CHAPTER 2. ANALYTICAL FRAMEWORK, COMMENTS FROM

INTERESTED PARTIES, AND DOE RESPONSES

TABLE OF CONTENTS

2.1 INTRODUCTION ........................................................................................................... 2­1

2.2 MARKET AND TECHNOLOGY ASSESSMENT........................................................ 2­2

2.2.1 Definitions...................................................................................................... 2­3

2.2.1.1 Instantaneous Gas­Fired and Electric Water Heaters .................................... 2­3

2.2.1.2 Heat Pump Water Heaters.............................................................................. 2­5

2.2.1.3 Direct Heating Equipment ............................................................................. 2­6

2.2.1.4 Input Capacity for Residential Pool Heaters.................................................. 2­7

2.2.1.5 Spa Heater Coverage...................................................................................... 2­8

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

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

Heaters ......................................................................................................... 2­11

2.2.2.7 Product Class Divisions and Energy­Efficiency Equations for Oil­Fired

Storage Water Heaters ................................................................................. 2­11

2.2.2.8 Product Class Divisions and Energy­Efficiency Equations for

Instantaneous Gas­Fired Water Heaters....................................................... 2­12

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 .............................. 2­15

2.2.2.12 Electric Pool Heaters.................................................................................... 2­17

2.2.2.13 Product Class Divisions for Residential Pool Heaters................................. 2­18

2.2.3 Technology Assessment............................................................................... 2­18

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....................................... 2­19

2.3.3 Advanced Forms of Insulation for Storage Water Heaters.......................... 2­20

2.3.4 Heat Traps, Plastic Tanks, and Insulated Tank Bottoms for Storage Water

Heaters ......................................................................................................... 2­20

2.3.5 CO2 Heat Pump Water Heater ..................................................................... 2­21

2.3.6 Integral Heat Pump Water Heater................................................................ 2­21

2.3.6.1 Practicability to Manufacture....................................................................... 2­22

2.3.6.2 Practicability to Install ................................................................................. 2­23

2.3.6.3 Product Reliability and Practicability to Service ......................................... 2­26

2.3.6.4 Other Considerations ................................................................................... 2­28

2.3.6.5 Preliminary Conclusions from the Screening Analysis for Heat Pump

Water Heaters............................................................................................... 2­28

2­i

EE-2006-STD-0129 and EERE-2006-BT-STD-0129 COMMENT 32.2
2.3.7 Condensing Technologies Used in Direct Heating Equipment ................... 2­29

2.3.8 Improved Blower Motor Efficiency for Direct Heating Equipment,

Increased Insulation for Floor Furnaces, and Air Circulation Fans for

Direct Heating Equipment ........................................................................... 2­29

2.3.9 Floor Furnace Safety Issues......................................................................... 2­30

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

2.4.1 Baseline Products......................................................................................... 2­31

2.4.1.1 Instantaneous Gas­Fired Water Heater........................................................ 2­31

2.4.1.2 Gas­Fired Pool Heaters................................................................................ 2­32

2.4.2 Maximum Technology Efficiency Levels ................................................... 2­32

2.4.2.1 Heat Pump Water Heaters as the Max­Tech Efficiency Level for Electric

Storage Water Heaters ................................................................................. 2­32

2.4.2.2 Condensing Water Heaters as the Max­Tech Efficiency Level for GasFired Storage Water Heaters........................................................................ 2­33

2.4.2.3 Condensing Direct Heating Equipment as the Max­Tech Efficiency Level

for Gas­Fired Room Heaters........................................................................ 2­34

2.4.2.4 Condensing Pool Heaters as the Max­Tech Efficiency Level for Gas­Fired

Pool Heaters................................................................................................. 2­34

2.4.3 Identification of Efficiency Levels for Analysis.......................................... 2­35

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

Water Heaters............................................................................................... 2­36

2.4.4.1 Review of the Energy­Efficiency Equations for Gas­Fired and Electric

Storage Water Heaters ................................................................................. 2­36

2.4.4.2 DOE’s Review of the Current Water Heater Market................................... 2­38

2.4.4.3 Existing Federal Energy Conservation Standards and Revised EnergyEfficiency Equations Using the Current Energy­Efficiency Equation Slope2­39

2.4.4.4 Alternative Approach for Developing Revised Energy­Efficiency

Equations for Gas­Fired and Electric Storage Water Heaters ..................... 2­40

2.4.4.5 Validation of the Energy­Efficiency Equations for Gas­Fired and Electric

Storage Water Heaters ................................................................................. 2­41

