CHAPTER 2

. ANALYTICAL FRAMEWORK, COMMENTS FROM

IN TERESTED P ARTIES, AND D OE RESPONSES

TA BLE OF CONTENTS

2.1 INTRODUCTION

........................................................................................................... 2­1

2.2 MARKET AND TECHNOLOGY A SSESSMENT

........................................................ 2­2

2.2 .1 Definitions...................................................................................................... 2­3

2.2 .1.1 Instantaneous Gas­Fired and Electric Water Heaters

.................................... 2 ­3

2.2 .1.2 Heat Pump Water Heaters.............................................................................. 2 ­5

2.2 .1.3 Direct Heating Equipment

............................................................................. 2­6

2.2 .1.4 Input Capacity for Residential Pool Heaters.................................................. 2 ­7

2.2 .1.5 Spa Heater Coverage...................................................................................... 2 ­8

2.2 .2 Product Classes and Scope of Coverage........................................................ 2­8

2.2 .2.1 Tabletop Water Heaters

................................................................................. 2­8

2.2 .2.2 Electric Instantaneous Water Heaters

............................................................ 2 ­9

2.2 .2.3 Solar Water Heaters

....................................................................................... 2­9

2.2 .2.4 Powered and Unpowered Gas­Fired Storage Water Heaters....................... 2­10

2.2 .2.5 Combination Heating Products.................................................................... 2­11

2.2 .2.6 Energy­Efficiency Equations for Electric and Gas­Fired Storage Water

He aters

......................................................................................................... 2 ­11

2.2 .2.7 Product Class Divisions and Energy­Efficiency Equations for Oil­Fired

St orage Water Heaters

................................................................................. 2­11

2.2 .2.8 Product Class Divisions and Energy­Efficiency Equations for

In stantaneous Gas­Fired Water Heaters....................................................... 2 ­12

2.2 .2.9 Hearth and Fireplace Products..................................................................... 2­12

2.2 .2.10 Electric Equivalents to Direct Heating Equipment...................................... 2­15

2.2 .2.11 Product Class Divisions for Direct Heating Equipment

.............................. 2 ­15

2.2 .2.12 Electric Pool Heaters.................................................................................... 2 ­17

2.2 .2.13 Product Class Divisions for Residential Pool Heaters................................. 2­18

2.2 .3 Technology Assessment............................................................................... 2 ­18

2.3 SCREENING ANALYSIS

............................................................................................ 2­18

2.3 .1 Max­tech and Prototype Consideration for Water Heaters.......................... 2­19

2.3 .2 Flue damper for Oil­Fired Storage Water Heaters....................................... 2 ­19

2.3 .3 Advanced Forms of Insulation for Storage Water Heaters.......................... 2­20

2.3 .4 Heat Traps, P lastic Tanks, a nd Insulated Tank Bottoms for Storage Water

He aters

......................................................................................................... 2 ­20

2.3 .5 CO 2 Heat Pump Water Heater

..................................................................... 2­21

2.3 .6 Integral Heat Pump Water Heater................................................................ 2­21

2.3 .6.1 Practicability to Manufacture....................................................................... 2 ­22

2.3 .6.2 Practicability to Install

................................................................................. 2­23

2.3 .6.3 Product Reliability and Practicability to Service

......................................... 2 ­26

2.3 .6.4 Other Considerations

................................................................................... 2 ­28

2.3 .6.5 Preliminary Conclusions from the Screening Analysis for Heat Pump

Wa ter Heaters............................................................................................... 2 ­28

2­i2.3.7 Condensing Technologies Used in Direct Heating Equipment

................... 2 ­29

2.3 .8 Improved Blower Motor Efficiency for Direct Heating Equipment,

In creased Insulation for Floor Furnaces, a nd Air Circulation Fans for

Di rect Heating Equipment

........................................................................... 2­29

2.3 .9 Floor Furnace Safety Issues......................................................................... 2­30

2.4 ENGINEERING ANALYSIS........................................................................................ 2 ­30

2.4 .1 Baseline Products......................................................................................... 2 ­31

2.4 .1.1 Instantaneous Gas­Fired Water Heater

........................................................ 2 ­31

2.4 .1.2 Gas­Fired Pool Heaters................................................................................ 2­32

2.4 .2 Maximum Technology Efficiency Levels

................................................... 2 ­32

2.4 .2.1 Heat Pump Water Heaters as the Max­Tech Efficiency Level for Electric

St orage Water Heaters

................................................................................. 2­32

2.4 .2.2 Condensing Water Heaters as the Max­Tech Efficiency Level for GasFi red Storage Water Heaters........................................................................ 2­33

2.4 .2.3 Condensing Direct Heating Equipment as the Max­Tech Efficiency Level

fo r Gas­Fired Room Heaters........................................................................ 2­34

2.4 .2.4 Condensing Pool Heaters as the Max­Tech Efficiency Level for Gas­Fired

Po ol Heaters................................................................................................. 2­34

2.4 .3 Identification of Efficiency Levels for Analysis.......................................... 2 ­35

2.4 .3.1 Near­Condensing Efficiency Levels for Pool Heaters................................. 2­35

2.4 .3.2 Standing Pilot and Electronic Ignition Systems for Gas­Fired Pool Heaters2­36

2.4 .4 The Energy­Efficiency Equations for Gas­Fired and Electric Storage

Wa ter Heaters............................................................................................... 2 ­36

2.4 .4.1 Review o f the Energy­Efficiency Equations for Gas­Fired and Electric

St orage Water Heaters

................................................................................. 2­36

2.4 .4.2 DOE’s Review o f the Current Water Heater Market................................... 2­38

2.4 .4.3 Existing Federal Energy Conservation Standards and Revised EnergyEff iciency Equations Using the Current Energy­Efficiency Equation Slope2­39

2.4 .4.4 Alternative Approach for Developing Revised En ergy­Efficiency

Equ ations for Gas­Fired and Electric Storage Water Heaters

..................... 2 ­40

2.4 .4.5 Validation of the Energy­Efficiency Equations for Gas­Fired and Electric

St orage Water Heaters

................................................................................. 2­41

2.5 MARKUPS TO DETERMINE P RODUCT PRICE...................................................... 2 ­42

2.6 ENERGY U SE CHARACTERIZATION

..................................................................... 2­43

2.6 .1 Water Heaters............................................................................................... 2 ­43

2.6 .2 Direct Heating Equipment and Pool Heaters............................................... 2­45

2.7 LIFE­CYCLE COST AND PAYBACK P ERIOD ANALYSES

.... .............................. 2­46

2.7 .1 Installation Costs.......................................................................................... 2 ­47

2.7 .2 Rebound Effect

............................................................................................ 2 ­48

2.7 .3 Energy Prices

............................................................................................... 2 ­49

2.7 .4 Maintenance and Repair Costs..................................................................... 2 ­49

2.7 .5 Product Lifetime

.......................................................................................... 2­50

2.8 NATIONAL IMPACT ANALYSIS

.............................................................................. 2­50

2.8 .1 Shipments Analysis...................................................................................... 2 ­50

2.8 .2 National Energy Savings Analysis............................................................... 2 ­52

2­ii2.8.3 Net Present Value Analysis

......................................................................... 2 ­52

2.8 .4 Efficiency Scenarios and Trends

................................................................. 2 ­52

2.8 .5 Impact of Standards on Natural Gas Prices and O verall Economic

Be nefits ........................................................................................................ 2­53

2.9 PRELIMINARY M ANUFACTURER IMPACT ANALYSIS

..................................... 2 ­54

2.9 .1 Industry Cash­Flow Analysis....................................................................... 2 ­56

2.9 .2 Manufacturer Subgroup A nalysis

................................................................ 2 ­56

2.9 .3 Competitive Impacts Assessment

................................................................ 2 ­56

2.9 .4 Cumulative Regulatory Burden

................................................................... 2­57

2.9 .5 Preliminary Results for the Manufacturer Impact Analysis

........................ 2 ­58

2.1 0 LIFE­CYCLE COST SUBGROUP ANALYSIS

.......................................................... 2 ­58

2.1 1 UTILITY I MPACT ANALYSIS................................................................................... 2­58

2.1 2 ENVIRONMENTAL IMPACT ANALYSIS

................................................................ 2­59

2.1 3 EMPLOYMENT I MPACT ANALYSIS....................................................................... 2­61

2.1 4 REGULATORY IMPACT ANALYSIS

....................................................................... 2­61

LI ST OF TABLES

Tab le 2.1 P roduct Classes for Direct Heating Equipment

........................................... 2 ­15

Tab le 2.2 Ex isting Federal Energy Conservation Standards for Residential GasF ired and Electric Storage Water Heaters.................................................... 2 ­37

2­iiiCHAPTER 2

. ANALYTICAL FRAMEWORK, COMMENTS FROM

IN TERESTED P ARTIES, AND D OE RESPONSES

2.1 INTRODUCTION

Se ction 6295(o)(2)(A) of Chapter 42 of the United States Code (U.S.C.) requires that the

U.S

. Department of Energy (DOE), when prescribing new o r amended energy conservation

st andards, p romulgate standards that achieve the maximum improvement in energy efficiency

th at the Department determines is both technologically feasible and economically justified. This

ch apter provides a d escription of the general analytical framework that DOE uses in developing

su ch standards, a nd in particular, amended energy conservation standards for residential water

he aters, d irect heating equipment, and pool heaters. The analytical framework is a d escription of

th e methodology, the analytical tools, a nd relationships among the various analyses that are part

of this rulemaking. For example, the methodology that addresses the statutory requirement for

ec onomic justification includes analyses of life­cycle cost (LCC); economic impact on

ma nufacturers and users; national benefits; impacts, i f any, on utility companies; and impacts, i f

an y, from lessening competition among manufacturers.

The analyses performed as part of the accompanying notice and reported in this

pr eliminary technical support document (preliminary TSD) are listed below.

• A market and technology assessment to characterize the relevant product markets and

ex isting technology options, i ncluding prototype designs.

• A screening analysis to review e ach technology option and determine if it is

te chnologically feasible; is practical to manufacture, install, and service; would adversely

af

fect product utility or product availability; or would have adverse impacts on health and

sa fety.

• A n engineering analysis to develop c ost­efficiency relationships that show t he

ma nufacturer’s cost of achieving increased efficiency. DOE determines the increased cost

to the consumer through an analysis of engineering markups, which convert manufacturer

pr oduction cost (MPC) to manufacturer selling price (MSP).

• A n energy use analysis to determine the annual energy use of the considered products.

• L CC and payback period (PBP) analyses to calculate, at the consumer level, the

di scounted savings in operating costs (less maintenance and repair costs) throughout the

es timated average life of the covered products, c ompared to any increase in the installed

co st for the products likely to result directly from imposition of the standard.

• A shipments analysis to forecast product shipments, which then are used to calculate the

na tional impacts of standards on energy, net present value (NPV), and future

ma nufacturer cash flows.

• A national impact analysis (NIA) to assess the aggregate impacts at the national level of

th e NPV o f total consumer LCC and national energy savings (NES).

• A preliminary manufacturer impact analysis to assess the potential impacts of energy

co nservation standards on manufacturers, s uch as impacts on capital conversion

ex penditures, m arketing costs, s hipments, a nd research and development costs.

2­1The analyses DOE will perform in the subsequent Notice of Proposed Rulemaking

(NO PR) stage include those listed below. In addition, DOE will revise the analyses it performed

in the preliminary stage based on comments and new information received.

• A n LCC subgroup a nalysis to evaluate variations in customer characteristics that might

ca use a s tandard to affect particular consumer sub­populations, s uch as low­income

ho useholds, d ifferently than the overall population.

• A manufacturer impact analysis to estimate the financial impact of standards on

ma nufacturers and to calculate impacts on competition, employment, and manufacturing

ca pacity.

• A utility impact analysis to estimate the effects of proposed standards on electric, gas, o r

oi l utilities.

• A n employment impact analysis to assess the aggregate impacts on national employment.

• A n environmental impact analysis to provide estimates of the effects of amended energy

co nservation standards on three pollutants—sulfur dioxide (SO 2 ), nitrogen oxides (NOx),

an d mercury—as well as carbon emissions.

• A regulatory impact analysis to present major alternatives to proposed amended energy

co nservation standards that could achieve substantially the same regulatory goal at a

l ower cost.

DO E developed this analytical framework and documented its findings in the

Ru lemaking Framework for Residential Water Heaters, Direct Heating Equipment, and Pool

He aters (September 27, 2006). DOE announced the availability of the framework document in a

No tice of Public Meeting and Availability of a F ramework Document published in the Federal

Re gister on November 24, 2006. 71 FR 67825. DOE p resented the analytical approach to

in terested parties during a p ublic meeting held on January 16, 2007. The framework document is

av ailable at www1.eere.energy.gov/buildings/appliance_standards/residential/pdfs/

he ating_equipment_framework_092706.pdf.

In response to the publication of the framework document and the framework public

me eting, DOE received numerous comments from interested parties regarding DOE’s analytical

ap proach. This chapter (chapter 2) of the preliminary TSD s ummarizes the key comments DOE

re ceived from interested parties and describes DOE’s responses to those comments. In

sub sequent sections of this chapter, DOE has also summarized any significant changes in

an alytical approach made since the framework document that DOE used in its preliminary

an alyses. Lastly, in the executive summary of the preliminary TSD, DOE identified a n umber of

is sues for which DOE seeks public comment. DOE has explained each of those issues in the

re levant analysis sections below.

2.2 MARKET AND T ECHNOLOGY ASSESSMENT

Wh en DOE b egins an energy conservation standards rulemaking, it develops information

th at provides an overall picture of the market for the products considered, including the nature of

th e products, t he industry structure, and market characteristics for the products. Th is activity

co nsists of both quantitative and qualitative efforts based primarily on publicly available

2­2information. The subjects addressed in the market assessment included manufacturers, t rade

as sociations, a nd the quantities and types of products sold and offered for sale. DOE examined

wa ter heater, direct heating equipment, and pool heater manufacturers. D OE examined both large

an d small and foreign and domestic manufacturers. D OE also examined publicly available

in formation from trade associations, i ncluding the Air Conditioning, Heating, and Refrigeration

In stitute (AHRI) a

, the Hearth, Patio, and Barbecue Association (HPBA), and the Association of

Po ol and Spa Professionals (APSP). DOE also reviewed shipment data collected by AHRI, the

U.S

. Census Bureau, and the National Spa and Pool Institute to evaluate annual shipment trends.

Fi nally, DOE also reviewed other energy efficiency programs from utilities, i ndividual states,

an d other organizations. C hapter 3 o f the preliminary TSD provides additional details on the

ma rket and technology assessment.

DO E reviewed relevant literature and interviewed manufacturers to develop a n overall

pi cture of the residential heating products industry in the United States. Industry publications and

tr ade journals, government agencies, a nd trade organizations provided the bulk of the

in formation, including (1) manufacturers and their market shares; (2) shipments by product type

(i .e., water heater, direct heating equipment, p ool h eater) and capacity (storage volume or fuel

inp ut capacity); (3) product information; and (4) industry trends.

Sub sequent sections of this chapter of the preliminary TSD d escribe the comments DOE

re ceived in response to its review o f the market for the framework document. The analysis

de veloped as part of the market and technology assessment is described in chapter 3 o f the

pr eliminary TSD.

2.2 .1 Definitions

DO E received several comments in response to the definitions of residential water

he aters, d irect heating equipment, and pool heaters it presented in the framework. In response,

DO E reviewed the definitions for instantaneous water heaters and heat pump water heaters to

de termine scope of coverage. DOE also examined the relationship of the direct heating

eq uipment definition to vented and unvented products, a nd the relationship of the pool heater

de finition to input capacity and spa heaters. F inally, DOE also examined tabletop, solar, and

co mbination water heaters to determine if they should be included in the heating products

pr eliminary analyses.

2.2 .1.1 Instantaneous Gas­Fired and Electric Water Heaters

The National Appliance Energy Conservation Act of 1987 (NAECA) amended the

Ene rgy Policy and Conservation Act of 1975 (EPCA) to establish the definition of a “ residential

wa ter heater.” Residential water heater means a p roduct that uses oil, gas, o r electricity to heat

po table water for use outside the heater upon demand, “including instantaneous­type units which

he at water, b ut contain no more than one gallon of water per 4,000 Btu per hour of input,

a On January 1, 2008, the Air­Conditioning and Refrigeration Institute ( ARI) and the Gas Appliance Manufacturers

As sociation ( GAMA) merged to b ecome AHRI. Consequently, comments f rom GAMA have been attributed to

A HRI in t his d ocument.

2­3including gas instantaneous water heaters with an input of 200,000 Btu per hour or less, o il

in stantaneous water heaters with an input of 210,000 Btu per hour or less, and electric

in stantaneous water heaters with an input of 12 kilowatts or less.” D OE further describes the

de finition of instantaneous water heaters in Appendix E t o Subpart B o f part 430 of 10 Code of

Fe deral Regulations (CFR) as follows: “Instantaneous gas­fired water heater means a w ater

he ater that uses gas as the energy source, initiates heating based on sensing water flow, is

de signed to deliver water at a c ontrolled temperature of less than 180oF (82 oC), has an input

gr eater than 50,000 Btu/hr (53 MJ/h) but less than 2 00,000 Btu/h (210 MJ/h), and has a

m anufacturer’s specified capacity of less than 2 g allons (7.6 l iters).” The definition of

in stantaneous electric water heater is reserved.

DO E p resented these definitions in the framework document and, in response, received

co mments regarding the definition of instantaneous gas­fired water heaters and electric

in stantaneous water heaters. S pecifically, the Edison Electric Institute (EEI) commented that

DO E should consider extending the definition limit o f the instantaneous water heater and extend

th e scope of coverage to include instantaneous gas­fired water heaters with inputs higher than

20 0,000 Btu/h and lower than 50,000 Btu/h. (EEI, No. 5 a t p. 3) b

DOE reviewed the definitions and product classes for instantaneous gas­fired water

he aters in the CFR. Specifically, DOE found that instantaneous gas­fired water heaters with an

inp ut capacity greater than or equal to 50,000 Btu/h and less than 200,000 Btu/h are covered as

re sidential products, a nd instantaneous gas­fired water heaters with an input capacity greater than

or equal to 200,000 Btu/h are covered as commercial e quipment. If DOE extends the residential

co verage to those units with an input capacity greater than 200,000 Btu/h, manufacturers would

be confused about the energy conservation standards t hat would apply to their products due to

th e overlapping coverage.

DO E reviewed product literature from manufacturers of instantaneous gas­fired water

he aters and found that the majority of products rated for residential, whole­house use have an

inp ut capacity of 199,000 Btu/h, which would fall within the residential scope of coverage. DOE

al so reviewed AHRI’s c Consumers' D irectory of Certified Efficiency Ratings for Heating and

Wa ter Heating Equipment (hereafter “Consumers’ Directory”) and notes that it contains only one

in stantaneous gas­fired water heater with an input capacity less than 50,000 Btu/h. Moreover,

b “EEI, No. 5 a t p. 3” refers to ( 1) a s tatement that w as s ubmitted by the Edison Electric I nstitute and is recorded in

th e R esource Room of the Building Technologies P rogram in the docket under “Energy Efficiency Program for

Co mmercial a nd Industrial Equipment: E fficiency Standards for Residential Water Heaters, Direct Heating

Eq uipment, and P ool Heaters,” Docket Number EE–2006–STD–0129, as c omment number 5; and (2) a p assage that

ap pears o n page 3 o f that statement.

T he A ir­Conditioning, Heating, and Refrigeration Institute ( AHRI) is the trade association that represents

m anufacturers o f heating products. Formerly, those manufacturers were represented by the Gas A ppliance

Ma nufacturers A ssociation (GAMA). GAMA and the Air­Conditioning and Refrigeration Institute ( ARI) announced

on D ecember 17, 2007, that their m embers had voted to a pprove the merger of the two trade associations to

r epresent th e interests o f manufacturers of cooling, heating, and commercial refrigeration equipment. T he merged

as sociation b ecame AHRI on January 1, 2008. AHRI maintains the Consumers' Directory of Certified Efficiency

Ra tings f or Heating and Water Heating Equipment, w hich is f ound on GAMA’s website a t

ww w.gamanet.org/gama/inforesources.nsf /v ContentEntries/Product+Directories.

2­ 4 cDOE determined that this product has been discontinued and is being replaced by a c omparable

pr oduct that has an input capacity greater than 50,000 Btu/h.

AH RI commented that DOE should include a d efinition for electric instantaneous water

he aters to clearly indicate that they are covered products. ( GAMA, No. 4.5 a t p. 1) d The

de finition of residential water heaters specified by NAECA i ncludes electric instantaneous water

he aters with an input of less than 12 kilowatts. ( 42 U.S.C. 6291(27)) As stated in the framework

do cument, DOE recognizes that electric instantaneous water heaters are subject to the energy

co nservation standards in 10 CFR 430.32(d). Further, DOE does not believe that it is necessary

to propose a s eparate definition for “electric instantaneous water heaters” for incorporation into

10 CFR part 430, subpart B, appendix E because EPCA has clearly defined “electric

in stantaneous water heaters” within the definition of “water heater.” ( 42 U.S.C. 6291(27))

2.2 .1.2 Heat Pump Water Heaters

NAEC A a lso amended EPCA t o provide a d efinition of heat pump water heaters, w hich

in cludes units with a m aximum current rating of 24 amperes at a v oltage no greater than 250

vo lts. P roducts with these characteristics are designed to transfer thermal energy from one

te mperature level to a h igher temperature level for the purpose of heating water, including all

an cillary equipment such as fans, s torage tanks, p umps, o r controls necessary for the device to

pe rform its function. (42 U.S.C. 6291(27). DOE notes there are two basic designs for residential

he at pump water heaters: integral and add­on.

In tegral heat pump water heaters are fully functioning water heaters from the point of

ma nufacture and include all of the components in a s ingle packaged product required to operate

as a w ater heater. Therefore, DOE b elieves that integral units meet EPCA’s definition of a w ater

he ater, which means a p roduct that uses oil, gas, o r electricity to heat potable water for use

ou tside the heater upon demand. (42 U.S.C. 6291(27))

An add­on heat pump water heater, on the other hand, is designed to be added to a

s eparately manufactured storage tank. An add­on heat pump water heater is not capable of

he ating potable water on demand, and is capable of heating water only after being added to a

s torage water heater during installation. A small pump circulates water from the tank through the

he at pump system. Add­on heat pump water heaters can be mounted on top of the tank or as a

c ompletely separate unit that can be placed on the floor or mounted on a w all. Therefore, the

ad d­on device, b y itself, does not include all of the equipment necessary to operate as a w ater

he ater and as such does not meet EPCA’s definition of a w ater heater because it does not include

a s torage tank and is not capable of heating water for use. Consequently, DOE is not considering

ad d­on heat pump water heaters in its analyses.

