[Federal Register: November 19, 2007 (Volume 72, Number 222)]
[Rules and Regulations]
[Page 65135-65170]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr19no07-11]
[[Page 65135]]
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Part II
Department of Energy
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10 CFR Part 430
Energy Conservation Program for Consumer Products: Energy Conservation
Standards for Residential Furnaces and Boilers; Final Rule
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DEPARTMENT OF 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: Department of Energy.
ACTION: Final rule.
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SUMMARY: The Department of Energy (DOE) has determined that revised
energy conservation standards for residential furnaces and boilers will
result in significant conservation of energy, are technologically
feasible, and are economically justified. On this basis, DOE is today
amending the existing energy conservation standards for these products.
DATES: The rule is effective January 18, 2008. The standards
established in today's final rule have a compliance date of November
19, 2015.
ADDRESSES: For access to the docket to read background documents, the
technical support document (TSD), transcripts of the public meetings in
this proceeding, or comments received, visit the U.S. Department of
Energy, the Resource Room of the Building Technologies Program at 950
L'Enfant Plaza Drive, SW., Washington, DC. 20024, (202) 586-2945,
between 9 a.m. and 4 p.m., Monday through Friday, except Federal
holidays. Please call Ms. Brenda Edwards at the above telephone number
for additional information regarding visiting the Resource Room. Please
note: DOE's Freedom of Information Reading Room (formerly Room 1E-190
at the Forrestal Building) no longer houses rulemaking materials. You
may also obtain copies of certain previous rulemaking documents from
this proceeding (i.e., Framework Document, advance notice of proposed
rulemaking (ANOPR), notice of proposed rulemaking (NOPR or proposed
rule)), draft analyses, public meeting materials, and related test
procedure documents from the Office of Energy Efficiency and Renewable
Energy's Web site at http://www.eere.energy.gov/buildings/appliance--
standards/residential/furnaces--boilers.html.
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; or
Chris Calamita, Esq. or 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:
Christopher.Calamita@hq.doe.gov or Francine.Pinto@hq.doe.gov.
SUPPLEMENTARY INFORMATION:
I. Summary of the Final Rule and Its Benefits
A. The Standard Levels
B. Current Federal Standards for Residential Furnaces and
Boilers
C. Consumer Benefits
D. Impact on Manufacturers
E. National Benefits
F. Conclusion
II. Introduction
A. Authority
B. Background
1. Current Standards
2. History of Standards Rulemaking for Residential Furnaces and
Boilers
III. General Discussion
A. Test Procedures
B. Technological Feasibility
1. General
2. Maximum Technologically Feasible Levels
C. Energy Savings
D. Economic Justification
1. Specific Criteria
a. Economic Impact on Consumers and Manufacturers
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 Revisions to the Analyses Employed in the
Proposed Rule
A. Engineering Analysis
B. Life-Cycle Cost and Payback Period Analyses
C. National Impact Analysis
D. Consumer Subgroup Analysis
E. Manufacturer Impact Analysis
F. Employment Impact Analysis
G. Regulatory Impact Analysis
H. Utility Impact Analysis
I. Environmental Analysis
V. Discussion of Other Comments
A. Information and Assumptions Used in Analysis
1. Engineering Analysis
2. Life-Cycle Cost Analysis
3. Manufacturer Impact Analysis
B. Other Issues
1. Joint Stakeholder Recommendation for Boilers
2. Regional Standards and Waiver from Federal Preemption for
States
3. Effective Date for New Standards
4. Consumer Benefits From Reduction in Natural Gas Prices
Associated With a Standard of 90-Percent AFUE or Higher for Non-
Weatherized Gas Furnaces
5. Efficiency Standards for Electric Furnaces
6. Electricity Consumption of Furnace Fans
7. Use of LCC Results in Selecting Standard Levels
8. Definition of Trial Standard Levels
9. Test Procedure
10. Structural Cost Associated With Condensing Furnaces
VI. Analytical Results and Conclusions
A. Trial Standard Levels
B. Significance of Energy Savings
C. Economic Justification
1. Economic Impact on Consumers
a. Life-Cycle Costs and Payback Period
b. Consumer Subgroup Analysis
2. Economic Impact on Manufacturers
a. Industry Cash-Flow Analysis Results
b. Impacts on Manufacturing Capacity and Subgroups of
Manufacturers
c. Cumulative Regulatory Burden
3. National Net Present Value and Net National Employment
4. Impact on Utility or Performance of Equipment
5. Impact of Any Lessening of Competition
6. Need of the Nation to Conserve Energy
7. Other Factors
D. Conclusion
VII. 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, 1999
I. Review Under Executive Order 12630
J. Review Under the Treasury and General Government
Appropriations Act, 2001
K. Review Under Executive Order 13211
L. Review Under the Information Quality Bulletin for Peer Review
M. Review Under Executive Order 12898
N. Congressional Notification
VIII. Approval of the Office of the Secretary
I. Summary of the Final Rule and Its Benefits
A. The Standard Levels
The Energy Policy and Conservation Act, as amended (42 U.S.C. 6291
et seq.; EPCA), directs the Department of Energy (DOE) to consider
amending the energy conservation standards for residential furnaces and
boilers established under EPCA. (42 U.S.C. 6295(f)(3)(B)) Any amended
standard must 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)) Moreover, EPCA states that the Secretary may not
establish an amended standard if such standard would not result in
[[Page 65137]]
``significant conservation of energy,'' or ``is not technologically
feasible or economically justified.'' (42 U.S.C. 6295(o)(3)(B)) The
standards in today's final rule, which apply to non-weatherized and
weatherized gas furnaces, mobile home gas furnaces, oil-fired furnaces,
and gas- and oil-fired boilers,\1\ satisfy these requirements.
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\1\ These types of products are referred to collectively
hereafter as ``residential furnaces and boilers'' or ``furnaces and
boilers.''
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Table I.1 shows the standard levels DOE is promulgating today.
These standards will apply to products manufactured for sale in the
United States, or imported to the United States, on or after November
19, 2015.
Table I.1.--Standard Levels for Furnaces and Boilers
------------------------------------------------------------------------
Product class AFUE* (%)
------------------------------------------------------------------------
Non-weatherized gas furnaces................................. 80
Weatherized gas furnaces..................................... 81
Mobile home gas furnaces..................................... 80
Oil-fired furnaces........................................... 82
Gas boilers.................................................. 82
Oil-fired boilers............................................ 83
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*AFUE = annual fuel utilization efficiency.
B. Current Federal Standards for Residential Furnaces and Boilers
Table I.2 presents the current Federal minimum energy conservation
standards for residential furnaces and boilers.
Table I.2.--Current Federal Standards for Residential Furnaces and
Boilers
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Product class AFUE (%)
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Non-weatherized gas furnaces................................. 78
Weatherized gas furnaces..................................... 78
Mobile home gas furnaces..................................... 75
Oil-fired furnaces........................................... 78
Gas boilers.................................................. 80
Oil-fired boilers............................................ 80
------------------------------------------------------------------------
C. Consumer Benefits
Table I.3 summarizes the implications of today's standards for
consumers of residential furnaces and boilers.
Table I.3.--Implications of New Standards for Consumers*
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Installed cost Life-cycle Payback period
Product class AFUE (%) Installed cost increase cost savings (years)
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Non-weatherized gas furnaces........ 80 $2,044 $8 $2 1.7
Weatherized gas furnaces............ 81 3,907 19 62 3.4
Mobile home gas furnaces............ 80 940 96 111 3.7
Oil-fired furnaces.................. 82 3,142 17 177 0.7
Gas boilers......................... 82 3,826 199 208 12
Oil-fired boilers................... 83 3,920 28 69 0.9
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* Average values.
The economic impacts on consumers (i.e., the average life-cycle
cost (LCC) savings) are positive. For example, a non-weatherized gas
furnace meeting the standard is projected to have a very small increase
in average total installed cost, and the annual energy savings result
in an average LCC savings of $2 and a payback period of 1.7 years. No
households purchasing non-weatherized gas furnaces, including southern
households, would experience a net LCC increase. A gas boiler meeting
the standard is projected to have an increase in average total
installed cost of $199, but the annual energy savings result in an
average LCC savings of $208 and a payback period of 12 years.
D. Impact on Manufacturers
Using a real corporate discount rate of 7.4 percent for furnaces
and 6.2 percent for boilers, DOE estimates the industry net present
value (INPV) of the residential furnace industry to be $1,528 million
and the INPV of the residential boiler industry to be $279 million, in
2006$. DOE estimates the impact of today's standards on the INPV of the
residential furnace and boiler industry to be between a 4.0 percent
loss and a 2.7 percent loss (-$74 million to -$48 million). Based on
DOE's interviews with the major manufacturers of residential furnaces
and boilers, DOE estimates minimal plant closings or loss of employment
as a result of the standards promulgated today.
E. National Benefits
DOE estimates the standards will save approximately 0.25 quads
(quadrillion (10\15\) British thermal units (Btu)) of energy over 24
years (2015-2038). For comparison, approximately four quads are used
annually for space heating in U.S. homes.
These energy savings are projected to result in cumulative
greenhouse gas emission reductions of approximately 7.8 million tons
(Mt) of carbon dioxide (CO2). Additionally, the standards
will help alleviate air pollution by resulting in approximately 9.2
thousand tons (kt) of nitrogen oxides (NOX) emission
reductions from 2015 through 2038, or a similar amount of NOX
emissions allowance credits in areas where such emissions are subject
to emissions caps, and approximately 1.8 kt of household emission
reductions of sulfur dioxide (SO2). DOE expects the
standards to have negligible impact on electricity generating capacity.
The national net present value (NPV) of the standards is $0.69
billion using a seven-percent discount rate and $2.18 billion using a
three-percent discount rate, cumulative from 2015 to 2038 in 2006$.
This is the estimated total value of future savings minus the estimated
increased costs for purchasing complying products, discounted to the
year 2007.
The benefits and costs of today's final rule can also be expressed
in terms of annualized 2006$ values over the forecast period 2015
through 2038. Using a seven percent discount rate for the annualized
cost analysis, the cost of the standards established in today's final
rule is $41 million per year in increased equipment and installation
costs while the annualized benefits are $144 million per year in
reduced equipment operating costs. Using a three percent discount rate,
the cost of the standards established n today's final rule is $40
million per year while the benefits of today's standards are $204
million per year.
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F. Conclusion
DOE concludes that the benefits (energy savings, consumer LCC
savings, national NPV increases, and emissions reductions) to the
Nation of the standards outweigh their costs (loss of manufacturer INPV
and consumer LCC increases for a relatively small number of furnace and
boiler users). DOE also concludes that today's standards for furnaces
and boilers represent that maximum improvement in energy efficiency
that is technologically feasible and economically justified, and will
result in significant energy savings. At present, products that meet
the new standard levels are commercially available.
