 100 percent increase in fuel efficiency, values of ``take-
back'' or rebound for space heating are between 10 and 30 percent of
the energy consumption savings. The National Energy Modeling System
(NEMS), which is used for developing EIA's AEO, incorporates a rebound
effect for space heating. According to an EIA report,\10\ the rebound
effect for the residential module in NEMS results in a 0.15 percent
increase in energy consumption for a 1 percent increase in efficiency.
In keeping with EIA's approach, the Department chose to apply a rebound
effect of 15 percent (for a 100 percent increase in efficiency) in its
analysis of furnace and boiler standards. That is, DOE reduced the
calculated energy savings and associated emissions reductions by 15
percent.
---------------------------------------------------------------------------
\9\ Greening, L.A., D.L. Greene, and C. Difiglio. Energy
efficiency and consumption--the rebound effect--a survey. Energy
Policy. 2000. 28: pp. 389-401.
\10\ EIA, Price Responsiveness in the AEO2003 NEMS Residential
and Commercial Buildings Sector Models (p. 3).
---------------------------------------------------------------------------
The take-back in energy consumption associated with the rebound
effect provides consumers with increased value (e.g., a warmer indoor
environment, since the increased efficiency enables consumers to use
their heating equipment more intensively). The impact on consumers is
thus the sum of the change in the cost of owning the heating equipment
(i.e., life-cycle cost) and the increased value for the warmer indoor
environment. However, the Department is unable to monetize this
increase in consumer value in the LCC analysis. The Department believes
that, if it were able to monetize the increased value to consumers
added by the rebound effect, this value would be at least as great as
the value of the foregone energy savings. For this analysis, the
Department estimates that this value is equivalent to the monetary
value of the energy savings that would have occurred without the
rebound effect. Therefore, the economic impacts on consumers with or
without the rebound effect, as measured in the LCC and NPV analyses,
are the same.
2. Significance of Savings
Section 325 of the Act prohibits the Department from adopting a
standard for a product if that standard would not result in
``significant'' energy savings. (42 U.S.C. 6295(o)(3)(B)) While the Act
does not define the term ``significant,'' the U.S. Court of Appeals, in
Natural Resources Defense Council v. Herrington, 768 F.2d 1355, 1373
(D.C. Cir. 1985), indicated that Congress intended ``significant''
energy savings in this context to be savings that were not ``genuinely
trivial.'' The energy savings for energy conservation standards at each
of the trial standard levels considered in this rulemaking are
nontrivial, and therefore the Department considers them ``significant''
within the meaning of section 325 of the Act.
E. Economic Justification
1. Specific Criteria
As noted earlier, EPCA provides seven factors to be evaluated in
determining whether an energy conservation standard is economically
justified. (42 U.S.C. 6295(o)(2)(B)) The following sections discuss how
the Department has addressed each of those seven factors in this
rulemaking.
a. Economic Impact on Manufacturers and Consumers. The Process Rule
established procedures, interpretations, and policies to guide the
Department in the consideration of new or revised appliance energy
conservation standards. The provisions of the rule have direct bearing
on the implementation of the manufacturer impact analysis (MIA). First,
as provided in Section 10 of the Process Rule (Principles for the
Analysis of Impacts on Manufacturers), the Department uses an annual-
cash-flow approach in determining the quantitative impacts of a new or
amended standard on manufacturers. This includes both a short-term
assessment, based on the cost and capital requirements during the
period between the announcement of a regulation and the time when the
regulation becomes effective, and a long-term assessment. The impacts
analyzed include INPV, cash flows by year, changes in revenue and
income, and other measures of impact, as appropriate. Second, the
Department analyzes and reports the impacts on different types of
manufacturers, with particular attention to impacts on small
manufacturers. Third, the Department considers the impact of standards
on domestic manufacturer employment, manufacturing capacity, plant
closures, and loss of capital investment. Finally, the Department takes
into account cumulative impacts of different DOE regulations on
manufacturers.
For consumers, measures of economic impact include the changes in
LCC and payback period for each trial standard level. As the Act sets
forth, the LCC is one of the seven factors to be considered in
determining economic justification. (42 U.S.C. 6295(o)(2)(B)(i)(II)) It
is discussed in detail in the section below.
ODOE commented that the simple payback period is not a useful
metric, since it fails to take into account the rising costs of fuel.
(ODOE, No. 61 at p. 10) The Department uses simple-payback-period
results as one of the factors in evaluating the economic impacts of
standards on consumers, but it relies more heavily on the impacts on
LCC to take into account the changing cost of fuel.
b. Life-Cycle Costs. The LCC is the sum of the purchase price of
equipment, including the installation, and the operating expense,
including energy and maintenance expenditures, discounted over the
lifetime of the equipment. Where possible in estimating the energy
costs in the LCC calculation, DOE uses consumer marginal energy rates,
which are the energy rates that correspond to incremental changes in
energy use.
For each furnace and boiler product class, the Department
calculated both LCC and LCC savings for various efficiency levels. The
LCC analysis estimated the LCC for representative equipment in housing
units that are representative of the segment of the U.S. housing stock
that uses furnaces and boilers. To account for uncertainty and
variability in specific inputs, such as equipment lifetime and discount
rate, it used a distribution of values with probabilities attached to
each value. For each housing unit, DOE sampled the values of these
inputs from the probability distributions. As a result, the
[[Page 59213]]
analysis produced a range of LCCs. A distinct advantage of this
approach is that DOE can identify the percentage of consumers achieving
LCC savings or attaining certain payback values due to an increased
energy conservation standard, in addition to the average LCC savings or
average payback for that standard. The Department gives the LCC savings
as a distribution, with a mean value and a range. The Department
assumed in its analysis that the consumer purchases the furnace or
boiler in 2015.
c. Energy Savings. While significant conservation of energy is a
separate statutory requirement for imposing an energy conservation
standard, the Act requires DOE, in determining the economic
justification of a standard, to consider the total projected energy
savings that are expected to result directly from the standard. (42
U.S.C. 6295(o)(2)(B)(i)(III)) The Department used the NES Spreadsheet
results in its consideration of total projected savings.
d. Lessening of Utility or Performance of Products. In establishing
classes of products, and in evaluating design options and the impact of
potential standard levels, the Department aimed to develop standards
for residential furnaces and boilers which would not lessen the utility
or performance of the products under consideration in this rulemaking.