DO E considers add­on heat pump water heaters to be after­market products that can be

ma tched with any conventional electric storage tank and field installed by the contractor. From

d All comments s ubmitted to D OE before the merger between ARI and GAMA to f orm AHRI are listed in t he

do cket d irectory under GAMA. DOE refers to th e commenter throughout this n otice as AHRI.

2­ 5the point of manufacture (i.e., c ompletion of the final product), it is not paired with a s torage

ta nk or shipped as a f ully working unit. Likewise, electric storage­type water heaters are

ma nufactured separately from add­on units as fully working water heaters from the point of

sh ipment from the manufacturer. Therefore, DOE does n ot believe that add­on heat pump water

he aters meet the definition of a w ater heater provided in section 321 of EPCA. (42 U.S.C.

62 91(27)) Consequently, because add­on heat pump water heaters do not function as electric

st orage water heaters from the point of manufacturers, t hey are not considered a c overed product

an d are not included in today’s analysis. D OE further addresses integral heat pump water heaters

in the screening analysis found in chapter 4 o f the preliminary TSD.

2.2 .1.3 Direct Heating Equipment

Be fore the enactment of NAECA, EPCA i ncluded “home heating equipment” in DOE’s

ap pliance standards program. DOE construed this term as covering unvented as well as vented

pr oducts, a nd prescribed a s eparate test procedure for each. 43 FR 20128, 20132 (May 2, 1978).

Eac h of these test procedures has since been amended and are codified in 10 CFR part 430,

Sub part B, Appendix G (“Uniform Test Method for Measuring the Energy Consumption of

Un vented Home Heating Equipment”) and Appendix O (“Uniform Test Method for Measuring

th e Energy Consumption of Vented Home Heating Equipment”). However, when NAECA

re placed the term “home heating equipment” with “direct heating equipment” in NAECA’s

am endments to EPCA i n 1987 (42 U.S.C. 6295(e)(3)), t he new energy conservation standards for

th is equipment were only for gas products and the standards used the AFUE descriptor, which

ap plies to vented but not unvented equipment.

In p rescribing these standards, C ongress did not define the term "direct heating

eq uipment" in NAECA. Because of the limitation imposed by the statute's use of the AFUE

de scriptor, in subsequent DOE actions concerning direct heating equipment, first in proposed

st andards that were included in the eight­product NOPR, 59 FR 10464, (March 4, 1994) and then

in test procedure amendments, 6 2 FR 26140 (May 12, 1997) (the May 1997 final rule), DOE

ad dressed only vented products. A s with previous rulemakings, DOE will only consider vented

ty

pes of direct heating equipment in today’s rulemaking. Consequently, DOE is presenting the

de finitions only for vented products.

DO E incorporated a d efinition of “vented heating equipment” in 10 CFR 430.2 a s

fo llows: “a class of home heating equipment, not including furnaces, d esigned to furnish warmed

ai r to the living space of a r esidence, directly from the device, without duct connections (except

th at boots not to exceed 10 inches beyond the casing may be permitted) and includes: vented

wa ll furnace, vented floor furnace, and vented room heater.” D OE adopted this definition

be cause the energy conservation standards established by NAECA’s amendments to EPCA i n

19 87 (42 United States Code (U.S.C.) 6295(e)(3)) were only for gas products and the standards

us ed the annual fuel utilization efficiency (AFUE) d escriptor, which applies to vented but not

un vented equipment. Section 430.2 d efines a v ented wall furnace, vented floor furnace, and

ve nted room heater as well. Chapter 3 o f the preliminary TSD i ncludes definitions and additional

in formation regarding the four direct heating equipment types.

2­62.2.1.4 Input Capacity for Residential Pool Heaters

EPC A d efined “pool heaters” as “an appliance designed for heating nonpotable water

co ntained at atmospheric pressure, including heating water in swimming pools, s pas, h ot tubs

an d similar applications.” ( 42 U.S.C. 6291(25) and 1 0 CFR 430.2) DOE received several

co mments regarding its approach to analysis of residential pool heaters that was proposed in the

fr amework document. Particularly, DOE received comments from interested parties regarding

th e decision to exclude products having input capacities greater than 1 m illion Btu/h, and

co mments regarding the inclusion of spa heaters in today’s preliminary rulemaking.

In the framework document, DOE p roposed to exclude from consideration in this

pr eliminary rulemaking pool heaters with an input capacity greater than 1 m illion Btu/h, b ecause

po ol heater manufacturers market pool heaters with input capacities greater than 1 m illion Btu/h

as light industrial or commercial products. In response to this proposal in the framework

do cument, DOE received several comments regarding an input capacity limit for residential pool

he aters.

A.O

. Smith Corporation (A.O. Smith) and Raypak, Inc. (Raypak) stated that residential

po ol heaters are currently defined within the industry as having an input capacity less than or

eq ual to 400,000 Btu/h. They both suggested that DOE use this as its definition for determining

th e scope of coverage for residential pool heaters. (A.O. Smith, No

. 11 at p. 1; Raypak, Public

Me eting Transcript, No

. 4.7 a t p. 72) The Natural Resources Defense Council (NRDC) agreed

wi th DOE’s proposal in the framework document and stated that DOE should include pool

he aters rated up t o 1 m illion Btu/h. (NRDC, Public Meeting Transcript, No

. 4.7 a t p. 73)

The definition of pool heater in EPCA i s “an appliance designed for heating nonpotable

wa ter contained at atmospheric pressure, including heating water in swimming pools, s pas, h ot

tub s, a nd similar applications.” ( 42 U.S.C. 6291(25)) EPCA’s definition does not include an

inp ut capacity reference for determining scope of coverage. Based on the comments and EPCA’s

di rection, DOE has decided not to include a s pecific input capacity limit to determine scope of

co verage for residential pool heaters.

Ho wever, DOE notes that residential pool heaters are considered a c onsumer product as

de fined in EPCA. The definition of a c onsumer product within EPCA m eans “any article (other

th an an automobile, as defined in section 32901(a)(3) of title 49) of a t ype—(A) which in

ope ration consumes, o r is designed to consume, energy or, with respect to showerheads, f aucets,

wa ter closets, a nd urinals, w ater; and (B) which, to any significant extent, is distributed in

co mmerce for personal use or consumption by individuals;

... ” (42 U.S.C. 6291(1)) Because the

de finition of consumer product indicates that the pool heaters covered by EPCA’s definition of

po ol heater and the existing Federal energy conservation standards for those products in 10 CFR

pa rt 430 are intended to cover consumer products for residential use, DOE b elieves that an input

ca pacity limit is not necessary to determine scope of coverage. Manufacturers should consider

po ol heaters to be covered by the provisions in 10 CFR part 430 if the product is intended for

re sidential use (i.e., i f it is marketed for use in a r esidence). (42 U.S.C. 6291(1) and (25))

2­72.2.1.5 Spa Heater Coverage

EEI suggested that DOE add a d efinition for spa heaters and stated spa heaters should be

de fined as heaters for hot tub s ystems, w here hot water is circulated by a p ump. (EEI, No

. 5 a t p.

5) Southern California Gas Company commented that spa heaters should be included in this

ru lemaking, b ecause people use their spas more frequently and for more cumulative hours than

th eir pools. ( Southern California Gas Company, Public Meeting Transcript, No

. 4.7 a t p. 73­74)

Se ction 321 of EPCA d efines pool heaters as being capable of “heating water in

sw imming pools, s pas, h ot tubs, a nd similar applications.” ( 42 U.S.C. 6291(25)) Because EPCA

sp ecifically includes spa heaters in the definition of pool heaters, DOE b elieves that spa heaters

ar e subject to the same energy conservation standards established for pool heaters. S pa heaters

an d pool heaters perform similar functions and include similar features. A dditionally, spa heaters

do not include any performance or operating features that would cause the energy efficiency of a

p roduct to be different from pool heaters. Th erefore, DOE includes spa heaters in the pool heater

pr oduct class.

2.2 .2 Product Classes and Scope of Coverage

Wh en evaluating and establishing energy conservation standards, D OE generally divides

co vered products into product classes by the type of energy used or by capacity or other

pe rformance­related features that affect efficiency. Different energy conservation standards may

ap ply to different product classes. ( 42 U.S.C. 6295(q))

DO E received several comments from interested parties regarding the product classes and

th eir organization that DOE included in today’s preliminary analyses. S pecifically, DOE

re ceived comments regarding the decision to exclude tabletop, electric instantaneous, s olar, and

co mbination water heating products.

2.2 .2.1 Tabletop Water Heaters

DO E received several comments on the product classes for residential water heaters. Th e

Am erican Council for an Energy­Efficient Economy (ACEEE), the Appliance Standards

Aw areness Project (ASAP), NR DC, the Northeast Power Coordinating Council (NPCC), and

Pa cific Gas and Electric (PG&E) s ubmitted a j oint comment to DOE, h ereafter referred to as the

“J oint Comment,” s tating that DOE should include electric tabletop w ater heaters in the analysis.

(J oint Comment, No

. 12 at pp. 4­5) EEI also suggested that DOE include tabletop w ater heaters

in the rulemaking. (EEI, No. 5 a t p. 3) On the other hand, A.O. Smith supported DOE’s initial

co nclusion in the framework document to exclude tabletop w ater heaters from the analysis. ( A.O.

Sm ith, No

. 11 at p. 1)

Fo r the framework document, DOE excluded tabletop water heaters because size

re strictions do not allow t he units to be any larger. Tabletop w ater heaters are primarily electric

an d manufacturers increase the insulation to improve energy efficiency. DOE recognizes that

th ese systems are located underneath tabletops in highly specialized applications, a nd that

2­8manufacturers already maximize the size of the water heater in order to meet the current

mi nimum energy factors promulgated by the January 2001 final rule and the utility desired by

co nsumers. e 66 FR 4474 (Jan. 17, 2001) Considering these strict size limitations for these

pr oducts, D OE is not aware of any feasible technological advancement that would increase

en ergy efficiency without increasing overall dimensions. Th erefore, DOE has excluded tabletop

w ater heaters from consideration in its preliminary analyses.

2.2 .2.2 Electric Instantaneous Water Heaters

So uthern California Gas Company, American Gas Association (AGA), and EEI

co mmented that DOE should include electric instantaneous water heaters in is analysis of heating

pr oducts. ( Southern California Gas Company, Public Meeting Transcript, No

. 4.7 a t p. 39; AGA,

No. 4.6 a t p. 2; EEI, No

. 5 a t pp. 2–3; and AGA, No. 1 3 at p. 4)

DO E excluded electric instantaneous water heaters from consideration because there is

no significant energy savings potential from these products. Th is conclusion is based on the

fo llowing consideration of the energy efficiency metric for water heaters, which is a c ombination

of standby losses and recovery efficiency. All electric water heaters, i ncluding instantaneous

wa ter heaters, h ave minor losses in recovery efficiency, and electric instantaneous water heaters

ha ve negligible standby losses due to their small storage size of two gallons or less. In addition,

ma ny of the electric instantaneous water heaters currently on the market are well above the

ex isting minimum energy conservation standard and utilize available technologies to the extent

th at the standby losses of the product are negligible. f DOE did not receive any rationale or

ad ditional data from interested parties in response to the framework document’s proposal to

ex clude these products from consideration, which would lead DOE to change its preliminary

co nclusion.

2.2 .2.3 Solar Water Heaters

DO E received comments on whether the rulemaking should include solar water heaters.

AH RI and Southern Company both support this exclusion. AHRI commented that benefits from

so lar technologies will not show up in DOE’s test procedures, a nd that a r evision of the test

pr ocedure would be required in order to receive credit for solar technologies. A HRI stated its

be lief that DOE would not be able to meet the rulemaking schedule if the rulemaking included a

t est procedure revision. Southern Company added that solar hybrid technology would not be an

ap propriate minimum efficiency standard, and that a p otential loophole may exist for

sub standard products where less stringent installation procedures exist. (Southern Company and

GA MA, Public Meeting Transcript, No

. 4.7 a t pp. 50–51)

e Rulemaking Framework for Residential Water Heaters, Direct Heating Equipment, a nd Pool Heaters (the

fr amework d ocument).

<w ww1.eere.energy.gov/buildings/appliance_standards/residential/pdfs/heating_equipment_framework_092706.pdf

, p

. 9 >

f Id., pp. 9–10.

2­ 9The Joint Comment and Heliocol USA, Inc. (Heliocol), on the other hand, stated their

co ncerns regarding the exclusion of solar and hybrid solar technologies from this rulemaking.

The y commented that DOE has considered solar­assisted electric and gas­fired water heating in

ot her contexts. Th ey also questioned DOE’s assumption that the sun is not a f uel source.

He liocol added that DOE currently supports a r ating and certification program for solar water

he aters, and that Federal and State tax credits are available to consumers. Th e joint commenters

al so p ointed out that DOE’s ENERGY S TAR water heating program includes options for solara ssisted water heating. Finally, NR DC stated that solar technology should be considered because

it accomplishes DOE’s overall mission pursuant to DOE’s overall mandate. (ACEEE a nd

NRD C, Public Meeting Transcript, No

. 4.7 a t pp. 25–26, 49–50; Heliocol, No

. 15 at pp. 1–2;

Jo int Comment, No

. 12 at pp. 3–4)

DO E did not consider solar water heaters because DOE lacks the authority to prescribe

en ergy conservation standards for those products. Section 321(3) of EPCA defines the term

“e nergy” as meaning electricity or fossil fuels. ( 42 U.S.C 6 291(3)) EPCA d oes not cover

ap pliances that use the sun's energy instead of fossil fuels or electricity. Section 321(3) of EPCA

al so contains a p rovision stating, “the Secretary may, b y rule, include other fuels within the

me aning of the term "energy" if he determines that s uch inclusion is necessary or appropriate to

ca rry out the purposes of this chapter.” ( 42 U.S.C. 6 291(3)) Since DOE may include another type

of fuel under the definition of "energy" only by rule, DOE does not have the authority to

pr escribe energy conservation standards for products that receive their energy directly from

en ergy sources not specifically prescribed under EPCA.

In addition, p roblems remain with respect to creating a t est procedure that would produce

re peatable results on which a s tandard would rely. Solar systems in particular may have different

ef

ficiency levels based in large part on geographical location, with some areas receiving

ad ditional sunlight than others. Th ese differences can also exist on a h ouse­to­house level

de pending on factors such as tree coverage. As a r esult, incorporating a s tandard for solar­based

pr oducts at this time is also not possible.

DO E, however, recognizes the benefits that this technology can produce. In particular,

th e implementation of solar water heater systems can reduce energy consumption for residential

wa ter heating applications. C onsequently, although DOE is not in a p osition to adopt a s tandard

at this time to cover these products, D OE encourages their use.

2.2 .2.4 Powered and Unpowered Gas­Fired Storage Water Heaters

AG A r ecommended that DOE divide the current class for gas storage water heaters (as

us ed in the previous rulemaking and suggested here) into two separate product classes: powered

wa ter heaters, i ncluding power vented storage and instantaneous gas­fired water heaters, and

unp owered water heaters, which do not require electricity to operate. AGA stated its belief that

unp owered water heaters provide a u nique consumer utility and should not be eliminated by this

ru lemaking. (AGA, No. 13 at p. 3)

2­10EPCA provides that DOE is to divide covered products into product classes by the type

of energy used or by capacity or other performance­related features that affect efficiency. (42

U.S .C. 6295(q)) DOE does not believe that power requirements of the unit are a f eature affecting

th e energy efficiency of the product. Instead, DOE believes that some of the technologies

in corporated into higher­efficiency gas­fired water heaters are technologies used by

ma nufacturers to increase the efficiency of the product and do not provide consumers with any

un ique utility opportunities.

2.2 .2.5 Combination Heating Products

The Joint Comment stated that DOE should include combination heating and space

he ating products in this rulemaking. They stated that the American Society of Heating,

Re frigerating, and Air­Conditioning Engineers (ASHRAE), the American National Standards

In stitute (ANSI), and the Canadian Standards Association (CSA) test procedures exist to

ev aluate these combination products. ( Joint Comment, No. 12 at p. 7)

As stated in the advance notice of proposed rulemaking for residential furnaces and

bo ilers, D OE has decided not to include combination heating and water heating appliances in the

re sidential furnace and boilers rulemaking. 69 FR 45420, 45429 (July 29, 2004) Advanced

Not ice of Proposed Rulemaking (ANOPR) for residential furnaces and boilers). DOE has also

de cided not to include combination heating and water heating appliances in its preliminary

an alyses for residential heating products. D OE does n ot have an existing test procedure to

de termine the energy efficiency of combination appliances.

2.2 .2.6 Energy­Efficiency Equations for Electric and Gas­Fired Storage Water

He aters

In response to a r equest from AHRI and the storage water heater manufacturers, D OE

re viewed the energy­efficiency equations that define the existing Federal energy conservation

st andards for gas­fired and electric storage water heaters. Th e energy­efficiency equations allow

DO E to expand the analysis on the representative rated storage volume to the full range of

st orage volumes covered under the existing Federal energy conservation standard. For the

pr eliminary analyses, DOE did not alter any of the existing product classes or previously defined

re lationships between EF and rated storage volume for water heaters. H owever, DOE describes

th e methodology used to investigate the energy­efficiency equations for residential gas­fired and

el ectric storage water heaters in the engineering analysis section of this preliminary TSD chapter.

DO E also seeks comment from interested parties on an alternative methodology for developing

th e energy­efficiency equations for gas­fired and electric storage water heaters.

2.2 .2.7 Product Class Divisions and Energy­Efficiency Equations for Oil­Fired

St orage Water Heaters

DO E also reviewed the product classes and energy­efficiency equations that define the

ex isting Federal energy conservation standards for oil­fired storage water heaters. For oil­fired

st orage water heaters, D OE also surveyed AHRI’s Consumers' Directory for oil­fired storage

wa ter heaters and available product literature to characterize the relationship between rated

2­11storage volume and the EF of products in today’s market. DOE found that manufacturers

pr oduce models with rated storage volumes of 30, 32, and 50 gallons and that the EF d ecreases

wi th rated storage volume. Unlike gas­fired products, t he EF o f the most efficient models for

ea ch rated storage volume in AHRI’s Consumers’ Directory decreases as rated storage volume

in creases. F urther, DOE believes the energy efficiency potentials are different due to the

in creased jacket losses for larger tank surface areas. C onsequently, DOE b elieves that the current

re lationship between energy factor and rated storage volume for oil­fired storage water heaters

es tablished by EPCA a nd reaffirmed by the previous w ater heater rulemaking is representative of

to day’s market. In light of this situation, DOE also proposes to use the slope of the energy

ef

ficiency equation of the existing Federal energy conservation standards for this rulemaking.

DO E seeks comment on the relationship between rated storage volume and EF e stablished for

oi l­fired storage type water heaters. S ee the issues for which DOE seeks comment within the

ex ecutive summary.

2.2 .2.8 Product Class Divisions and Energy­Efficiency Equations for

In stantaneous Gas­Fired Water Heaters

DO E examined the product classes for instantaneous g as­fired water heaters by surveying

AH RI’s Consumers' Directory and available product literature. Gas­Fired instantaneous water

he aters are defined in 10 CFR part 430, subpart B, appendix E a s having a s torage capacity of 2

g allons or less. H owever, all of the instantaneous gas­fired water heaters listed in the AHRI

di rectory are rated at zero gallons. D OE did not find a r elationship between rated storage volume

an d EF. Furthermore, applying zero gallons to the conservation standard, all products must meet

a m inimum standard of 0.62 EF. As a r esult, DOE decided to examine the relationship between

EF a nd input rating, in kilo British thermal units per hour (kBtu/h), for the instantaneous gasf ired water heaters currently available to consumers. D OE found that products are available with

a v ariety of EFs with input capacities ranging from 117 to 199 kBtu/h. DOE did not identify any

tr ends or relationship between EF and the input rating of instantaneous gas­fired water heaters.

Co nsequently, DOE specifically seeks comment on whether it should reconfigure the product

cl asses for instantaneous gas­fired water heaters to include a s ingle amended energy conservation

st andard (i.e., o ne efficiency level) for all storage volumes and input capacities of instantaneous

ga s­fired water heaters, s imilar to those for pool heaters. S ee the issues for which DOE seeks

co mment within the executive summary.

2.2 .2.9 Hearth and Fireplace Products

As discussed in the framework document, vented hearth products, s old as either

fi replaces, f ireplace inserts, g as stoves, o r log sets, can be used to provide residential space

he ating. When used to furnish heat to a l iving space, vented hearth products provide the same

fu nction and utility as vented heaters. Th e definition for vented home heating equipment (or

ve nted heater) (10 CFR 430.2 ) states that this equipment is designed to furnish warmed air to the

li ving space of the residence, directly from the device, without duct connections and includes

ve nted wall furnaces, v ented floor furnaces, and vented room heaters. V ented hearth products

al so furnish warmed air to the living space of a r esidence, directly from the device, without duct

2­12connections. Th erefore, DOE b elieves the product classes that are covered by the vented heater

de finition include vented hearth products.

DO E b elieves that the energy conservation standards provided in 10 CFR 430.32(i),

Di rect Heating Equipment, apply to a v ented hearth product if the product has energy­saving

fe atures such as a b lower or a t hermostat, or if a f unction of the product is to provide for space

he ating. The reason for this belief is that these types of hearth products provide the same

fu nction and utility as vented direct heating equipment. DOE recognizes that manufacturers of

th ese types of hearth products currently test their products using DOE's test procedure for vented

ho me heating equipment (vented heaters) and certify compliance with the standards provided in

10 CFR 430.32(i).

Cu rrently, DOE is aware of two types of vented hearth product designs, r ecessed and

no n­recessed products. R ecessed vented hearth products are similar in design to gas wall fan and

gr avity­type furnaces, w here the product is typically incorporated or attached to a w all. In the

ca se of a r ecessed vented hearth product, the hearth i s incorporated or attached to a w all and may

in clude an aesthetic fireplace or mantle surround. Non­recessed vented hearth products are

si milar in design to room heaters, w hich are typically free­standing and not recessed or attached

to a w all. In the case of a n on­recessed vented hearth product, the hearth is free­standing and

ma y include fireplace or hearth aesthetics. Th erefore, DOE b elieves that the energy conservation

st andards for gas wall fan or gravity­type furnaces a pply to recessed vented hearth products and

th e energy conservation standards for gas room heaters apply to non­recessed vented hearth

pr oducts.