II. Introduction
A. Authority
Title III of EPCA sets forth a variety of provisions designed to
improve energy efficiency; specifically, Part B of title III
establishes the Energy Conservation Program for Consumer Products other
than Automobiles. (42 U.S.C. 6291-6309) The program covers consumer
products (referred to hereafter as ``covered products''), including
residential furnaces and boilers. (42 U.S.C. 6292(a)(5))
Under EPCA, the energy conservation program consists essentially of
the following: Testing, labeling, and Federal energy conservation
standards. The Federal Trade Commission (FTC) has primary
responsibility for labeling, and DOE implements the remainder of the
program. (42 U.S.C. 3294) Section 323 of EPCA authorizes DOE, 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
applicable 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. 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))
Additionally, EPCA provides specific prohibitions on prescribing
new and amended standards. Generally, DOE may not prescribe an amended
or new standard for products if no test procedure has been established
for the product.\2\ (42 U.S.C. 6295(o)(3)(A). Further, DOE may not
prescribe an amended or new standard if DOE determines by rule that
such standard would not result in ``significant conservation of
energy,'' or ``is not technologically feasible or economically
justified.'' (42 U.S.C. 6295(o)(3)(B))
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\2\ This prohibition does not apply to standards for
dishwashers, clothes washers, clothes dryers, and kitchen ranges and
ovens. (42 U.S.C. 3295(o)(3)(A))
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EPCA also provides that, in deciding whether a standard is
economically justified, DOE must, after receiving comments on a
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. (42 U.S.C.
6295(o)(2)(B)(i))
EPCA contains what is commonly known as an ``anti-backsliding''
provision. 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. (42 U.S.C. 6295(o)(1)) 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))
Section 325(q) of EPCA is applicable to promulgating a standard for
a type or class of covered product that has two or more subcategories.
(42 U.S.C. 6295(q)) DOE 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'' than applies or will
apply to the other products. (42 U.S.C. 6295(q)(l)(A) and (B)) In
determining whether a performance-related feature justifies such a
different standard for a group of products, DOE must consider ``such
factors as the utility to the consumer of such a feature'' and other
factors DOE deems appropriate. (42 U.S.C. 6295(q)(1)) Any rule
prescribing such a standard must include an explanation of the basis on
which DOE established such higher or lower level. (42 U.S.C.
6295(q)(2)) In 1993, DOE relied on this authority to establish four
product classes of residential furnaces and two product classes of
residential boilers, which are the subject of this rulemaking. 58 FR
47326 (September 8, 1993).
Federal energy conservation requirements generally preempt State
laws and regulations concerning energy conservation testing, labeling,
and standards. (42 U.S.C. 6297) DOE is authorized, however, to grant
waivers from preemption for particular State laws or regulations, in
accordance with the procedures and provisions set forth in section
327(d) of EPCA. (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
permits the State regulation to become effective with respect to such
covered product. In order for a petition to be granted, a State must
establish 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))
B. Background
1. Current Standards
EPCA established an energy conservation standard for residential
furnaces and boilers. It set the standard
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in terms of the annual fuel utilization efficiency (AFUE) descriptor at
a minimum value of 78 percent for most furnaces. (42 U.S.C. 6295(f)(1))
It set the minimum AFUE at 75 percent for gas steam boilers and 80
percent for other boilers. (42 U.S.C. 6295(f)(1)(A)) For mobile home
furnaces, EPCA set the minimum AFUE at 75 percent. (42 U.S.C.
6295(f)(2)) 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) and (2))
2. History of Standards Rulemaking for Residential Furnaces and Boilers
As discussed in the October 2006 notice of proposed rulemaking
(NOPR), this rulemaking began with the publication of an advance notice
of proposed rulemaking (ANOPR) on September 28, 1990. 55 FR 39624. A
second ANOPR was published on July 29, 2004. 69 FR 45420. On October 6,
2006, DOE published a NOPR in the Federal Register proposing amended
energy efficiency standards for residential furnace and boilers. 71 FR
59203. In conjunction with the October 2006 NOPR, DOE also published on
its Web site the complete technical support document (TSD) for the
proposed rule, which incorporated the final analyses DOE conducted and
technical documentation of each analysis. The NOPR TSD included the
engineering analysis spreadsheet, the LCC spreadsheets, the national
and regional impact analysis spreadsheets, and the manufacturer impact
analysis (MIA) spreadsheet--all of which are available at http://
www.eere.energy.gov/buildings/appliance--standards/residential/fb--
nopr--analysis.html. The energy efficiency standards proposed for
furnaces and boilers were as shown in Table II.1.
Table II.1.--October 2006 Proposed Energy Efficiency Standards 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 October 2006 NOPR also included additional background
information on the history of this rulemaking and on DOE's use in this
rulemaking of the procedures, interpretations, and policies set forth
in the Process Rule. 71 FR 59207-59208. DOE held a public meeting in
Washington, DC, on October 30, 2006, to hear oral comments relevant to
the October 2006 proposed rule.
After the publication of the October 2006 proposed rule, DOE met
with GAMA, Carrier, and Rheem on December 14, 2006, to receive comments
regarding cost and safety issues concerning weatherized gas furnaces
that are manufactured to operate at 83-percent AFUE. (GAMA, No. 146 at
p. 1) \3\ These comments are further described in section IV.A. In
addition, DOE issued a notice of data availability and reopening of
comment period on February 9, 2007, to respond to questions raised at
the public meeting concerning DOE's assumptions regarding shipments in
the base case and the installation cost for oil-fired furnaces. 72 FR
6184.
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\3\ A notation in the form ``GAMA, No. 146 at p. 1'' identifies
a written comment DOE has received and has included in the docket of
this rulemaking. This particular notation refers to a comment (1) By
the Gas Appliance Manufacturers Association (GAMA), (2) under
document number 146 in the docket of this rulemaking (maintained in
the Resource Room of Building Technologies Program), and (3)
appearing on page 1 of document number 146.
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III. General Discussion
A. Test Procedures
Section 7(c) of the Process Rule indicates that, if modifications
are needed to its test procedures for a covered product, DOE will issue
a final, modified test procedure before issuing a proposed rule for
energy conservation standards for that product. DOE has determined that
modifications are not needed to its existing test procedure for
furnaces and boilers, and accordingly has not adopted a revised test
procedure for these products. Comments received about test procedures
are discussed in section V.B.9.
B. Technological Feasibility
1. General
As stated above, standards that DOE establishes for furnaces and
boilers must be technologically feasible. (42 U.S.C. 6295(o)(2)(A) and
(o)(3)(B)) DOE considers a design option to be technologically feasible
if it is in use by the respective industry or 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).
This final rule considers the same design options as those
evaluated in the October 2006 proposed rule. (See the final rule TSD
accompanying this notice, Chapter 4.) 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. DOE has determined that all of the efficiency
levels evaluated in this notice are technologically feasible.
2. Maximum Technologically Feasible Levels
In developing the October 2006 proposed rule, consistent with
section 325(p)(2) of EPCA, DOE identified the maximum technologically
feasible levels. (See NOPR TSD Chapter 6.) DOE did not receive any
comments on the October 2006 proposed rule to lead DOE to consider
changes to the maximum technologically feasible (max tech) levels.
Therefore, for today's final rule, the max tech levels for all classes
are the same max tech levels identified in the October 2006 proposed
rule and are provided in Table II.2 below. 71 FR 59211.
Table II.2.--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
------------------------------------------------------------------------
* AFUE = annual fuel utilization efficiency.
C. Energy Savings
As stated above, EPCA directs DOE to establish amended standards at
a level of maximum improvement in energy efficiency that is
technologically feasible and economically justified. (42 U.S.C.
6295(o)(2)(A)) DOE is prohibited from adopting a standard for a product
if that standard would not result in ``significant'' energy savings, or
is not technologically feasible or economically justified. (42 U.S.C.
6295(o)(3)(B)) While EPCA does not define the term ``significant,'' the
U.S. Court of Appeals, in Natural Resources Defense Council v.
Herrington, indicated that Congress intended ``significant'' energy
savings in this context to be savings that were not
[[Page 65140]]
``genuinely trivial.'' 768 F.2d 1355, 1373 (D.C. Cir. 1985). The energy
savings for energy conservation standards at each of the trial standard
levels (TSLs) considered in this rulemaking are nontrivial, and
therefore, DOE has determined them to be ``significant'' within the
meaning of section 325 of EPCA.
DOE forecasted energy savings attributable to the TSLs using the
national energy savings (NES) spreadsheet tool, as discussed in the
October 2006 proposed rule. 71 FR 59211-59212, 59224-59227, and 59245-
59246. For the purpose of today's final rule, DOE has relied on the NES
analysis as presented in the October 2006 proposed rule. EPCA further
requires consideration of energy savings in the context of the economic
justification.
D. Economic Justification
1. Specific Criteria
As noted earlier, EPCA provides seven factors for DOE to evaluate
in determining whether an energy conservation standard for residential
furnaces and boilers is economically justified. (42 U.S.C.
6295(o)(2)(B)(i)) The following discusses how DOE has addressed each of
those seven factors in this rulemaking. Changes to considerations of
those criteria between the proposed rule and the final rule are also
discussed below. The inputs relied upon in consideration of each
criterion and changes to those inputs are discussed in section V,
below.
a. Economic Impact on Consumers and Manufacturers
DOE considered the economic impact of the standard on consumers and
manufacturers, as discussed in the October 2006 proposed rule. 71 FR
59212, 59219-59223, 59228-59233, 59234-59245. For this final rule, DOE
updated the analyses to incorporate more recent material price
information.
b. Life-Cycle Costs
DOE considered life-cycle costs of furnaces and boilers, as
discussed in the October 2006 proposed rule. 71 FR 59212-59213, 59219-
59224, 59234-59239. It calculated the sum of the purchase price and the
operating expense--discounted over the lifetime of the products--to
estimate the range in expected LCC benefits to consumers due to the
standards.
c. Energy Savings
While significant conservation of energy is a separate statutory
requirement for imposing an energy conservation standard, EPCA also
requires DOE, in determining the economic justification of a proposed
standard, to consider the total projected energy savings that are
expected to result directly from the standard. (42 U.S.C.
6295(o)(2)(B)(i)(III)) As in the October 2006 Proposed Rule, DOE used
the NES spreadsheet results in its consideration of total projected
savings that are directly attributable to the considered standard
levels. 71 FR 59211-59212, 59224-59227, 59245-59246.
d. Lessening of Utility or Performance of Products
As reflected in the October 2006 proposed rule, DOE considered
whether any lessening of the utility or performance of furnaces and
boilers would be likely to result from today's standards. 71 FR 59213.
e. Impact of Any Lessening of Competition
DOE considers any lessening of competition that is likely to result
from standards. Accordingly, as discussed in the October 2006 proposed
rule, 71 FR 59213, 59247, DOE requested that the Attorney General
transmit to the Secretary a written determination of the impact, if
any, of any lessening of competition likely to result from the
standard, 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))
To assist the Attorney General in making such a determination, DOE
provided the Department of Justice (DOJ) with copies of the October
2006 proposed rule and the NOPR TSD for review. The Attorney General's
response is discussed in section VI.C.5 below, and is reprinted at the
end of this final rule.
f. Need of the Nation To Conserve Energy
In considering standards for furnaces and boilers, the Secretary
must consider the need of the Nation to conserve energy. (42 U.S.C.
6295(o)(2)(B)(i)(VI)) The Secretary recognizes that energy conservation
benefits the Nation in several important ways, including slowing the
depletion of domestic natural gas resources, improving the security of
the Nation's energy system, and reducing greenhouse gas emissions. The
potential benefits from additional natural gas conservation are further
discussed in section V.B.4 below.
g. Other Factors
The Secretary, in determining whether a standard is economically
justified, may consider any other factors that the Secretary deems to
be relevant. (42 U.S.C. 6295(o)(2)(B)(i)(VII)) In considering amended
standards in the October 2006 proposed rule and in adopting today's
standards, the Secretary 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 or heat exchanger
failure. As discussed in section VI of this preamble, potential safety
concerns were weighed against adopting certain standard levels.