(42 U.S.C. 6295(o)(2)(B)(i)(IV)) None of the considered trial standard
levels would reduce the utility or performance of furnaces and boilers.
The efficiency levels considered in this rulemaking do not involve
changes in equipment design or unusual installation requirements that
could reduce the utility or performance of furnaces and boilers.
e. Impact of Any Lessening of Competition. The Act directs the
Department to consider any lessening of competition that is likely to
result from standards. It directs the Attorney General to determine the
impact, if any, of any lessening of competition likely to result from a
proposed standard and to transmit such determination to the Secretary,
not later than 60 days after the publication of a proposed rule,
together with an analysis of the nature and extent of such impact. (42
U.S.C. 6295(o)(2)(B)(i)(V) and (B)(ii)) The Department has transmitted
a copy of today's proposed rule to the Attorney General and has
requested that the Department of Justice (DOJ) provide its
determination on this issue.
f. Need of the Nation To Conserve Energy. The non-monetary benefits
of the proposed standard are likely to be reflected in improvements to
the security and reliability of the Nation's energy system--namely,
reductions in the overall demand for energy will result in reduced
costs for maintaining reliability of the Nation's electricity system.
The Department conducts a utility impact analysis to estimate how
standards may impact the Nation's needed power generation capacity.
This analysis captures the effects of efficiency improvements on
furnace electricity consumption, as well as impacts associated with the
market shift from natural gas heating to electric heating that DOE
estimates will occur at higher gas-furnace efficiency levels. This
market shift more than offsets the electricity savings from more
efficient furnace designs, resulting in an increase in projected
generating capacity for the higher trial standard levels.
The Department has determined that the energy conservation
standards proposed today would result in reductions in greenhouse gas
emissions. The Department quantified a range of primary energy
conversion factors and estimated the emissions reductions associated
with the generation displaced by the energy conservation standards. The
Department reports the environmental effects of amended energy
conservation standards at each trial standard level for this equipment
in the TSD environmental assessment.
g. Other Factors. The Act allows the Secretary of Energy, in
determining whether a standard is economically justified, to consider
any other factors the Secretary deems to be relevant. (42 U.S.C. 6295
(o)(2) (B)(i)(VII)) Under this provision, the Department considered the
potential for furnace and boiler standards to pose public health risks
due to carbon monoxide release into the home as a result of venting
system failure.
2. Rebuttable Presumption
As set forth in section 325(o)(2)(B)(iii) of EPCA, 42 U.S.C.
6295(o)(2)(B)(iii), there is a rebuttable presumption that an energy
conservation standard is economically justified if the increased
installed cost for a product that meets the standard is less than three
times the value of the first-year energy savings resulting from the
standard. However, although the Department examined the rebuttable-
presumption criteria, it determined economic justification for the
proposed standard levels through a more detailed analysis of the
economic impacts of increased efficiency as described above, pursuant
to section 325(o)(2)(B)(i) of EPCA. (42 U.S.C. 6295(o)(2)(B)(i)) The
rebuttable presumption payback calculation is discussed in section
IV.B.5 of this notice.
IV. Methodology and Discussion of Comments
The Department used spreadsheet models to meet certain objectives
of the Process Rule for this rulemaking. It used the Engineering
Spreadsheet to develop the relationship between cost and efficiency for
furnaces and boilers and to calculate the simple payback for the
purposes of satisfying the rebuttable payback requirements. The LCC
Spreadsheet calculates the consumer benefits and payback periods for
amended energy conservation standards. The National Impact Analysis
Spreadsheet provides shipments forecasts and then calculates NES and
NPV impacts of potential amended energy conservation standards. The
Department also assessed manufacturer impacts, largely through the use
of the Government Regulatory Impact Model (GRIM).
Additionally, DOE estimated the impacts of residential furnace and
boiler energy conservation standards on utilities and the environment.
The Department used a version of EIA's NEMS for the utility and
environmental analyses. The NEMS model simulates the energy economy of
the U.S. and has been developed over several years by the EIA primarily
for the purpose of preparing the AEO. The NEMS produces forecasts for
the U.S. that are available in the public domain. The version of NEMS
used for appliance standards analysis is called NEMS-BT, and is
primarily based on the AEO2005 version with minor modifications.\11\
The NEMS offers a sophisticated picture of the effect of standards,
since it accounts for the interactions between the various energy
supply and demand sectors and the economy as a whole.
---------------------------------------------------------------------------
\11\ The EIA approves the use of the name NEMS to describe only
an AEO version of the model without any modification to code or
data. Because the present analysis entails some minor code
modifications and runs the model under various policy scenarios that
deviate from AEO assumptions, the name NEMS-BT refers to the model
as used here. For more information on NEMS, refer to The National
Energy Modeling System: An Overview. DOE/EIA-0581 (98), February,
1998. BT is DOE's Building Technologies Program. NEMS-BT was
formerly called NEMS-BRS.
---------------------------------------------------------------------------
The Department invites comments on the validity of the analytical
methods used in this rulemaking and the appropriateness of the
interpretation and use of the results of the analysis.
A. Product Classes
For this rulemaking, the Department initially considered the
product classes
[[Page 59214]]
discussed in the 1993 ANOPR. In 1987, the Act set the initial Federal
energy conservation standard, which covered furnaces, boilers, mobile
home furnaces, and ``small'' furnaces. In the 1993 ANOPR, the
Department expanded the product classes to differentiate fuel type,
heat transfer medium (i.e., hot water or steam for boilers), and
outdoor and indoor installation suitability (i.e., weatherized or non-
weatherized). Table IV.1 lists the product classes DOE initially
considered in this rulemaking.
Table IV.1.--Product Classes Considered in Furnace and Boiler Rulemaking
------------------------------------------------------------------------
Product Characteristics
------------------------------------------------------------------------
Gas furnaces........................... Non-weatherized and
weatherized.
Oil-fired furnaces..................... Non-weatherized and
weatherized.
Mobile home furnaces................... Gas and oil-fired.
Electric resistance furnaces........... Electric.
Hot water boilers...................... Gas and oil-fired.
Steam boilers.......................... Gas and oil-fired.