AH RI suggested that DOE establish a n ew “ design type” of “fireplace heater” for these

ve nted hearth products. AHRI stated that vented hearth heaters are certified to the fireplace

he ater safety standards, whereas decorative hearths are certified to the safety standard for

de corative hearths. A HRI said that safety standards s hould help DOE distinguish b etween

de corative and heater hearths. A HRI also recommended minimum annual fuel utilization

ef

ficiency (AFUE) requirements for this new t ype of direct heating equipment, which correspond

to the minimum Federal energy conservation standards for room heaters. ( GAMA, No. 4.5 a t p.

1; GAMA, Public Meeting Transcript, No

. 4.7 a t pp. 6 2–63; GAMA, No. 16 at p. 2)

Le nnox International (Lennox) suggested that DOE use the criteria in ANSI Z21.88,

Ve nted Gas Fireplace Heaters, t o define which products are covered in this rulemaking. Lennox

al so commented that DOE needs to update the procedures for testing and rating vented hearth

pr oducts in order to add definition and remove uncertainty. The company said that this would

im prove uniformity and repeatability. Lennox also supported the addition of a f ireplace heater

pr oduct class. ( Lennox, No

. 17 at pp. 1–2)

The HPBA and AGA commented that hearth products should not be included in direct

he ating equipment. Instead, the HPBA believes that h earth products should have their own

pr oduct class where hearth products, d ecorative gas f ireplaces, a nd gas logs are clearly defined.

Fu rthermore, HPBA c ommented that hearth products should have two classes: heater rated gas

fi replaces and free standing gas heaters. H PBA s tated that these products are already tested under

2­13ANSI Z21.88. It stated that these hearth products warrant an independent analysis because of

di fferences in primary function (heating or aesthetics), frequency of use, and design. HPBA a lso

st ated that less stringent standards are justified for products that are used less frequently or

pu rchased primarily for aesthetics. ( HPBA, No. 14 at pp. 2–3; and AGA, No. 13 at p. 6)

DO E b elieves that vented hearth products can be used to provide residential space

he ating. When used to furnish heat to a l iving space, these products provide the same function

an d utility as vented heaters. Th e definition for vented home heating equipment (or vented

he ater) (10 CFR 430.2) states that this equipment is d esigned to furnish warmed air to the living

sp ace of the residence, directly from the device, without duct connections and includes vented

wa ll furnaces, v ented floor furnaces, a nd vented room heaters. V ented hearth products, w hich

in clude fireplaces, f ireplace inserts, gas stoves, and log sets, a lso furnish warmed air to the living

sp ace of a r esidence, directly from the device, without duct connections. F ireplace heaters also

pr ovide the same utility and function as either gas wall furnaces or gas room heaters, a nd they do

no t utilize any specific technologies unique to themselves. A dditionally, AHRI’s Consumers’

Di rectory currently categorizes fireplace heaters as either room heaters or wall furnaces. D OE

re quests comments on the need for a s eparate product class for fireplace heaters. S ee the issues

fo r which DOE seeks comment within the executive summary.

To h elp interested parties determine which product c lasses of direct heating equipment

th eir hearth products fall under, DOE p roposes to add headings to the table in 10 CFR 430.32(i)

as follows (Table 2.1):

2­14Table 2.1 P roduct Classes for Direct Heating Equipment

Di rect Heating Equipment Type He ating Capacity (Btu/h)

Ga s Wall Fan Type Up to 42,000

an d

Ga s, R ecessed, Fan­Type Hearth Products Ov er 42,000

Up to 10,000

Ov er 10,000 up t o 12,000

Ga s Wall Gravity Type Ov er 12,000 up t o 15,000

an d Ov er 15,000 up t o 19,000

Ga s, R ecessed, Gravity­Type Hearth Products Ov er 19,000 up t o 27,000

Ov er 27,000 up t o 46,000

Ov er 46,000

Ga s Floor Up to 37,000

Ov er 37,000

Up to 18,000

Ga s Room Ov er 18,000 up t o 20,000

an d Ov er 20,000 up t o 27,000

Ga s, No n­Recessed Hearth Products Ov er 27,000 up t o 46,000

Ov er 46,000

2.2 .2.10 Electric Equivalents to Direct Heating Equipment

La clede Gas Company (Laclede) commented that DOE should consider the electric

eq uivalents of gas­fired direct heating equipment in the rulemaking. (Laclede, No

. 8 a t p. 3)

La clede stated the proposed scope of coverage specifically targets gas appliances as it focuses on

on ly gas­fueled direct heating equipment, to the detriment of gas appliances. Laclede stated its

be lief that DOE should consider adding more product classes; specifically, those powered by

el ectricity, such as electric resistance hearth products and wall furnaces.

An electric heater is an unvented product that does not include an exhaust flue that would

al low a ir to exit the conditioned space. Thus, a ll o f the heat produced is released into the

co nditioned space. DOE excluded electric direct heating equipment because there is no

si gnificant energy savings potential from these products. F or purposes of this preliminary

an alysis, D OE will consider direct heating equipment as referring only to gas­fired vented home

he ating equipment. DOE intends to consider amended standards only for such products. In

ad dition, DOE notes that electric equivalents of direct heating equipment are unvented products

th at would be tested using the unvented test procedure in 10 CFR Part 430, subpart B, appendix

G, which does not specify the use of AFUE to rate products or any method for determining

en ergy efficiency.

2.2 .2.11 Product Class Divisions for Direct Heating Equipment

AH RI commented that it supported DOE’s selection of product classes for direct heating

eq uipment and that some product classes may be combined to reduce the total number of product

cl asses. ( GAMA, Public Meeting Transcript, No

. 4.7 a t p. 60; GAMA, No. 4.5 a t p. 2)

2­15In addition to considerations raised by interested parties in response to the framework

me eting and in response to AHRI’s comment regarding product class consolidation, DOE also

ex amined the relationship between energy efficiency (i.e., A FUE) and input rating for direct

he ating equipment. The existing energy conservation standards were originally established by

NAEC A a nd are differentiated by input capacity range. DOE examined the possibility of

co nsolidating product classes in chapter 3 o f the preliminary TSD. DOE seeks comment on the

pr oposal to combine some of the direct heating equipment product classes. Chapter 3 d escribes

th e rationale behind the product class reorganization DOE intends to investigate.

Gas wall fan­type direct heating equipment

. For fan­type wall furnaces, D OE also

ex amined the product classes by surveying AHRI’s Consumers' Directory and available product

li terature. DOE identified products currently available ranging from 8,000 to 65,000 Btu/h. The

ma rket data demonstrates two separate trends for fan­type wall furnaces based on the efficiency

ra nge of the products. For higher efficiency products (i.e., 7 8 percent AFUE and higher), DOE

no ticed a t rend where efficiency decreases as capacity increases. F or lower efficiency products

(i .e., 73 to 77 percent AFUE), DOE noticed an opposite trend where efficiency increases as

ca pacity increases. Th erefore, DOE b elieves that the two product classes for gas wall, fan­type

di rect heating equipment should remain to distinguish these two trends. D OE seeks comment

fr om interested parties on the relationship between the AFUE of gas wall fan­type direct heating

eq uipment and input capacity and whether DOE should preserve the existing two product classes

fo r the amended energy conservation standard for gas wall fan­type direct heating equipment.

Gas wall gravity­type direct heating equipment. DOE examined the relationship between

AF UE and input rating for gravity­type wall furnaces by surveying AHRI’s Consumers'

Di rectory and available product literature. DOE identified products with input capacities ranging

fr om 5,000 to 50,000 Btu/h. The Federal energy conservation standards for gas wall gravity­type

fu rnaces divide these products into seven product classes based on input capacity ranges. Th e

se ven product classes are differentiated by one AFUE percentage point increase for an increase

in input capacity range (i.e., t he larger the input c apacity, the higher the AFUE requirements).

The market data for gas wall gravity­type furnaces indicates that manufacturers are not offering

pr oducts over the entire input capacity range. Therefore, some product classes may be

un necessary. DOE b elieves that the five product classes labeled up t o 10,000 Btu/h, over 10,000

an d up t o 12,000 Btu/h, over 12,000 and up t o 15, 000 Btu/h, over 15,000 and up t o 19,000

Bt u/h, and over 19,000 and up t o 27,000 Btu/h could be consolidated into a s ingle product class

la

beled up t o 27,000 Btu/h. This would leave three product classes for gas wall gravity type

fu rnaces. D OE seeks comment on the relationship between the product classes and input ratings

an d the establishment of consolidated product classes for gas wall gravity­type direct heating

eq uipment.

Gas floor­type direct heating equipment. D OE also surveyed the current market for gas

fl oor furnaces by reviewing AHRI’s Consumers' D irectory and available product literature. The

AH RI directory lists only 23 products. Th e Federal energy conservation standard includes two

pr oduct classes divided by input ratings, o ne above and the other at or below 3 7,000 Btu/h.

Ac cording to the AHRI directory, more than 75 percent of products are rated above 37,000

2­16Btu/h. Additionally, only one of the 23 products on the market is rated as having an AFUE less

th an 57 percent, which is the Federal energy conservation standard for products rated above

37 ,000 Btu/h. DOE notes that, when comparing the models with the highest AFUE rating

be tween the two product classes, t he energy savings p otential increases as the input capacity

ra nge increases. Th is would suggest that, for gas floor­type furnaces, i nput capacity affects the

AF UE of the products. D OE seeks comment regarding the relationship between the input rating

ra nges and the AFUE ratings for establishing product classes. D OE also seeks comment on the

po ssibility of establishing a s ingle consolidated product class for gas floor­type direct heating

eq uipment.

Gas room­type direct heating equipment. D OE examined currently available room

he aters by reviewing AHRI’s Consumers' D irectory and p roduct literature. DOE surveyed all

ro om heaters listed in the AHRI Consumers’ Directory, which includes non­recessed hearth

pr oducts. D OE found that room heaters have inputs ranging from 15,000 to 70,000 Btu/h. DOE

al so determined that the relationship between AFUE and input rating established by the Federal

en ergy conservation standards is generally similar to the trend found among products listed in the

AH RI directory. The market data show a general trend of increasing AFUE with input capacity

ra nge. DOE b elieves that some of the input capacity ranges could be further consolidated based

on the distribution of models in the AHRI directory. In p articular, DOE could consolidate the

tw o lower input capacity ranges into a s ingle product class (i.e., i nput ratings up t o 20,000 Btu/h)

wi th a c orresponding single amended energy conservation standard. As a r esult, four product

cl asses for gas room heaters would be established for the amended energy conservation

st andards. D OE seeks comment regarding the possible reorganization of the product classes for

ga s room­type direct heating equipment.

2.2 .2.12 Electric Pool Heaters

AG A c ommented that DOE should add an electric pool heater product class, w hich

sh ould include heat pump pool heaters. A GA s uggested that DOE examine annual shipments to

de termine the possible product classes for electric pool heaters. ( AGA, No. 4.6 a t pp. 2­3)

La clede and EEI also commented that DOE should analyze electric pool heaters and electric spa

he aters in addition to gas­fueled pool products. ( EEI, No. 5 a t p. 5; Laclede, No

. 8 a t p. 9)

La clede pointed out that electric powered pool heaters are widely used and that extending

co verage to electric pool heater products would help avoid efficiency standards that result in

ma rket shifts from gas pool products to electrical p ool products. ( Laclede, N o. 8 a t pp. 5 a nd 8)

NRD C suggested that DOE determine how prevalent electric resistance pool heaters are in the

ma rket before adding a p roduct class for them. (NRDC, Public Meeting Transcript, No

. 4.7 a t p.

73 )

In this preliminary rulemaking, DOE is not considering adding a p roduct class for electric

po ol heaters, w hich would include heat pump pool heaters. D OE understands that manufacturers

us e the coefficient of performance to represent the energy efficiency of heat pump pool heaters. g

g U.S. Department of Energy. A C onsumer’s Guide to E nergy Efficiency and Renewable E nergy: Heat Pump

Sw imming P ool Heaters. September 15, 2005.

<w ww.eere.energy.gov/consumer/your_home/water_heating/index.cfm/mytopic=13200>

2

­ 17DOE currently has no test procedure to measure the coefficient of performance of a h eat pump

po ol heater. The existing test procedures and energy conservation standards for gas­fired pool

he aters are based on a t hermal efficiency metric. Therefore, DOE intends to consider amended

st andards only for gas­fired pool heaters in today’s preliminary rulemaking.

2.2 .2.13 Product Class Divisions for Residential Pool Heaters

Fo r this current activity, DOE reviewed the residential pool heater market to identify the

pr oducts available to consumers by surveying the products from the Federal Trade Commission

an d the California Energy Commission (CEC) product databases. DOE examined the

re lationship between input capacity and thermal efficiency, and identified pool heaters with input

ca pacities ranging from 50 to 1,000 kBtu/h. For the entire range of input capacities, D OE did not

id entify any trends to suggest a r elationship exists b etween input rating and thermal efficiency.

The refore, DOE b elieves the existing product class for gas­fired pool heaters is appropriate and

th at a s ingle amended energy conservation standard can be applied to all input ratings for

re sidential gas­fired pool heaters.

2.2 .3 Technology Assessment

As part of the market and technology assessment, DOE develops a l ist of technologies for

co nsideration for improving the efficiency of residential water heaters, d irect heating equipment,

an d pool heaters. Initially, these technologies encompass all those DOE b elieves are

te chnologically feasible. DOE removed those technology options whose energy consumption

co uld not be adequately measured by the existing DOE t est procedure. Finally, DOE also

re moved technologies that do not change or affect the energy efficiency metrics of water heaters,

di rect heating equipment, and pool heaters before moving on to the screening analysis. C hapter 3

o f the preliminary TSD i ncludes the detailed list of all technology options identified for each

ty

pe of residential water heater, direct heating equipment and pool heaters.

2.3 SCREENING ANALYSIS

Af ter DOE identified the technologies in the technology assessment that could potentially

im prove the energy efficiency of residential heating products, D OE conducted the screening

an alysis. Th e purpose of the screening analysis is t o evaluate the technologies to determine

wh ich options to consider further and which options t o screen out. DOE consults with industry,

te chnical experts, a nd other interested parties in developing a l ist of technologies for

co nsideration. DOE then applies the screening criteria to determine which technologies are

un suitable for further consideration in this preliminary rulemaking. Chapter 4 o f the preliminary

TSD

, the screening analysis, c ontains details on the criteria that DOE uses.

The screening analysis examines whether various technologies (1) are technologically

fe asible; (2) are practicable to manufacture, install, and service; (3) have an adverse impact on

pr oduct utility or availability; and (4) have adverse impacts on health and safety. In consultation

wi th interested parties, D OE reviews the list to determine if the technologies described in chapter

3 o f the preliminary TSD are practicable to manufacture, install, and service; would adversely

af

fect product utility or availability; or would have adverse impacts on health and safety. In the

2­18engineering analysis, D OE further considers the efficiency­enhancement options (i.e.,

t echnologies) that it did not screen out in the screening analysis.

2.3 .1 Max­tech and Prototype Consideration for Water Heaters

DO E received several general comments on the general screening analysis methodology

pr esented in the framework document. A.O. Smith and Bock Water Heaters (Bock) commented

th at DOE should not consider technologies that exist as prototypes as technically feasible for an

am ended energy conservation standard. Prototypes may exhibit performance during development

th at is not realized under real­world operating conditions. F urthermore, A.O. Smith and Bock

st ated that prototypes are not proven reliable in the field. (A.O. Smith, No

. 11 at p. 1; Bock, No

. 19 at p. 2; Bock, Southern Company, Public Meeting Transcript, No 4.7 at pp. 245–246) On the

ot her hand, EEI commented that DOE should analyze all potential high­efficiency options,

in cluding condensing gas and oil­fired appliances and heat pump electrical appliances, b efore

sc reening them out. (EEI, No

. 5 a t p. 2)

DO E considers all four screening criteria listed above when conducting the screening

an alysis for each technology. In addition, DOE is required to analyze the maximum

te chnologically feasible (“max­tech”) technologies, identified in either products or prototypes,

an d determine whether they are technologically feasible per 42 U.S.C. 6295(p)(2). DOE is

co nsidering only one technology based on a p rototype design: integral heat pump water heater

te chnology. For condensing technologies, D OE identified products currently available to

co nsumers. H eat pump and condensing water heaters are the max­tech technologies identified for

el ectric and gas­fired water heaters, r espectively. DOE also considered reliability and

pe rformance in real­world installations and determined the economic benefit, if any, of highe fficiency products to consumers. F or prototypes not distributed to consumers in the field, DOE

re lied on published research results from reliability and performance testing efforts.

DO E screened out several technologies for each of the three heating products that do not

me et the four criteria described above. DOE eliminated 16 of the technologies that it identified in

th e market and technology assessment from further consideration. Chapter 4 o f the preliminary

TSD i ncludes each technology that DOE eliminated and the rationale for screening out each

te chnology (based on the four screening criteria). DOE also received comments from interested

pa rties on a n umber of the technologies. D OE p resents those comments and DOE’s decision.

Fu rther details on the technologies presented below can also b e found in Chapter 4 o f this

pr eliminary TSD.

2.3 .2 Flue damper for Oil­Fired Storage Water Heaters

Bo ck commented that DOE should eliminate flue dampers as a t echnology for storage

wa ter heaters because they are not permitted on oil­fired water heaters by National Fire

Pr otection Association standards and will increase cost without increasing efficiency. (Bock, No

. 19 at p. 2)

2­19DOE agreed with Bock and did not consider flue dampers as a t echnology option for oilf ired water heaters. In p articular, DOE screened out buoyancy­operated flue dampers due to the

ad verse impacts on safety. Safety concerns exist because the damper may not open due to the

lo w e nergy of the combustion products. If the flue is blocked, harmful combustion products will

en ter the space where the water heater is installed (i.e., i n a r esidence).

2.3 .3 Advanced Forms of Insulation for Storage Water Heaters

DO E screened out advanced forms of insulation for storage water heaters. DOE did not

id entify any manufacturers that have incorporated this technology into a c ommercially available

pr oduct, making the reliability and performance over the life of water heaters equipped with this

ty

pe of feature unknown. Additionally, advanced insulation technologies have not yet penetrated

th e water heater markets. The possible adoption of advanced insulation technologies creates new

pr oblems that manufacturers must first overcome. For example, manufacturers must demonstrate

du rability over the life of the water heater by maintaining a v acuum seal for vacuum insulation

te chnology. For aerogel insulation technology, manufacturers must address vulnerability to

sh ock and vibration that can reduce the effectiveness of aergoel. As a r esult, DOE b elieves that it

is not technologically feasible and not practicable to manufacture, install, and service advanced

fo rms of insulation technology. Chapter 4 o f the TSD, the screening analysis, i ncludes additional

de tails on the criteria used to screen out advanced forms of insulation.

EEI commented that DOE should consider that technologies such as advanced insulation

ma terials are "cross­cutting" technologies applicable to all types of storage water heaters

re gardless of design or fuel source. (EEI, No

. 5 a t p. 3) As stated above, DOE did not identify

an y manufacturers that have incorporated advanced forms of insulation materials into a

c ommercially available product. DOE b elieves this technology is still in the research phase.

2.3 .4 Heat Traps, P lastic Tanks, a nd Insulated Tank Bottoms for Storage Water Heaters

AH RI and Bock stated that DOE does not need to consider heat traps, p lastic tanks, o r

in sulated tank bottoms. ( GAMA, No. 4.5 a t p. 2; A.O. Smith, No

. 11 at p. 1; Bock, No

. 19 at p.

2) A.O. Smith commented that heat traps are already widely used on current products, p lastic

ta nks are merely another method of increasing insulating, and insulated tank bottoms are

in effective. (A.O. Smith, No

. 11 at p. 1) Bock further stated that plastic tanks do not increase

ef

ficiency and are unsafe at high water pressures. (Bock, No. 19 at p. 2)

DO E did not consider heat traps to be a d esign option for increasing the efficiency of

el ectric and gas­fired storage water heaters. D OE found heat traps were incorporated in the

ba seline models for electric and gas­fired water heaters.

DO E concurred with AHRI and did not consider plastic tanks or insulated tank bottoms

as technologies manufacturers typically use to increase the energy efficiency of their residential

wa ter heaters.

2­202.3.5 CO 2 Heat Pump Water Heater

A CO 2 heat pump water heater is a t ype of integral heat pump water heater that operates

by using carbon dioxide as a n atural refrigerant to transfer heat from the surrounding air to the

wa ter stored in the tank through a h eat pump loop. In response to the heat pump water heater

te chnology identified in the framework document, DOE received several comments regarding

th e screening analysis with respect to these types of water heaters.

AG A s tated that DOE should avoid treating heat pump water heater products as a

“ throwaway” technology in its analysis and focus on heat pump water heater products as they

ex ist today. AGA s tated that the max­tech option shown in the framework document (i.e., 3 .12

EF C O 2 heat pump water heater) does not represent currently available products and is too

st ringent. AGA s tated that DOE’s uneven treatment of the max­tech technologies reflects an

on going bias against including heat pump water heaters in a w ater heater efficiency rulemaking,

wh ereas DOE has included condensing combustion water heaters, w hich it had excluded in the

pr evious rulemaking at the screening stage. (AGA, No. 13 at p. 5) AHRI also commented that

th e energy factors and technologies for heat pump water heaters should reflect currently

av ailable products. ( GAMA, No. 4.5 a t p. 3)

DO E agreed with the interested parties and reviewed the heat pump water heater options

cu rrently available to consumers on the market. DOE found CO 2 heat pump water heaters are

on ly available outside of U.S. markets, w here they have been made available by government

sub sidy rebate programs. The necessary infrastructure to support manufacturing, installation, and

se rvice of a C O 2 heat pump water heater is not available in the United States on the scale

ne cessary to serve the relevant market at the time of the effective date of the standard.

Ac cordingly, DOE has screened CO 2 heat pumps from further consideration in the analysis.

2.3 .6 Integral Heat Pump Water Heater

Fo r the January 2001 final rule (the previous water heater rulemaking), which amended

en ergy conservation standards for certain types of residential water heaters, DOE screened out

he at pump water heaters from further consideration in the analysis. Th is determination was

in itially discussed in the Notice of Proposed Rulemaking (NOPR) for residential water heaters.