2. Rebuttable Presumption
Section 325(o)(2)(B)(iii) of EPCA states that 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, as calculated under the applicable
DOE test procedure. (42 U.S.C. 6295(o)(2)(B)(iii)) Under the standard
levels adopted in this document for non-weatherized and weatherized gas
furnaces, mobile home gas furnaces, and hot-water oil-fired boilers,
DOE determined that this presumption applies. Regardless of the
rebuttable presumption, DOE also determined that all of the standard
levels adopted in today's final rule are economically justified based
on the above-described analyses.
IV. Methodology and Revisions to the Analyses Employed in the Proposed
Rule
DOE used a number of analytical tools that it previously developed
and adapted for use in this rulemaking. One of the tools is a
spreadsheet that calculates LCC and payback period (PBP). Another tool
calculates NES and national NPV. DOE also used the Government
Regulatory Impact Model (GRIM), along with other methods, in its MIA.
Finally, DOE developed an approach using the National Energy Modeling
System (NEMS) to estimate impacts of residential furnace and boiler
energy efficiency standards on utilities and the environment. Each of
the analytical tools is discussed in detail in the October 2006 NOPR.
71 FR 59213-59234.
As a basis for this final rule, DOE has continued to use the
spreadsheets and approaches explained in the October 2006 NOPR. DOE
used the same general methodology as applied in the October 2006 NOPR
but revised some of the assumptions and inputs for the final rule in
response to stakeholder comments. These updates are discussed in the
sections below.
[[Page 65141]]
A. Engineering Analysis
The purpose of the engineering analysis was to characterize the
relationship between the efficiency and the cost of residential
furnaces and boilers. As discussed in the NOPR, DOE used the design-
option approach, the efficiency-level approach, and the cost-assessment
approach to the engineering analysis. 71 FR 59214-59219. As part of the
analysis, DOE developed data--including manufacturing costs, markups,
installation costs, and maintenance costs--that it used to establish
the manufacturing selling price of more-efficient equipment. Chapter 6
of the TSD contains detailed discussion of the engineering analysis
methodology.
In response to the publication of the October 2006 proposed rule,
DOE received a number of comments on the engineering analysis
methodology. These comments referred to the assumptions concerning the
heat exchanger materials, costs for weatherized gas furnaces, the
installation costs for gas-fired boilers, and other topics. In response
to these comments, DOE made several changes to the data applied in its
approach. Table IV.1 summarizes the data DOE used to derive the inputs
to the engineering analysis for the NOPR and for today's final rule.
Table IV.1.--Approach and Data Used to Derive the Inputs to the
Engineering Analysis
------------------------------------------------------------------------
Input NOPR analysis Final rule analysis
------------------------------------------------------------------------
Equipment Cost.............. For the most widely Same method, using
used efficiency average materials
levels, DOE used a prices for the
cost model of period 2002 to
manufacturing costs 2006. For
created by tear- weatherized gas
down analysis. For furnaces, assumed
the remaining stainless steel
levels, DOE used heat exchangers for
design-option 82-percent and 83-
analysis. percent AFUE
Incorporated products. For gas
industry feedback boilers, assumed
from GAMA and those fractions of
individual boilers requiring
manufacturers to Category III
generate venting at various
manufacturing-cost- AFUE levels will
versus-efficiency also incorporate a
curves. Updated draft inducer into
manufacturing-cost- the product design.
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 No change.
of weighted-average
installation costs
from the
Installation Model.
Installation
configurations 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. New
assumption that all
81-percent AFUE gas
furnaces use double-
wall vents.
Maintenance Costs........... Used Gas Research Same sources for
Institute data for maintenance costs.
gas furnaces and Included repair
boilers, water costs for gas-fired
heater rulemaking equipment as a
survey results for function of the
oil-fired equipment price.
equipment, and data
from the 1993
rulemaking for
mobile home
furnaces. Accounted
for higher
maintenance
frequency for
modulating design
option, and used
same costs for
condensing and non-
condensing
equipment.
Annual Energy Use *......... Calculated energy No change.
use using the DOE
test procedure.
Energy Prices *............. Annual Energy AEO2007 forecast
Outlook (AEO)2005 prices for
forecast prices for effective date of
effective date of 2015.
2015.
------------------------------------------------------------------------
* Inputs required to calculate rebuttable-presumption payback period.
For more details on the rebuttable-presumption payback period, refer
to sections III.D.2 and VI.C.1.a.
GAMA, Lennox, Carrier, and Trane submitted comments urging DOE to
revise the costs assumed in the engineering analysis for manufacturing
high-efficiency weatherized gas furnaces. Specifically, GAMA commented
that DOE underestimated the cost of attaining 83-percent AFUE. GAMA
stated that a significant amount of condensation can build up upon
start-up of a weatherized gas furnace having an 83-percent AFUE and
that the unit must run for a considerable amount of time before the
heat exchanger completely dries out. As a result, GAMA commented that
manufacturers would need to design their weatherized gas furnaces at
83-percent AFUE to handle condensate. (GAMA, No. 116 at pp. 5-8) \4\
Lennox pointed out that it is physically possible to design a furnace
that will deliver 83-percent AFUE in a laboratory test, but that the
variability of outdoor conditions will pose condensation problems at
efficiency levels above 80-percent AFUE. At 83-percent AFUE, which
translates to a steady-state efficiency of 85.5 percent or higher,
Lennox stated that it may also be necessary to provide a condensate
disposal system for the furnace. (Public Meeting Transcript, No. 107.6
at p. 107)
Carrier commented that weatherized gas furnaces are installed
outdoors, and moisture in the flue gas cannot be allowed to condense,
regardless of the corrosion-resistance of the material used. (Carrier,
No. 118 at pp. 1-2) Carrier stated its belief that a means to dispose
of the condensate in cold outdoor ambient conditions must be developed
to provide for drainage or freeze protection. It further stated that,
when cold outside air and safety factors are taken into account, the
maximum design efficiency to avoid significant potential for continuous
condensation on a complete model family is 80-percent AFUE. (Carrier,
No. 118 at pp. 1-2)
Trane commented that 83-percent AFUE for weatherized gas furnaces
would result in a steady-state efficiency of 85-86 percent, which would
necessitate different, more costly materials than the materials DOE
assumed in the October 2006 proposed rule. (Public Meeting Transcript,
No. 107.6 at p. 107)
GAMA and Lennox specifically commented on DOE's incremental
[[Page 65142]]
manufacturing cost increase of $30 for an 83-percent AFUE weatherized
gas furnace over the baseline. GAMA pointed out that DOE's NOPR
analysis used increased heat exchanger area as the only design option
needed to achieve 83-percent AFUE. GAMA stated that, based on
manufacturer experience, the proposed 83-percent AFUE standard for
weatherized gas furnaces would require the use of stainless steel for
internal components such as the heat exchanger, collector box, and
internal flue, due to the expected internal condensation. GAMA also
commented that AL 29-4C is the most probable type of stainless steel
that manufacturers would use, which would significantly increase the
cost of the product. GAMA also stated its opinion that weatherized gas
furnaces at 83-percent AFUE would also require a condensate disposal
system that could function in below-freezing temperatures. GAMA
surveyed its members and provided estimates of the incremental
manufacturing costs to reach 83-percent AFUE over the baseline, which
range from $78 to $320. (GAMA, No. 116 at pp. 5-8)
Lennox also disagreed with DOE's analysis, which indicated that an
83-percent AFUE weatherized gas furnace with characteristics
satisfactory for the expected use can be manufactured and sold to the
consumer for an additional $30. Lennox stated that GAMA's average
incremental manufacturing cost estimate of $223 over the baseline for
an 83-percent AFUE weatherized gas furnace, for the addition of
stainless steel heat exchangers and condensate removal components,
results in an increase in consumer cost of approximately $500. (Lennox,
No. 130 at pp. 2-3)
DOE reviewed all the statements from GAMA, Lennox, Carrier, and
Trane and revised its engineering analysis accordingly. Specifically,
DOE revised its cost assumptions for the heat exchangers in 82-percent-
and 83-percent-AFUE weatherized gas furnaces. In the October 2006
proposed rule, DOE assumed that these heat exchangers were made of
aluminized steel--the same material used for the higher volume non-
weatherized gas furnaces, which would allow manufacturers to take
advantage of high-volume material pricing. Thus, the incremental costs
of increasing from the baseline to an 83-percent AFUE were only $30.
(See NOPR TSD Chapter 6.) In light of the comments, DOE revised the
cost model to include heat exchangers made of AL 29-4C at these two
AFUE levels and included the cost of a condensate disposal system that
could function at below-freezing temperatures. DOE specifically
reviewed the costs that GAMA submitted and, based on information
obtained during manufacturing interviews and internal engineering
expertise, DOE believes GAMA's estimates are within the range of
possible manufacturing costs for these systems (see Chapter 6 of the
final rule TSD). Therefore, DOE conducted analysis at both the low and
high points of the cost range (i.e., $78 and $320, respectively). DOE
examined both the low and high scenarios using the LCC spreadsheet and
presented the results in Chapter 8 of the final rule TSD.
Ultimately, DOE used the low-cost scenario as the basis for the
analysis because DOE's estimates corresponded more closely to the low-
range cost that GAMA provided (i.e., $78). However, DOE recognizes that
some installations may incur a higher cost. DOE believes inclusion of
stainless steel heat exchanger and condensate removal component costs
takes into account manufacturer longevity and safety concerns
associated with near-condensing weatherized gas furnaces.
DOE did not include the cost of stainless steel heat exchangers for
weatherized gas furnaces at 81-percent AFUE. Given the presence of 81-
percent AFUE products in the marketplace that do not contain stainless
steel heat exchangers, DOE assumed that only units with an AFUE of 82
percent and 83 percent would need stainless steel heat exchangers to
prevent corrosion.
Burnham and GAMA commented that DOE neglected to consider the costs
associated with adding induced-draft technology to a Category III gas-
fired boiler at 84-percent AFUE and above. Burnham further stated that
some 84-percent AFUE boilers are natural draft with draft hoods, vent
dampers, and electronic ignition, and some are induced draft with
either Category I or Category III venting, depending on the
manufacturer's requirements in a given installation. In its comments on
the October 2006 proposed rule, Burnham pointed out that DOE estimated
that 24 percent of installations at 84-percent AFUE would be Category
III, and this percentage represents a partial transformation of the
baseline boiler market. However, although DOE included the costs
associated with Category III special gas vents, Burnham noted that all
Category III installations are induced-draft boilers, and that DOE
neglected the costs associated with adding induced-draft technology to
the boiler. (Public Meeting Transcript, No. 107.6 at p. 42; Burnham,
No. 99 at p. 4) Burnham also predicted that, to avoid the venting risks
associated with installing natural draft 84-percent AFUE boilers in
every installation, all boiler installations at 84-percent AFUE will
become induced-draft, and most or all of those will require Category
III venting. Burnham urged DOE to apply the costs associated with
adding induced-draft technology to all Category III installations.