------------------------------------------------------------------------
Based on the market assessment and stakeholder comments, the
Department grouped the product classes into three categories for the
analysis for today's proposed rule. The first category consists of the
most widely used product class, non-weatherized gas furnaces.
The second category consists of those classes that have fewer
shipments, but typically more than 100,000 per year: Weatherized gas
furnaces, mobile home gas furnaces, non-weatherized oil-fired furnaces,
hot-water gas boilers, and hot-water oil-fired boilers. The
Department's analysis of these product classes was similar to its
analysis of non-weatherized gas furnaces.
The third category includes product classes for which DOE did not
perform analyses and is not proposing an amendment to the current
standards for these products. This category includes steam gas boilers
and steam oil-fired boilers, which have annual shipments below 40,000
units and show a declining trend of shipments. This category also
includes weatherized oil-fired furnaces, mobile home oil-fired
furnaces, and electric furnaces. Weatherized oil-fired furnaces and
mobile home oil-fired furnaces have very low shipments and are
represented by only a few models in the GAMA directory; promulgating a
higher standard for these products would result in de minimis energy
savings. Additionally, all of the GAMA-listed models for weatherized
oil-fired furnaces and mobile home oil-fired furnaces exceed the
current 78-percent-AFUE standard. Therefore, for these classes, DOE is
not proposing an update of the existing standard. The Department did
not consider electric furnaces since their efficiency approaches 100-
percent AFUE and improvements to them would also have de minimis
energy-savings potential. Therefore, for electric furnaces, DOE is not
proposing a standard.
B. Engineering Analysis
The purpose of the engineering analysis is to characterize the
relationship between efficiency and cost of furnaces and boilers. The
Department used this efficiency/cost relationship as input to the
payback period, LCC, and NES analyses.
The engineering analysis develops data that can be used to
establish the consumer price of more-efficient equipment. These data
include manufacturing costs, markups, installation costs, and
maintenance costs.
To generate the manufacturing costs, the Department identified
three basic methodologies: (1) The design-option approach, which
provides the incremental costs of adding design options to a baseline
model that will improve efficiency; (2) the efficiency-level approach,
which provides the incremental costs of moving to higher energy-
efficiency levels, without regard to the particular design option(s)
used to achieve such increases; and (3) the cost-assessment (or
reverse-engineering) approach, which provides ``bottom-up''
manufacturing cost assessments for achieving various levels of
increased efficiency, based on detailed data on costs for parts and
material, labor, shipping/packaging, and investment for models that
operate at particular efficiency levels.
The Department began the manufacturing cost analysis by exploring
how manufacturers would likely design products to perform at the
various efficiency levels considered and to thoroughly understand the
relationships between different equipment configurations and
efficiency. The Department initially considered several design options
that could meet each considered efficiency level. It selected the
design option(s) it believed manufacturers would most likely implement
to achieve a given considered energy efficiency level. To estimate the
manufacturing costs of these design options, the Department relied
primarily on the cost-assessment (or reverse-engineering) approach, but
also used the design-option approach.
To compare the total additional consumer cost of improved equipment
efficiency, the Department defined a baseline design for each product
class. The baseline model establishes the starting point for analyzing
technologies that provide energy-efficiency improvement. Based on its
market assessment and input provided by GAMA, the Department defined a
baseline model as an appliance with an efficiency at the minimum level
prescribed by EPCA (i.e., 78-percent AFUE for non-weatherized gas
furnaces), and having commonly available features and technologies.
The Department next determined markups, installation cost, and
maintenance cost to complete the engineering analysis. It estimated
markups using publicly available corporate and industry data and, for
mobile home furnaces, data from MHI. To estimate installation costs,
DOE created an Installation Model to assess venting costs, and verified
it against known existing data. It estimated maintenance costs using
publicly available industry data.
Table IV.2 summarizes the approach and data DOE used to derive the
inputs to the engineering analysis for the 2004 ANOPR analysis, and the
changes made in the analysis for today's proposed rule. Discussion of
the changes follows in the sections below.
[[Page 59215]]
Table IV.2.--Approach and Data Used To Derive the Inputs to the
Engineering Analysis
------------------------------------------------------------------------
Proposed rule
Input 2004 ANOPR analysis analysis
------------------------------------------------------------------------
Equipment Cost.............. For the most widely Added cost of drip
used efficiency pan for condensing
levels, used a cost units. Some units
model of omit a combustion
manufacturing costs air pipe. Updated
created by tear- underlying metal
down analysis; for and cost data to
the remaining 2004 via Consumer
levels, used design- Price Index. Did
opinion analysis. not consider design
Incorporated options at 82-
industry feedback percent and 83-
from GAMA and percent AFUE for
individual non-weatherized gas
manufacturers to furnaces due to
generate potential safety
manufacturing-cost- hazards. Updated
versus-efficiency manufacturing-cost-
curves. versus-efficiency
curves.
Markups..................... Derived markups from No change.
an analysis of
corporate financial
data. Multiplied
manufacturing costs
by manufacturer,
distributor,
contractor, and
builder markups,
and sales tax, as
appropriate, to get
equipment price.
Installation Cost........... Used a distribution Same method; new
of weighted-average assumption that all
installation costs 81-percent AFUE gas
from the furnaces use double
Installation Model. wall vents.
Installation
configuration are
weight-averaged by
frequency of
occurrence in the
field, and vary by
installation size.
The Installation
Model is based on a
commonly used cost-
estimation method
and is comparable
to available, known
data.
Maintenance Costs........... Used Gas Research Same sources, but
Institute data for accounted for
gas furnaces and higher maintenance
boilers, water frequency for
heater rulemaking modulating design
survey results for option, and used
oil-fired same costs for
equipment, and data condensing and non-
from the 1993 condensing
rulemaking for equipment.
mobile home
furnaces.
Annual Energy Use*.......... Calculated energy No change.
use using the DOE
test procedure.**
Energy Prices*.............. AEO2003 forecast AEO2005 forecast
prices for year prices for
2012. effective date of
2015.
------------------------------------------------------------------------
* Inputs required to calculate rebuttable-presumption payback period.
For more details on the rebuttable-presumption payback period, refer
to section IV.B.5.
** The Department uses field-representative energy use values in the LCC
and payback period analysis. Refer to section IV.C.3. for more
details.