65 FR 25042, 25047 (April 28, 2000). More specifically, DOE determined in the April 2000

NOP R that heat pump water heaters are not economically justified based on the screening

an alysis. Th e Department based this conclusion on the following factors: (1) a r equired capital

in vestment that was 2.3 t imes the industry net present value (at the time of the previous

ru lemaking), (2) adverse utility impacts on about 10 million households living in homes with less

th an 1,000 square feet, and (3) adverse impacts on low­income and seniors­only households due

to a p rice increase about three times the expected 2003 baseline price for electric water heaters.

65 FR 25049.

DO E has revisited the decision to screen out heat p ump water heaters from the analysis in

to day’s preliminary rulemaking. Although DOE found that several market barriers still exist for

he at pump water heater market penetration, DOE also found that there have been several recent

2­21advancements in the industry. The following paragraphs discuss several of the screening criteria

in the context of the January 2001 final rule and the changes in the industry that have occurred

si nce 2001.

2.3 .6.1 Practicability to Manufacture

DO E still questions whether water heater manufacturers would have ample lead time to

in crease production of heat pump water heaters to present sales levels of electric water heaters

be fore the effective date of the standard, which is 5 y ears after the publication of the final rule. In

th e April 2000 NOPR, DOE noted that sales of heat pump water heaters have not exceeded

10 ,000 per year (less than 0.33 percent of electric water heater sales, a nd less than 0.17 percent

of all water heater sales) since the 1970s. 6 5 FR 25047. The latest ENERGY S TAR analysis

su ggests that add­on heat pump water heater shipments amount to fewer than 2,000 units per

ye ar. h DOE b elieves that the ENERGY S TAR figures are aligned with present­day sales of heat

pu mp water heaters, i ncluding both integral and add­on products. D OE notes that the only

re maining manufacturer of integral heat pump water heaters has taken its product off the market.

Cu rrently, three manufacturers produce add­on heat p ump water heaters; however, add­on heat

pu mp water heaters are not included in the preliminary analyses. D OE also notes that none of the

th ree major manufacturers of residential storage water heaters has a h eat pump design (integral

or add­on) in their residential product line.

As the April 2000 NOPR notes, t here are significant d ifficulties in capitalizing and

bu ilding heat pump water heater manufacturing facilities in the next few years to provide for the

ap proximate 4 m illion electric water heater sales occurring annually. i 65 FR 25047. Heat pump

wa ter heaters would require the introduction of a c ompletely new product to the market with a

m arket volume greater than that of all room air­conditioner shipments in the United States. j The

Ap ril 2000 NOPR also cites a 1 994 Arthur D. Little report where the estimated investment cost

to convert to heat pump water heaters was $750 million. 65 FR 25048. Based on the estimated

in vestments in the 1994 Arthur D. Little report, DOE concluded in the April 2000 NOPR that

gi ven the current levels of profitability of the water heater industry and the limited capital

re sources, s ome manufacturers will be unable to finance these costs. k 65 FR 25048.

Ho wever, DOE recently announced final criteria for the ENERGY S TAR program,

wh ich applies to residential add­on or integral heat pump water heaters with a m inimum energy

h U.S. Department of Energy, ENERGY STAR Residential Water H eaters: Final Criteria A nalysis

.

ww w.energystar.gov/ia/partners/prod_development/new_specs/downloads/water_heaters/WaterHeaterAnalysis_Fin

a l. pdf. A pril 1

, 2008.

Sta nonik, F

. A. AHRI Heating Products Data S ubmission

. Air C onditioning, Heating, and Refrigeration Institute,

Ar lington, V A. March 12, 2008.

j U.S. Department of Energy–Office of Codes a nd Standards, Technical Support Document:

En ergy E fficiency Standards fo r Consumer P roducts: Room Air Conditioners, Water H eaters, Direct Heating

Eq uipment, Mo bile H ome Furnaces, Kitchen Ranges and Ovens, Pool Heaters, Fluorescent Lamp Ballasts &

T

elevision S ets

, 1993. Department of Energy. Washington, D.C. Report No. DOE/EE­0009.

k Dieckmann, J. T., R. F. Topping, and C. E. Shorey, Technical Analysis of the Proposed DOE Electric H eat Pump

Wa ter H eater E nergy Efficiency Standard

, August 31, 1994, Arthur D. Little I nc. Prepared for the Gas Appliance

Ma nufacturers A ssociation

. 2­ 22 ifactor of 2.0 a nd a m inimum first­hour rating requirement of 50 gallons per hour. DOE b elieves

th at the ENERGY S TAR program provides water heating manufacturers with an incentive to

pr oduce heat pump water heaters for their product lines. Th e ENERGY S TAR market

pe netration goal is 10 percent of the market (approximately 480,000 units per year) by 2015. l If

ENERGY S TAR’s target becomes a r eality by 2015, this would effectively begin a m arket

tr ansformation by the effective date of the standard.

In addition, with DOE’s announcement of the ENERGY STAR program for residential

wa ter heaters, G eneral Electric (GE) a nnounced that i t will begin producing the General Electric

Hy brid Electric Water Heater, which “combines energy­saving heating technology with

tr aditional electric heating systems used in most standard water heaters on the market today

wi thout sacrificing the amount of hot water it can deliver.” G E p lans to make the product

av ailable in the fourth quarter of 2009. m DOE b elieves more of the major manufacturers of

re sidential water heaters will begin to introduce heat pump water heaters, s o they can participate

in the ENERGY S TAR program and stay competitive. DOE seeks comment on whether

ma nufacturers would be able to finance the investment costs necessary to convert their entire

ex isting product lines to heat pump water heaters by the effective date of an amended standard in

or der to meet a h eat pump water heater standard. DOE a lso seeks comments as to what portion of

ma nufacturers’ product lines would be converted to heat pump water heaters by the effective

da te of an amended standard in response to ENERGY S TAR (e.g., i f standards did not reach heat

pu mp water heater levels).

2.3 .6.2 Practicability to Install

Fo r consideration of a m inimum energy conservation standard at an efficiency level

co rresponding to heat pump water heaters, h eat pump w ater heaters would need to be capable of

be ing installed in all of the types of installations currently serviced by the residential electric

st orage­type water heating market. In the April 2000 NOPR, DOE concluded that heat pump

wa ter heaters could be installed in most locations. 65 FR 25049. However, the April 2000 NOPR

al so p ointed out that heat pump water heaters could not be used as replacements for standard

el ectric water heaters in all installations. 6 5 FR 25048. The April 2000 NOPR used an example

of a s mall electric water heater that is often used in a m obile home, an under­counter application,

an apartment, a s mall condominium, or other application where space is limited. DOE estimated

th at approximately 30 percent of all electric water heater installations are in residences smaller

th an 1,000 square feet in size. n In many of these installations, s pace restrictions would make it

im possible to replace the existing electric resistance water heater with a h eat pump water heater

de sign without significant and costly modifications to the existing space.

U. S. Department of Energy, ENERGY STAR Residential Water H eaters: Final Criteria A nalysis

.

ww w.energystar.gov/ia/partners/prod_development/new_specs/downloads/water_heaters/WaterHeaterAnalysis_Fin

a l. pdf, A pril 1

, 2008, p. 5.

m ®

General Electric, GE first to a nnounce water h eaters that will m eet new DOE ENERGY STAR® standards.

<w ww.geconsumerproducts.com/pressroom/press_releases/appliances/energy_efficient_products/doetanklesshybrid.

h t m> A pril 1

, 2008.

n U.S. Department of Energy

– E nergy Information Administration, Residential Energy

Co nsumption S urvey: Household E nergy Consumption and Expenditures 1 997, 1999.

<h ttp://www.eia.doe.gov/emeu/recs/recs97/publicusefiles.html>

2­23 lAn integral heat pump water heater with a c ompressor, evaporator coil, and evaporator

fa n mounted on top o f the storage tank will add approximately 8 t o 16 inches to the top o f the

ta nk. Assuming that for a g iven volume there is no change in tank geometry from the electric

re sistance model, this extra height of the heat pump design will present installation problems

wh ere the existing water heater enclosure is height limited, as is the case with many existing

lo wboy water heater installations. Ea rly field tests also found that the space in which the heat

pu mp water heater is located must be large enough to p rovide adequate air flow a nd must

pr ovide ready access for air filter changes on the heat pump evaporator coil.

The April 2000 NOPR also p ointed out that the refrigeration subsystem of a h eat pump

wa ter heater needs sufficient flow o f warm air across the evaporator coils to serve as a h eat

so urce. Without this heat source, the heat pump cannot function and must revert to electric

re sistance operation. Placing the heat pump water heater in a n onventilated closet may not

pr ovide an adequate heat source. Operation in heat pump mode will generally require warm air

ex change between the house and the closet on the order of 100 cubic feet per minute or more.

Thi s turnover is unlikely to be achieved with natural ventilation through a c loset door. A h eat

pu mp water heater installed behind even a f ully louvered closet door could experience short

cy cling of cold exhaust air, affecting efficiency and capacity, and thus performance of the unit.

Co nsumers must also include a s ystem to manage the condensate produced at the

ev aporator coil. When air blows across the coil, moisture in the air is condensed to liquid

be cause of the low t emperatures present in the coil. The amount of liquid produced is primarily a

f unction of humidity. Heat pump water heaters installed in unconditioned spaces in the South,

Eas t, and Midwest United States can be expected to produce between several quarts to several

ga llons of condensate per day during the cooling season. Locating the heat pump in the

co nditioned space will not eliminate all the condensate buildup u nless the air conditioning

sy stem can dehumidify the air. Because eliminating all the moisture in the air with the air

co nditioning system is difficult to ensure in practice, a c ondensate drain is usually included in

de signs. H owever, drain piping may complicate hall c loset, attic, garage, or other installations

wh ere access to a d rain may not be readily available. A condensate pump may be needed to

mo ve condensate to a d rain.

Si nce the April 2000 NOPR and the January 2001 final rule, additional testing has been

co nducted on the prototype heat pump water heater. In 2004, the CEC p ublished a r eport with

re sults of testing of a r efined heat pump water heater, b ased on the design from the April 2000

NOP R. o Testing and redesign has produced a m arket­optimized model. According to the report,

20 redesigned units were installed for testing in actual operating conditions. The report found

th at the redesign required a h igh installation cost ( $1,100 to $1,450), b ut that the heat pump

wa ter heater design offered attractive energy savings for consumers. A dditionally, the report

ci tes that cost reductions may be possible by reducing the costs of individual heat pump

o California Energy Commission, Design Refinement and Demonstration of a Ma rket­Optimized Heat­Pump Water

He ater

, A pril 2 004.

2­ 24components and by simplifying the overall design. p For example, the design could be made

li ghter to reduce the number of technicians required for installations (two technicians were

re quired for these tests), and the design and operation could be modified to streamline the

in stallation process and reduce the amount of time required for installation.

Re garding condensate management, the 2004 CEC report also cited several instances

wh ere complicated installations were required for condensate disposal. All of the heat pump

wa ter heaters required condensate drains and some installations required extensive piping

th rough walls and condensate pumps to move liquids t o remote locations, w hich resulted in

in creased installation and material costs.

The 2004 heat pump water heater redesign also includes an option for a c ondensate

ma nagement system (CMS) as an alternative to a c ondensate drain. The CMS includes an

el ectric resistance system to evaporate condensate as it collects, r ather than drain it. Although

co stly piping installations are avoided, operating this resistive element will reduce the overall

en ergy efficiency.

In stallation of heat pump water heaters is expected to be less of a p roblem with

tr aditional single­family homes. P roducts are commonly installed in basements, g arages, o r

ut ility rooms where access to condensate drainage is a vailable, and where cool air from the heat

pu mp water heater is not likely to negatively affect the main living space. However, installations

un der stairwells and in closets remain common and are expected to generate installation and

pe rformance problems. A dditionally, condensate pumps may be needed in these areas.

Du ring the previous rulemaking for residential water heaters, D OE received a c omment

fr om the Georgia Power and Alabama Power companies s howing that between 20 and 30 percent

of their consumers have water heaters installed in locations unacceptable for heat pump water

he aters, p rimarily due to air volume constraints. q The April 200 NOPR anticipated that specific

ho using subgroups, s uch as apartment units, s hould e xpect an even higher incidence of

in stallation problems.

DO E b elieves that heat pump water heaters could be installed in most locations of electric

st orage water heaters. For this preliminary rulemaking, DOE considered the various installation

si tuations for heat pump water heaters, and found that installation would be practical in these

si tuations and estimated the installation costs. C hapter 8 o f this TSD o f the life­cycle cost (LCC)

an alysis includes details on installation costs.

In its recent press release, GE announced its integral heat pump water heater design for

20 09. GE claims that the heater is easy to install because it uses the existing water and electrical

p California Energy Commission, Design Refinement and Demonstration of a Ma rket­Optimized Heat­Pump Water

He ater

, A pril 2 004.

q Dieckmann, J. T., R. F. Topping, and C. E. Shorey, Technical Analysis of the Proposed DOE Electric H eat Pump

Wa ter H eater E nergy Efficiency Standard, August 31

, 1994, Arthur D. Little I nc. Prepared for the Gas Appliance

Ma nufacturers A ssociation

. 2­ 25connections and footprint of a t raditional tank hot water heater, and that it is “perfect” for new

co nstruction or replacement. r

DOE discusses the installation costs of heat pump water heaters in Chapter 6 o f the LCC.

Ho wever, DOE specifically seeks comments on how t he market for heat pump water heaters has

ch anged since the April 2000 NOPR and January 2001 f inal rule, and the number of installations

th at would incur a s ignificant increase in cost due to extensive modifications that will need to be

ma de to the residence to accommodate a h eat pump water heater. See the issues for which DOE

se eks comment within the executive summary.

2.3 .6.3 Product Reliability and Practicability to Service

Du ring the April 2000 NOPR, DOE noted that long­term reliability in heat pump water

he ater products has not been established, and many interested parties voiced concerns. DOE also

no ted that virtually all heat pump water heater programs since the 1980s were discontinued in the

Un ited States due to poor reliability in programs and product designs.

Nor theast Utilities (NU) commented during the April 2 000 NOPR that it was the only

ut ility to place a s ubstantial order (more than 2,000 units) for heat pump water heaters in the past

5 y ears. NU stated that it installed only 600 of these 2,000 heat pump water heaters because of a

f ailure rate exceeding 10 percent. s DOE is aware that other heat pump water heater programs

ha ve been conducted since the January 2001 final rule and requests comments and information

ab out these programs. S ee the issues for which DOE s eeks comment within the executive

su mmary.

The existing service and maintenance infrastructure for electric water heaters consists

mo stly of plumbers, w ho will likely be capable of installing residential heat pump water heaters

be cause of similar installation procedures. H owever, repair and maintenance problems associated

wi th an installed heat pump water heater may require a s killed heat pump technician who can

tr oubleshoot the components of a h eat pump water heater, including the refrigerant compressor,

ex pansion device, p iping, refrigerant­to­air heat exchanger (evaporator), refrigerant­to­water heat

ex changer (condenser), fan, sensors, c omplex controls, d efrosters, f reeze protection, and electric

re sistance backup e lements. Th ese components are far more complex than the typical electric

wa ter heater, which requires two screw­in electric resistance elements, a t ank, and thermostat

co ntrols. P lumbers generally do not have training or background in repairing appliances such as

a f ailing heat pump water heater. Plumbers are also not a l ogical source of labor for these repairs

be cause they are among the highest­paid residential c ontractors. P remature (non­tank) heat pump

wa ter heater failures are typically caused by failure of the electrical components (fans, p umps,

el ectronic controls, o r wiring) or through loss of refrigerant. Generally, this type of repair work is

do ne by small appliance repair personnel who repair refrigerators, f reezers, room air

r ®

General Electric, GE first to a nnounce water h eaters that will m eet new DOE ENERGY STAR® standards.

ww w.geconsumerproducts.com/pressroom/press_releases/appliances/energy_efficient_products/doetanklesshybrid.h

t m

, A pril 1

, 2008.

s Morante, P., Water H eater S tandards R ulemaking

, DOE Docket Number EE­RM­97­900, Comment No. 40,

De cember 7

, 1998, Northeast Utilities.

2­ 26conditioners, a nd other “white” goods (e.g., w ashing machines). Small appliance repair

pe rsonnel have backgrounds in troubleshooting fans, pumps, w iring, and controls and are often

ce rtified to repair low­ and high­pressure, hermetically sealed refrigeration equipment.

The refrigerant in heat pump water heaters itself presents reliability issues because it can

le ak out of a s ystem gradually, resulting in decreased performance, or leak out of the system

en tirely, resulting in system failure. If leaks occur, the refrigerant usually escapes from the

pr essurized system in the form of a g as. DOE assumes that the same safety concerns that are

es tablished for residential refrigerator appliances can be applied to heat pump water heaters.

An y failure of these system components can cause heat pump water heaters to stop

f unctioning. By comparison, gas or electric water heaters are less complex because they have

fe wer parts, c ontrols, a nd systems, a nd are therefore relatively maintenance free. The most likely

po int of failure of either electric or gas water heaters is a l eak from the tank wall, leading to

co mplete replacement. Heat pump water heaters can still fail in the same manner as a g as or

el ectric water heater, in addition to failures associated with the other heat pump components

pr eviously mentioned. For these reasons, r epair of heat pump water heater components (when

po ssible) may be an attractive alternative to simple replacement.

He at pump water heater repair costs might be reduced by sending the failed unit back to

th e manufacturer for reconditioning—already a c ommon p ractice in the residential refrigerator

in dustry. Appliances are returned to the factory for reconditioning and resale, and replacements

ar e installed rather than servicing the original unit. However, the heat pump water heater

ma nufacturers and service technicians would need to develop t he infrastructure to facilitate this

pr actice.

Al though many of these serviceability concerns still exist in the market today, an

ex tensive reliability study that Oak Ridge National Lab (ORNL) published in May 2002 found

he at pump water heaters to be more reliable than heat pump water heaters analyzed in previous

st udies. t The study examined 10 prototype drop­in heat pump w ater heaters and ran the units

th rough a d urability test to represent approximately 10 years of normal compressor cycling

(w hich would meet the hot water needs of a r esidence). The study found that the heat pump

po rtion of the heat pump water heaters experienced no compressor, evaporator fan, or power

re lay failures during the durability test run.

The study also examined the effects of degradation in performance of heat pump water

he aters over the test period. Efficiency measurements on all units showed that the prototype heat

pu mp water heater is at least twice as efficient as conventional electric resistance water heaters.

The EFs measured at the end of the durability run at ambient conditions ranged from 1.8 t o 2.1.

t Baxter, Van B. and R. L. Linkous. Durability Testing of a D rop­In Heat Pump Water H eater.

ww w.ornl.gov/sci/btc/pdfs/TM2002_92.pdf. M ay 2002.

2­ 27The study concluded that none of the heat pump water heaters suffered any performance

de gradation after undergoing more than 7,000 compressor cycles in the durability test. u

However, the 2004 CEC r eport cited failures during separate field testing. The rate of

fa ilures was “higher than would be acceptable in the residential water heater market,” t he report

sa id. Failures primarily involved the control system. Of the 20 units installed, nine units

ex perienced failures with the control board and six of those control boards were replaced

en tirely. However, the manufacturer indicated that these failures were addressed and corrected in

sub sequent designs. v

ORNL conducted another reliability test in 2004 with five units. Th is test included the

re designed units cited in the 2004 CEC r eport. The test was similar to the 2002 ORNL reliability

te st cited previously. ORNL reported that no units failed the durability test. Additionally, two

un its included CMSs instead of condensate drain systems. Th e results of the test included

re commendations for the manufacturer, p articularly a c ontrol board redesign, more robust

el ectrical and mechanical components, a nd a m ore vigorous quality assurance program at the

po int of manufacture. w

2.3.6.4 Other Considerations

So uthern Company stated that a h eat pump water heater in an interior location will likely

pr oduce unacceptable noise levels. ( Southern Company, No. 10 at p. 2) DOE’s review o f the

20 04 CEC r eport found that field test participants complained about the increase in noise levels. x

The CEC r eport found that heat pump water heater noise levels are in the range of 45 to 60

de cibels (dB), and that installations near occupied spaces created undesirable conditions for

so me participants. Th e report recommended that noise reduction methods should be considered.

2.3 .6.5 Preliminary Conclusions from the Screening Analysis for Heat Pump

Wa ter Heaters

DO E did not screen out integral heat pump water heaters in the preliminary analyses.

Al though DOE has presented some of the same market barriers identified in the April 2000

NOP R for residential water heaters, i t also has found some significant changes, s tudies, and

ad vancements in the market since the January 2001 final rule. DOE seeks specific comments on

th e viability of heat pump water heaters as a t echnology for electric storage­type water heaters

an d whether heat pump water heaters would be practicable to manufacture, service, and install on

a s cale necessary to serve the relevant market by the effective date of any amended standard,

u Baxter, Van B. and R. L. Linkous. Durability Testing of a D rop­In Heat Pump Water H eater.

htt p://www.ornl.gov/sci/btc/pdfs/TM2002_92.pdf. M ay 2002, p. 1.

v California Energy Commission, Design Refinement and Demonstration of a Ma rket­Optimized Heat­Pump Water

He ater

, A pril 2 004.

w Baxter, Van B. and R. L. Linkous. Heat Pump Water H eater D urability Testing

– P hase II.

htt p://www.ornl.gov/sci/btc/pdfs/hpwh­durtst2­TM­2004­111.pdf. M ay 2004.

x California Energy Commission, Design Refinement and Demonstration of a Ma rket­Optimized Heat­Pump Water

He ater

, A pril 2 004.

2­ 28which is 5 y ears after publication of the final rule. See the issues for which DOE seeks comment

wi thin the executive summary.

2.3 .7 Condensing Technologies Used in Direct Heating Equipment

Le nnox commented that DOE should delete condensing as a t echnology for direct heating

eq uipment. The company believes that the test procedures do not provide measurements or

ca lculations to establish the energy reduction resulting from condensing a p ortion of the water

va por in the flue gas. Lennox also states that it is d ifficult to implement a c ondensate drain on a

f reestanding room heater. (Lennox, No

. 17 at p. 3)

DO E screened out condensing pulse combustion, but considered condensing technologies

fo r room heaters because DOE identified a f ully condensing room heater currently available to

co nsumers. Th is efficiency level represents the max­tech efficiency level for this product class.