(Public Meeting Transcript, No. 107.6 at p. 42; Burnham, No. 99 at p.
4)
GAMA commented that additional concerns regarding venting safety
would require manufacturers to reconsider the application and
installation guidelines if the minimum standards for gas-fired boilers
were set at 84-percent AFUE. GAMA noted that atmospheric units cost
less and meet certain customers' requirements, but they can only be
installed in a subset of locations due to venting limitations. At 84-
percent AFUE, GAMA commented these gas-fired boilers would be operating
at near-condensing conditions, which would lead to potential venting
corrosion. GAMA stated that it has been told by its members that
concern for safety and reliability would force manufacturers to specify
AL 29-4C stainless steel chimney liners and vent connectors in all
Category I installations. GAMA estimated the cost of this change to
100-percent stainless steel venting to be roughly $700 to $900. GAMA
stated that manufacturers desiring an additional margin of safety might
eliminate natural draft products from their product lines completely in
favor of induced-draft units. (GAMA, No. 116 at p. 11)
GAMA stated that safety concerns would force manufacturers to
specify Category II or III stainless steel venting systems in some gas
boiler installations. GAMA stated its belief that DOE's projections for
venting consequences of 86-percent and 85-percent-AFUE gas-fired
boilers would actually occur at 84-percent and 83-percent AFUE. GAMA
further commented that 84-percent-AFUE gas-fired boilers would require
100 percent stainless steel venting. GAMA surveyed its boiler
manufacturer members regarding the additional cost of incorporating
induced-draft technology and provided DOE with the resulting cost
estimates, ranging between $108.75 and $145.75. (GAMA, No. 116 at pp.
10-11)
In response to the comments from Burnham and GAMA, DOE revised the
cost model for gas-fired boilers and added the cost of induced-draft
technology to the fraction of Category III boilers assumed for each
AFUE level. In other words, DOE applied the cost of induced-draft
technology to the 24 percent of installations requiring Category III
venting at 84-percent AFUE. DOE agrees with stakeholders that
[[Page 65143]]
induced-draft technology is likely required for the population of
installations using Category III venting. DOE specifically reviewed the
costs that GAMA submitted and, based on information obtained during
manufacturing interviews and internal engineering expertise, DOE
believes GAMA's estimates are within the range of possible
manufacturing costs for these systems. Therefore, DOE conducted
analyses at both the low and high points of the cost range (i.e.,
$108.75 and $145.75, respectively). DOE used the low and high scenarios
as inputs to the LCC model; the results are presented in Chapter 6 of
the final rule TSD.
DOE did not revise its estimates of the fraction of installations
requiring Category III venting and induced-draft technology from that
relied upon in October 2006 proposed rule. In other words, DOE did not
apply the added cost to the entire population of gas-fired boilers at
84-percent AFUE and above, as both Burnham and GAMA suggested. DOE
relied on the survey data of actual installations requiring Category
III venting that GAMA originally supplied. GAMA and Burnham did not
provide any additional survey data to validate their claim that all
boilers at 84-percent AFUE and above would require Category III venting
and induced-draft technology. DOE acknowledges Burnham's and GAMA's
assertions of safety concerns relating to venting systems failure at
84-percent AFUE and above, and considered this issue for a standard
level for gas-fired boilers.
B. Life-Cycle Cost and Payback Period Analyses
The purpose of the LCC and PBP analyses was to evaluate the
economic impacts of possible new furnace and boiler energy conservation
standards on individual consumers. 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). The PBP is the number of years it would take for
the consumer to recover the increased costs of a higher-efficiency
product through energy savings. As discussed in the NOPR, the LCC and
PBP analyses calculated furnace and boiler energy consumption under
field conditions for a representative sample of housing units. 71 FR
59219-59220. To compute LCCs, DOE discounted future operating costs to
the time of purchase and summed them over the lifetime of the furnace
or boiler. DOE measured the change in LCC and the change in PBP
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.
As part of the LCC and PBP analyses, DOE developed data that it
used to establish equipment prices, installation costs, annual
household energy consumption, marginal natural gas and electricity
prices, maintenance and repair costs, equipment lifetime, and discount
rates. Chapter 8 of the TSD contains detailed discussion of the
methodology followed for the LCC and PBP analyses.
In response to the publication of the proposed rule, DOE received
several comments on the LCC and PBP methodology. In response to these
comments, DOE made several changes in its approach. Table IV.2
summarizes the approaches and data DOE used to derive the inputs to the
LCC and PBP calculations for the NOPR, and the changes it made for
today's final rule. Discussion of the inputs and the changes follows in
the sections below.
Table IV.2.--Summary of Inputs and Key Assumptions Used in the Life-
Cycle Cost and Payback Period Analyses
------------------------------------------------------------------------
Inputs NOPR analysis Final rule analysis
------------------------------------------------------------------------
Affecting Installed Costs
------------------------------------------------------------------------
Equipment Price............. Derived by Same method, using
multiplying average materials
manufacturer cost prices for the
by manufacturer, period 2002-2006.
distributor, For weatherized gas
contractor, and furnaces, assumed
builder markups and stainless steel
sales tax, as heat exchanger for
appropriate. 82% and 83% AFUE.
For gas boilers,
assumed that
furnaces that
require Category
III venting
incorporate a draft
inducer.
Installation Cost........... Used a distribution No change.
of weighted-average
installation costs
from the
Installation Model.
Weight-averaged
installation
configuration by
frequency of
occurrence in the
field.
------------------------------------------------------------------------
Affecting Operating Costs
------------------------------------------------------------------------
Maintenance and Repair Costs Used Gas Research Same sources for
Institute data for maintenance costs.
gas furnaces and Included repair
boilers, water costs for gas-fired
heater rulemaking equipment.
survey results for
oil-fired
equipment, and data
from the 1993
rulemaking for
mobile home
furnaces.
Supplemented with
information that
indicates higher
maintenance
frequency for
modulating
equipment, and
identical
maintenance costs
for condensing and
non-condensing
equipment. Did not
include repair
costs.
Annual Heating Load......... Calculated heating No change.
loads using 2001
Residential Energy
Consumption Survey
(RECS) data
(cooling loads not
considered).
Incorporated
adjustment to
account for change
in new home size
and shell
performance between
2001 and 2015.
Annual Energy Use........... Used 26 virtual No change.
models that
captured the range
of common furnace
sizes. Energy
calculations used
annual heating load
for each housing
unit based on RECS
2001.
[[Page 65144]]
Energy Prices............... Calculated 2001 Same method, using
average and AEO2007 forecasts
marginal energy to estimate future
prices for each average and
sample house. Used marginal energy
AEO2005 forecasts prices.
to estimate future
average and
marginal energy
prices.
------------------------------------------------------------------------
Affecting Present Value of Annual Operating Cost Savings
------------------------------------------------------------------------
Lifetime.................... Used 2001.58(9) No change.
Appliance Magazine
survey results,
except for boilers,
for which DOE
developed new
estimates based on
a literature review.
Discount Rate............... Applied data from Same sources, using
1998 and 2001 additional data
Survey of Consumer from 1989, 1992,
Finances and other 1995, and 2004
sources to estimate Survey of Consumer
a discount rate for Finances. (See TSD,
each house. Chapter 8).
------------------------------------------------------------------------
The changes in the approach for estimating the equipment prices are
discussed in Chapter 6 of the TSD.
In the October 2006 proposed rule analysis, DOE assumed that
maintenance costs would not vary with the AFUE level of furnaces and
boilers. Several stakeholders commented that DOE should apply a higher
maintenance cost for condensing gas furnaces than for non-condensing
equipment. (Carrier, No. 100 at p. 3; Public Meeting Transcript, No.
107.6 at p. 57; GAMA, No. 116 at p. 5; Rheem, No. 138 at p. 3)
In its analysis for today's final rule, DOE included repair costs
for gas furnaces and boilers. The repair cost is the cost to the
consumer for replacing or repairing components that have failed in the
space-conditioning equipment, while the maintenance cost is a regular
expense. Since representative data on repair costs were not available,
DOE used the same approach as in the 2001 Central Air Conditioner
standards rulemaking (67 FR 36383) and assumed that annualized repair
costs are equal to one-half the equipment price divided by the average
lifetime. Since the equipment cost is higher for equipment that
contains more sophisticated mechanical or electronic components, such
as condensing furnaces, DOE applied a higher repair cost for these
products. Since all gas equipment components are fully covered by a
manufacturer warranty for five years, DOE assumed that consumers would
not incur any repair costs in the first five years. As a conservative
assumption, DOE applied the annualized cost beginning in the sixth year
and ending in the last year of service for the equipment.
For oil-fired furnaces and boilers, DOE included an annual
maintenance contract, which typically includes repair of failed
components. Therefore, DOE did not include a separate repair cost for
these products.
DOE defines the equipment lifetime as the age at which a furnace or
boiler is retired from service. The American Council for an Energy-
Efficient Economy (ACEEE) commented that DOE's equipment lifetime
estimate for oil-fired furnaces should be 18 years rather than 15
years, which DOE assumed in the NOPR analysis. (ACEEE, No. 120 at p.
10) DOE based the assumed lifetime of 15 years from Appliance Magazine,
which reports data provided by furnace manufacturers. ACEEE did not
provide data to substantiate the 18-year lifetime. Thus, DOE did not
change its assumption about equipment lifetime for oil-fired furnaces.
As it has done in previous rulemakings, DOE derived the discount
rates for the LCC analysis from estimates of the finance cost to
purchase a furnace or boiler. The Natural Resources Defense Council
(NRDC) commented that DOE's decision to use consumer-borrowing rates as
a basis for consumer discount rates in the LCC analysis is flawed.
(NRDC, No. 63 at p. 12) Consistent with financial theory, the finance
cost of raising funds to purchase appliances can be interpreted as: (1)
The financial cost of any debt incurred to purchase products, or (2)
the opportunity cost of equity used to purchase equipment. DOE used
both of these interpretations in estimating discount rates for the LCC
analysis for furnaces and boilers. For the NOPR analysis, DOE used data
from the Federal Reserve Board's 1998 and 2001 Survey of Consumer
Finances (SCF). 71 FR 59233. For the analysis in today's final rule,
DOE expanded the data to include the 1989, 1992, 1995, and 2004 SCF.
These additional data on consumer finances represent a wide range of
economic conditions affecting consumer behavior. Thus, DOE decided to
continue to use consumer-borrowing rates as a suitable basis for
consumer discount rates in the LCC analysis.
C. National Impact Analysis
The purpose of the national impact analysis (NIA) was to evaluate
the energy and economic impacts of possible new furnace and boiler
energy conservation standards at the national level. As discussed in
the NOPR, DOE calculated the NES and the NPV of total customer costs
and savings expected to result from new standards at specific
efficiency levels. 71 FR 59224-59228. Table IV.3 summarizes the
approach and data DOE used to derive the inputs to the shipments
analysis for the NOPR, and the changes it made in the analysis for
final rule. In the analysis for the NOPR, DOE analyzed fuel switching
only in the new construction market. For this final rule, DOE also
analyzed fuel switching in the replacement market, using the same
method as for the new construction market. This change results in a
larger drop in shipments of non-weatherized gas furnaces at higher
efficiency levels than reported in the NOPR. As part of the MIA,
furnace manufacturers provided a shipments scenario (i.e., the
manufacturers' shipments scenario) that shows significantly greater
decreases in gas furnace shipments with a standard at condensing levels
(see section E, below).
