CHAPTER 1. INTRODUCTION

TABLE OF CONTENTS

1.1 PURPOSE OF THE DOCUMENT

................................................................................. 1­1

1.2 OVERVIEW OF RESIDENTIAL ENERGY CONSERVATION STANDARDS FOR

RESIDENTIAL HEATING PRODUCTS....................................................................... 1­1

1.3 PROCESS FOR SETTING ENERGY CONSERVATION STANDARDS

................... 1­2

1.4 STRUCTURE OF THE DOCUMENT............................................................................ 1­5

LIST OF TABLES

Table 1.1 Analyses During Each Rulemaking Stage................................................................... 1­3

1­ i1.1 PURPOSE OF THE DOCUMENT

This technical support document (TSD) is a stand­alone report that provides the technical

analyses and results supporting the information presented in the notice of proposed rulemaking

(NOPR) for residential water heaters, direct heating equipment, and pool heaters (collectively

referred to as “residential heating products”). This NOPR TSD reports on the activities and

analyses conducted in support of the NOPR.

1.2 OVERVIEW OF RESIDENTIAL ENERGY CONSERVATION STANDARDS

FOR RESIDENTIAL HEATING PRODUCTS

The Energy Policy and Conservation Act (EPCA) of 1975 (42 U.S.C. 6291–6309)

established an energy conservation program for major household appliances. The National

Energy Conservation Policy Act of 1978 (NECPA) amended EPCA to add Part C of Title III (42

U.S.C. 6311–6317), which established an energy conservation program for certain industrial

equipment. The amendments to EPCA in the National Appliance Energy Conservation Act of

1987 (NAECA) established energy conservation standards for residential water heaters, direct

heating equipment, and pool heaters, as well as requirements for determining whether these

standards should be amended. (42 U.S.C. 6291–6309)

NAECA required the U.S. Department of Energy (DOE) to conduct two cycles of

rulemakings to determine if more stringent standards are economically justified and

technologically feasible for these products. (42 U.S.C. 6295 (e)) Specifically, NAECA directed

the Secretary of Energy to publish a final rule determining whether the standards for residential

water heaters, direct heating equipment, and pool heaters should be amended by January 1, 1992,

and again by January 1, 2000. (42 U.S.C. 6295 (e)(4)) On February 7, 1989, and October 17,

1990, DOE issued a final rule codifying the standards prescribed by NAECA, and thereby

established the first set of energy conservation standards for residential water heaters, direct

water heating equipment, and pool heaters. 54 FR 6077 (February 7, 1989) and 55 FR 42163

(October 17, 1990).

Pursuant to 42 U.S.C. 6295(e)(4)(A), on January 17, 2001, DOE published in the Federal

Register a final rule (the January 2001 final rule), effective on January 20, 2004, amending the

energy conservation standards for residential water heaters. 66 FR 4474 (January 17, 2001).

DOE initially analyzed energy conservation standards for direct heating equipment as

part of an eight­product standards rulemaking. When DOE analyzed direct heating equipment in

these earlier proceedings, DOE only considered products categorized as vented home heating

equipment. DOE issued a NOPR on March 4, 1994, proposing to amend the energy conservation

standards for direct heating equipment as well as other consumer products. 59 FR 10464 (March

4, 1994). The Department of Interior and Related Agencies Appropriations Act for Fiscal Year

1996 (Pub. L. 104­134) provided a moratorium on proposing or issuing final rules for appliance

standards rulemakings for the remainder of fiscal year 1996, thereby preventing DOE from

finalizing the 1994 proposed standards and leaving the existing NAECA energy efficiency levels

in place. As with direct heating equipment, DOE initially analyzed standards for pool heaters as

1­1part of the eight­product standards rulemaking of 1994, 59 FR 10464 (March 4, 1994), but never

finalized the proposed standards.

1.3 PROCESS FOR SETTING ENERGY CONSERVATION STANDARDS

Under EPCA, when DOE studies new or amended standards, it must consider to the

greatest extent practicable the following seven factors:

(1) the economic impact of the standard on the manufacturers and consumers of the

products subject to the standard;

(2) the savings in operating costs throughout the estimated average life of the products in

the type (or class) compared to any increases in the price, initial charges, or maintenance

expense for the 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 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))

Other statutory requirements are set forth in 42 U.S.C. 6295(o)(1)­(2)(A), (2)(B)(ii)­(iii),

and (3)­(4).

DOE considers the participation of interested parties a very important part of the process

for setting energy conservation standards. Through formal public notifications ( i.e.

, Federal

Register notices), DOE encourages the participation of all interested parties during the comment

period in each stage of a rulemaking. Beginning with the framework document and during

subsequent comment periods, interactions among interested parties provide a balanced

discussion of the information required for a standards rulemaking.