2.3 .8 Improved Blower Motor Efficiency for Direct Heating Equipment, Increased

In sulation for Floor Furnaces, a nd Air Circulation Fans for Direct Heating

Eq uipment

AH RI and Lennox commented that improved blower motor efficiency, increased

in sulation for floor furnaces, a nd air circulation fans for direct heating equipment do not need to

be considered because no efficiency gain will result. Additionally, Lennox believes that DOE

ma y not have authority under the Energy Policy Act o f 2005 (EPACT 2005) to regulate blower

mo tor efficiency. (GAMA, No. 16 at p. 2; Public Meeting Transcript, No

. 4.7 a t p. 68; Lennox,

No. 17 at p. 2)

Se ction 135 of EPACT 2005 amends section 325 of EPCA t o provide DOE the authority

to prescribe energy conservation standards or energy use standards for electricity used to

ci rculate air through duct work of residential furnaces. ( 42 U.S.C. 6295(f)(4)(D)) As explained

be low, DOE agrees with Lennox’s assertion that DOE d oes not have the authority to regulate

bl ower motor efficiency for direct heating equipment.

Di rect heating equipment is defined as “a class of home heating equipment, not including

fu rnaces, d esigned to furnish warmed air to the living space of a r esidence, directly from the

de vice, without duct connections....” ( 10 CFR 430.2) Consequently, direct heating equipment do

no t circulate air through duct work with blower motors.

DO E agrees with the comments from AHRI and Lennox and screened out improved fan

or blower motor efficiency technology for direct heating equipment. Achieving more efficient

mo tor designs for direct heating equipment applications is an ongoing challenge and no

sub stantial gain in energy efficiency has occurred in recent years. Brushless direct current (DC)

el ectric motors may increase energy efficiency, b ut this technology has not yet penetrated the

ma rket. Thus, i t is not practicable to manufacture, install, and service this technology for direct

2­29heating equipment, and DOE will not consider improved fan or blower motor efficiency in the

an alysis.

2.3 .9 Floor Furnace Safety Issues

AH RI also commented that insulating the floor furnace might cause the floor grate

te mperature to rise to a l evel that can create a s afety issue. (GAMA, Public Meeting Transcript,

No. 4.7 a t pp. 68–69)

DO E did not screen out increased insulation for floor furnaces because insulation can

pr event heat from escaping into the unconditioned space of the subfloor. Floor furnaces are

in stalled with the majority of the unit placed outside of the conditioned space. Thus, i nsulation

pr events losses of heat through the outer casing.

Re garding AHRI’s assertion that insulating the floor furnaces may cause the floor grate

te mperature to rise, DOE found that floor furnace models, i ncluding baseline models, a re

eq uipped with a t hermal cut­out switch to prevent floor grate temperatures from rising to unsafe

le vels. Th e thermal cut­out switch is designed to cut power to the gas valve and prevent it from

ope rating so that gas cannot be supplied to the burner when operating temperatures exceed rated

te mperatures of the floor furnace.

2.4 ENGINEERING ANALYSIS

The engineering analysis (chapter 5) establishes the relationship between the

ma nufacturing production cost and the efficiency for each residential heating product. This

re lationship serves as the basis for cost/benefit calculations in terms of individual consumers,

ma nufacturers, a nd the Nation. Chapter 5 d iscusses p roduct classes DOE analyzed, the

re presentative baseline units, t he incremental efficiency levels, t he methodology DOE used to

de velop the manufacturing production costs, t he cost­efficiency curves, t he impact of efficiency

im provements on the considered products, a nd the methodology DOE used to extend the analysis

to low­shipment­volume product classes.

In the engineering analysis, D OE evaluates a r ange of product efficiency levels and their

as sociated manufacturing costs. Th e purpose of the analysis is to estimate the incremental

ma nufacturer selling prices (MSPs) for a p roduct that would result from increasing efficiency

le vels above the level of the baseline model in each product class. Th e engineering analysis

co nsiders technologies not eliminated in the screening analysis. Th e LCC analysis uses the coste fficiency relationships developed in the engineering analysis.

DO E typically structures its engineering analysis around one of three methodologies: (1)

th e design­option approach, which calculates the incremental costs of adding specific design

opt ions to a b aseline model; (2) the efficiency­level approach, which calculates the relative costs

of achieving increases in energy efficiency levels without regard to the particular design options

us ed to achieve such increases; and/or (3) the reverse­engineering or cost­assessment approach,

2­30which involves a “ bottom­up” manufacturing cost assessment based on a d etailed bill of

ma terials derived from tear­downs of the product being analyzed.

Fo r the preliminary analysis, D OE used both the efficiency level approach to identify

in cremental improvements in efficiency for each product and the cost­assessment approach to

de velop a cost for each efficiency level. This approach involved physically disassembling

co mmercially available products, c onsulting with outside experts, r eviewing publicly available

co st and performance information, and modeling equipment cost. The efficiency levels that DOE

co nsidered in the engineering analysis are attainable by using information about technologies

cu rrently available on the market and commonly incorporated into residential heating products

by manufacturers. In addition, DOE associated each efficiency level with a s pecific technology

to provide interested parties with additional transparency of assumptions and results and the

ab ility to perform independent analyses for verification. Chapter 5 o f the preliminary TSD

de scribes the methodology that DOE used to perform the efficiency level analysis and derive the

co st­efficiency relationship.

In response to the approach outlined in the framework document, DOE received

co mments regarding the following issues: (1) the baseline products for instantaneous gas­fired

wa ter heaters and pool heaters; (2) the maximum technology efficiency levels; (3) the efficiency

le vels analyzed in the preliminary engineering analysis; and (4) the energy­efficiency equations

fo r gas­fired and electric storage water heaters.

2.4 .1 Baseline Products

DO E used baseline products in the engineering analysis to establish a r eference point for

im proving the energy efficiency of each product class. C hapter 5 o f the preliminary TSD

in cludes details on the baseline products for each product class.

2.4 .1.1 Instantaneous Gas­Fired Water Heater

The joint commenters stated that DOE’s choice of baseline product for instantaneous gasf ired water heaters may not be representative as the instantaneous gas­fired water heater market

de velops. ( Joint Comment, No

. 12 at p. 6)

Al though DOE recognizes many of the instantaneous g as­fired water heaters available on

th e market today are above the Federal minimum energy conservation standard, there are still

se veral models offered with an energy factor (EF) of 0.62. The baseline model represents the

mi nimum technology and lowest­cost product that a m anufacturer can produce. DOE b elieves

th e lowest­cost instantaneous gas­fired water heater a m anufacturer can produce would be at the

Fe deral minimum energy conservation standard level a nd would contain only the minimum

te chnologies necessary to meet the standard. DOE will take into account more efficiency

pr oducts and the distribution of efficiencies within t he market in the national impacts analysis.

2­312.4.1.2 Gas­Fired Pool Heaters

DO E developed two baseline gas­fired pool heaters—the first with a s tanding pilot

ig nition system and the second with an electronic ignition system. DOE distinguished between

th e two ignition systems because of the energy use difference between electronic ignition and

st anding pilot systems. T he DOE test procedure does n ot account for these differences in energy

us e in the thermal efficiency metric. The thermal efficiency descriptor specified by EPCA a nd

me asured by DOE’s test procedure does not take into account the energy efficiency benefits of

ig nition sources that are alternatives to standing pilots (e.g., e lectronic ignition). The thermal

ef

ficiency descriptor also does not account for additional energy consumption of a c ontinuous,

st anding pilot light when the burner is off because it is a s teady­state test procedure and thermal

ef

ficiency is determined when the burner is on. Therefore, standards expressed in terms of this

de scriptor cannot require use of such alternative ignition sources or capture their full energy

sa vings benefit. Consequently, DOE developed two baseline products and two efficiency

pa thways to capture the benefits and differences in energy use associated with electronic

ig nition.

2.4 .2 Maximum Technology Efficiency Levels

DO E has determined the maximum improvement in energy efficiency that is

te chnologically feasible (“max­tech”) for water heaters, d irect heating equipment, and pool

he aters, as required by section 325(o) of EPCA. (42 U .S.C. 6295(o)) DOE identified the maxt ech levels as part of the engineering analysis. C hapter 5 i ncludes additional details on the maxt ech levels DOE determined for this preliminary stage.

In response to the framework document, interested parties commented on the energy

ef

ficiency levels proposed for the max­tech levels. DOE revised the max­tech levels in response

to comments submitted by interested parties.

2.4 .2.1 Heat Pump Water Heaters as the Max­Tech Efficiency L evel for Electric

St orage Water Heaters

As discussed previously, DOE does not consider add­on heat pump water heaters to be

co vered products and excluded them from this rulemaking. An add­on heat pump water heater

do es not meet EPCA’s definition of water heater because it does not include a s torage tank and is

no t capable of heating water for use by itself. However, DOE has tentatively decided not to

sc reen out integral heat pump water heaters. C onsequently, DOE surveyed the market for

cu rrently available integral heat pump water heaters.

As noted above in the screening analysis discussion (section 2.3.6.1), only a f ew

ma nufacturers have sold integral heat pump water heaters over the years and recently, the only

ma nufacturer producing this type of equipment has since removed its heat pump water heater

mo del from the market. One major manufacturer, however, has announced its plans to release a

h eat pump water heater in late 2009, which would be eligible for the ENERGY S TAR labeling

pr ogram for residential water heaters (i.e., i t will b e rated with an EF o f at least 2.0). DOE b ased

2­32its analysis of integral heat pump water heaters on the design that was previously offered for sale

an d prototypes that will be introduced into the market in the coming years.

AG A u rged DOE to include heat pump water heaters as the max­tech option for electric

wa ter heaters to maintain consistency with a c ondensing gas­fired water heater as the max­tech

opt ion for gas­fired water heaters. A GA also commented that there are heat pump water heaters

av ailable today. (AGA, No. 4.6 a t p. 3) NRDC supported DOE’s proposal to analyze heat pump

wa ter heaters as a t echnology for electric storage water heaters. NR DC stated its belief that heat

pu mp water heaters provide the same service as electric storage water heaters. ( NRDC, Public

Me eting Transcript, No

. 4.7 a t p. 41)

On the other hand, Southern Company stated that there are several limitations with heat

pu mp water heaters that make them impractical as a t echnology for storage water heaters.

(S outhern Company, Public Meeting Transcript, No

. 4.7 a t p. 38) AHRI also b elieves that the

ef

ficiency levels DOE analyzes should reflect currently available products. ( GAMA, No. 4.5 a t

p. 3)

EEI

, Bock, AHRI, and A.O. Smith commented that the highest efficiency level for

el ectric storage water heaters is probably not as high as the 3.12 EF, which is based on a

J apanese prototype heat pump water heater that is not readily available for installation in the

Un ited States. ( EEI, No

. 5 a t p. 5; GAMA, No. 4.5 at p. 3; A.O. Smith and Bock, Public Meeting

Tra nscript, No

. 4.7 a t pp. 106­108; A.O. Smith, No

. 1 1 at p. 1) EEI and A.O. Smith stated their

be lief that the maximum available efficiency level for electric storage water heaters is closer to

2.0 EF. (EEI, No

. 5 a t p. 5; A.O. Smith, No

. 11 at p. 1)

Si nce the framework document was published, DOE screened out CO 2 heat pump water

he aters (a type of integral heat pump water heater, see section 2.3.5 a bove) from the analysis due

to serviceability, manufacturability, and installation concerns. These concerns were raised by

ma ny interested parties in response to the framework document. For the preliminary analysis,

DO E identified the max­tech efficiency level for electric storage water heaters as having an EF

of 2.20 and discusses the issues associated with heat pump water heaters in the Screening

An alysis section above.

2.4 .2.2 Condensing Water Heaters as the Max­Tech Efficiency L evel for GasF ired Storage Water Heaters

As proposed in the framework document, DOE included c ondensing technology as the

ma x­tech for gas­fired storage water heaters.

AG A pointed out that there are no condensing gas water heaters commercially available

on the market. (AGA, Public Meeting Transcript, No

. 4.7 a t p. 17) A.O. Smith also questioned

DO E’s choice of a c ondensing water heater as the max­tech technology for residential gas­fired

wa ter heaters. (A.O. Smith, Public Meeting Transcript, No

. 4.7 a t p. 106­07) A.O. Smith stated

th at a v alue of 0.82 EF (instead of the 0.86 EF initially proposed) would be a m ore appropriate

2­33value for the max­tech level for a g as­fired storage water heater with a r ecovery efficiency of 95

pe rcent. (A.O. Smith, No

. 11 at p. 1)

DO E found several commercially available condensing water heaters. Although several

of these models have an input rating of 76,000 Btu/h, j ust above the residential limit, DOE notes

th at many of them have been placed into residences and are marketed for high­efficiency

re sidential applications. Because of their higher input rating, these condensing gas­fired water

he aters are tested using the thermal efficiency test for commercial equipment. After reviewing

se veral reports and talking to manufacturers and industry experts, D OE has concluded that these

co ndensing gas­fired water heaters, w hen tested using the test procedure for residential products,

wo uld obtain EF r atings in the range of 0.75 to 0.80 EF. DOE used 0.77 EF a s the max­tech

ef

ficiency level because that was the most common EF rating found for a c ondensing gas­fired

wa ter heater. DOE b elieves that manufacturers would make minor changes to these commercial

un its to include them in their residential product o ffering, including adding flammable vapor

ig nition resistant (FVIR) technology. Consequently, DOE used an EF value of 0.77 to represent

th e max­tech efficiency level of gas­fired storage water heaters.

2.4 .2.3 Condensing Direct Heating Equipment as the Max­Tech Efficiency Level

fo r Gas­Fired Room Heaters

Le nnox commented that DOE should delete condensing as a t echnology for direct heating

eq uipment. Lennox also stated that it is difficult to implement a c ondensate drain on a

f reestanding room heater. (Lennox, No

. 17 at p. 3)

DO E found that gas wall fan­type, gas wall gravity­type, and gas floor­type direct heating

eq uipment are all equipped with induced draft combustion systems and these technologies

co rrespond to the max­tech efficiency levels. M anufacturers of gas room­type direct heating

eq uipment produce products capable of condensing operations at 93 percent AFUE. D OE

co nsidered only products with efficiencies in the representative input capacity range for

id entification of the max­tech efficiency levels. D OE did not consider condensing operations as

Le nnox suggested for three of the four types of direct heating equipment. However, DOE did

id entify a f ully condensing room heater currently on the market. The installation manual for that

he ater states that it can be installed in an existing fireplace or as a f reestanding stove and can be

ve nted using polyvinyl chloride (PVC) piping. DOE seeks additional comment on Lennox’s

co ncerns regarding condensate drains on freestanding room heaters. S ee the issues for which

DO E seeks comment within the executive summary.

2.4 .2.4 Condensing Pool Heaters as the Max­Tech Efficiency L evel for Gas­Fired

Po ol Heaters

AH RI and Raypak commented that DOE should not examine condensing technology for

po ol heaters. ( AHRI, No

. 4.5 a t p. 2; Raypak, Public Meeting Transcript, N o. 4.7 a t pp. 81)

Ra ypak commented that DOE should not consider condensing pool heaters because a s ubstantial

nu mber of residential pool heaters are installed outdoors and there are concerns about the

co ndensate management in cold weather. (Raypak, Public Meeting Transcript, No

. 4.7 a t p. 81)

2­34DOE identified a c ommercially available residential pool heater with a t hermal efficiency

le vel of 95 percent currently offered for sale. DOE’s identification of the max­tech efficiency

le vel for residential pool heaters does not include consideration of the pool heater operation

fr equency or the cost justification of the technology. Instead, DOE only identifies the max­tech

ef

ficiency based on prototypes or existing commercially available products. B ecause pool heaters

wi th this efficiency level already are offered for sale, DOE considered the max­tech efficiency

le vel to be 95 percent thermal efficiency with condensing technology incorporated.

2.4 .3 Identification of Efficiency Levels for Analysis

In the engineering analysis, D OE established energy efficiency levels for each product

cl ass to reflect the current heating products markets. A dditionally, DOE associated each

ef

ficiency level selected with a p articular technology or combination of technologies, t hus

ma king its engineering analysis more transparent. See Chapter 5 f or details on the efficiency

le vels and the associated technologies. D OE also received several comments on the efficiency

le vels and the technologies associated with those levels.

2.4 .3.1 Near­Condensing Efficiency Levels for Pool Heaters

AH RI and A.O. Smith stated that DOE should not consider 86 percent thermal efficiency

fo r pool heaters because that level of thermal efficiency has significant issues relative to

un desirable condensation. AHRI is concerned that this condensation will present problems and

sa fety issues in the field as a r esult of appliance and vent corrosion and installations in freezing

am bient air locations. ( GAMA, No. 4.5 a t p. 3; Public Meeting Transcript, No

. 4.7 a t p. 114­15;

A.O

. Smith, No

. 11 at p. 1)

DO E also received feedback from pool heater manufacturers during the engineering

in terviews, w hich echoed the statements made by AHRI and A.O. Smith regarding pool heaters

at near­condensing levels. M anufacturers commented that pool heaters operating near 85 and 86

pe rcent thermal efficiency operate at near­condensing levels. O perating at these levels may result

in corrosive condensation formation. Corrosion may occur when the combustion products (which

in clude water vapor) cool and condense on the surface of the pool heater flue. Manufacturers

st ated that this condensation may react corrosively with the flue (e.g., r ust) and cause damage.

Ma nufacturers also expressed concern about the risk a nd additional costs to mitigate the

ri sk of bodily harm if standards require pool heaters at these energy efficiency levels.

Ma nufacturers stated that certain variations and constraints must be addressed that require a

m argin of safety. The safety margin is needed to account for variations due to manufacturing

to lerances; gas quality; and differences in installation configurations, a ltitude, ambient

co nditions, a nd installer experience. Increasing the stringency of the Federal energy conservation

st andards reduces that margin of safety, and amended energy conservation standards at 85 to 86

pe rcent thermal efficiency for pool heaters do not provide an adequate safety margin. As a r esult

of these increased standards, m anufacturers would likely contemplate either incorporating

co ndensing designs at 85 and 86 thermal efficiency to avoid safety issues associated with

2­35corrosive condensation formation in certain installations or choose not to manufacture products

at these levels.

DO E surveyed the market of commercially available pool heaters and found at least four

mo dels available with a t hermal efficiency value of 86 percent. Therefore, DOE kept 86 percent

th ermal efficiency in the analysis. H owever, DOE seeks comments on how manufacturers would

ch oose to mitigate corrosive condensation formation at 86 percent thermal efficiency and the

ch anges that they would make to the product design if the amended energy conservation

st andards were at 86 percent thermal efficiency. See the issues for which DOE seeks comment

wi thin the executive summary.

2.4 .3.2 Standing Pilot and Electronic Ignition Systems for Gas­Fired Pool

He aters

Ra ypak stated that the vast majority of pool heaters use intermittent pilots and do not use

st anding pilot lights. ( Raypak, Public Meeting Transcript, No

. 4.7 a t p. 123) In consideration of

Ra ypak’s comment, DOE also analyzed the pool heater market to determine which heaters have

st anding pilot ignition versus electronic ignition. After surveying the pool heater market, DOE

de termined that electronic ignition is offered in products covering the whole range of

ef

ficiencies, w hereas standing pilot ignition systems are offered only in products corresponding

to the first three intermediate efficiency levels. DOE distinguished between the two ignition

sy stems because of the energy use difference between electronic ignition and standing pilot

sy stems. Th e DOE test procedure does not account for these energy use differences in the

th ermal efficiency metric. Consequently, DOE developed two baseline products and two

ef

ficiency pathways for Efficiency Levels 1–3. Chapter 5 i ncludes additional details and the

ef

ficiency levels analyzed for pool heaters.

2.4 .4 The Energy­Efficiency Equations for Gas­Fired and Electric Storage Water Heaters

As part of the engineering analysis for residential water heaters, D OE also reviewed the

en ergy­efficiency equations that define the existing Federal energy conservation standards for

ga s­fired and electric storage water heaters. In p articular, DOE is reviewing the relationship

be tween EF and rated storage volume for these two product classes. D OE is also investigating

al ternative energy­efficiency equations to define amended energy conservation standards. S ee

Ch apter 5 o f the preliminary TSD f or more information on the representative rated storage

vo lumes, t he efficiency levels analyzed, the relationship of the current market to the current

en ergy conservation standards, a nd the relationship between EF and rated storage volume.

2.4 .4.1 Review of the Energy­Efficiency Equations for Gas­Fired and Electric

St orage Water Heaters

As part of the engineering analysis for residential water heaters, D OE reviewed the

en ergy­efficiency equations that define the existing Federal energy conservation standards for

ga s­fired and electric storage water heaters. Th e energy­efficiency equations allow D OE to

ex pand the analysis on the representative rated storage volume to the full range of storage

vo lumes covered under the existing Federal energy conservation standard. In the following

2­36section, DOE describes the methodology used to expand the analysis conducted for the

re presentative storage volumes at each efficiency level to the full rated storage volume ranges.

Se e section 5.6 o f Chapter 5 o f the TSD f or more information on the representative rated storage

vo lumes and the efficiency levels analyzed.

DO E uses energy­efficiency equations to characterize the relationship between rated

st orage volume and energy factor. The energy­efficiency equations consider the increases in

st andby losses as tank volume increases. A s the storage tank volume increases, t he tank surface

ar ea increases. Th e larger surface area results in higher heat transfer rates that result in higher

ja cket losses. O ther losses to consider are the feed through losses as well as the flue losses (for

ga s­fired water heaters). The current energy factor equations show t hat for each water heater

cl ass, a s the rated storage volume increases, t he minimum energy factor decreases.

Fo r the existing Federal energy conservation standards, t he slope and the intercept of

ea ch energy­efficiency equation are constant for each product class. Ta ble 2.2 s hows the energye fficiency equations of the existing Federal energy conservation standards for gas­fired and

el ectric storage water heaters.

Ta ble 2.2 E xisting Federal Energy Conservation Standards for Residential Gas­Fired

an d Electric Storage Water Heaters

Re sidential Water Heater Class Minimum Energy Factor (EF)

G as­Fired Storage Type 0.6 7

– ( 0.0019 × R ated Storage Volume in gallons)

Ele ctric Storage Type 0.9 7

– ( 0.00132 × R ated Storage Volume in gallons)

Fo r the preliminary analyses, D OE reviewed AHRI’s M arch 2008 Consumers' Directory

of Certified Efficiency Ratings for Heating and Water Heating Equipment and developed a

d atabase of products that includes all gas­fired and electric storage water heater models subject

to this rulemaking. DOE also reviewed manufacturers’ catalogs to gather information on the

de sign characteristics of each water heater model. The manufacturers’ catalogs include

in formation on efficiency ratings, p roduct series descriptions, j acket insulation thicknesses,

ig nition types, and drafting methods (i.e., n atural or power vented drafting).