2.5 MARKUPS TO DETERMINE PRODUCT PRICE...................................................... 2­42

2.6 ENERGY USE CHARACTERIZATION ..................................................................... 2­43

2.6.1 Water Heaters............................................................................................... 2­43

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

2.7 LIFE­CYCLE COST AND PAYBACK PERIOD ANALYSES .................................. 2­46

2.7.1 Installation Costs.......................................................................................... 2­47

2.7.2 Rebound Effect ............................................................................................ 2­48

2.7.3 Energy Prices............................................................................................... 2­49

2.7.4 Maintenance and Repair Costs..................................................................... 2­49

2.7.5 Product Lifetime .......................................................................................... 2­50

2.8 NATIONAL IMPACT ANALYSIS.............................................................................. 2­50

2.8.1 Shipments Analysis...................................................................................... 2­50

2.8.2 National Energy Savings Analysis............................................................... 2­52

2­ii

EE-2006-STD-0129 and EERE-2006-BT-STD-0129 COMMENT 32.2
2.8.3 Net Present Value Analysis ......................................................................... 2­52

2.8.4 Efficiency Scenarios and Trends ................................................................. 2­52

2.8.5 Impact of Standards on Natural Gas Prices and Overall Economic

Benefits ........................................................................................................ 2­53

2.9 PRELIMINARY MANUFACTURER IMPACT ANALYSIS ..................................... 2­54

2.9.1 Industry Cash­Flow Analysis....................................................................... 2­56

2.9.2 Manufacturer Subgroup Analysis................................................................ 2­56

2.9.3 Competitive Impacts Assessment ................................................................ 2­56

2.9.4 Cumulative Regulatory Burden ................................................................... 2­57

2.9.5 Preliminary Results for the Manufacturer Impact Analysis ........................ 2­58

2.10 LIFE­CYCLE COST SUBGROUP ANALYSIS .......................................................... 2­58

2.11 UTILITY IMPACT ANALYSIS................................................................................... 2­58

2.12 ENVIRONMENTAL IMPACT ANALYSIS................................................................ 2­59

2.13 EMPLOYMENT IMPACT ANALYSIS....................................................................... 2­61

2.14 REGULATORY IMPACT ANALYSIS ....................................................................... 2­61

LIST OF TABLES

Table 2.1 Product Classes for Direct Heating Equipment ........................................... 2­15

Table 2.2 Existing Federal Energy Conservation Standards for Residential GasFired and Electric Storage Water Heaters.................................................... 2­37

2­iii

EE-2006-STD-0129 and EERE-2006-BT-STD-0129 COMMENT 32.2
CHAPTER 2. ANALYTICAL FRAMEWORK, COMMENTS FROM

INTERESTED PARTIES, AND DOE RESPONSES

2.1 INTRODUCTION

Section 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 or amended energy conservation

standards, promulgate standards that achieve the maximum improvement in energy efficiency

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

chapter provides a description of the general analytical framework that DOE uses in developing

such standards, and in particular, amended energy conservation standards for residential water

heaters, direct heating equipment, and pool heaters. The analytical framework is a description of

the methodology, the analytical tools, and relationships among the various analyses that are part

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

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

manufacturers and users; national benefits; impacts, if any, on utility companies; and impacts, if

any, from lessening competition among manufacturers.

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

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

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

existing technology options, including prototype designs.

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

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

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

safety.

• An engineering analysis to develop cost­efficiency relationships that show the

manufacturer’s cost of achieving increased efficiency. DOE determines the increased cost

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

production cost (MPC) to manufacturer selling price (MSP).

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

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

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

estimated average life of the covered products, compared to any increase in the installed

cost 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

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

manufacturer cash flows.

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

the NPV of total consumer LCC and national energy savings (NES).

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

conservation standards on manufacturers, such as impacts on capital conversion

expenditures, marketing costs, shipments, and research and development costs.

2­1

EE-2006-STD-0129 and EERE-2006-BT-STD-0129 COMMENT 32.2
The analyses DOE will perform in the subsequent Notice of Proposed Rulemaking

(NOPR) 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.

• An LCC subgroup analysis to evaluate variations in customer characteristics that might

cause a standard to affect particular consumer sub­populations, such as low­income

households, differently than the overall population.

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

manufacturers and to calculate impacts on competition, employment, and manufacturing

capacity.

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

oil utilities.

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

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

conservation standards on three pollutants—sulfur dioxide (SO2), nitrogen oxides (NOx),

and mercury—as well as carbon emissions.

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

conservation standards that could achieve substantially the same regulatory goal at a

lower cost.