The Department received comments concerning the efficiency levels
it should consider in the engineering analysis.
GAMA and Rheem expressed concern about producing an entire family
of gas furnaces at 81-percent AFUE and suggested that, for some, and
not all, furnace models within a given family, it is possible to design
and produce units that can safely perform at the 81-percent level. They
indicated that developing a complete family of furnaces, spanning the
full range of capacities, in which all units could safely operate at
81-percent AFUE, would be difficult due to confining design and
manufacturing procedures. (GAMA, Public Meeting Transcript, No. 59.8 at
p. 177; Rheem, Public Meeting Transcript, No. 59.8 at p. 179) In
response to these comments, DOE conducted an analysis evaluating
approaches necessary to manufacture a full line of product that can
perform at 81-percent AFUE and the additional costs involved for
producing such a family of furnaces.
To perform this analysis, the Department identified an approach to
manufacturing an entire furnace family at 81-percent AFUE without
posing unacceptable safety and reliability risks. The Department
identified two potential cases for producing an entire family of 81-
percent AFUE non-weatherized gas furnaces, and the additional per-unit
cost associated with each case. The Department based the estimates for
both cases on manufacturer-provided data, which an independent
consultant reviewed. The first case, estimate case 1, includes SKU cost
(Stock Keeping Unit and customization development cost), parts cost
increases, and vent connector cost; case 2, in addition to the above
costs, assumes that a heat exchanger redesign cost would be needed. The
estimated additional per-unit cost for producing a family of furnaces
that can achieve reliable, safe operation at 81-percent AFUE is $47.20
for case 1 (the default case) and $88.70 for case 2.
York asserted that DOE cannot set the proposed standard for mobile
home furnaces above 80-percent AFUE, since section 325(o)(4) of EPCA,
42 U.S.C. 6295(o)(4), provides that DOE may not prescribe an amended
standard if ``the standard is likely to result in the unavailability in
the United States of any covered product type (or class) of performance
characteristics (including reliability), features, sizes, capacities,
and volumes that are substantially the same as those generally
available in the United States.'' York also stated that there are no
non-condensing mobile home furnaces currently available on the market
that exceed 80-percent AFUE. Additionally, York stated that their
interpretation of this EPCA provision also applies to 90-percent AFUE
units for mobile home furnaces. (York, No. 65 at p. 7)
After considering the comments from York, DOE concluded that
section 325(o)(4) of EPCA, 42 U.S.C. 6295(o)(4), does not require it to
set a new or amended energy conservation standard either at an
efficiency level currently available in the U.S., or at an efficiency
level that would ensure all products meeting the standard would have
all of the attributes of currently available products. The
``performance characteristics'' and ``features'' referred to in section
325(o)(4) of EPCA, 42 U.S.C. 6295(o)(4), do not include efficiency or
energy-use levels. Rather, these terms refer to other types of product
characteristics of concern to consumers, such as features affecting
temperature control or user comfort. To
[[Page 59216]]
interpret section 325(o)(4) of EPCA, 42 U.S.C. 6295(o)(4), otherwise
would bar DOE from ever prescribing higher minimum standard levels,
because any such higher levels necessarily result in new energy-
efficiency-improving technologies incorporated into the product and the
unavailability of products including less efficient technologies. This
interpretation would be inconsistent with EPCA's other provisions and
its purpose of improving product efficiencies. Thus, the lack of
currently available, non-condensing, mobile home furnaces above 80-
percent AFUE does not mean that section 325(o)(4) of EPCA, 42 U.S.C.
6295(o)(4), bars DOE from adopting a level higher than that as a
minimum standard for this product class. Thus, DOE believes that
section 325(o)(4) of EPCA, 42 U.S.C. 6295(o)(4), does not preclude DOE
from considering efficiencies for mobile home furnaces above a given
level, such as 80-percent AFUE. As discussed in section III.C.2 above,
DOE identified 90-percent AFUE as the maximum technologically feasible
level for mobile home furnaces. The Department analyzed efficiency
levels that include 80-percent and 90-percent AFUE for mobile home
furnaces and the results are presented in section V.C.
1. Manufacturing Costs
The Department adjusted its engineering cost model based on cost
data received from several individual manufacturers, and used the model
to create new cost-efficiency curves for the industry. The Department
then used these cost-efficiency curves as manufacturing cost inputs for
the MIA. Details of the MIA are in Chapter 12 of the TSD.
Lennox, York, and GAMA commented that the cost of materials in the
2004 ANOPR TSD was outdated. (Lennox, Public Meeting Transcript, No.
59.8 at p. 66; York, No. 65 at p. 3; and GAMA, No. 67 at p. 6) For the
2004 ANOPR engineering analysis, reviewed by manufacturers, the
Department used a five-year average of material prices from years 2000
through 2004. In response to various comments, the Department reviewed
material-cost data from the first quarter of 2005 and found prices
higher than those in the reference scenario that it used in the 2004
ANOPR analysis. Based on the more recent data, DOE updated the five-
year average prices used in the analysis for this notice and conducted
a material price sensitivity analysis with two additional material-
price scenarios. The reference case uses a revised five-year average of
material prices from years 2000 through 2004. The new prices of copper,
aluminum, steel, and stainless steel reflect prices from the Bureau of
Labor Statistics (BLS) Producer Price Indices (PPIs) spanning 2000-
2004. The Department used the PPIs for copper rolling, drawing, and
extruding, and for steel mill products, and adjusted them to 2004$
using the gross-domestic-product implicit-price deflator.
The Department created two scenarios for the material-price
sensitivity analysis: a low-bound and a high-bound. It calculated the
low-bound scenario by finding the lowest price per pound of M6 core
steel between 2000 and 2004. The lowest price of M6 core steel on a
per-pound basis occurred in 2002. Then, DOE applied a 15-percent
reduction to each of the raw material costs in that same year. It used
these prices to determine their effect on the cost-efficiency
relationship. Likewise, DOE calculated the high-bound scenario using
the average price for each of the raw materials from the first quarter
of 2005, when prices of raw materials were uncharacteristically high.
The Department evaluated the results of the material price sensitivity
analysis, using all three material-cost scenarios, in the engineering
analysis and then used them as inputs for the LCC analysis. The results
for the material-price-sensitivity analysis are presented in Appendix Z
of the TSD.