DO E used its database and additional product information to help characterize the

re lationship between EF and rated storage volume of models currently on the market for gasf ired and electric storage water heaters. D OE also compared the EFs and rated storage volumes

fr om its database of products to the energy­efficiency equations defined by the existing Federal

en ergy conservation standards. G enerally, the current products demonstrate a s imilar trend of

de creasing efficiency with increasing rated storage volume.

Ho wever, as the efficiency of the models increases, the relationship between the EF a nd

ra ted storage volume does not closely follow t he relationship described by the current Federal

en ergy conservation standards. S ince the 2001 water heater rulemaking, manufacturers have

2­37continued to introduce storage water heaters with higher efficiencies. M anufacturers currently

of fer several models with similar features (i.e., m odels from the same product series) that have

th e same energy factors, but a v ariety of different r ated storage volumes. In theory, the energy

fa ctor should decrease with increasing storage volume for a g iven design primarily due to the

in creases in losses as a r esult of increased tank surface area. However, these few h igh efficiency

mo del series seem to exhibit the same EF e ven though their rated storage volumes vary. DOE

be lieves there are several plausible explanations including the precision of the test procedure at

hi gher efficiencies (i.e., t he number of significant digits reported during the EF c alculation is not

ad equate to discern differences in actual values of the energy factors of high efficiency storage

wa ter heater in the full range of storage volume), the possibility for small design changes that are

no t described in the product literature, as well as the possibility for the geometry of the storage

ta nks to be slightly different for the larger rated volumes, w hich would affect the heat loss

ch aracteristics of the tank. To f urther investigate the relationship between EF a nd rated storage

vo lume, DOE reviewed the current market to try and establish a r evised set of energy­efficiency

eq uations based on available models for gas­fired and electric storage water heaters.

2.4 .4.2 DOE’s Review of the Current Water Heater Market

DO E reviewed the gas­fired and electric storage water heaters currently listed in AHRI’s

Co nsumers’ Directory and further described in manufacturers’ catalogs to examine the

re lationship between energy factor and rated storage volume. When examining the energye fficiency equations, D OE considered:

• i nput and feedback from interested parties;

• e nergy­efficiency potentials of screened­in technologies;

• s tandby heat loss;

• a nalysis from previous rulemakings;

• F ederal energy conservation standards (to prevent backsliding); and

• e nergy­efficiency levels developed for this rulemaking.

The existing Federal energy conservation standard applies to gas­fired storage water

he aters ranging from 20 to 100 gallons. Th e majority of models in AHRI’s Consumers’

Di rectory have rated storage volumes between 30 and 75 gallons. D OE selected 40 gallons as the

re presentative rated storage volume for this class of water heater (see section 5.4 o f Chapter 5 o f

th e preliminary TSD f or more details), and the corresponding energy conservation standard at 40

ga llons is 0.59 EF.

The existing Federal energy conservation standard applies to electric storage water

he aters ranging from 20 to 120 gallons. Th e majority of models in AHRI’s Consumers’

Di rectory have rated storage volumes between 30 and 120 gallons. D OE selected 50 gallons as

th e representative rated storage volume for this class of water heater (see section 5.4 o f Chapter 5

o f the preliminary TSD f or more details), and the corresponding conservation standard at 50

ga llons is 0.90 EF.

2­38In general, DOE found that EF d ecreases with increasing rated storage volume for the

av ailable models in the product database for both gas­fired and electric storage water heaters.

Ho wever, for the most common storage volumes, DOE found a f ew m odel series having similar

EFs

, w hile varying in rated storage volumes. S ee Chapter 5 o f the preliminary TSD f or more

in formation and market graphs.

2.4 .4.3 Existing Federal Energy Conservation Standards and Revised EnergyE fficiency Equations Using the Current Energy­Efficiency Equation

Sl ope

DO E examined revised energy­efficiency equations by expanding efficiency levels,

wh ich were developed in the engineering analysis (see section 5.5 o f Chapter 5 o f the

pr eliminary TSD f or more details), to a f ull range of tank sizes by using the equation slopes as

de fined by the existing Federal energy conservation standards. D OE did not alter the slopes for

th is portion of the analysis, a nd only changed the position of the intercepts (i.e., t he point that

in tersects zero gallons).

Gas ­Fired Storage Water Heaters. For gas­fired storage water heaters, D OE considered

si x efficiency levels above the baseline efficiency level. DOE generally found that there are

pr oducts currently manufactured that meet or exceed the majority of the considered efficiency

le vels for volume sizes ranging from 40 to 75 gallons. Th e market data suggest that the slope of

th e equation that defines the current Federal energy conservation standard may not reflect the

ch aracteristics of the entire market because there are models currently available having similar

EFs with different rated storage volumes. A dditionally, DOE found that at small rated volumes

(i .e., less than 30 gallons) and large rated volumes (i.e., 1 00 gallons) manufacturers do not

cu rrently offer models that would meet some of the efficiency levels that DOE is considering.

Fo r example, at 100 gallons, t he existing water heater market would be eliminated by all of the

ef

ficiency levels being considered if equations have the same slope as the current Federal energy

co nservation standard.

El ectric Storage Water Heaters. F or electric storage water heaters, D OE considered five

ef

ficiency levels above the baseline efficiency level and excluded the max­tech efficiency level

(i .e., 2.2 EF, an integral heat pump water heater, which is not currently being offered to

co nsumers) for this portion of the analysis. D OE generally found that electric storage water

he aters currently manufactured meet or exceed the majority of efficiency levels for volume sizes

ra nging from 30 to 120 gallons. A s with gas­fired storage water heaters, t he market data for

el ectric storage water heaters suggests that the slope of the equation that defines the current

Fe deral energy conservation standard may not reflect the characteristics of the entire market

be cause there are models currently available with similar EFs, w hile ranging in rated storage

vo lumes. A dditionally, DOE found that manufacturers do not currently offer models that would

me et all of the energy efficiency levels DOE is considering for the full range of rated storage

vo lumes. F or example, DOE found that at small rated volumes (i.e., l ess than 50 gallons)

ma nufacturers do not currently offer models that would meet the efficiency levels DOE is

co nsidering that exceed 0.95 EF.

2­39DOE seeks comment from interested parties on the approach for developing energye fficiency equations that maintains the slope of the existing Federal energy­efficiency equations.

2.4 .4.4 Alternative Approach for Developing Revised Energy­Efficiency

Eq uations for Gas­Fired and Electric Storage Water Heaters

DO E developed an alternative approach for revising the energy­efficiency equations

ba sed on the database of products and four constraints. D OE applied the following constraining

cr iteria to the development process:

• f or gas­fired water heaters, e ach energy­efficiency equation must include units with the

sp ecified efficiency level at 40 gallon rated storage volume;

• f or electric storage water heaters, each energy­efficiency equation must include units with

th e specified efficiency level at 50 gallon rated storage volume;

• t he energy­efficiency equations cannot result in a s tandard that falls below c urrent

st andards over the entire rated volume range; and

• f or electric storage water heaters, t he energy­efficiency equation should not lead to a

s tandard greater than 0.95 EF f or the 20 to 120 gallon rated volume range.

DO E chose this approach because it takes into account the models currently available on

th e market, considers the technologies incorporated into those models, a nd attempts to optimize

th e number of models across the entire rated volume range that would meet the efficiency levels

DO E is considering. (See Chapter 5 o f the preliminary TSD f or a g raphical demonstration of the

po tential energy­efficiency equations resulting from this approach). Additionally, the approach

at tempts to minimize the number of models that would be eliminated from the market by the

ef

ficiency levels DOE is considering across the entire range of storage volumes. D OE

ac complished this by accounting for all of the models currently available in the gas­fired and

el ectric storage water heater markets, a nd considered the technologies incorporated into those

mo dels. Ne xt, DOE attempted to identify the different product series and the models that belong

to each product series. D OE then assigned an efficiency level to each of these series based on the

ef

ficiency level at the representative rated volume. Finally, DOE used the assumptions outlined

ab ove and the data points within each series to develop a line to define the equation for each

ef

ficiency level. DOE then varied the slope of the line to maximize the number of models in the

se ries that meet the efficiency levels DOE is considering in the full range of rated storage

vo lumes. S ee Chapter 5 o f the preliminary TSD f or additional explanation and a g raphical

de monstration of the approach.

The information provided in the product database, manufacturers’ specifications, a nd

ot her publicly available literature does not include all of the details regarding the specific energye fficiency features incorporated in each water heater design. Based on the extent of the

in formation, these energy­efficiency equations may represent manufacturing practices, consumer

pr eferences, a nd marketing efforts, w hile not representing the energy­efficiency potential of

sc reened­in technologies or the heat loss characteristics of the entire rated volume range.

2­40For example, as DOE p reviously noted, manufacturers offer several models with similar

fe atures (i.e., m odels from the same product series) that are currently available on the market

wi th the same energy factors in a v ariety of different rated storage volumes. Th e fact that water

he aters of different volumes can have the same EF could be a r esult of manufacturers adding

in sulation (e.g., t o the top of the tank, to the feed­throughs, e tc) or making design modifications

th at are not described in the manufacturer catalogs as rated volume increases. S uch design

ch anges could offset any increase in heat loss as surface area increases and this would alter the

re lationship between heat loss (and ultimately EF) and rated volume for that particular product

se ries. M anufacturers may do this to produce product lines where EF is constant across a r ange

of rated volumes as a m eans to market high efficiency water heaters to specific consumers.

DO E was not able to verify the relationship between EF a nd rated volume and how i t

ch anges for different rated volume ranges and at various efficiency levels based solely on AHRI

da ta or publicly available literature. Specifically, DOE was not able to identify the specific

te chnologies that manufacturers use or add to water heaters as rated volume increases to maintain

th e same EF. In addition, the reporting precision of the test procedure at higher efficiencies does

no t allow f or the precise discernment of how s mall losses affect EF as the rated storage volume

in creases. Lastly, relying on available data, DOE could not verify that the geometry of the

st orage tank design is identical through the entire range of storage volumes. See section Chapter

5 o f the preliminary TSD for more information on the investigation of the energy­efficiency

eq uations for this rulemaking.

2.4 .4.5 Validation of the Energy­Efficiency Equations for Gas­Fired and Electric

St orage Water Heaters

In order to further verify the relationship between EF a nd rated storage volume, DOE is

pl anning to verify the EF o f various models currently on the market through third party testing

an d teardown of these models to identify potential g eometry and design differences. A s DOE

pr eviously mentioned, some manufacturers produce high efficiency models of gas­fired and

el ectric storage water heaters where the energy­efficiency technologies remain constant (e.g., t he

sa me insulation thickness) across a r ange of rated volumes while maintaining the same EF f or all

pr oducts. Th is seems contrary to DOE’s understanding t hat jacket losses should increase as the

su rface area of the tank increases with rated volume. Thus, D OE b elieves that to obtain constant

EF f or a r ange of rated volumes, m anufacturers would make insulation improvements, f or

ex ample, to offset the increase in heat loss as a r esult of increasing surface area or make

ge ometric modifications to the tank design. However, the market data and manufacturers'

ca talogs suggest this is not the case for some product series, a nd these data are not sufficient to

co nfirm specifically how manufacturers achieve constant EF. Consequently, DOE p lans to test

an d teardown water heater models currently available on the market in order to validate its

ap proach for the development of the EF e quations.

Du ring the engineering analysis, D OE investigated the design changes manufacturers

em ploy to improve EF only for the representative gas­fired and electric storage water heaters

(i .e., 40 and 50 gallon products, r espectively). However, DOE did not extend the teardown

an alysis to other rated volumes to determine if manufacturers use the same methods to increase

2­41energy efficiency across the entire rated volume range. The above­described additional analysis

wi ll allow D OE to determine the changes manufacturers employ for a g iven model series as the

ra ted storage volume of the tank increases.

DO E will conduct testing according to the water heater test procedure specified in 10

CF R 430, subpart B, appendix E ( the same test procedure used by manufacturers to certify

pr oducts in AHRI’s Consumers’ Directory) to verify the EF v alues. Ideally, DOE would test a

m odel series with similar design characteristics and volumetric designs to isolate how EF

changes with rated storage volume. DOE would then repeat this test for a n umber of model series

at various efficiencies and for a v ariety of different manufacturers. D OE will choose models to

te st by selecting product series from multiple major manufacturers that span the range of rated

vo lumes within each product class and that span the range of efficiency levels. A fter completion

of testing, DOE will conduct a t eardown analysis to confirm the specific technologies that affect

en ergy efficiency and the volumetric characteristics of the tank. DOE will adjust the energye fficiency equations based on the results of this analysis.

DO E seeks comments from interested parties on an approach for developing the energye fficiency equations for all of the efficiency levels DOE is considering in the full range of rated

st orage volumes. S pecifically, DOE seeks comment on the alternative approach based on model

se ries that takes into account current market data from AHRI’s Consumers’ Directory and uses

th ese data to generate revised equation slopes that m inimize the number of models that would be

el iminated from the market. Lastly, DOE seeks comment from interested parties on the

va lidation of the energy­efficiency equations DOE is c onsidering, p articularly its proposed

pr oduct testing and teardown approach.

2.5 MARKUPS TO DETERMINE PRODUCT PRICE

DO E used manufacturer­to­consumer markups to convert the manufacturer selling prices

es timated in the engineering analysis to customer prices, w hich then were used in the life­cycle

co st (LCC), p ayback period (PBP), and manufacturer impact analyses. D OE calculates markups

fo r baseline products (baseline markups) and for more efficient products (incremental markups)

ba sed on the markups at each step in the distribution channel. The overall incremental markup

r elates the change in the manufacturer sales price of higher­efficiency models (the incremental

co st increase) to the change in the retailer or distributor sales price.

In order to develop m arkups, D OE must identify how the products are distributed from

th e manufacturer to the customer (the distribution channels). After establishing appropriate

di stribution channels for each of the product classes, D OE relied on economic data from the U.S.

Ce nsus Bureau and other sources to define how prices are marked up a s the products pass from

th e manufacturer to the customer.

DO E estimated manufacturer­to­customer markups for residential heating products.

An alysis of distribution markups for water heaters f ocused on two distribution paths, f or which

ma rkups at individual points along those paths were calculated. One path involved sales through

a w holesale distributor and then a g eneral contractor or plumbing supplier before products reach

2­42the final customer. A s econd path involved sales to major retail distributors and then national

re tail and home­improvement stores to the end customer. In the second distribution path, where

pr oducts are bought for replacement, end customers typically purchase products that they either

in stall themselves or hire a c ontractor to install.

The distribution channel for water heaters differs for replacement and new construction

ap plications. F or replacement applications, m anufacturers sell to either plumbing distributors or

la rge retail outlets (typically large home­supply stores). A.O. Smith stated that the retail water

he ater distribution channel generally passes from the retailer directly to the consumer, not from

th e retailer to a c ontractor and then the consumer. (A.O. Smith No. 11 at p. 1) Laclede stated that

DO E’s analysis of distribution channels should include building­product “super stores,” b ecause

th ey sell to both homeowners and contractors. (Laclede, No

. 8 a t p. 12) Agreeing with these

co mments, D OE developed two distribution channels for replacement water heaters: (1) a r etail

ou tlet sells to the consumer, who either hires someone to install or self­installs; and (2) a

p lumbing distributor sells to a c ontractor, who then sells to, and installs, f or the consumer.

2.6 ENERGY USE CHARACTERIZATION

The energy use characterization, which assesses the energy savings potential from

ad opting higher efficiency standards, p rovides the basis for the energy savings values used in the

LC C and subsequent analyses. D OE calculated the energy savings for each heating product class

co mpared to baseline models. A s part of the characterization, DOE made certain engineering

as sumptions regarding product application, including how t he products are operated and under

wh at conditions. Th ose assumptions are documented in c hapter 7 o f the preliminary TSD, which

al so p rovides more detail about DOE’s approach.

2.6 .1 Water Heaters

Fo r residential storage­type water heaters, D OE relied on an energy use analysis tool, the

wa ter heater analysis model, and a h ot water draw model. For this rulemaking, DOE modified

ea rlier versions of the tools, w hich were used to conduct the previous rulemaking that concluded

in 2001. Combined with data from the Energy Information Administration’s (EIA’s) Residential

Ene rgy Consumption Survey (RECS), these analysis tools enable DOE to establish the variation

in water heater energy consumption in the United States.

AG A c ommented that, for purposes of simplification and consistency with numerous

st udies on hot water usage, DOE should use a p arametric assumption for hot water usage and

ca lculate associated energy use consistent with DOE's test procedures for water heaters. (AGA,

No. 4.6 a t p. 4) DOE estimated hot water use with a d raw m odel that accounts for key factors in

ca lculating the average daily volume of hot water used by individual households. D OE’s model,

an earlier version of which was used in the previous water heater rulemaking, b etter accounts for

va riability in hot water use among households than a p arametric approach because it allows for

va riation in the factors that affect hot water use, such as the number of occupants and the

pr esence of appliances that use hot water. In addition, some of the assumptions in the method are

ba sed on field studies of hot water use in homes.

2­43The hot water draw m odel incorporates parameters for hot water use by clothes washers

an d dishwashers. EE I commented that, when considering the annual hot water usage of

re sidential water heaters, DOE should consider the effects of recent energy conservation

st andards on home appliances that use hot water. New standards for clothes washers and

di shwashers and new t echnologies that decrease their e nergy consumption will reduce the annual

ho t water consumption of residential water heaters. (EEI, No

. 5 a t p. 5) Agreeing with EEI’s

co mment, DOE adjusted the parameters in the model to account for expected changes in hot

wa ter use by new c lothes washers and dishwashers.

The operation of heat pump water heaters is affected by the temperature of the air

su rrounding the water heater (the ambient temperature). Depending on the ambient temperature,

a h eat pump water heater operates either in heat pump mode or in electric resistance mode. The

ca lculation method DOE used assumes that the water heater operates in electric resistance mode

co ntinuously when the monthly average ambient temperature is less than 32 °F (which may

oc cur if the unit is installed in a g arage or outdoor closet). Southern Company commented that,

co mpared with other water heaters, h eat pump water heaters have slow recovery times, s o they

ope rate in the electric resistance mode part of the time even when the monthly ambient

te mperature exceeds 32 °F. (Southern Company, No. 10 at p. 2) DOE determined that, depending

on the pattern of hot water use, electric resistance operation occurs as much as 10 percent of the

un it’s total operating time. DOE included this factor in its analysis.

DO E’s approach accounts for the fact that a h eat pump water heater draws heat from the

sp ace in which it is located. When a h ome is being heated, operation of a h eat pump water heater

lo cated in a c onditioned space increases the house heating load; when the home is being cooled,

wa ter heater operation may decrease the cooling load. Southern Company stated that a h eat

pu mp water heater in an interior location functions as an air conditioner, which could produce

ov ercooling in summer and in winter could cause the space heating system to work harder.

So uthern Company commented that because those potential effects require installing ductwork to

ve nt the cold air outdoors or to unconditioned space when a h eat pump is installed in an interior

cl oset, the analysis should include those costs. ( Southern Company, No. 10 at p. 2)

DO E agrees with Southern Company about the effects o f a h eat pump water heater on a

h ome’s energy use for space heating and air conditioning. DOE investigated the cost of the

du ctwork and fan that might be installed to counteract the overcooling issue. DOE b elieves that,

ra ther than installing additional ductwork, most households would choose to use their heating

sy stem more frequently to deal with the increased heating load. To a ccount for these indirect

ef

fects on home heating (and cooling), DOE estimated the impact on energy consumption for

sp ace heating and air conditioning for each home in the RECS subsample of homes containing

el ectric water heaters with the water heater located in the conditioned space. For each such

ho me, DOE estimated the impact of a h eat pump water heater on space heating only during

he ating months and the impact on air conditioning only during cooling months. D OE then

ca lculated the amount of heat removed by the heat pump water heater. To a ccount for times

du ring the summer months when the air conditioner is n ot operating, DOE reduced by one­third

th e estimated cooling benefit from the water heater.

2­44For analyzing instantaneous gas­fired water heaters, D OE modified the approach used for

st orage water heaters to account for the absence of a s torage tank. AHRI stated that DOE's

an alysis of instantaneous gas­fired water heaters should utilize empirical data, not estimates from

th e test procedure. (GAMA, Public Meeting Transcript, No

. 4.7 a t p. 131) To a scertain the extent

of instantaneous gas­fired water heater energy usage in the field, DOE reviewed a C EC study of

th ese installations. Th is study pointed to a p erformance drop­off at small draw v olumes. y To

account for this phenomenon, the study recommends reducing the listed EF f or instantaneous

ga s­fired water heaters by 8.8 p ercent. Thus an instantaneous gas­fired water heater rated at 0.82

EF w ould be viewed as rated at 0.748 EF. Because it b elieves the empirical data from the study

ar e credible, DOE incorporated the recommendation by increasing by 8.8 p ercent the calculated

en ergy use of instantaneous gas­fired water heaters a t each EF.

2.6 .2 Direct Heating Equipment and Pool Heaters

DO E relied on the assumptions in the DOE test procedures to establish the typical annual

en ergy consumption of direct heating equipment and pool heaters. A HRI stated that DOE should

no t use its test procedure in the LCC analysis to estimate typical annual energy consumption for

th e three types of heating products (water heaters, direct heating equipment, and pool heaters).

(G AMA, No. 4.5 a t p. 3) Regarding water heaters, DOE agrees, a nd so did not use the test

pr ocedure to estimate typical annual energy consumption. For direct heating equipment and pool

he aters, D OE used the test procedure, but modified some of the assumptions to better reflect

ac tual operating conditions. F or direct heating equipment, DOE used home heating loads from

REC S instead of the average assumptions in the test p rocedure. For pool heaters, D OE used pool

he ater heating loads from RECS instead of the average test procedure assumptions.

To r epresent actual households likely to purchase and use direct heating equipment, DOE

de veloped a h ousehold sample from RECS 2001. The sample comprises units that used a

f loor/wall furnace, fireplace, or heater as the primary or secondary source of heat. AHRI

qu estioned whether RECS data can provide useful information on energy use of direct heating

eq uipment. (GAMA, No. 4.5 a t p. 3) DOE b elieves that the sample size for direct heating

eq uipment is large enough to provide representative data on the conditions under which U.S.

ho useholds use such products.