[[Page 65145]]
Table IV.3.--Approach and Data Used To Derive the Inputs to the
Shipments Analysis
------------------------------------------------------------------------
Input NOPR analysis Final rule analysis
------------------------------------------------------------------------
Shipments................... Calculated total Same approach as
shipments for NOPR, with
replacements based projection of new
on past shipments housing updated to
and retirement AEO2007.
function, and for
new homes based on
projection of new
housing from
(AEO)2005. The
projected market
shares in new homes
were a function of
relative heating
equipment prices.
Based conversions-
upon-replacement on
historic survey
data. Model used
two additional
shipment categories
to calibrate with
GAMA data. Included
shipments for
mobile home furnace
replacement.
Replacements in Kind........ Replacement of worn- Same approach as
out heating NOPR, except for
equipment with unit non-weatherized gas
of same equipment furnaces, for which
type (i.e., furnace DOE modeled fuel
or boiler) and same switching in the
fuel. Applied a replacement market
replacement according to energy
probability and equipment price
distribution based trends, using same
on equipment method and data as
lifetime. for installations
in new housing.
Conversions................. Replacement of worn- No change.
out heating
equipment with
equipment using a
different fuel.
Based on utility
surveys conducted
by American Gas
Association that
report the numbers
of households that
converted from oil
or electricity to
natural gas space
heating.
Installations in New Housing Installation of No change.
heating equipment
into new single-
family, multi-
family, or mobile
homes according to
construction rates
and equipment type
market shares. Used
housing completions
according to AEO
forecast and
modeled fuel market
shares according to
energy and
equipment price
trends.
Gas Furnace Early Early replacement of No change.
Replacement. non-condensing
furnaces with more-
efficient
condensing
furnaces. Model
calibrated to GAMA
data, which show a
large increase in
condensing furnace
shipments in
response to rising
natural gas prices.
Conversion from Non-Central Conversion from non- No change.
Gas Heating to Central central gas heating
Heating with a Gas Furnace. to central heating
with a gas furnace.
Model used
Residential Energy
Consumption Survey
data, which show a
large increase
between 1993 and
2001 in homes with
central gas heating
that were built
before 1990.
------------------------------------------------------------------------
In its assessment of fuel switching from gas to electric heating,
DOE estimated that heat pumps and electric resistance furnaces would
have the same market shares. The Appliance Standards Awareness Project
(ASAP), GAMA, Nordyne, the Northeast Power Coordinating Council, and
Rheem commented that market shares might change over the analysis
period. (Public Meeting Transcript, No. 107.6 at p. 96; Public Meeting
Transcript, No. 107.6 at p. 96; public Meeting Transcript, No. 107.6 at
p. 98; Public Meeting Transcript, No. 107.6 at p. 97; Rheem, No. 101 at
p. 2) DOE reviewed the projections of heating equipment market shares
in EIA's AEO2007, and found that EIA's projections show little change
in the national market shares of heat pumps and electric resistance
furnaces until 2030. Thus, DOE believes that its assumption of constant
market shares is reasonable.
Table IV.4 summarizes the approach and data DOE used to derive the
inputs to the NES and NPV analyses for the NOPR, and the changes it
made in the analyses for this final rule.
Table IV.4.--Approach and Data Used To Derive the Inputs to the National
Energy Savings and Net Present Value Analyses
------------------------------------------------------------------------
Input NOPR analysis Final rule analysis
------------------------------------------------------------------------
Shipments................... Annual shipments See Table IV.3.
from shipments
model.
Date Products Must Meet 2015................ No change.
Standard.
Annual Unit Energy Annual weighted- No change.
Consumption (UEC). average values were
a function of
efficiency level.
Base case UEC for
non-weatherized gas
furnaces accounted
for projected share
of condensing
furnaces.
Installed Cost per Unit..... Annual weighted- No change.
average values were
a function of
efficiency level
(established from
the LCC analysis).
Maintenance Cost per Unit... Annual weighted- No change.
average values were
a function of
efficiency level
(established from
the LCC analysis).
Energy Prices............... AEO2005 forecasts to AEO2007 forecasts to
2025 and 2030 and
extrapolation extrapolation
beyond 2025. beyond 2030.
Energy Site-to-Source Generated by DOE/ No change.
Conversion. EIA's NEMS includes
electric
generation,
transmission, and
distribution losses.
[[Page 65146]]
Discount Rate............... 7-percent and 3- No change.
percent real.
Present Year................ Future expenses Future expenses
discounted to year discounted to year
2004. 2006.
------------------------------------------------------------------------
The NPV calculation for the October 2006 proposed rule used
marginal energy prices to value energy savings for natural gas and
electricity, and average energy prices to value energy savings for fuel
oil and liquefied petroleum gas (LPG) from AEO2005. 71 FR 59227. ACEEE
commented that DOE should use the AEO2007 price forecast in its
analysis for the final rule. (ACEEE, No. 120 at p. 10) DOE used energy
price projections from AEO2007 (which ends in 2030) in its analysis for
the final rule. For the years after 2030, DOE applied the average
annual growth rate in 2020-2030, except for heating oil prices, for
which DOE applied the average annual growth rate in 2015-2030. The
above approach follows guidance provided by EIA.\5\
---------------------------------------------------------------------------
\5\ Memorandum about Energy Price Projections for Federal LCC
Analysis, Attachment 2, EIA/DOE, 2/10/2006.
---------------------------------------------------------------------------
To discount future impacts, DOE used discount rates of both seven
percent and three percent, in accordance with the Office of Management
and Budget (OMB)'s guidelines contained in Circular A-4, Regulatory
Analysis, September 17, 2003. (OMB Circular A-4, Sec. E (September 17,
2003)). NRDC commented that DOE should rely exclusively on a three-
percent discount rate in making determinations about the economic value
of prospective standards, in part because investments in energy
efficiency reduce overall societal risk. (NRDC, No. 131 at p. 16) As
mentioned above, OMB recommends using discount rates of both seven
percent and three percent for regulatory analysis. DOE concluded that
both seven percent and three percent are appropriate to use because
they reflect a broad range of discount rates at a national level.
D. Consumer Subgroup Analysis
In analyzing the potential consumer impact of new or amended
standards, DOE evaluates the impact on identifiable groups of consumers
(i.e., subgroups) that may be disproportionately affected by a new
national standard level. For this rulemaking, DOE analyzed the
potential effect of standards on households with low income levels and
households occupied by seniors, two consumer subgroups of interest.
(See TSD, Chapter 11.)
For today's final rule, DOE also analyzed the impact of standards
for non-weatherized gas furnaces on households located in northern and
southern regions. DOE defined the southern region as comprising states
with an average of less than 5,000 heating degree-days (HDD) \6\, and
the northern region as comprising states with an average of more than
5,000 HDD. DOE also performed an analysis using a definition of the
southern region as comprising states with an average of less than 6,000
HDD and a definition of the northern region as comprising states with
an average of more than 6,000 HDD. See TSD Chapter 11 for a listing of
the states included in each grouping.
---------------------------------------------------------------------------
\6\ HDDs are quantitative indices demonstrated to reflect demand
for energy to heat residential buildings. These indices are derived
from daily temperature observations.
---------------------------------------------------------------------------
E. Manufacturer Impact Analysis
In determining whether a standard for a covered product is
economically justified, the Secretary of Energy is required to consider
in part ``the economic impact of the standard on the manufacturers and
on the consumers of the products subject to such standard.'' (42 U.S.C.
6295(o)(2)(B)(i)(I)) EPCA also requires for an assessment of the impact
of any lessening of competition as determined by the Attorney General.
(42 U.S.C. 6295(o)(2)(B)(i)(V)) DOE performed the MIA to estimate the
financial impact of efficiency standards on the residential furnace and
boiler industry and to assess the impact of such standards on
employment and manufacturing capacity, and published the results in the
October 2006 NOPR. 71 FR 59228-59232, 59240-59245. For this final rule,
DOE did not introduce changes to the methodology as described in the
October 2006 NOPR, but did update the manufacturers' shipments scenario
based on the updated NIA results. (See TSD, Chapter 12.)
F. Employment Impact Analysis
The Process Rule includes employment impacts among the factors DOE
considers in selecting a proposed standard. Employment impacts include
direct and indirect impacts. Direct employment impacts are any changes
in the number of employees for furnace and boiler manufacturers.
Indirect impacts are those changes of employment in the larger economy
that occur due to the shift in expenditures and capital investment that
is caused by the purchase and operation of more efficient furnace and
boiler equipment. The MIA addresses direct employment impacts; the
employment impact analysis describes indirect impacts.
For today's final rule, DOE estimated indirect national employment
impacts using a model of the U.S. economy called IMBUILD (impact of
building energy efficiency programs). DOE's Office of Building
Technology, State, and Community Programs (now the Building
Technologies Program) developed the model. IMBUILD is a personal-
computer-based, economic-analysis model that characterizes the
relationships among 35 sectors of the economy using national input/
output structural matrices, and data from the U.S. Bureau of Labor
Statistics (BLS). The IMBUILD model estimates changes in employment,
industry output, and wage income in the overall economy of the United
States resulting from changes in expenditures in the various sectors of
the economy.
In comments on the proposed rule, NRDC stated that DOE failed to
consider the economic value of increased employment at TSL 4. (NRDC,
No. 131 at p. 12) DOE takes employment impacts into account without
quantifying the net economic value of such impacts. While both the
IMBUILD input/output model and the direct use of BLS employment data
suggest the proposed furnace and boiler standards could increase the
net demand for labor in the economy, DOE believes the gains would most
likely be very small relative to total national employment. DOE,
therefore, concludes only that the furnace and boiler standards are
likely to produce employment benefits that are sufficient to offset any
adverse impacts on employment in the furnace and boiler or energy
industries. (See TSD, Chapter 14.)
G. Regulatory Impact Analysis
The regulatory impact analysis provides a description and analysis
of
[[Page 65147]]
the feasible policy alternatives to this regulation and a quantitative
comparison of the impacts of the alternatives. In this analysis, DOE
also investigated the impact of standards on northern and southern
regions. DOE used the NIA spreadsheet, which uses inputs generated by
LCC spreadsheets constructed to separately analyze the northern and
southern regions, to generate the results presented in the NOPR for
both regions. DOE performed the national LCC analysis on the basis of
the nine Census divisions, plus four large States (New York,
California, Texas, and Florida), rather than on a State-by-State basis.
Commenting on the NOPR, ASAP stated that the results for the northern
region, defined as areas with more than 6,000 HDDs, appear to be
incorrect. (Public Meeting Transcript, No. 107.6 at p. 154)
For the NOPR analysis of the potential impacts of regional
standards, DOE based the distribution of furnace efficiency in the base
case on data that GAMA provided on the percentage of condensing furnace
sales in each State. DOE combined the State-level GAMA data into Census
divisions, and then assumed condensing gas furnaces were installed in
households solely on the basis of climate (i.e., high HDDs). This
assumption led to the comparatively small energy savings estimated to
result from a condensing-level standard for the northern region.