GAMA stated that DOE's cost estimate for modulating furnaces is
about 30 percent too low because of faulty assumptions regarding the
cost of upgrading the controls. (GAMA, No. 67 at p. 2) The Department
reviewed its cost estimate for modulating furnaces. Based on market
data, it determined that the cost of the components for the evaluated
design (two-stage modulation) is slightly higher than the cost used in
the ANOPR analysis. Consequently, the Department implemented this small
change in price for the NOPR analysis.
Carrier stated that improving efficiency with modulation assumes
maintaining constant excess air when switching from high fire to low
fire. Carrier further stated that a brushless, direct-current (DC)
draft inducer motor is required to maintain constant excess air, so DOE
should include the cost of brushless, DC draft inducers in its
analysis. (Carrier, Public Meeting Transcript, No. 59.8 at p. 181) To
some extent, DOE did this in the analysis for the 2004 ANOPR. Current
modulating furnaces have a two-stage motor for the draft inducer, and
DOE included the cost of this motor in analyzing the cost of achieving
that level of efficiency. The Department has revised its analysis for
the proposed rule to account for the cost of the two-stage modulation
design option components, including the cost of the draft inducer as
advocated by Carrier, for all products that achieve higher efficiencies
using modulation.
2. Markups
Using the cost data, DOE developed estimates of the consumer price
of furnaces and boilers. To estimate prices, DOE determined typical
markups at each stage of the distribution chain, from the manufacturer
to the consumer. In addition to estimating average markups, the
Department characterized the markups with probability distributions
through a statistical analysis of U.S. Census data and used these
distributions in the LCC analysis. (See TSD, Chapter 5.)
The Department estimated the manufacturer markup based on analysis
of corporate financial records. It included the following expenses in
the determination of the manufacturer markup: research and development
(R&D), net profit, general and administrative costs, warranty expenses,
taxes, and sales and marketing costs. It excluded shipping expenses
(out-bound) because these expenses were included in the manufacturing
cost. The Department determined R&D expenses by assuming that
engineering budgets would be reallocated from value engineering and
new-feature development to product development and redesign.
The Department based the wholesale and contractor markups on firm
balance sheet data. It estimated builder markup (applied to new
construction installations only) from U.S. Census data for the
residential and commercial building construction industry and from
heating, ventilating, and air-conditioning (HVAC) industry data. The
Department used recent State and local sales tax data to estimate sales
taxes (applied to replacement installations only).
For mobile home furnaces, the distribution chain is shorter than
the distribution chains for other product classes. The heating
equipment manufacturer sells to the manufactured housing maker, who
installs the furnace at the factory. In this case, the Department
estimated markups using information from MHI.
The overall markups are lower for new construction installations
than for replacement installations. For wholesalers and contractors,
the markup on incremental costs (i.e., the costs over and above the
costs for a baseline model) is lower than the markup on the baseline
model cost. The reason is that only wholesalers' and contractors'
profits and other operating costs
[[Page 59217]]
typically scale with the price they pay for the products they sell.
Trane questioned the assumption that incremental markups should be
lower than baseline markups. (Trane, Public Meeting Transcript, No.
59.8 at p. 147) AGA said that wholesalers, contractors, and builders
will base markups not on incremental costs of the technology, but on
the economic value of the product in the supply chain. (AGA, No. 78 at
p. 4) The Department evaluated the markup chain and found that the
markup on incremental costs is lower than the baseline markup for
wholesalers and contractors, so the Department did not change its
application of markups. (See TSD, Chapter 5.)
3. Installation Costs
The Department defines the installation cost as the expense to the
consumer for professional installation of a furnace or a boiler. The
installation cost is not part of the equipment's retail price. The cost
of installation covers all labor and material costs associated with the
installation of a new unit or the replacement of an existing one,
excluding the cost of the unit itself. For furnaces and boilers, the
installation cost is typically the largest single component of the
total cost to the consumer and is greater than the equipment price.
The predominant part of the installation cost is the venting
system. The American National Standards Institute (ANSI) standard
Z21.47-1993 defines four furnace and boiler categories (I-IV) with
respect to the venting system. The categories are defined based on the
operating pressure and temperature of the combustion gases inside the
vent. Most non-condensing equipment falls into Category I (high
temperature, negative pressure). Most condensing equipment falls into
Category IV (low temperature, positive pressure), but some non-
condensing boilers are in Category III (high temperature, positive
pressure). Category III venting requires stainless steel material
(AL29-4C) and sealed joints.
The Department devoted considerable effort to identifying
appropriate cost figures to use in its analysis. In the process, DOE
found that there is no complete, up-to-date data source for
installation costs for the product classes under consideration.
Therefore, DOE developed its own Installation Model to determine
installation costs for non-weatherized gas furnaces. The Department
used RS Means, a well-known construction-cost-estimation method, to
develop labor costs, and obtained quotes from national distributors to
develop material costs. The Installation Model weight-averages the
detailed costs for a large variety of typical installations in the
field, including both new construction and retrofit installations;
single and multifamily housing; plastic, metal, and masonry chimney
vents; single- and double-wall vent connectors; and common venting with
other appliances. Chimney relining practices and orphaned water heaters
are explicitly modeled. The Department modified certain assumptions to
apply the Installation Model to oil-fired furnaces and gas- and oil-
fired boilers.
In their comments, Carrier, Lennox, Alagasco, and York addressed
space constraints and other issues related to the cost of installing
furnaces and boilers. Carrier stated that, in southern and western
markets, many furnaces are installed in attics, and if the furnace is
more than 21 inches wide, it will not fit into the attic through the
attic access. (Carrier, Public Meeting Transcript, No. 59.8 at p. 51)
Lennox asked that the installation analysis account for non-
conventional installations of very large units. (Lennox, Public Meeting
Transcript, No. 59.8 at p. 75) Lennox commented that, with regard to
oil-fired furnaces, because of the larger heat exchangers, the physical
size of the furnace cabinet can cause space constraint problems.