AH RI noted that direct heating equipment, in most cases, i s used to provide supplemental

he ating. (GAMA, Public Meeting Transcript, No

. 4.7 a t p. 133) DOE agrees with the comment,

an d therefore used RECS data to estimate the energy use of direct heating equipment when

em ployed to provide supplemental heating. For households for which it is evident that the natural

ga s used for heating is associated solely with using the direct heating equipment as the primary

or secondary heat source, DOE used the household’s annual fuel consumption for heating from

REC S 2001. For households that used a g as furnace as the primary heating equipment and direct

he ating equipment as a s econdary heat source, DOE adjusted the house heating load to estimate

th e energy use of the direct heating equipment. RECS reports the fraction of heating energy

y Davis Energy Group, Measure Information Template: Tankless Gas W ater Heaters, 2006.

2­ 45consumed by the secondary products. D OE reduced the house heating load ascribable to direct

he ating equipment by subtracting the estimated amount of heat provided by the secondary

sy stem.

To r epresent actual households likely to purchase and use pool heaters, D OE developed a

h ousehold sample from RECS 2001. AHRI questioned whether RECS data can provide useful

in formation on the energy usage of pool heaters. ( GAMA, No. 4.5 a t p. 3) Although the RECS

sa mple for pool heaters is relatively small, DOE b elieves that it is the best available source for

es timates of pool heater energy use in the field. Commenting that the annual operation of pool

he aters differs significantly from that of spa heaters, EE I recommended that DOE analyze annual

en ergy usage for pool and spa heaters separately. (EEI, No

. 5 a t p. 6) To a ccount for the different

en ergy use characteristics of residential pool and spa heaters, D OE used a d istribution of values

fo r operating hours that encompasses a w ide range of situations, i ncluding those with and

wi thout spa heating. DOE did not analyze energy usage for pool heaters and spa heaters

se parately.

2.7 LIFE­CYCLE COST AND PAYBACK PERIOD ANALYSES

Ne w e nergy conservation standards affect products’ operating expenses—usually

de creasing them—and consumer prices for the products—usually increasing them. DOE

an alyzed the net effect of amended standards on consumers by evaluating the net LCC. To

e valuate the net LCC, DOE used the cost­efficiency relationship derived in the engineering

an alysis, along with the energy costs derived from the energy use characterization. Inputs to the

LC C calculation include the installed cost of a p roduct to the consumer (consumer purchase price

pl us installation cost), operating expenses (energy expenses and maintenance costs), the lifetime

of the unit, and a d iscount rate.

Be cause the installed cost of a p roduct typically increases while operating cost typically

de creases in response to new s tandards, t here is a t ime in the life of products having higher­thanb aseline efficiency when the net operating­cost benefit (in dollars) since the time of purchase is

eq ual to the incremental first cost of purchasing the higher­efficiency product. The length of time

re quired for products to reach this cost­equivalence point is known as the payback period (PBP).

DO E conducted the LCC and PBP analyses using typical values to reflect energy

co nsumption in the field. DOE identified several input values for estimating the LCC, including

re tail prices; electricity prices; discount rate; maintenance, repair, and installation costs; and

pr oduct lifetimes.

DO E developed discount rates from estimates of the interest rate, or finance cost, applied

to purchases of residential products. F ollowing accepted principles of financial theory, the

fi nance cost of raising funds to purchase such products can be interpreted as: (1) the financial

co st of any debt incurred to purchase products, p rincipally interest charges on debt, or (2) the

opp ortunity cost of any equity used to purchase products, p rincipally interest earnings on

ho usehold equity.

2­462.7.1 Installation Costs

In the framework document, DOE noted that differences in installation cost for the three

he ating products depend largely on the products’ electrical power and venting requirements.

AH RI and Laclede agreed with this concept, although Laclede noted that installation costs vary

de pending on whether a p roduct is installed in new construction or as a r etrofit to an existing

st ructure. (GAMA, No. 4.5 a t p. 4; Laclede, No. 8 a t p. 14) A.O. Smith stated that providing an

el ectrical outlet for gas appliances and venting systems is the rule rather than the exception for

ma ny of the proposed technology options. ( A.O. Smith, No

. 4.7 a t p. 177) As discussed in more

de tail in chapter 8, when DOE accounted for products’ electrical power and venting requirements

in estimating installation costs, n ew c onstruction and replacement installations were considered

se parately.

AC EEE stated that, although the costs for venting systems are likely to be higher for

mo re efficient gas­fired products, t here also may exist a s tep function whereby condensing

pr oducts are less expensive to install than are mid­efficiency products. ( ACEEE, No. 4.7 a t p.

17 8) DOE’s analysis of venting system costs follows the installation practices recommended in

th e manufacturers’ product literature. DOE accounted for the venting system costs at each

co nsidered energy efficiency level.

A.O

. Smith commented that the installation cost for a c ondensing water heater includes

an added cost for providing for condensate disposal. (A.O. Smith, No

. 4.7 a t p. 177) Because

DO E’s approach reflects current condensing water heater design, which incorporates a s inglepipe power­vent, a c ost for condensate disposal is i ncluded.

So uthern California Gas Company stated that hundreds of thousands of its consumers

ha ve water heaters installed in closets and cabinets, w here clearance is not adequate to

ac commodate larger water heaters. C ompliance with a n ew s tandard therefore could require

so me modifications. ( Southern California Gas Company, Public Meeting Transcript, No

. 4.7 a t p.

17 2) DOE’s analysis of energy efficiency levels for gas water heaters does not assume thicker

in sulation than what is currently used. Thus, c ompliance with any of the considered levels would

re quire no modifications.

In some houses, t he original water heater location may be too small to accommodate a

r eplacement electric water heater of the same rated volume when the new water heater’s

in sulation is 2.5, 3, or 4 i nches thick. Rheem stated that DOE should consider the added cost to

mo dify installations for water heaters that are physically larger. (Rheem, Public Meeting

Tra nscript, No

. 4.7 a t p. 167) DOE assumed that when such space constraints exist, some

ho useholds will use the next smaller­size water heater and increase the thermostat set point to

co mpensate for the lower storage volume. DOE used RECS 2001 to identify the percentage of

ho uses in the sample that would have space­constrained applications. F or such houses, D OE

in creased the thermostat set point of a w ater heater having a s maller storage volume so that the

to tal energy content of the water delivered is the same as that delivered by the original water

he ater at a l ower temperature. DOE added the cost of a t empering valve if the new s et point

ex ceeded 140 °F. If an energy efficiency level requires 3 i nches of insulation, additional cost

2­47may be incurred in some replacement applications (for example, to disassemble and reassemble

do or jambs). DOE added a c ost for removing and replacing door jambs to half of all electric

wa ter heaters that are located in a c onditioned space.

As discussed in section 2.6, heat pump water heaters draw h eat from the space in which

th ey are located. Southern Company commented that heat pump water heaters may overcool the

ar ea of a h ome where they are installed and may not be suitable without expensive building

mo difications. ( Southern Company, No

. 10 at p. 2) Southern Company suggested that many

co nsumers will have to install a s eparate venting system to exhaust the air cooled by the heat

pu mp water heater. As discussed previously, DOE believes it is more likely that most affected

co nsumers would choose to use the heating system to compensate for the cooling effect of the

he at pump water heater instead of installing a s eparate venting system. DOE therefore did not

in clude costs for installing a s eparate venting system, instead accounting for the additional

he ating and cooling costs that consumers would incur.

So uthern Company commented that because heat pump water heaters require proper

ve nting to operate effectively, there may be added costs for attaching a c ondensate pump.

(S outhern Company, No. 10 at p. 2) For indoor replacement installations in which the heat pump

wa ter heater is installed inside a n on­ventilated closet, DOE added a c ost for making adjustments

to accommodate the water heater, including adding ventilation via a f ully louvered closet door.

DO E estimated that this cost would occur in half the indoor replacement installations of heat

pu mp water heaters. For one­fourth of the replacement installations, D OE included a c ost for

ad ding a c ondensate pump and a l onger water line to the drain.

AG A s tated that DOE should include all the cost components of installing instantaneous

ga s­fired water heaters, p articularly in retrofit applications, w hich require new gas hookups and

fl ue installation. (AGA, No. 13 at p. 4) For new construction applications, D OE included the cost

of adding a g as line branch, installing a v ent system, and adding water piping, as well as the cost

of setting up t he water heater. For replacements, th e installation cost includes the cost of adding a

g as line branch and water piping; the labor for disconnecting and removing the old water heater;

a r emoval/disposal fee; a p ermit fee; and the cost of setting up t he new i nstantaneous water

he ater, including a n ew v enting system.

2.7 .2 Rebound Effect

In calculating energy consumption, DOE considered the rebound effect (also called a

t ake­back effect, or offsetting behavior), which refers to the increased energy consumption

re sulting from actions that increase energy efficiency and reduce consumer costs. Th e rebound

ef

fect assumes that consumers give up s ome of the potential energy savings to receive more

se rvice. AGA a nd AHRI stated that the analysis should include a r ebound effect. (AGA, No. 4.6

a t p. 4; GAMA, No. 4.5 a t p. 4) ACEEE u rged DOE to j ustify its belief in a r ebound effect.

(A CEEE, Public Meeting Transcript, No

. 4.7 a t p. 157) EEI commented that water heaters

pr oduce less of a r ebound effect than other products. ( EEI, No

. 5 a t p. 6)

2­48To determine how t he rebound effect may impact the energy savings for the considered

he ating products, D OE searched the literature on the rebound effect. DOE also considered how

th e National Energy Modeling system (NEMS), which is used for developing EIA's A nnual

Ene rgy Outlook (AEO), incorporates a r ebound effect. Based on available information, DOE

us ed a r ebound effect of 10 percent for water heaters, 1 5 percent for direct heating equipment,

an d 10 percent for pool heaters. For more detail on the rebound effect, see chapter 8 o f the

pr eliminary TSD.

2.7 .3 Energy Prices

DO E used EIA’s energy price data to determine prices of electricity, natural gas, o il, and

li quefied petroleum gas in 2006. DOE used projections of those energy prices from EIA’s AEO

f or 2008 to estimate future energy prices.

EEI commented that DOE should use annual energy prices when analyzing products used

ye ar­round, and seasonal prices for products used primarily during specific seasons. ( EEI, No. 5

a t p. 6) For water heaters, DOE estimated monthly energy consumption and developed monthly

av erage energy prices. F or pool heaters and direct heating equipment, DOE estimated annual

en ergy consumption and used annual average energy prices.

La clede stated that DOE did not propose using consumer marginal energy rates as the

ba sis for calculating energy savings in the framework document, whereas they were used in the

re cent NOPR for residential furnaces and boilers. Laclede advocated using consumer marginal

en ergy rates, b ecause they reflect changes in consumer utility bills as a f unction of consumption.

(L aclede, No

. 8 a t p. 13) DOE did not use marginal energy rates in the current analysis because

EI A no longer provides the data required to estimate m arginal energy prices for RECS

ho useholds.

2.7 .4 Maintenance and Repair Costs

DO E considered expected changes to maintenance, repair, and installation costs for the

pr oducts covered in this rulemaking. Typically, small incremental changes in product efficiency

pr oduce no, or only minor, changes in repair and maintenance costs over baseline efficiency

pr oducts. P roducts having efficiencies that are significantly greater than baseline efficiencies can

in cur increased repair and maintenance costs since they are more likely to incorporate

te chnologies that are new to the industry.

EEI commented that DOE should consider the impact on repair and maintenance costs of

in creases in water heater size due to increased energy efficiency. EEI noted that many water

he aters are located in small spaces, m aking repairs and maintenance of larger units more difficult

an d expensive. (EEI, No

. 5 a t p. 6) DOE b elieves that the range of repair and maintenance costs

it used for water heaters accounts for a r ange of circumstances, i ncluding locations in small

sp aces.

2­49Regarding water heater repair costs, A HRI stated that DOE should not assume that

co mponents, s uch as electronic ignition, a d amper, or power venting, will last the life of the

wa ter heater without needing repair or replacement. (GAMA, Public Meeting Transcript, No

. 4.7

a t p. 176) Agreeing with AHRI’s comment, DOE determined that gas­fired water heaters that

in clude pilot ignition, electronic ignition, p ower­vent, or condensing technologies may incur

re pair costs during the lifetime of the water heater.

So uthern Company stated that the operating manuals for instantaneous gas­fired water

he aters prescribe mandatory maintenance requirements, a nd that DOE’s evaluation should

in clude those costs. ( Southern Company, No

. 10 at p. 3 ) Because DOE found that all

ma nufacturers recommend these water heaters be de­limed annually to minimize deposition of

se diment, maintain operating efficiency, and prolong product life, a c ost for this maintenance

wa s included.

Ra ypak suggested that DOE consider the increased maintenance costs associated with

li quefied natural gas (LNG). Raypak noted that it is more difficult for products that have higher

ef

ficiencies to operate cleanly and efficiently on LNG. (Raypak, Public Meeting Transcript, No

. 4.7 at p. 225) DOE is aware of ongoing studies to determine the impact of using LNG i n

ap pliances. If DOE determines that LNG a dversely impacts the performance of the three heating

pr oducts, t he agency will consider including this factor in its NOPR analysis.

2.7 .5 Product Lifetime

A.O

. Smith stated that the proposed average lifetime of 20 years is much too long for

in stantaneous gas­fired water heaters. ( A.O. Smith, No. 11 at p. 2) Because DOE found that 20

ye ars is the average lifetime most often cited in the literature, it used this value along with a

d istribution ranging from 8 t o 30 years.

2.8 NATIONAL IMPACT ANALYSIS

The national impact analysis assesses the net present value (NPV) of total consumer lifec ycle cost (LCC) and net energy savings (NES). DOE d etermined both the NPV a nd NES f or the

pe rformance levels considered for the product classes analyzed. To m ake the analysis more

ac cessible and transparent to all interested parties, DOE p repared a M icrosoft Excel spreadsheet

mo del to forecast NES a nd the national consumer economic costs and savings resulting from

ne w s tandards. Th e spreadsheet model uses as inputs t ypical values (as opposed to probability

di stributions). To a ssess the effect of input uncertainty on NES a nd NPV r esults, D OE may

co nduct sensitivity analyses by running scenarios on specific input variables.

2.8 .1 Shipments Analysis

Fo recasts of product shipments are needed to calculate the national impacts of standards

on energy use, NPV, and future manufacturer cash flows. D OE developed shipment forecasts

ba sed on an analysis of key market drivers for each considered product. The shipments models

ta ke an accounting approach, tracking market shares of each product class and the vintage of

un its in the existing stock. Stock accounting uses product shipments as inputs to estimate the age

2­50distribution of in­service product stocks for all years. Th e age distribution of in­service product

st ocks is a k ey input to calculations of both the NES a nd NPV, because operating costs for any

ye ar depend on the age distribution of the stock.

AG A, along with several other stakeholders, expressed concern that if new standards

re sult in increased first costs for gas water heaters, consumers might switch to electric water

he aters. ( AGA, No. 4.6 a t p. 4) AGA a dded that implementing requirements for flammable vapor

ig nition resistant (FVIR) designs and low n itrogen oxides (NOx) already have altered the

ec onomics of natural gas water heating. Adding the impacts of new s tandards could impose a

s ignificant price disadvantage on residential gas water heating, further endangering the viability

of residential natural gas water heating. (AGA, No. 4.6 a t p. 2) The American Public Gas

As sociation (APGA) commented that DOE should consider that the market barriers for

co nsumers switching from electric­powered to gas­fired appliances are much lower than the

ma rket barriers for switching from gas­fired to electric­powered appliances. APGA a dded that

in creased energy conservation standards will encourage further consumer switching from natural

ga s to electric water heating, p articularly in southern climates. ( APGA, No. 7 a t pp. 1 a nd 3)

La clede stated that the retrofit costs involved in replacing gas appliances can induce consumers

to switch to appliances powered by electricity or other fuels. Th e greater cost of highere fficiency gas equipment also may induce homebuilders to switch to less efficient and more

po lluting electric resistance appliances. ( Laclede, No. 8 a t p. 7) Laclede also commented that

te chnologies that require gas­fired appliances to utilize electrical hookups increase installation

co sts, f urther shifting the market away from gas appliances. ( Laclede, No. 8 a t p. 14) Laclede

st ated that fuel­switching scenarios should be fully quantified in the analysis of proposed

st andards. ( Laclede, No. 8 a t p. 2)

DO E acknowledged the potential for energy conservation standards to induce product

sw itching, especially for water heaters. Th e cost of replacing a g as­fired storage water heater

wi th an electric one is substantial because of the complexity of the installation. Ordinarily, a 3 0­

amp electric connection is not available near existing gas­fired water heaters. In addition,

be cause it takes longer for an electric storage water heater to recover heated capacity, a l arger

el ectric tank may be necessary to replace a g as unit. In new c onstruction, the choice of a w ater

he ater depends primarily on the availability of natural gas. If natural gas is available, b uilders

ge nerally will install a g as­fired water heater.

In b oth new c onstruction and the replacement market, a l arge increase in the price of a

g as­fired water heater compared to an electric water heater likely would be necessary to induce

co nsumers to replace a g as water heater with an electric unit, or to induce builders to install an

el ectric water heater instead of a g as unit. DOE’s current LCC results suggest that efficiency

le vels that significantly increase the installed cost of gas water heaters are not cost­effective by a

l arge margin. Therefore, DOE did not include in its analysis switching from a g as­fired to an

el ectric storage water heater.

Ch apter 9 o f the preliminary TSD provides additional details on the shipments analysis.

2­512.8.2 National Energy Savings Analysis

The inputs for determining the national energy savings (NES) for each product analyzed

ar e: (1) annual energy consumption per unit, (2) shipments, ( 3) product stock, (4) national energy

co nsumption, and (5) site­to­source conversion factors. D OE calculated the national energy

co nsumption by multiplying the number of units, o r stock, of each product (by vintage) by the

un it energy consumption (also b y vintage). z DOE calculated annual NES b ased on the difference

in national energy consumption for the base case (without new e fficiency standards) and for each

hi gher efficiency standard. DOE estimated energy consumption and savings based on site

en ergy, and converted the electricity consumption and savings to source energy. Cumulative

en ergy savings are the sum of the NES f or each year.

The stock of a p roduct is dependent on annual shipments and the lifetime of the product.

DO E p rojected shipments under the base efficiency case and higher efficiency standards cases

fo r various product efficiency scenarios and product efficiency trends. DOE’s shipments model

as sumed that shipments of new products are driven by new c onstruction as well as stock

re placements.

2.8 .3 Net Present Value Analysis

The inputs for determining net present value (NPV) are: (1) total annual installed cost, (2)

to tal annual savings in operating costs, ( 3) a d iscount factor, (4) present value of costs, a nd (5)

pr esent value of savings. DOE calculated net savings each year as the difference between the

ba se case and each standards case in total savings in operating costs and total increases in

in stalled costs. D OE calculated savings over the life of each product, accounting for differences

in yearly energy rates. D OE calculated NPV a s the difference between the present value of

ope rating cost savings and the present value of total installed costs. D OE used a d iscount factor

to discount future costs and savings to present values.

DO E calculated increases in total installed costs as the product of the difference in total

in stalled cost between the base case and standards case ( i.e

., once the standards take effect).

Be cause the more efficient products bought in the standards case usually cost more than products

bo ught in the base case, cost increases appear as negative values in the NPV.

DO E expressed savings in operating costs as decreases associated with the lower energy

co nsumption of products bought in the standards case c ompared to the base efficiency case.

Tot al savings in operating costs are the product of savings per unit and the number of units of

ea ch vintage that survive in a g iven year.

2.8 .4 Efficiency Scenarios and Trends

Se veral of the inputs for determining NES a nd NPV depend on the product efficiency.

DO E developed efficiency trends for the base case and standards cases. Th ese trends specify the

av erage annual historical and forecasted shipments­weighted product efficiencies.

z Vintage represents the age of the product.

2 ­52DOE used data from industry sources to develop a verage shipments­weighted efficiency

tr ends for the considered products. A fter establishing efficiency trends, D OE derived annual

en ergy consumption based on relationships between efficiency and unit energy consumption.

DO E used a r oll­up efficiency scenario in developing its forecasts of efficiency trends

af

ter standards take effect. Under a r oll­up scenario, all products that perform at levels below a

prospective standard are moved, or rolled­up, to the minimum performance level allowed under

th e standard. The distribution of products that meet the higher efficiency standard levels is

un affected. DOE used the roll­up s cenario to determine efficiency distributions beginning in the

fi rst year a n ew s tandard takes effect. The distributions remain constant throughout the forecast

pe riod.

2.8 .5 Impact of Standards on Natural Gas Prices and Overall Economic Benefits

The national impacts analysis examines the potential economic impacts of alternative

st andard levels on consumers who purchase the considered products. Th e Joint Comment stated

th at DOE should consider the broad economic implications of the fact that natural gas prices will

de cline in response to the increased efficiency of gas­fired products, i ncorporating this factor

wh en weighing the economic benefits and burdens of standards that stipulate higher energy

ef

ficiency levels. ( Joint Comment, No

. 12 at p. 5) To e valuate potentially important indirect

ef

fects of energy conservation standards on energy users in general, DOE analyzed the potential

im pacts of new w ater heater standards on natural gas prices and the associated benefits for all

na tural gas consumers in all sectors of the economy.

DO E considered two scenarios for new w ater heater standards. One scenario examined

th e effects of selected efficiency standards levels on gas­fired storage water heaters (at 0.63 EF),

in stantaneous gas­fired water heaters (at 0.85 EF), and electric storage water heaters (at 0.95 EF).

The se are the energy efficiency levels found to have the greatest average LCC savings and

gr eatest NPV o f consumer benefit. The selected standard for electric storage water heaters was

0.9 5 EF. The second scenario (the max­tech scenario), examined the effects on water heaters of

st andards that reflect the max­tech energy efficiency levels identified in the preliminary

en gineering analysis. Th is scenario indicates the upper bound for impacts on natural gas prices.

DO E’s analysis used a v ariant of the modeling program NEMS, known as NEMS­BT,

w hich has been modified to account for the natural g as savings associated with possible

st andards. Like other widely used energy­economic models, NEM S incorporates parameters to

es timate the changes in energy prices that would result from an increase or decrease in energy

de mand. The response of price to a d ecrease in demand is termed the “inverse price elasticity.”

The overall inverse price elasticity observed in NEMS changes over the forecast period based on

th e model’s dynamics of natural gas supply and demand.