Upon review, DOE determined that the assumption that the existing
(and future) market for condensing furnaces (absent a standard) was
likely to be concentrated in the coldest states was not an accurate
reflection of the State-level data that GAMA provided. By using
distribution assumptions that are based on the State-level data, DOE
subsequently developed an alternative analysis, which it now believes
is a better indicator of the energy savings likely to result in
specified regions from various standard levels. In the revised
analysis, a much lower percentage (45 percent) of households in the
States with HDDs of 6,000 or higher is assigned condensing furnaces.
This share is half of the comparable 90 percent value in the NOPR
analysis and is close to the 48 percent share of condensing furnaces
for the 20 States with an average HDD of 6,000 or higher in the GAMA
shipments data. See Appendix V of the TSD for further discussion.
H. Utility Impact Analysis
The utility impact analysis estimates the change in the forecasted
power generation capacity for the Nation. This analysis separately
determines the changes in energy supply and demand as a result of
natural gas, fuel oil, LPG, or electricity residential consumption
savings due to the standard. DOE calculated these changes using the
NEMS-BT computer model.\7\ The analysis output provides a forecast for
the needed generation capacities at each TSL. The estimated net benefit
of the standard is the difference between the generation capacities
forecasted by NEMS-BT and the AEO2006 Reference Case.
---------------------------------------------------------------------------
\7\ NEMS, which is available in the public domain, is a large,
multi-sectoral, partial-equilibrium model of the U.S. energy sector.
The EIA uses NEMS to produce its AEO--a widely recognized baseline
energy forecast for the U.S. DOE used a variant known as NEMS-BT.
---------------------------------------------------------------------------
DOE obtained the energy savings inputs associated with electricity
and natural gas consumption savings from the NES analysis. These inputs
reflect the effects of efficiency improvement on furnace energy
consumption, including both fuel (natural gas, fuel oil, and LPG) and
electricity. The inputs also reflect the impacts associated with the
market shift from natural gas heating to electric heating projected to
occur at TSLs that result in an increased installed cost for gas
furnaces. See Chapter 13 of the TSD for further discussion.
The American Gas Association (AGA) stated that DOE's approach for
analyzing utility impacts, and in particular its evaluation of market
shifts from gas to electric heating equipment, does not adequately
account for impacts on gas utilities. (AGA, No. 137 at p. 6)
Historically, DOE's approach for the utility impact analysis has been
to only evaluate the impact of market shifts associated with standards
on utility energy sales. DOE has not been able to characterize what the
impacts of standards would be on gas utilities, other than the
financial impacts as measured by sales. Thus, DOE was not able to
perform further evaluation of the gas utility impacts for the furnace
and boiler standards rulemaking.
I. Environmental Analysis
Under 42 U.S.C. 6295(o)(2)(B)(i)(VI), DOE estimated the
environmental impacts of the standards established in today's final
rule. DOE estimated direct emissions impacts at the household level as
well as impacts on power plant emissions. While DOE regulating furnace
and boiler electricity use, the electricity consumption of these
appliances affects power plant emissions. As discussed in the NOPR, DOE
calculated the reduction in power plant emissions of CO2 and
NOX using the NEMS-BT computer model.\8\ DOE does not report
estimated reduction in power plant emissions of SO2 because
any such reduction resulting from an efficiency standard would not
affect the overall level of SO2 emissions in the U.S.\9\
---------------------------------------------------------------------------
\8\ Power sector NOX emissions impacts will be
affected by the Clean Air Interstate Rule (CAIR), which the U.S.
Environmental Protection Agency (EPA) issued on March 10, 2005. CAIR
will permanently cap emissions of NOX in 28 eastern
States and the District of Columbia. 70 FR 25162 (May 12, 2005). As
with SO2 emissions, a cap on NOX emissions
means that equipment efficiency standards may result in no physical
effects on these emissions. When NOX emissions are
subject to emissions caps, DOE's emissions reduction estimate
corresponds to incremental changes in emissions allowance credits in
cap-and-trade emissions markets rather than physical emissions
reductions. Therefore, while the emissions cap may not result in
physical emissions reduction from the proposed standards, it does
produce an environment-related economic benefit in the form of
emissions allowance credits.
\9\ The Clean Air Act Amendments of 1990 set an SO2
emissions cap on all power generation. The attainment of this target
is flexible among generators and is enforced through the use of
emissions allowances and tradable permits. Accurate simulation of
SO2 trading implies that the effect of efficiency
standards on physical emissions will be near zero because emissions
will always be at or near the allowed ceiling. However, although
there may not be an environmental benefit from reduced
SO2 emissions from electricity savings, there still may
be an economic benefit. Electricity savings can decrease the need to
purchase or produce SO2 emissions allowance credits,
which decreases the costs of complying with regulatory caps on
emissions.
---------------------------------------------------------------------------
The operation of most furnaces and boilers requires use of fossil
fuels, and results in household emissions of CO2,
NOX, and SO2 at the sites where appliances are
used. NEMS-BT provides no means for estimating such household
emissions, so DOE calculated separate estimates of the effect of the
standards on household emissions of CO2, NOX, and
SO2, based on emissions factors derived from the literature.
DOE reports household SO2 emissions savings, because the
SO2 emissions caps do not apply to household emissions.
The operation of furnaces and boilers requires use of fossil fuels,
and results in household emissions of CO2, NOX,
and SO2 at the sites where appliances are used. NEMS-BT
provides no means for estimating such household emissions, so DOE
calculated separate estimates of the effect of the standards on
household emissions of CO2, NOX, and
SO2, based on emissions factors derived from the literature.
DOE reports household SO2 emissions savings, because
SO2 emissions caps do not apply to household emissions.
NRDC and Dow Chemical commented that, although DOE had quantified
emissions savings, it failed to put an economic value on them. (NRDC,
No.
[[Page 65148]]
131 at p. 13; NRDC and Dow Chemical, No. 132 at p. 9) In keeping with
the guidance of the 1996 Process Rule, DOE's analysis of the
environmental impacts of standards included estimated impacts on
emission of carbon and relevant criteria pollutants. 61 FR 36983 (July
15, 1996). For the purpose of promulgating new standard levels for
furnaces and boilers, DOE considers the potential changes to physical
emission resulting from new standards. The detailed environmental
analysis is part of the TSD.
V. Discussion of Other Comments
Since DOE opened the docket for this rulemaking, it received more
than 150 comments from a diverse set of parties, including
manufacturers and their representatives, States, energy conservation
advocates, consumer advocates, and utilities. Comments regarding the
analytic methodologies DOE used are discussed in section IV of this
preamble. Other comments addressed the burdens and benefits associated
with new energy efficiency standards, the information DOE used in its
analyses, results of and inferences drawn from the analyses, impacts of
standards, the merits of the different TSLs DOE considered, other
issues affecting adoption of standards for residential furnaces and
boilers, and the DOE rulemaking process. DOE addressed the comments
raised regarding the ANOPR in the October 2006 NOPR. Comments received
on the October 2006 proposed rule are addressed below.
A. Information and Assumptions Used in Analyses
As a basis for analysis for this final rule, DOE has continued to
use the types of data as explained in the October 2006 NOPR. 71 FR
59213-59234. For the final rule, DOE revised some inputs and expanded
some of the data sources in response to stakeholder comments on the
October 2006 proposed rule. These revisions are discussed below.
1. Engineering Analysis
In the October 2006 proposed rule analyses, DOE used a five-year
average of materials prices from years 2000 through 2004. 71 FR 59216.
For the final rule, DOE revised the material price averages used in the
cost model to include material price data from 2005 and 2006. For this
rulemaking, DOE believes a five-year span is the longest span that
would still provide appropriate weighting to current prices experienced
in the market. DOE calculated a new five-year average materials price
for cold rolled steel, aluminized steel, galvanized steel, painted cold
rolled steel, and stainless steel. DOE used the BLS Producer Price
Indices (PPIs) for cold rolled steel and stainless steel spanning from
2002 to 2006 to calculate new averages, which incorporate the changes
within each material industry and inflation. Finally, DOE adjusted all
averages to 2006$ using the gross-domestic-product implicit-price
deflator.
As was the case for the October 2006 proposed rule, DOE created two
scenarios for the material-price-sensitivity analysis: a low-bound and
a high-bound scenario. DOE calculated the low-bound scenario by finding
the year ranging between 2002 and 2006 with the lowest cost of cold
rolled steel, which was 2002. DOE then used the annual prices for all
other materials in 2002 and applied a 15-percent reduction to each of
the raw material costs. Likewise, DOE calculated the high-bound
scenario using the annual average price for each of the raw materials
from 2006, when prices of raw materials were uncharacteristically high.
DOE expressed both the low-bound scenario and the high-bound scenario
in 2006$. DOE 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 final rule TSD.
GAMA commented that DOE's analysis for non-weatherized gas furnaces
appears to be in error, especially as related to the 81-percent AFUE
option, for several reasons. First, while DOE estimated in the October
2006 NOPR that eight percent of non-weatherized gas furnace
installations would require Category III venting at 81-percent AFUE,
GAMA stated that this number is too low. Second, DOE concluded in the
October 2006 NOPR that a significant fraction of the replacement
installations will require a Type B vent connector, but GAMA pointed
out that DOE only added the additional costs for these connectors to 40
percent of the installations. Lastly, GAMA stated its belief that the
number of horizontal venting configurations assumed in the October 2006
NOPR analyses is too low.
Regarding GAMA's first point, DOE used the approach described by
GAMA in the ANOPR analysis. For the NOPR, DOE determined that non-
weatherized gas furnaces at 81-percent AFUE when applied in vertical
venting installations fall into Category I. To GAMA's second point, DOE
accounted for the cost of Type-B double-wall vent connectors for all
replacement installations. GAMA appears to be referring to the fraction
of existing models that already have a double walled vent connector in
DOE's Installation Model, which was approximately 40 percent as
discussed in the NOPR. To GAMA's last point regarding the number of
horizontal venting configurations, DOE's October 2006 proposed rule
analysis based the number of non-condensing horizontal vent
configurations on the Gas Research Institute's venting survey (see NOPR
TSD Chapter 6). DOE then verified this percentage in consultations with
installers. Consequently, DOE did not revise the number of horizontal
venting configurations for today's final rule.
2. Life-Cycle Cost Analysis
The base case forecasts equipment that consumers are expected to
purchase in the absence of new standards. In the NOPR analysis, DOE
assigned gas furnaces to sampled housing units in the base case to
reflect the trend toward a higher market share for condensing furnaces,
as shown in shipments data through 2003, which GAMA provided. DOE also
based the projected market share of condensing furnaces in 2015 on an
evaluation of the correlation between condensing furnace market share
and the natural gas price for the 1990-2003 period, projected natural
gas prices from AEO2005, and market factors that could sustain the
condensing furnace market share even with a lower gas price. The
projected condensing furnace market share for 2015 was 35.6 percent.
Therefore, for the LCC analysis base case, DOE assigned condensing
furnaces to 35.6 percent of the sampled housing units with non-
weatherized gas furnaces.