(Lennox, No. 79 at p. 2) Alagasco stated that DOE's installation model
underestimates costs associated with the installation of gas furnaces,
especially for replacement markets. (Alagasco, No. 82 at pp. 1-2)
Finally, York stated that, due to the large size of residences in some
areas of the country, more than one furnace system may be installed in
a dwelling, and installing or changing multiple systems has a different
cost impact than changing or installing a single system. (York, Public
Meeting Transcript, No. 59.8 at p. 74) The Department's Installation
Model includes a wide variety of installation situations, as mentioned
above, and accounts for most situations where space constraints may be
an issue.
a. Non-Weatherized Gas Furnaces. In the 2004 ANOPR, DOE estimated
that eight percent of all installations of non-weatherized gas furnaces
at 81-percent AFUE will require Category III venting. It based this
estimate on the fact that if the steady-state efficiency of a non-
condensing furnace exceeds 83 percent, it must be vented with a
Category III venting system to prevent condensation problems. The
Department arrived at the eight-percent value by considering the
difference between the steady-state efficiency and the AFUE for actual
models, based on the model information listed in the GAMA directory.
Carrier and Lennox commented that the Department did not appropriately
account for the fraction of 81-percent-AFUE furnaces that would require
Category III venting and recommended that the eight-percent number be
raised considerably. (Lennox, Public Meeting Transcript, No. 59.8 at p.
89 and No. 79 at p. 2; and Carrier, Public Meeting Transcript, No. 59.8
at p. 89) GAMA and Carrier stated that DOE's approach underestimates
the fraction of Category III models because there is at least 0.5-
percent difference between the steady-state efficiency as measured by
the DOE test procedure and as measured in the ANSI Z21.47
categorization test. (The ANSI Z21.47 test is applied by manufacturers
to identify venting categories to develop information for the
manufacturers' installation manuals.) (GAMA, Public Meeting Transcript,
No. 59.8 at p. 85 and No. 67 at p. 5; and Carrier, Public Meeting
Transcript, No. 59.8 at p. 93 and No. 68 at p. 1)
In the analysis for this proposed rule, DOE did not directly
estimate the fraction of Category III models by considering the
difference between the steady-state efficiency and the AFUE for actual
models. For this analysis, DOE investigated existing models and
manufacturers' installation manuals. It determined that non-weatherized
gas furnaces at 80- and 81-percent AFUE, when applied in vertical
venting installations, fall into Category I. When 81-percent-AFUE
furnaces replace 80-percent-AFUE furnaces, a significant fraction of
installations requires an update from a single-wall to a Type-B,
double-wall vent connector. In the case of replacement installations,
the Department added the cost of a Type-B, double-wall vent connector
to 40-percent of the installations. When applied in horizontal venting
installations, furnaces at 80 and 81-percent AFUE are either in
Category III or are in Category I using a power venter. The cost for
these two venting methods is similar. Since horizontal installations
account for a negligible fraction of all non-condensing furnace
installations (estimated at less than 0.1-percent), DOE did not include
this type of installation in its analysis.
Carrier, NPGA, and Lennox commented that lack of knowledge on the
part of installers regarding proper installation practices for 81-
percent-AFUE furnaces could result in incorrect installation and unsafe
conditions for the consumer. (Carrier, Public Meeting Transcript, No.
59.8 at p. 83; NPGA, No. 72 at p. 4; and Lennox, No. 79 at p. 2) York
and Alagasco stated that there are
[[Page 59218]]
issues regarding long-term safety, reliability, and performance of the
Category III venting materials or systems available on the market
today, and this is a major concern if thousands of installations across
the country will require such systems. (York, No. 65 at p. 3; Alagasco,
No. 82 at p. 2) Carrier, Rheem, and York commented that they do not
offer Category III appliances, and stated that Category III venting is
not used for 81-percent-AFUE models. (Carrier, Public Meeting
Transcript, No. 59.8 at p. 115; Rheem, Public Meeting Transcript, No.
59.8 at p. 117; and York, No. 65 at p. 3) The Department recognizes the
stakeholders' concerns. As discussed above, however, analysis for this
proposed rule indicated that Category III venting would be required for
a negligible fraction of installations of 81-percent-AFUE gas furnaces.
Furthermore, based on the existing use of Category III venting,
particularly for high-efficiency boilers, the Department believes that
the relevant stainless steel materials (AL29-4C) would perform with an
acceptable degree of safety and reliability for Category III furnaces.
The ODOE commented that the assumed overall cost for condensing
furnace installation is too high, as it fails to account for the
expected growth in the share of condensing furnaces that are for the
replacement market, and the relatively small installation cost for
replacing a condensing furnace. (ODOE, No. 61 at pp. 7-8) NRDC noted
that installation costs will decline when replacement of 90-percent-
AFUE furnaces becomes widespread. (NRDC, No. 528 at p. 4) The
Department adjusted its estimate of installation costs for condensing
furnaces to account for a higher share of replacements in total
installations of condensing furnaces in 2015. With regard to the cost
for replacing a condensing furnace, the Department did not find any new
data to justify a change to the cost used in the 2004 ANOPR analysis.
AGA stated that installation costs for condensing furnaces are
incompletely represented in the 2004 ANOPR, since installation codes
require that condensing appliances be provided with an auxiliary drain
pan to prevent damage to building components in the event of a blockage
in the condensate drain piping system, and an estimated 40-percent of
all condensing furnace installations need drain pans. (AGA, No. 78 at
p. 5) The Department adjusted its Installation Model to account for the
use of drain pans in 40 percent of condensing furnace installations.
In addition, the Department recognizes that some consumers may
experience additional costs that exceed those used in the Department's
analysis to address necessary structural changes for installing a
condensing furnace, primarily for the vent systems associated with non-
weatherized gas furnaces and for mobile home gas furnaces at or above
90-percent-AFUE. The Department understands that, for some dwellings,
it may be necessary to make ``structural'' changes, such as the removal
or penetration of an interior wall, exterior wall, or roof, to
accommodate new vent systems (and combustion air intakes). While the
Department has no data to quantify the number of consumers that may be
affected in this manner and the cost magnitude, it believes the
possible cost impacts may be significant enough to warrant
consideration in evaluating the adoption of a standard level that would
require condensing technology. The Department invites comments on the
number of consumers that may be affected by structural changes for
installing a condensing furnace and the cost magnitude of any
structural changes.
b. Other Product Classes. For weatherized gas furnaces, the
Department estimated the installation cost for the baseline model using
data from Section 400 of the 2002 RS Means Mechanical Cost Data. The
assumption that installation costs remain mostly constant as efficiency
increases seems reasonable for single-package systems. The increases in
size and weight for more-efficient systems are small relative to the
large size and weight of the baseline model unit.