Al though there is only a s mall estimated reduction in natural gas prices resulting from

ne w w ater heater standards, t he associated economy­wide savings in natural gas expenditures

ov er the forecast period are substantial. DOE calculated the nominal savings in total natural gas

2­53expenditures in each year by multiplying the annual c hange in the wellhead natural gas price by

th e annual total U.S. natural gas consumption associated with each scenario. The NPV o f the

sa vings in natural gas expenditures for 2015–2030 (with a 7 percent discount rate) was calculated

to be $0.8 b illion for the selected efficiency levels scenario and $2.7 b illion for the max­tech

sc enario. The water heater standards would continue to result in reduced gas demand (and

co rresponding cost savings) after 2030 (the last year in the NEMS forecast). The estimated

ec onomy­wide savings for 2015–2043 (the period used t o estimate the NPV o f the national

co nsumer benefits from water heater standards) has a n NPV o f $1.0 b illion for the selected

ef

ficiency levels scenario and $3.6 b illion in the max­tech scenario.

Ch apter 10 of the preliminary TSD provides additional details regarding the national

im pacts analysis.

2.9 PRELIMINARY M ANUFACTURER I MPACT ANALYSIS

DO E p erformed a p reliminary manufacturer impact analysis (MIA) to estimate the

fi nancial impact of higher energy conservation standards on manufacturers of the three heating

pr oducts, a nd to calculate the impact of such standards on employment and manufacturing

ca pacity. The MIA has both quantitative and qualitative aspects. Th e quantitative part of the

MI A relies on the government regulatory impact model (GRIM), an industry­cash­flow m odel

cu stomized for these three industries. Th e GRIM inputs are information regarding the industry

co st structure, shipments, and revenues. Th is includes information from many of the analyses

de scribed above, such as manufacturing costs and prices from the engineering analysis and

sh ipments forecasts. Th e key GRIM output is the industry net present value (NPV). Different

se ts of assumptions (scenarios) will produce different results. Th e qualitative part of the MIA

ad dresses factors such as equipment characteristics, characteristics of particular firms, a nd

ma rket and equipment trends, a nd includes assessment of the impacts of standards on subgroups

of manufacturers. Th e complete preliminary MIA is described in chapter 12 of the preliminary

TSD

.

DO E will conduct each MIA in this rulemaking in three phases, a nd will further tailor the

an alytical framework for each MIA based on comments from interested parties. In Phase I, DOE

cr eates an industry profile to characterize the industry and identify important issues that require

co nsideration. In Phase II, DOE p repares an industry cash­flow m odel and an interview

qu estionnaire to guide subsequent discussions. In Phase III, DOE interviews manufacturers, a nd

as sesses the impacts of standards both quantitatively and qualitatively. DOE assesses industry

an d subgroup c ash flow a nd NPV u sing the GRIM. D OE then assesses impacts on competition,

ma nufacturing capacity, employment, and regulatory burden based on manufacturer interview

fe edback and discussions.

Un til recently, DOE reported MIA results in its standards rulemakings only during the

NOP R phase of the rulemaking. However, DOE is now e valuating and reporting preliminary

MI A information in this preliminary analysis. D OE gathered this information during the

pr eliminary manufacturer interviews conducted for the engineering analysis.

2­54In response to the process outlined in the framework document for conducting the MIA,

DO E received comments on the residential gas­fired storage and instantaneous water heating

ma rket. ACEEE s tated that, given an inelastic market where shipments are not likely to decline

at almost any efficiency level, the biggest likely impact on total sales is how e fficiency standards

af

fect domestic manufacturing and in particular how standards influence consumers' c hoice of

st orage versus instantaneous water heaters. A CEEE commented that most or all instantaneous

wa ter heaters are built offshore, and the potential e mployment and manufacturer impact would

se em to be dominated by a l oss of market share for storage water heater manufacturers. B ock

st ated similar concerns regarding loss of market share to offshore manufacturers. ( ACEEE and

Bo ck, Public Meeting Transcript, No

. 4.7 a t pp. 210–211, 217–218)

NRD C stated that to the extent that other countries are ahead of the United States on

en ergy conservation standards, o ther countries are going to bring down the costs of moree fficient technologies. D omestic manufacturers will t hus face a p otential loss of domestic

em ployment as a r esult of offshore competition. NR DC encouraged DOE to examine

in ternational competition and consider how amended standards at various levels or different

ti meframes can assure that domestic companies have a g lobal lead in storage water heater

te chnology and are at least competitive globally with instantaneous water heaters. ( NRDC,

Pub lic Meeting Transcript, No

. 4.7 a t pp. 214–215)

On the other hand, Laclede Gas Co. commented that i t believes DOE is overly focused on

ma nufacturing impacts. L aclede Gas Company said that most manufacturers produce gas­fueled

an d electric models, a nd therefore shifts in purchasing patterns will have less impact on these

ma nufacturers since they will not lose sales as consumers switch from gas­fueled to electric

ap pliances. ( Laclede Gas Company, No

. 8 a t pp. 9–10)

As part of the preliminary MIA, DOE asked manufacturers about the potential impacts of

am ended energy conservation standards on their business, e mployment levels, m arket share, and

co mpetitive positions within the marketplace. Manufacturers stated potential loss of market share

to international manufacturers as a c oncern. As outlined above, p otential equipment switching

an d the potential for DOE to change the current purchasing patterns of consumers with amended

en ergy conservation standards are major concerns for gas­fired storage water heating

ma nufacturers. A s part of the NOPR phase of the rulemaking, DOE will seek comments from

ma nufacturers about their potential loss of market share, changes in the efficiency distribution

wi thin each industry, and the total reduction in product shipments at each amended energy

co nservation standard level DOE is considering. DOE will then estimate the impacts on each of

th e three industries both quantitatively and qualitatively. DOE seeks further comment from

in terested parties about the impact of amended standards on domestic manufacturers. S ee the

is sues for which DOE seeks comment within the executive summary.

The following is an overview o f the information DOE will collect and the analysis that

wi ll be conducted during the preliminary MIA. For more detail on the MIA, see chapter 12 of the

pr eliminary TSD.

2­552.9.1 Industry Cash­Flow Analysis

The industry cash­flow a nalysis relies primarily on the GRIM. DOE uses the GRIM to

an alyze the financial impacts of more stringent energy conservation standards on the industry

th at produces the products covered by the standard. The GRIM analysis uses many factors to

de termine annual cash flows from a n ew s tandard: annual expected revenues; manufacturer

co sts, i ncluding cost of goods sold, depreciation, research and development, selling, general, and

ad ministrative expenses; taxes; and conversion capital expenditures. D OE compares the results

ag ainst base­case projections that involve no new s tandards. Th e financial impact of new

st andards is then the difference between the two sets of discounted annual cash flows. O ther

pe rformance metrics, s uch as return on invested capital, are also available from the GRIM. For

mo re information on the industry cash­flow analysis, r efer to chapter 12 of the preliminary TSD.

2.9 .2 Manufacturer Subgroup Analysis

In dustry cost estimates are not adequate to assess differential impacts among subgroups

of manufacturers. For example, small and niche manufacturers, o r manufacturers whose cost

st ructure differs significantly from the industry average, could experience a m ore negative

im pact from the imposition of standards. Ideally, DOE would consider the impact on every firm

in dividually; however, since this usually is not possible, DOE typically uses the results of the

in dustry characterization to group m anufacturers exhibiting similar characteristics.

DO E outlined the process it uses to establish manufacturer subgroups in the framework

do cument and sought comment from interested parties on any potential subgroups within the

th ree industries. A HRI questioned the need for manufacturer subgroups for residential storage

wa ter heaters, d irect heating equipment, and pool heaters, b ecause there are relatively few

ma nufacturers. ( GAMA, Public Meeting Transcript, No. 4.7 at pp. 218­219)

At this point DOE is characterizing the impacts on residential heating products on the

re sidential water heating industry, the direct heating equipment industry, and the pool heating

in dustry. As AHRI suggested, DOE did not identify any manufacturer subgroups within the

in dustry, except small manufacturers. D OE will consider the possibility of small businesses

be ing affected by the promulgation of amended energy conservation standards for the three

he ating products. D OE identified a h andful of small b usinesses within each industry in chapter 3

o f the preliminary TSD. During the manufacturer interview process conducted as part of the

NOP R, DOE will discuss the potential subgroups and subgroup m embers it has identified for the

an alysis. D OE will encourage the manufacturers to recommend subgroups or characteristics that

ar e appropriate for the subgroup a nalysis. F or more detail on the manufacturer subgroup

a nalysis, s ee chapter 12 of the preliminary TSD.

2.9 .3 Competitive Impacts Assessment

DO E must also consider whether a n ew s tandard is likely to reduce industry competition,

an d the Attorney General must determine the impacts, if any, of any reduced competition. DOE

wi ll make a d etermined effort to gather and report firm­specific financial information and

2­56impacts. Th e competitive impacts assessment will focus on assessing the impacts on smaller

ma nufacturers. D OE will base this assessment on manufacturing cost data and information

co llected from interviews with manufacturers. Th e manufacturer interviews will focus on

ga thering information to help assess asymmetrical cost increases to some manufacturers,

in creased proportion of fixed costs potentially increasing business risks, a nd potential barriers to

ma rket entry (e.g., p roprietary technologies). The notice of proposed rulemaking will be

sub mitted to the Attorney General for a r eview o f the impacts of standards on competition. The

At torney General’s comments on the proposed rule will be considered in preparing the final rule.

2.9 .4 Cumulative Regulatory Burden

DO E recognizes and seeks to mitigate the overlapping effects on manufacturers of new o r

re vised DOE standards and other regulatory actions a ffecting the same equipment. DOE will

an alyze and consider the impact on manufacturers of multiple, p roduct­specific regulatory

ac tions. B ased on its own research and discussions with manufacturers, D OE identified several

re gulations relevant to the three heating products, including low­NO X and ignition source

re quirements (e.g., S outh Coast Air Quality Management District (SCAQMD) requirements),

am ended energy conservation standards for other products made by heating products

ma nufacturers, S tate energy conservation standards, and international energy conservation

st andards.

DO E outlined the cumulative regulatory burden process in the framework document and

so ught comment from interested parties on any additional regulations facing the heating products

in dustry. In response to the cumulative regulatory burden discussion in the framework document,

AG A a nd Rheem commented that DOE must consider the costs of compliance with FVIR and

lo w a nd super low NO X standards for gas­fired storage water heaters when calculating the coste fficiency relationship and baseline costs. Th ey also stated that DOE must consider the impacts

of these increased costs on competition and market s hare for gas­fired water heaters. ( AGA,

Pub lic Meeting Transcript, No

. 4.7 a t p. 16­17; Rheem, Public Meeting Transcript, No

. 4.7 a t p.

22 0; AGA, No. 7 a t p. 2; AGA, No. 4.6 a t p. 2)

DO E included the costs of compliance with FVIR for gas­fired storage water heaters

wh en it estimated the manufacturer production costs in the engineering analysis. A dditionally,

DO E discussed the costs of FVIR compliance with manufacturers during the engineering and

pr eliminary MIA interviews to obtain feedback on the compliance burden resulting from FVIR

co mpliance. Additionally, DOE b ased the gas­fired water heater analysis on low­ NO X water

he aters that are manufactured for States and regions with emissions requirements. H owever,

DO E did not account for the cost of compliance or the additional costs of super­low NO X requirements, s imilar to the SCAQMD requirements facing water heater manufacturers. D OE

se eks comments on the cost of compliance with super­low NO X requirements. S ee the issues for

wh ich DOE seeks comment within the executive summary.

2­572.9.5 Preliminary Results for the Manufacturer Impact Analysis

As part of the preliminary MIA, DOE discussed potential impacts of amended energy

co nservation standards with manufacturers responsible for a m ajority of residential heating

pr oduct sales. Th ese discussions took place during t he interviews DOE conducted for the

en gineering analysis. Th e interviews provided valuable information that DOE used to evaluate

th e impacts of amended energy conservation standards on manufacturers’ cash flows,

ma nufacturing capacities, a nd employment levels. DOE discusses its findings from the

pr eliminary MIA interviews in the executive summary and in chapter 12 of the preliminary TSD.

2.1 0 LIFE­CYCLE COST SUBGROUP ANALYSIS

The LCC subgroup a nalysis evaluates economic impacts on selected groups of consumers

wh o might be adversely affected by a c hange in the national energy conservation standards for

th e considered products. DOE evaluates impacts on particular subgroups of consumers in part by

an alyzing the LCC impacts and PBP for those particular consumers.

DO E will use the LCC spreadsheet model to evaluate impacts on consumer subgroups.

DO E can analyze the LCC for any subgroup b y applying the LCC spreadsheet model to only that

sub group. DOE is particularly sensitive to increases in the consumer price of the considered

pr oducts, w ishing to avoid a n egative economic impact on any identified consumer subgroup.

2.1 1 UTILITY I MPACT ANALYSIS

The utility impact analysis includes an analysis of the effect of new e nergy conservation

st andards on the electric and the gas utility industries. F or this analysis, D OE adapted NEMS,

wh ich is a l arge multi­sectoral, p artial­equilibrium model of the U.S. energy sector that the EIA

ha s developed throughout the past decade, p rimarily for preparing EIA’s AEO. In p revious

ru lemakings, a v ariant of NEMS (currently termed NEMS­BT, B T referring to DOE’s Building

Tec hnologies Program), was developed to better address the specific impacts of an energy

co nservation standard.

NEMS

, which is available in the public domain, p roduces a w idely recognized baseline

en ergy forecast for the United States through the year 2030. The typical NEMS outputs include

fo recasts of electricity sales, p rices, a nd electric generating capacity. DOE conducts the utility

im pact analysis as a s cenario that departs from the latest AEO reference case. In other words, t he

en ergy savings impacts from amended energy conservation standards are modeled using NEMSB T to generate forecasts that deviate from the AEO reference case.

AG A s tated that DOE's analysis approach is insufficient for capturing the impacts of

ap pliance energy efficiency standards on gas utilities, a nd unresponsive to meeting the process

im provement rule requirements to examine gas utility impacts. A GA u rged DOE to recognize

th at potentially lowered residential gas demand due to energy conservation standards can reduce

re turns on capital investment and alter decisions to extend mains and services for new

2­58consumers. ( AGA, No. 4.6 a t p. 3) The Joint Commenters stated that DOE should capture the

fu ll range of impacts on utility system operating costs, c apacity, and reliability for both electric

an d gas utilities. ( Joint Comment, No

. 12 at p. 10) Laclede stated that NEMS is not transparent

an d DOE should explore alternative models for conducting the utility impact analysis. ( Laclede

Ga s Co., No

. 8 a t p. 16)

Hi storically, DOE’s approach to the utility impact analysis, b ased on NEMS, has been to

ev aluate the impact of standards only on utility energy sales. NEM S is not suited to

ch aracterizing impacts of standards on gas utilities other than those measured by sales, and DOE

is unaware of any analytical tools that would enable a n analysis of financial impacts on utilities

at a n ational level. Therefore, DOE p lans to continue using NEMS for the utility impact analysis,

bu t it invites input from stakeholders on the potential use of other tools for such analysis.

EEI suggested that DOE examine the potential impacts on peak demand for electricity

an d natural gas from market shifts from storage water heaters to instantaneous water heaters.

(EE I, No

. 5 a t p. 7) DOE’s approach to evaluating the energy use of the three heating products

do es not include evaluating demand load profiles ( i.e

., usage by time of day). Therefore, DOE is

un able to quantify the potential impacts on peak demand for electricity and natural gas from

ei ther changes in product efficiency or product shifts. F urther, standards on electric instantaneous

wa ter heaters are not part of this rulemaking, and DOE notes that the growing market penetration

of instantaneous gas­fired water heaters is occurring independent of the standards being

co nsidered in this rulemaking.

2.1 2 ENVIRONMENTAL IMPACT ANALYSIS

The intent of the environmental assessment is to fulfill requirements to properly quantify

an d consider the environmental effects of all new Federal rules. Th e primary environmental

ef

fects of energy conservation standards for heating products would be reduced power plant

em issions resulting from reduced consumption of electricity. DOE will assess these

en vironmental effects by using NEMS­BT to provide key inputs to its analysis. Th e portion of

th e environmental assessment that will be produced by NEMS­BT considers three pollutants,

su lfur dioxide (SO 2 ), nitrogen oxides (NO X ), and mercury (Hg), and one other emission (carbon,

as carbon dioxide).

The Clean Air Act Amendments of 1990 set an SO 2 emissions cap on all power

ge neration. The attainment of this target, however, is flexible among generators through the use

of emissions allowances and tradable permits. A lthough NEMS includes a m odule for SO 2

allowance trading and delivers a f orecast of SO 2 allowance prices, a ccurate simulation of SO 2 trading implies that the effect of energy conservation standards on physical emissions will be

ze ro because emissions will always be at or near the ceiling. However, there is an SO 2 benefit

fr om energy conservation, in the form of a l ower SO 2 allowance expenditures. D OE will

ex amine the potential monetary impact or value of an SO 2 benefit that may arise from a s tandard.

NOX a nd Hg emissions are not currently subject to r egulatory emissions caps. Th e U.S.

Env ironmental Protection Agency (EPA) issued the Clean Air Interstate Rule (CAIR) on March

2­5910, 2005. 70 FR 25162 (May 12, 2005). On July 11, 2008, the U.S. Court of Appeals for the

Di strict of Columbia Circuit (D.C. Circuit) issued its decision in North Carolina v.

Env ironmental Protection Agency, in which the court v acated the CAIR and remanded to EPA t o

pr omulgate a r ule consistent with the court’s opinion. 531 F.3d 896 (D.C. Cir. 2008). If left in

pl ace, the CAIR would have permanently capped emissions of NOX i n 28 eastern States and the

Di strict of Columbia. However, upon consideration of petitions for review, the D.C. Circuit

de cided on December 23, 2008 to allow C AIR to remain i n effect until it is replaced by a r ule

co nsistent with the court's e arlier opinion. No rth Carolina v. EPA, No. 05­1244, 2008 WL

53 35481 (D.C. Cir. Dec. 23, 2008). Therefore, DOE’s Environmental Analysis will be based on

CA IR, pending revision by EPA. See www.epa.gov/cleanairinterstaterule

. Similarly, the EPA

is sued the Clean Air Mercury Rule (CAMR). 70 FR 28606 (May 18, 2005). CAMR would have

pe rmanently capped emissions of mercury for new and existing coal­fired power plants in all

St ates by 2010. On February 8, 2008, the D.C. Circuit issued its decision in New J ersey v.

Env ironmental Protection Agency aa

, in which the D.C. Circuit, among other actions, v acated the

CA MR.

Bo th with and without emissions caps, d ecreased power production at emitting power

pl ants can have environmental­related economic benefits. W hen NOX a nd Hg emissions are

sub ject to emissions caps, e lectricity demand reductions may result in incremental changes in the

pr ices of emissions allowances in cap­and­trade emissions markets rather than physical

em issions reductions. When there are physical emissions reductions, e conomic benefits can

ac crue from the decreased environmental damage from l ower emissions. T herefore, b oth with

an d without emissions caps, s tandards can produce an environmental­related economic benefit in

th e form of lower prices for emissions allowance credits or a m onetary value of the economic

be nefits of lower emissions. Therefore in addition to potential physical emissions reductions,

DO E will examine the potential monetary value of NOX a nd Hg benefits that may arise from a

s tandard.

The results for the environmental assessment are similar to NEMS results as published in

th e AEO

. These results include power sector emissions for SO 2 , NO

X , Hg, and carbon in fivey ear forecasted increments. Th e outcome of the analysis for each analyzed standard level will be

re ported as a d eviation from the AEO 2008 reference (base) case.

NEMS does not estimate emissions at homes from gas­fired appliances (e.g., g as­fired

wa ter heaters, d irect heating equipment and gas pool heaters). Therefore, DOE p lans to conduct

an analysis that includes separate estimates of the effect of energy conservation standards on

CO 2 , NO

x , and SO 2 emissions from gas­fired appliances, b ased on simple emissions factors

de rived from the literature.

NRD C stated that DOE should not only calculate the reduction in carbon emissions, b ut

al so assign a m onetary value to that reduction. (NRDC, Public Meeting Transcript, No

. 4.7 a t p.

24 0) In addition to providing estimates of quantitative impacts of heating products standards on

ca rbon dioxide emissions and other emissions, D OE will consider the use of monetary values to

aa Case No. 05­1097, 2008 WL 341338 at * ( DC Cir. Feb. 9,2008)

2­ 60represent the potential value of such emissions reductions. D OE expects to base its estimates of

th e monetary value of emissions reductions on the economic benefits likely to result from such

re ductions. D OE will also examine a r ange of monetary values.

Fo r more detail on the environmental assessment, refer to the environmental assessment

re port in the preliminary TSD.

2.1 3 EMPLOYMENT IMPACT ANALYSIS

The imposition of standards can affect employment b oth directly and indirectly. Direct

em ployment impacts are changes, p roduced by new s tandards, i n the number of employees at

pl ants that produce the covered products and at the affiliated distribution and service companies.

DO E evaluated direct employment impacts in the manufacturer impact analysis. Indirect

em ployment impacts that occur because of the imposition of standards may result from

co nsumers shifting expenditures between goods (the substitution effect) and from changes in

in come and overall expenditure levels (the income effect). DOE will utilize Pacific Northwest

Nat ional Laboratory’s impact of sector energy technologies (ImSET) m odel to investigate the

co mbined direct and indirect employment impacts. The ImSET model, which was developed for

DO E’s Office of Planning, Budget, and Analysis, e stimates the employment and income effects

en ergy­saving technologies produce in buildings, i ndustry, and transportation. In comparison

wi th simple economic multiplier approaches, ImSET allows for more complete and automated

an alysis of the economic impacts of energy conservation investments.

2.1 4 REGULATORY I MPACT ANALYSIS

In the NOPR stage, DOE will prepare a r egulatory impact analysis (RIA) pursuant to

Exe cutive Order 12866, Regulatory Planning and Review, 58 FR 51735, October 4, 1993, which

is subject to review u nder the Executive Order by the Office of Information and Regulatory

Af fairs at the Office of Management and Budget. The RIA addresses the potential for nonr egulatory approaches to supplant or augment energy conservation standards in order to improve

th e energy efficiency or reduce the energy consumption of the products covered under this

ru lemaking.

DO E recognizes that voluntary or other non­regulatory efforts by manufacturers, u tilities,

an d other interested parties can substantially affect energy efficiency or reduce energy

co nsumption. DOE will base its assessment on the actual impacts of any such initiatives to date,

bu t also will consider information presented by interested parties regarding the impacts existing

in itiatives might have in the future.

2­61