DOE developed this analytical framework and documented its findings in the

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

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

Notice of Public Meeting and Availability of a Framework Document published in the Federal

Register on November 24, 2006. 71 FR 67825. DOE presented the analytical approach to

interested parties during a public meeting held on January 16, 2007. The framework document is

available at www1.eere.energy.gov/buildings/appliance_standards/residential/pdfs/

heating_equipment_framework_092706.pdf.

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

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

approach. This chapter (chapter 2) of the preliminary TSD summarizes the key comments DOE

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

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

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

analyses. Lastly, in the executive summary of the preliminary TSD, DOE identified a number of

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

relevant analysis sections below.

2.2 MARKET AND TECHNOLOGY ASSESSMENT

When DOE begins an energy conservation standards rulemaking, it develops information

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

the products, the industry structure, and market characteristics for the products. This activity

consists of both quantitative and qualitative efforts based primarily on publicly available

2­2

EE-2006-STD-0129 and EERE-2006-BT-STD-0129 COMMENT 32.2
information. The subjects addressed in the market assessment included manufacturers, trade

associations, and the quantities and types of products sold and offered for sale. DOE examined

water heater, direct heating equipment, and pool heater manufacturers. DOE examined both large

and small and foreign and domestic manufacturers. DOE also examined publicly available

information from trade associations, including the Air Conditioning, Heating, and Refrigeration

Institute (AHRI)a

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

Pool 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.

Finally, DOE also reviewed other energy efficiency programs from utilities, individual states,

and other organizations. Chapter 3 of the preliminary TSD provides additional details on the

market and technology assessment.

DOE reviewed relevant literature and interviewed manufacturers to develop an overall

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

trade journals, government agencies, and trade organizations provided the bulk of the

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

(i.e., water heater, direct heating equipment, pool heater) and capacity (storage volume or fuel

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

Subsequent sections of this chapter of the preliminary TSD describe the comments DOE

received in response to its review of the market for the framework document. The analysis

developed as part of the market and technology assessment is described in chapter 3 of the

preliminary TSD.

2.2.1 Definitions

DOE received several comments in response to the definitions of residential water

heaters, direct heating equipment, and pool heaters it presented in the framework. In response,

DOE reviewed the definitions for instantaneous water heaters and heat pump water heaters to

determine scope of coverage. DOE also examined the relationship of the direct heating

equipment definition to vented and unvented products, and the relationship of the pool heater

definition to input capacity and spa heaters. Finally, DOE also examined tabletop, solar, and

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

preliminary analyses.

2.2.1.1 Instantaneous Gas­Fired and Electric Water Heaters

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

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

water heater.” Residential water heater means a product that uses oil, gas, or electricity to heat

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

heat water, but 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

Association (GAMA) merged to become AHRI. Consequently, comments from GAMA have been attributed to

AHRI in this document.

2­3

EE-2006-STD-0129 and EERE-2006-BT-STD-0129 COMMENT 32.2
including gas instantaneous water heaters with an input of 200,000 Btu per hour or less, oil

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

instantaneous water heaters with an input of 12 kilowatts or less.” DOE further describes the

definition of instantaneous water heaters in Appendix E to Subpart B of part 430 of 10 Code of

Federal Regulations (CFR) as follows: “Instantaneous gas­fired water heater means a water

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

designed to deliver water at a controlled temperature of less than 180oF (82 oC), has an input

greater than 50,000 Btu/hr (53 MJ/h) but less than 200,000 Btu/h (210 MJ/h), and has a

manufacturer’s specified capacity of less than 2 gallons (7.6 liters).” The definition of

instantaneous electric water heater is reserved.

DOE presented these definitions in the framework document and, in response, received

comments regarding the definition of instantaneous gas­fired water heaters and electric

instantaneous water heaters. Specifically, the Edison Electric Institute (EEI) commented that

DOE should consider extending the definition limit of the instantaneous water heater and extend

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

200,000 Btu/h and lower than 50,000 Btu/h. (EEI, No. 5 at p. 3)b

DOE reviewed the definitions and product classes for instantaneous gas­fired water

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

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

residential products, and instantaneous gas­fired water heaters with an input capacity greater than

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

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

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

the overlapping coverage.

DOE reviewed product literature from manufacturers of instantaneous gas­fired water

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

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

also reviewed AHRI’sc Consumers' Directory of Certified Efficiency Ratings for Heating and

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

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

b “EEI, No. 5 at p. 3” refers to (1) a statement that was submitted by the Edison Electric Institute and is recorded in

the Resource Room of the Building Technologies Program in the docket under “Energy Efficiency Program for

Commercial and Industrial Equipment: Efficiency Standards for Residential Water Heaters, Direct Heating

Equipment, and Pool Heaters,” Docket Number EE–2006–STD–0129, as comment number 5; and (2) a passage that

appears on page 3 of that statement.