For mobile home gas furnaces in new homes, installation costs are
part of the equipment cost because mobile home gas furnaces are
assembled in the factory rather than in the field. The Department
included these factory assembly costs in the manufacturer markup. With
respect to mobile home gas furnaces for replacement, the Department did
not find any new data to estimate an installation cost, so it used the
same approach as for new-home furnaces.
York, GAMA, and MHI commented on venting issues related to mobile
home furnaces. GAMA and York suggested that DOE did not sufficiently
explore vent corrosion issues related to mobile home furnaces and
weatherized furnaces in the 2004 ANOPR analysis. (GAMA, Public Meeting
Transcript, No. 59.8 at p. 228; and York, No. 65 at p. 5) York, GAMA,
and MHI noted that approved venting materials for Category III venting
are not available for mobile home furnace installations. (York, No. 65
at p. 5; GAMA, No. 67 at p. 6; and MHI, No. 89 at p. 3) York also
stated that condensation and resulting corrosion must be considered for
weatherized furnaces, along with the cost impact of materials having
more corrosion-resistant properties. (York, No. 65 at p. 8) GAMA agreed
with DOE that it is appropriate not to include venting costs for
weatherized products, but stated that there is a need to capture the
increased likelihood of heat exchanger and flue corrosion resulting in
premature failure. (GAMA, No. 67 at p. 6) In conducting its analysis
for this notice, DOE reviewed the issue of vent corrosion for mobile
home furnace installations and included a cost to account for proper
venting system installation. For weatherized furnaces, the Department
reviewed corrosion issues and found that current models having an AFUE
of up to 82 percent do not have special requirements to address
corrosion issues. Therefore, the Department did not change its cost
estimates for this product class for this proposed rule.
For gas hot water boilers, the 2004 ANOPR analysis used a uniform
assumption that 20-percent of installations would require Category III
venting at 80-84-percent-AFUE levels. GAMA, ACEEE, and AGA commented
that the analysis should include a gradually increasing share of
Category III venting as the AFUE rises. (GAMA, Public Meeting
Transcript, No. 59.8 at p. 111; ACEEE, Public Meeting Transcript, No.
59.8 at p. 113; and AGA, No. 78 at p. 5) GAMA asked that DOE's analysis
use GAMA's data showing the fraction of gas hot water boiler models
vented with Category III by efficiency level. (GAMA, Public Meeting
Transcript, No. 59.8 at p. 107) AGA stated that manufacturers'
installation instructions for a number of gas hot water boilers in the
range of 83-84-percent AFUE do require Category III venting, and
recommended that DOE consider these requirements. (AGA, No. 78 at p. 5)
In the analysis for today's proposed rule, DOE used data provided
by GAMA on the fraction of installations at each efficiency level that
would require Category III venting. The Department also conducted a
sensitivity analysis using similar assumptions as in the 2004 ANOPR.
This analysis reflected current construction practices, which use
Category III venting for horizontal venting installations at all
efficiency levels.
GAMA and ACEEE commented that DOE should further investigate
installation practices for oil-fired equipment at various efficiency
levels. (GAMA, Public Meeting Transcript, No. 59.8 at pp. 112 and No.
67 at p. 4; and ACEEE, No. 53 at p. 6) ACEEE stated
[[Page 59219]]
that DOE's analysis for oil systems does not fully account for the fact
that exhaust from oil systems is generally at a higher temperature and
has lower moisture content than exhaust from gas systems. (ACEEE, No.
84 at p. 11) Carrier urged DOE to perform vent condensation analyses on
higher-efficiency oil furnace designs. (Carrier, No. 68 at p. 4)
The 2004 ANOPR analytical approach for oil-fired furnaces assumed
that all installations of 83-percent-AFUE, or lower efficiency,
equipment would be vented using Type L vents, and all installations of
84-percent-AFUE, or higher efficiency, equipment would be vented using
316-grade stainless steel vent systems. For this notice, the Department
consulted Brookhaven National Laboratory and other experts, and also
reviewed the National Fire Protection Association (NFPA) standards
NFPA-31 Standard for the Installation of Oil-Burning Equipment and
NFPA-11 Standard for Chimneys, Fireplaces, Vents, and Solid Fuel-
Burning Appliances. The analysis for today's proposed rule has taken
into consideration the NFPA-31 standard, which provides that Type L
vents can be used safely with products of up to 88 percent, steady-
state efficiency (or 87-percent AFUE), depending on the vent
configurations and equipment size. The Department used a gradual
increase in the number of 316-grade stainless steel vent installations
from zero percent at 80-82-percent AFUE to 100-percent at 86-percent
AFUE. The mid-point of the range is 50 percent at 84-percent AFUE. This
assumption accounts for the NFPA-31 recommendations at the upper end of
the range. The Department used a similar approach for oil-fired
boilers, but shifted the above AFUE values upward by one AFUE
efficiency point, in accordance with the NFPA-31 standard. The approach
DOE used in this proposed rule accounts for the fact that exhaust from
oil systems is generally at a higher temperature and has lower moisture
content than exhaust from gas systems. It also addresses vent
condensation on higher-efficiency, oil-fired furnace designs.
4. Maintenance Costs
Maintenance costs are the costs of regular maintenance of a furnace
or boiler when it fails, including all associated labor and material
costs. For non-weatherized and weatherized gas furnaces and gas
boilers, in the 2004 ANOPR analysis, DOE used data on the cost and
frequency of maintenance that were provided in the Gas Research
Institute (GRI)-94/0175 topical report Assessment of Technology for
Improving the Efficiency of Residential Gas Furnaces and Boilers. The
Department used this information to estimate required minimum
maintenance frequencies of once every five years for all equipment
without modulation, and once every four years for all equipment with
modulation, to account for the greater complexity of the modulation
feature. For oil-fired furnaces and oil-fired boilers, DOE applied the
results of a survey performed for its previous water heater rulemaking.
For mobile home furnaces, DOE used data from the Technical Support
Document: Energy Efficiency Standards for Consumer Products, DOE/EE-
0009, published in November 1993. (See TSD, Chapter 6.)