Before DOE determines whether to adopt a proposed energy conservation standard, it

must first solicit comments on the proposed standard. (42 U.S.C 6313(a)(6)(B)(i)) Any new or

amended standard must be designed to achieve significant additional conservation of energy and

be technologically feasible and economically justified. (42 U.S.C. 6313(a)(6)(A)) To determine

whether economic justification exists, DOE must review comments on the proposal and

determine that the benefits of the proposed standard exceed its burdens to the greatest extent

practicable, weighing the seven factors listed above. (42 U.S.C. 6295(o)(2)(B)(i))

1­2After publication of the framework document, the energy conservation standards

rulemaking process involves three additional, formal public notices, which DOE publishes in the

Federal Register

. The first of the rulemaking notices is a notice of public meeting (NOPM) and

announcement of the availability of the preliminary TSD, which is designed to publicly vet the

models and tools used in the preliminary rulemaking analyses and to facilitate public

participation before the NOPR stage. The second notice is the NOPR, which presents a

discussion of comments received in response to the preliminary analyses; analyses of the impacts

of potential amended energy conservation standards on consumers, manufacturers, and the

Nation; DOE’s weighting of these impacts of amended energy conservation standards; and the

proposed energy conservation standards for each product. The third notice is the final rule, which

presents a discussion of the comments received in response to the NOPR; the revised analyses;

DOE’s weighting of these impacts; the amended energy conservation standards DOE is adopting

for each product; and the effective dates of the amended energy conservation standards.

In November 2006, DOE published a notice of public meeting and availability of the

framework document. 71 FR 67825 (November 24, 2006). The framework document,

Rulemaking Framework for Residential Water Heaters, Direct Heating Equipment, and Pool

Heaters

, describes the procedural and analytical approaches DOE anticipated using to evaluate

the establishment of amended energy conservation standards for these products. This document

is available at

http://www1.eere.energy.gov/buildings/appliance_standards/residential/pdfs/heating_equipment

_ framework_092706.pdf

.

DOE held a public meeting on January 16, 2007, to discuss procedural and analytical

approaches to the rulemaking. In addition, DOE used the public meeting to facilitate

involvement of interested parties in the rulemaking process. The analytical framework presented

at the public meeting described the different analyses, the methods proposed for conducting

them, and the relationships among the various analyses.

Table 1.1 Analyses During Each Rulemaking Stage

Preliminary Analyses NOPR Final Rule

Market and Technology Assessment Revised Preliminary Analyses Revised Analyses

Screening Analysis Life­Cycle Cost Sub­Group Analysis

Engineering Analysis Manufacturer Impact Analysis

Energy Use Determination Utility Impact Analysis

Markups for Equipment Price Environmental Assessment

Determination

Life­Cycle Costs and Payback Employment Impact Analysis

Period Analyses

Shipments Analysis Regulatory Impact Analysis

National Impact Analysis

Preliminary Manufacturer Impact

Analysis

During the January 2007 public meeting, interested parties commented about numerous

issues relating to each of the analyses listed in Table 1.1. Due to the extensive scope of material

1­3and issues raised at the meeting, some interested parties requested an extension of the comment

period. DOE extended the comment period until February 13, 2007 in a notice published in the

Federal Register on January 30, 2007. 72 FR 4219. DOE attempted to address the issues raised

at the public meeting and during the written comment period in the preliminary analyses; DOE

summarized the comments and its responses in chapter 2 of the preliminary analysis TSD.

As part of the information gathering and sharing for the preliminary analyses, DOE

organized and held interviews with manufacturers of the residential heating products considered

in this rulemaking. DOE selected companies that represent production of all types of products,

ranging from small to large manufacturers, and included the Air­Conditioning, Heating, and

Refrigerating Institute (AHRI) (formerly the Gas Appliance Manufacturers Association) member

companies. DOE had four objectives for these interviews: (1) solicit manufacturer feedback on

the draft engineering analysis (including methodology, product costs, manufacturing processes,

and findings); (2) solicit feedback on topics related to the preliminary manufacturer impact

analysis; (3) provide an opportunity early in the rulemaking process to express manufacturers’

concerns to DOE; and (4) foster cooperation between manufacturers and DOE.

DOE incorporated the information gathered during the engineering interviews with

manufacturers into the engineering analysis (chapter 5) and the manufacturer impact analysis

(chapter 12).

For each product, DOE developed an LCC spreadsheet that calculates the LCC and PBP

at various energy efficiency levels. DOE also developed a national impact analysis spreadsheet

that calculates the national energy savings (NES) and national net present values (NPVs) at

various energy efficiency levels. This spreadsheet includes a model that forecasts the impacts of

amended energy conservation standards at various levels on product shipments. All of these

spreadsheets are available on the DOE website

( www.eere.energy.gov/buildings/appliance_standards ) within the specific pages for each of

product.

On January 13, 2009, DOE published the NOPM and availability of the preliminary TSD.

74 FR 1643­1646. The preliminary TSD provides technical analyses and results that support the

information presented in the preliminary NOPM and the executive summary for residential

heating products. The preliminary TSD also provides a detailed description of all of the analyses

discussed in the paragraphs above. The preliminary TSD is available on DOE’s website at

http://www1.eere.energy.gov/buildings/appliance_standards/residential/water_pool_heaters_preli

m_tsd.html

.