GAMA stated the market share for condensing furnaces might continue
to grow because of growth in the replacement market, and thus DOE's
assumption may be low. (Public Meeting Transcript, No. 107.6 at p. 105)
Lennox commented that the market share for condensing furnaces should
consider the replacement market. (Public Meeting Transcript, No. 107.6
at p. 105) Rheem disagreed with DOE's estimate of market share for
condensing furnaces, and stated that the share will be higher if
historic trends continue. (Rheem, No. 138 at p. 5) ACEEE stated that
the market share for condensing furnaces will depend on the price of
natural gas and that DOE's assumptions should be internally consistent
and reflect the price projections it uses. (Public Meeting Transcript,
No. 107.6 at p. 102) DOE found that the empirical,
[[Page 65149]]
national-level data strongly support a correlation between condensing
furnace market share and the natural gas price. The natural gas
projections DOE used in this rulemaking (AEO2007) forecast that the
national-average natural gas price in the period to 2015 does not
exceed the recent level of prices. The condensing furnace market share
in 2005 was approximately 35 percent. DOE determined that its
assumption of a market share of 35.6 percent in 2015 reflects the
empirical correlation.
3. Manufacturer Impact Analysis
NRDC stated that DOE's assessment of the impact of TSL 4 on
manufacturers is flawed because a decline in sales of furnaces
associated with TSL 4 would result in increased sales of heat pumps,
many of which are sold by the furnace manufacturers. (NRDC, No. 131 at
p. 14) Pacific Gas and Electric (PG&E) also commented that DOE's
analysis overstates the deleterious effect of TSL 4 on INPV. PG&E
commented that experience with other standards has shown that the costs
and competitiveness difficulties presented by improved energy
efficiency standards are less burdensome in implementation than
initially projected. (PG&E, No. 129 at p. 1)
While some larger manufacturers of furnaces and boilers sell both
heat pumps and furnaces, DOE is tasked with assessing the impacts of
increased efficiency standards on furnace and boiler manufacturers, not
on the heating, ventilation, and air-conditioning industry as a whole.
In the furnace and air conditioner businesses, some manufacturers
produce both types of products, switching primarily to furnaces in the
winter and air conditioners in the summer. Heat pumps, on the other
hand, tend to be manufactured in other manufacturing facilities. For
the large production volume shifts found for TSL 4, DOE determined that
the furnace divisions of large companies likely will be impacted as
analyzed in the October 2006 proposed rule MIA. The capital (equipment)
and labor (location) in a manufacturing facility cannot easily be
transformed from manufacturing furnaces to manufacturing heat pumps.
For small companies, which focus on fewer types of product lines, the
material costs are less interchangeable. DOE also notes that, under TSL
4, other options--such as electric furnaces--become a choice for
consumers. In light of these uncertainties, DOE determined that its MIA
captures the potential range of impacts at TSL 4 on furnace
manufacturers.
NRDC commented that, in determining industry value, DOE should not
give equal weight to scenarios of product sales created by DOE and
those provided by manufacturers. (NRDC, No. 131 at pp. 14-15) DOE
looked at a range of impacts for each of the six product classes of
furnaces and boilers and presented this entire range of results in the
October 2006 NOPR. In doing so, DOE used both the NES shipments
projections and the manufacturers' shipments scenario to assess the
range of impacts on the industry value at each TSL. Although this final
rule presents results using both shipments scenarios for the MIA, DOE
only used the NES shipments scenario to assess the impacts on the
Nation in the NIA.
NRDC stated its belief that DOE's assumptions regarding markups
biased the INPV result. (NRDC, No. 131 at pp. 14-15) NRDC also
questioned DOE's assumption that the industry cost structure will not
decrease. NRDC stated that manufacturers could distinguish value-added
products in the mid-90s AFUE range based on modulating capacity and
continue to collect higher markups on above-standard products. NRDC
further stated that, as manufacturers gain more experience with 90-
percent AFUE products, the price of the products will come down; it
requested that the cost structure in DOE's analysis account for this.
(NRDC, No. 131 at pp. 14-15)
With regard to markups, DOE considered up to four distinct markup
scenarios to bound the range of expected product prices following
standards. For each product class, DOE used the markup scenarios that
characterize the markup conditions described by manufacturers, and that
reflect the type of market responses manufacturers expect as a result
of standards. Details of the markup scenarios by product class were
presented in the October 2006 NOPR. 71 FR 59240. DOE has determined
that these scenarios capture the range of variability within the
furnace and boiler industry.
As to NRDC's point on the industry cost structure, for condensing,
non-weatherized gas furnaces that are already made in high volumes in
an industry with decades of manufacturer experience, the potential cost
of innovation prompted by higher standards is limited to that of an
already mature industry. DOE recognizes that manufacturers' continuous
improvement programs will continue to reduce future costs, with or
without increased efficiency standards. DOE believes these programs are
not a result of energy conservation standard rulemakings and are not
appropriate to consider when estimating the impacts of energy
conservation standards. DOE estimated the manufacturing cost of a
condensing furnace to be $422.85 in the engineering analysis and DOE
recognizes these costs could be reduced in a standards case scenario.
Therefore, the MIA analysis excludes this effect, and shows a range of
impacts on the industry results from an amended standard.
Rheem stated that DOE's assessment of impacts on manufacturers is
inadequate with respect to domestic manufacturing employment, capacity,
plant closures, and loss of capital investment. Rheem commented that
domestic manufacturing of refrigerators has declined substantially as a
result of three energy standards and the phaseout of
chlorofluorocarbons (CFCs) and hydrochlorofluorocarbons (HCFCs), since
manufacturers have chosen to invest outside the USA in new facilities
rather than upgrade their domestic facilities. Rheem summarized by
stating that the cumulative burden of environmental and efficiency
regulations has been a factor in the consolidation of the domestic
appliance industry. (Rheem, No. 138 at p. 3)
DOE notes that the two most significant regulatory actions
affecting the furnace and boiler industries are more stringent Federal
energy conservation standards for residential and commercial air
conditioners, and the EPA-mandated phaseout of hydrofluorocarbon (HFC)
and HCFC refrigerants. DOE is aware that manufacturers are working to
redesign all of the product lines of residential air conditioners and
have allocated most of their capital resources for redesigning and
retooling their production lines to meet the new minimum efficiency
standard and refrigerant phaseout. DOE quantified the anticipated level
of investment needed to meet each of these two regulatory actions along
with others facing the industry in Chapter 12 of the NOPR TSD. 71 FR
59244-29245.
In the October 2006 NOPR, DOE specifically sought comment on
information that would allow it to monetize changes in warranty costs
resulting from the installation of products at near-condensing levels.
71 FR 59258. GAMA stated that DOE should consider changes in warranty
costs related to gas-fired boilers at 84-percent AFUE. However, GAMA
also stated that it is inappropriate with respect to anti-trust
considerations for manufacturers to discuss information related to
monetizing changes in warranty costs. (Public Meeting Transcript, No.
107.6 at pp. 108-109)
[[Page 65150]]
Rheem stated that it is inappropriate to provide DOE with information
that attempts to monetize the changes in warranty costs resulting from
installation of products at near-condensing levels. Rheem further
commented that these products should not be considered as an option due
to their unacceptable safety and reliability. (Rheem, No. 101 at p. 2;
Public Meeting Transcript, No. 107.6 at p. 82; Rheem, No. 138 at p. 6)
Trane stated that it is inappropriate for manufacturers to discuss
information related to monetizing changes in warranty costs for
products at near-condensing levels. (Public Meeting Transcript, No.
107.6 at p. 108)
In light of the comments, DOE was not able to monetize the changes
in warranty costs resulting from the installation of products at near-
condensing levels. However, as discussed in section VI of this
preamble, safety concerns for standards at near-condensing levels were
a greater factor in considering such standards, which were eventually
rejected.
B. Other Issues
1. Joint Stakeholder Recommendation for Boilers
On July 14, 2006, GAMA and ACEEE, on behalf of 28 residential
boiler manufacturers and four energy efficiency organizations,
submitted a joint recommendation for new national standards for
residential boilers that would consist of a performance requirement
(minimum AFUE levels) and design requirements. Table V.1 exhibits the
performance and design requirements in the joint stakeholder
recommendation for boilers.
Table V.1.--Joint Stakeholder Recommendation for Boilers Performance and
Design Requirements
------------------------------------------------------------------------
Joint
stakeholder
Product class recommendation
for boilers
------------------------------------------------------------------------
Gas Boiler................... Water 82%............. No Standing
Pilot *
Temperature
Reset **.
Steam 80.............. No Standing
Pilot *.
------------------------------------------------------------------------
Oil-Fired Boiler............. Water 84.............. Temperature
Reset.
Steam 82.............. None.
------------------------------------------------------------------------
* The manufacturer shall not equip gas boilers with standing pilots.
** The manufacturer shall equip hot water heating boilers with automatic
means for adjusting the temperature of the water supplied by the
boiler such that an incremental change in inferred heat load produces
a corresponding incremental change in supply water temperature. When
there is no inferred heat load, such automatic means shall adjust the
supply water temperature to no more than 140 deg. F. The boiler shall
be operable only when the automatic means is installed. These
requirements should be implemented five (5) years after publication of
the Final Rule.
For gas-fired boilers, the recommendation calls for a ban on
standing pilots. For gas-fired water boilers only, it suggests two
design requirements: In addition to the ban on standing pilots, the
recommendation 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
recommendation contains the design requirement for the same
``temperature reset'' feature.
In the October 2006 NOPR, DOE determined that the recommended
standards in the joint stakeholder recommendation are beyond the scope
of its statutory authority. 71 FR 59209. In comments on the October
2006 proposed rule, all of the parties to the joint recommendation
urged DOE to reconsider and adopt the standards in the recommendation.
(Public Meeting Transcript, No. 107.6 at p. 58; ACEEE, No. 120 at p. 4;
Public Meeting Transcript, No. 107.6 at pp. 69, 142; Burnham, No. 99 at
pp. 1-3; Public Meeting Transcript, No. 107.6 at p. 38; GAMA, No. 102
at p. 2; GAMA, No. 116 at p. 2; Public Meeting Transcript, No. 107.6 at
p. 28; Lochinvar, No. 106 at p. 2; Public Meeting Transcript, No. 107.6
at p. 74)
Despite these comments, DOE cannot promulgate design requirements
for unspecified products: The plain language of section 321(6)(B) of
EPCA limits design requirements to only those products for which design
requirements are specified in the statute. (42 U.S.C. 6291(6)(b))
Furnaces are not one of those specified products. DOE legally cannot
establish a design requirement for furnaces.
Congress's establishment of a design requirement on an unspecified
product, i.e., a ceiling fan, does not lift the bar on DOE placing
design requirements on unspecified products as suggest by ACEEE.
(ACEEE, No. 120 at p. 4) While Congress may have amended provisions of
EPCA to require design requirements in conjunction with performances
requirements, it did not amend section 321(6)(B) of EPCA, 42 U.S.C.
6291(6)(B), which remains applicable to furnaces and boilers.
Burnham suggested that section 325(r) of EPCA (42 U.S.C. 6295(r))
grants DOE the authority to add design requirements covered by
performance standards under certain conditions. (Burnham, No. 99 at pp.
1-3) Section 325(r) states in relevant part:
[FEDREG][VOL]*[/VOL][NO]*[/NO][DATE]*[/
DATE][RULES][RULE][PREAMB][AGENCY]*[/AGENCY][SUBJECT]*[/SUBJECT][/
PREAMB][SUPLINF][HED]*[/HED]Any new or amended energy
conservation standard prescribed under this section * * * may
include any requirement which the Secretary determines is necessary
to assure that each covered product to which such standard applies
meets the required level of energy efficiency * * * specified in
such a standard.