The ODOE and York stated that the GRI data DOE used are outdated.
(ODOE, No. 61 at p. 9; and York, No. 65 at p. 6) GAMA stated that
maintenance costs should at least scale with the cost of the product,
if not meet some other more rigorous assumption. (GAMA, Public Meeting
Transcript, No. 59.8 at p. 165) ODOE commented that, unless DOE can
provide data that support its contention that the maintenance costs
vary proportionally to the efficiency of the furnace, using the same
maintenance costs would be appropriate for all furnaces. (ODOE, No. 61
at p. 9) In its review of these comments, DOE confirmed that
maintenance frequency, and therefore cost, does not necessarily vary
with AFUE. Rather, the greater complexity of the modulation feature
causes furnaces with this feature to require more frequent maintenance
and thus incur higher maintenance costs.
The ODOE disagreed with how the 2004 ANOPR analysis represented
maintenance costs for condensing equipment in terms of maintenance
contracts. (ODOE, No. 61 at p. 9) In the 2004 ANOPR, DOE used a value
for condensing equipment from the GRI report that represented the cost
of a service contract that includes a specified set of routine repairs.
In the analysis for this notice, the Department compared maintenance
instructions for non-condensing and condensing gas furnaces from
manufacturers' manuals, researched RS Means literature for maintenance
differences between non-condensing and condensing gas furnaces, and
collected opinions from several furnace installation and maintenance
experts. It found, as asserted by ODOE, that annual maintenance
contracts are not commonly applicable to condensing gas furnaces, and
it did not find evidence of differences in maintenance requirements
between condensing and non-condensing designs. Thus, in accordance with
ODOE's comment, the Department used the same maintenance cost data for
condensing and non-condensing furnaces, and it applied the same
considerations to gas boilers.
5. Rebuttable-Presumption Payback Period
Section 325(o)(2)(B)(iii) of the Act establishes a rebuttable-
presumption that a standard is economically justified if the Secretary
finds that ``the additional cost to the consumer of purchasing a
product complying with an energy conservation standard level will be
less than three times the value of the energy * * * savings during the
first year that the consumer will receive as a result of the standard,
as calculated under the applicable test procedure * * *.'' (42 U.S.C.
6295(o)(2)(B)(iii))
The Department defines the rebuttable-presumption payback period as
the length of time it takes the consumer to recover the higher
installed cost of more-energy-efficient equipment through lowering
operating costs. Numerically, the rebuttable-presumption payback period
is the ratio of the increase in total installed cost (including the
purchase price and installation cost) to the decrease in operating
expenses (including maintenance). Energy expenses are the primary
component of operating expenses. The Department determines the changes
in total installed cost and operating expenses relative to the baseline
for each product class (i.e., the current standard level). Energy-
expense savings are the first year's energy savings multiplied by the
average energy prices forecast for the year in which a new standard is
expected to take effect--in this case, the year 2015. The Department
used energy price forecasts from the AEO2005 to estimate the energy
price in the year 2015.\12\ To calculate energy-expense savings at each
efficiency level, the Department uses the DOE test procedure for
calculating annual energy consumption. (See TSD, Chapter 6.)
---------------------------------------------------------------------------
\12\ Although the Department conducted an energy price
sensitivity analysis using EIA's AEO2006, it did not perform a
sensitivity analysis to determine the effect of AEO2006 energy
prices on the rebuttable-presumption payback period.
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C. Life-Cycle Cost and Payback Period Analysis
In response to the requirements of section 325(o)(2)(B)(i) of the
Act, the Department conducted an LCC and payback period analysis to
evaluate the economic impacts of possible new furnace and boiler energy
conservation standards on individual consumers. This section of this
notice describes the
[[Page 59220]]
LCC and payback period analysis. The Department conducted the analysis
using a spreadsheet model developed in Microsoft (MS) Excel for Windows
2000 or XP. (See TSD, Chapter 8.)
The LCC is the total consumer expense over the life of the furnace
or boiler, including purchase and installation expense and operating
costs (energy expenditures and maintenance costs). To compute LCCs, the
Department discounted future operating costs to the time of purchase
and summed them over the lifetime of the furnace or boiler. The payback
period is the change in purchase expense due to an increased efficiency
standard, divided by the change in annual operating cost that results
from the standard. Otherwise stated, the payback period is the number
of years it would take for the consumer to recover the increased costs
of a higher-efficiency product through energy savings.
The Department measures the change in LCC and the change in payback
period associated with a given efficiency level relative to a base case
forecast of equipment efficiency. The base case forecast reflects the
market in the absence of amended mandatory energy conservation
standards. It depicts the current status of the market, including the
existing demand for products that exceed the current energy
conservation standards.
The Department calculated the LCC and payback periods for a
nationally representative set of housing units. It selected the
representative sample of households from EIA's Residential Energy
Consumption Survey (RECS). Whereas the 2004 ANOPR used the 1997 RECS,
the analysis for today's proposed rule used the 2001 survey (RECS
2001), which are the most recent data available. For each sampled
household, DOE determined the energy consumption and energy price for
either a furnace or a boiler. Thus, by using a representative sample of
households, the analysis allowed for the capture of the wide
variability in energy consumption and energy prices associated with
furnace and boiler use. The Department determined the LCCs and payback
periods for each sampled household using the furnace or boiler energy
consumption and energy price unique to each household, as well as other
input variables. As discussed below, DOE characterized the other input
variables with probability distributions. The Department calculated the
LCC associated with the baseline furnace or boiler in each household.
To calculate the LCC savings and payback period associated with more-
efficient equipment (i.e., equipment meeting higher efficiency
standards), DOE substituted the baseline unit with a more efficient
design.
Inputs for determining the total installed cost include equipment
prices--which account for manufacturer costs, manufacturer markups,
distributor and wholesaler markups, builder or contractor markups, and
sales taxes--and installation costs. Inputs for determining operating
expenses include annual household energy consumption, marginal natural
gas and electricity prices, natural gas and electricity price
projections, maintenance costs, equipment lifetime, discount rates, and
the year standards take effect.
To account for uncertainty and variability in certain inputs, the
Department created distributions of values with probabilities attached
to each value. Of the listed installed cost inputs, DOE characterized
the manufacturer, dealer, distributor, and builder markups, as well as
the sales tax and installation price