Following publication of the NOPM and the preliminary TSD, DOE held a public

meeting on February 9, 2009, to facilitate discussion about the preliminary analyses that were

performed for the NOPM and described in the preliminary TSD. In addition to the public

meeting, a written comment period was open until March 16, 2009, to allow interested parties to

provide new comments or elaborate on any comments made at the public meeting.

After receiving these comments, DOE revised the preliminary analyses for the NOPR

phase of this rulemaking based on the feedback from interested parties. DOE organized and held

a second round of interviews with manufacturers to gather additional feedback on the analyses

1­4and as part of the manufacturer impact analysis that was conducted for the NOPR phase of the

rulemaking.

In addition to revising the various preliminary analyses, DOE also performed an LCC

sub­group analysis, manufacturer impact analysis, utility impact analysis, employment impact

analysis, and regulatory impact analysis for the NOPR stage of this rulemaking.

1.4 STRUCTURE OF THE DOCUMENT

This NOPR TSD outlines the analytical approaches used in the rulemaking. The NOPR

TSD consists of 16 chapters (including an environmental impact analysis and regulatory impact

analysis) and 22 appendices.

Chapter 1 Introduction: Provides an overview of the appliance standards program,

describes how the program applies to the residential heating products

rulemaking, and outlines the structure of the document.

Chapter 2 Analytical Framework: Describes the procedural and analytical

approaches used to evaluate the establishment of amended energy

conservation standards for residential heating products.

Chapter 3 Market and Technology Assessment: Characterizes the residential

heating products market and the technologies available for increasing

product energy efficiency.

Chapter 4 Screening Analysis: Determines which technology options are viable for

consideration in the engineering analysis.

Chapter 5 Engineering Analysis: Discusses the methods used for developing the

relationship between increased manufacturer price and increased energy

efficiency.

Chapter 6 Markups to Determine Product Price: Discusses the methods used for

establishing markups to convert manufacturer prices to customer product

prices.

Chapter 7 Energy Use Characterization: Discusses the process used for generating

energy use estimates for a variety of building types, climate locations,

and standard levels.

Chapter 8 Life­Cycle Cost and Payback Period Analyses: Discusses the economic

effects of standards on individual customers and users of the products

and compares the LCC and PBP of products with and without amended

energy conservation standards.

Chapter 9 Shipments Analysis: Discusses the methods used for forecasting

shipments with and without amended energy conservation standards.

1­5Chapter 10 National Impact Analysis: Discusses the methods used for forecasting

national energy consumption and national economic impacts based on

annual product shipments and estimates of future product energy

efficiency distributions in the absence and presence of amended energy

conservation standards.

Chapter 11 Life­Cycle Cost Sub­Group Analysis: Outlines the effects of amended

energy conservation standards on a sub­group of consumers of

residential heating products and compares the LCC and PBP of products

with and without amended energy conservation standards for these

consumers.

Chapter 12 Manufacturer Impact Analysis: Discusses the effects of amended energy

conservation standards on the finances and profitability of product

manufacturers.

Chapter 13 Utility Impact Analysis: Outlines the effects of amended energy

conservation standards on the installed generation capacity of electric,

gas, and oil utilities.

Chapter 14 Employment Impact Analysis: Outlines the effects of amended energy

conservation standards on national employment.

Chapter 15 Regulatory Impact Analysis for Residential Heating Products: Outlines

the impact of non­regulatory alternatives to amended energy

conservation standards.

Chapter 16 Environmental Impact Analysis for Residential Heating Products:

Outlines the effects of amended energy conservation standards on three

pollutants—sulfur dioxide (SO 2 ), nitrogen oxides (NO X ), and mercury

(Hg)—as well as carbon emissions.

Appendix 6­A Detailed Data for Product Markups

Appendix 7­A RECS 2005 Values and Variables

Appendix 7­B Hot Water Draw Model

Appendix 7­C LCC Energy Use Calculations

Appendix 7­D Weather Data and Temperature Parameters for LCC Analysis

Appendix 7­E Derivation of Heating Load for Pool Heaters and Direct Heating

Equipment

Appendix 8­A Installation Cost Determination

Appendix 8­B Maintenance and Repair Cost Determination

1­6Appendix 8­C Lifetime Distributions

Appendix 8­D Distributions Used for Discount Rates

Appendix 8­E Monthly Energy Price Factor Calculations

Appendix 8­F Rebuttable Payback Analysis Results

Appendix 8­G Uncertainty and Variability

Appendix 8­H User Instructions for the Life­Cycle Cost Analysis Spreadsheet

Appendix 8­I Life­Cycle Cost Analysis for Small and Large Volume Gas­Fired and

Electric Storage Water Heaters

Appendix 9­A User Instructions for Shipments and National Energy Savings

Spreadsheet

Appendix 9­B National Impacts Analysis Fuel Switching Model

Appendix 9­C National Energy Savings and Net Present Value Using Alternative

Energy Price Scenarios

Appendix 12­A Manufacturer Impact Analysis Interview Guides and Government

Regulatory Impact Model Overview

Appendix 13­A Utility Impact Analysis High and Low Economic Growth Results

Appendix 15­A Regulatory Impact Analysis Supporting Material

Appendix 16­A High and Low Economic Growth Results

1­7