(42 U.S.C. 6295(r)) Despite Burnham's suggestion, the plain language of
section 325(r) grants authority to establish requirements necessary to
assure compliance with a required level of energy efficiency. It does
not grant authority to establish requirements that affect the required
level of energy efficiency, e.g., design requirements. Further, if the
language were such that DOE could interpret the language as broadly as
Burnham suggested, the distinction made in section 321(6)(A) and (B)
between products for which design standards can be established and
those for which such standards cannot, would be rendered meaningless.
2. Regional Standards and Waiver From Federal Preemption for States
In the October 2006 NOPR, DOE stated that the establishment of
regional standards or design requirements for residential furnaces and
boilers is beyond the scope of DOE's statutory authority. 71 FR 59209;
see also, 69 FR 45420, 45425 (July 29, 2004). DOE received numerous
comments advocating the adoption of separate standards for northern and
southern regions. (ACEEE, No. 120 at p. 3; Public Meeting Transcript,
No. 107.6 at p. 59; Public Meeting Transcript, No. 107.6 at p. 54;
Public Meeting Transcript, No. 107.6 at p. 68; Office of the Ohio
Consumers' Counsel (OCC), No. 125 at p. 9; National Consumer Law Center
(NCLC), No. 108 at p. 2; Belmont Housing Trust, Inc., No. 127 at p. 8;
City
[[Page 65151]]
of Boston, No. 115 at p. 1; Consumer Group, No. 121 at pp. 9-10;
Northeast Division of Energy Resources (NEDER), No. 123 at p. 4; New
Hampshire Office of Consumer Advocate (NHOCA), No. 134 at p. 1; State
of Michigan (SOM), No. 114 at p. 1; State of New Hampshire Office of
Energy and Planning, No. 139 at p. 1; NRDC, No. 131 at p. 18; Public
Meeting Transcript, No. 107.6 at p. 116; NRDC, No. 132 at p. 10; Ohio
Department of Development (ODD), No. 124 at p. 1; Western Electricity
Coordinating Council (WECC), No. 113 at p. 1) DOE received comments
that DOE incorrectly determined that it cannot implement regional
standards. Conversely, DOE also received comments opposing the adoption
of separate standards for northern and southern regions. (Air
Conditioning Contractors of America, No. 135 at p. 1; Air-Conditioning
and Refrigeration Institute (ARI), No. 133 at p. 1; National Propane
Gas Association (NPGA), No. 142 at p. 3)
DOE recognizes the potential benefit that could be achieved through
regional standards. As discussed in the October 2006 NOPR, DOE analyzed
a regional regulatory scheme based on heating degree-days. 71 FR 59253.
This scheme contemplated efficiency standards for non-weatherized gas
furnaces only, depending on the region of the country.
DOE modeled the policy of regional performance standards by
aggregating States into two broad geographic regions based on climate
(i.e., based on heating degree-days). DOE selected the efficiency level
for this scheme based on maximizing consumer NPV. Under this analysis
the TSL projected to yield the maximum consumer NPV at a seven-percent
discount rate for the cold-climates (i.e., >=5,000 heating degree days
and >=6,000 heating degree days) was the proposed TSL 4, with the
proposed TSL 2 for the warm climates. The projected results for both
regions, the proposed TSL 2 (South) and the proposed TSL 4 (North),
combined were estimated to yield higher energy savings than the than
the proposed TSL 2 standard levels. The projected results for both
regions combined were estimated to yield greater national NPVs (at 7%
discount rate) than the proposed levels of TSL 2, applied as national
standards. A more detailed discussion of this analysis is provided in
the October 2006 NOPR and in the February 9, 2007 Notice of Data
Availability (72 FR 6184).
However, DOE has determined that it does not have authority under
EPCA to establish regional standards. The language of EPCA demonstrates
that the Secretary's authority to establish and amend standards for
furnaces and boilers is limited to establishing and amending a single
national standard for a particular type of furnace and boiler, as
opposed to a national standard plus one or more regional standards.
Section 325(a)(2) of EPCA authorizes the ``Secretary to prescribe
amended or new energy conservation standards for each type (or class)
of covered product.'' (42 U.S.C. 6295(a)(2)) In defining an energy
conservation standard, EPCA employs ``a performance standard'' or ``a
design requirement'' in the singular. (42 U.S.C. 6291(6)) This use of
the singular indicates that the Secretary generally may only set one
energy conservation standard for a product.
Further, were the language of EPCA not clear as to DOE's authority
for setting national standards, interpreting section 325 as generally
prohibiting the establishment of regional standards is reasonable,
particularly when section 325 is read in total. Consumer Groups stated
that, under 1 U.S.C. section 1, the use of the singular tense includes
consideration of the plural tense unless context indicates otherwise.
(No. 121 at p. 10) However, the context of EPCA indicates that the
reliance on the singular tense in the definition of energy conservation
standard for the purpose of the Secretary establishing amended
standards for furnaces and boilers is proper.
EPCA specifies that the Secretary can only set multiple standards
for a product if that product has more than one major function:
The Secretary may set more than 1 energy conservation standard
for products that serve more than 1 major function by setting 1
energy conservation standard for each major function.
(42 U.S.C. 6295(o)(5)). If DOE could adopt multiple performance
standards or design requirements under a single conservation standard,
as suggested by commenters, EPCA's limit of one conservation standard
per major product function would be meaningless.
Additional commenters stated that because Congress established in
certain instances multiple requirements on a single product, section
321(6) should be read more broadly to define a ``conservation
standard.'' \10\ However, while Congress has enacted multiple
performance and design standards for covered products, the Secretary's
authority to do so is limited under section 325(o)(5) as stated above.
---------------------------------------------------------------------------
\10\ Section 325(ff) of EPCA establishes multiple requirements
for ceiling fans. (42 U.S.C. 6295(ff)).
---------------------------------------------------------------------------
Moreover, the Senate Report language accompanying the amendments to
EPCA under the National Appliance Energy Conservation Act (NAECA; Pub.
L. 95-619) indicates that the Secretary is to set national standards.
``The purpose of [NAECA] is to reduce the Nation's consumption of
energy and to reduce the regulatory and economic burdens on the
appliance manufacturing industry through the establishment of national
energy conservation standards for major residential appliances.'' S.
Rep. No. 100-6, at 2 (1987) (Emphasis added).
The two basic provisions of the NAECA amendments to EPCA concern
the establishment of Federal standards and the preemption of State
standards. Id. Although NAECA goes on to state that States have the
ability to petition DOE for a waiver from the national standard, NAECA
warns that achieving such a waiver is ``difficult,'' again indicating a
preference for a national standard. Id.
As a policy matter, national standards established under EPCA
enable DOE to address the Nation's need to conserve energy while
reducing the regulatory burden on manufacturers. The establishment of
regional standards would be overly complicated due to the structure of
DOE's enforcement authority as established in EPCA. Under EPCA, DOE's
enforcement authority generally applies to products as manufactured.
(42 U.S.C. 6302 and 6303) Under current authority, enforcement of
Federal regional standards would be difficult given that a furnace or
boiler could be manufactured for compliance in one region, yet be
easily transported to a region in which it would be noncompliant. The
potential interaction of various standards between regions, the
subsequent potential for products to be shipped and installed in
regions in which they are not compliant, and the resulting impact on
energy savings would have to be considered when establishing standards.
DOE recognizes the potential for regional standards to increase the net
benefits of energy conservation programs under certain circumstances.
However, establishing regional standards in the context of DOE's
current enforcement authority would make it more difficult to achieve
the goals of improved energy conservation and reduced regulatory
burden.
While DOE is prohibited from promulgating regional standards under
the authority in section 325 of EPCA, States can apply for waivers from
Federal preemption under section 327 of EPCA. (42 U.S.C. 6297) In the
October 2006 NOPR, DOE discussed the necessary conditions in order for
it to grant States a waiver from Federal
[[Page 65152]]
preemption of State energy efficiency standards for appliances subject
to Federal regulation, as established in 10 CFR 430.41(a)(1). 71 FR
59209.
DOE received several comments with regard to the waiver from
Federal preemption discussion in the NOPR. Some commenters expressed
concern that DOE was encouraging States to apply for waivers. (Public
Meeting Transcript, No. 107.6 at p. 111; AGA, No. 103 at p. 5;
Association of Home Appliance Manufacturers (AHAM), No. 141 at pp. 1-2;
ARI, No. 133 at pp. 2-3; GAMA, No. 102 at pp. 2-3; GAMA, No. 116 at p.
2; Public Meeting Transcript, No. 107.6 at p. 30; Lennox, No. 130 at p.
3; NPGA, No. 142 at pp. 3-4; Rheem, No. 138 at p. 3; Public Meeting
Transcript, No. 107.6 at p. 113; GAMA, No. 153 at p. 1) Other
commenters supported DOE giving States guidance with regard to waivers
from Federal preemption. (Public Meeting Transcript, No. 107.6 at p.
112; ACEEE, No. 120 at pp. 2-3; Public Meeting Transcript, No. 107.6 at
p. 70; Consumer Groups, No. 121 at p. 2; Public Meeting Transcript, No.
107.6 at p. 116; NEDER, No. 123 at p. 3; NRDC, No. 131 at p. 18; NRDC
and Dow Chemical, No. 132 at p. 10; New York State Energy Research and
Development Authority (NYSERDA), No. 117 at p. 2; OCC, No. 125 at p. 9;
SOM, No. 114 at p. 2; WECC, No. 113 at p. 2)
While the October 2006 NOPR provided a discussion of the necessary
elements of a petition for waiver from Federal preemption, DOE
recognizes the practical limitations of the process as well as the
potential burden resulting from multiple standards. For example, DOE
suggested that a State may include information regarding the
efficiencies of product shipments to that State. 71 FR 59210. One
commenter raised concern that such information may be considered
proprietary or confidential by the manufacturers or trade
organizations. (NCLC, No. 108 at p. 19) However, DOE notes that
inclusion of such information was a suggestion of what a State should
consider including if available, and that such information is not
required for a State waiver petition.
NCLC expressed concern that petitions filed by more than one State,
especially if filed by contiguous or nearby States with similar HDDs,
could be deemed in per se violation of the requirement that a petition
must demonstrate an ``unusual and compelling State or local energy
interest.'' (NCLC, No. 108 at p. 19) DOE provided guidance on this
matter in the denial of the California petition for waiver from Federal
preemption for residential clothes washer standards. 71 FR 78157
(December 28, 2006). In that notice, DOE stated that whether a State
has an ``unusual and compelling State interest,'' DOE will evaluate
that interest in terms of national averages. 71 FR 58161.
DOE has estimated that the potential energy savings likely under a
scenario in which all northern States with 5000 HDD or 6000 HDD
obtained waivers at a level of 90-percent AFUE is 2 quads and 1.45
quads, respectively. While DOE does not have authority to issue
regional standards, EPCA does provide an avenue for DOE to consider
this savings through the waiver provision in section 327(d). As stated
in the October 2006 NOPR, and as required under section 327(d), DOE
would be required to evaluate the benefit of such savings from State
level standards against the potential effects on manufacturers and
consumer. 71 FR 59210; 42 U.S.C.