The Air­Conditioning, Heating, and Refrigeration Institute (AHRI) is the trade association that represents

manufacturers of heating products. Formerly, those manufacturers were represented by the Gas Appliance

Manufacturers Association (GAMA). GAMA and the Air­Conditioning and Refrigeration Institute (ARI) announced

on December 17, 2007, that their members had voted to approve the merger of the two trade associations to

represent the interests of manufacturers of cooling, heating, and commercial refrigeration equipment. The merged

association became AHRI on January 1, 2008. AHRI maintains the Consumers' Directory of Certified Efficiency

Ratings for Heating and Water Heating Equipment, which is found on GAMA’s website at

www.gamanet.org/gama/inforesources.nsf /vContentEntries/Product+Directories.

2­4

c

EE-2006-STD-0129 and EERE-2006-BT-STD-0129 COMMENT 32.2
DOE determined that this product has been discontinued and is being replaced by a comparable

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

AHRI commented that DOE should include a definition for electric instantaneous water

heaters to clearly indicate that they are covered products. (GAMA, No. 4.5 at p. 1)d The

definition of residential water heaters specified by NAECA includes electric instantaneous water

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

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

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

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

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

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

2.2.1.2 Heat Pump Water Heaters

NAECA also amended EPCA to provide a definition of heat pump water heaters, which

includes units with a maximum current rating of 24 amperes at a voltage no greater than 250

volts. Products with these characteristics are designed to transfer thermal energy from one

temperature level to a higher temperature level for the purpose of heating water, including all

ancillary equipment such as fans, storage tanks, pumps, or controls necessary for the device to

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

heat pump water heaters: integral and add­on.

Integral heat pump water heaters are fully functioning water heaters from the point of

manufacture and include all of the components in a single packaged product required to operate

as a water heater. Therefore, DOE believes that integral units meet EPCA’s definition of a water

heater, which means a product that uses oil, gas, or electricity to heat potable water for use

outside 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

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

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

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

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

completely separate unit that can be placed on the floor or mounted on a wall. Therefore, the

add­on device, by itself, does not include all of the equipment necessary to operate as a water

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

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

add­on heat pump water heaters in its analyses.

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

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

d All comments submitted to DOE before the merger between ARI and GAMA to form AHRI are listed in the

docket directory under GAMA. DOE refers to the commenter throughout this notice as AHRI.

2­5

EE-2006-STD-0129 and EERE-2006-BT-STD-0129 COMMENT 32.2
the point of manufacture (i.e., completion of the final product), it is not paired with a storage

tank or shipped as a fully working unit. Likewise, electric storage­type water heaters are

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

shipment from the manufacturer. Therefore, DOE does not believe that add­on heat pump water

heaters meet the definition of a water heater provided in section 321 of EPCA. (42 U.S.C.

6291(27)) Consequently, because add­on heat pump water heaters do not function as electric

storage water heaters from the point of manufacturers, they are not considered a covered product

and are not included in today’s analysis. DOE further addresses integral heat pump water heaters

in the screening analysis found in chapter 4 of the preliminary TSD.

2.2.1.3 Direct Heating Equipment

Before the enactment of NAECA, EPCA included “home heating equipment” in DOE’s

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

products, and prescribed a separate test procedure for each. 43 FR 20128, 20132 (May 2, 1978).

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

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

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

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

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

amendments to EPCA in 1987 (42 U.S.C. 6295(e)(3)), the new energy conservation standards for

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

applies to vented but not unvented equipment.

In prescribing these standards, Congress did not define the term "direct heating

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

descriptor, in subsequent DOE actions concerning direct heating equipment, first in proposed

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

in test procedure amendments, 62 FR 26140 (May 12, 1997) (the May 1997 final rule), DOE

addressed only vented products. As with previous rulemakings, DOE will only consider vented

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

definitions only for vented products.

DOE incorporated a definition of “vented heating equipment” in 10 CFR 430.2 as

follows: “a class of home heating equipment, not including furnaces, designed to furnish warmed

air to the living space of a residence, directly from the device, without duct connections (except

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

wall furnace, vented floor furnace, and vented room heater.” DOE adopted this definition

because the energy conservation standards established by NAECA’s amendments to EPCA in

1987 (42 United States Code (U.S.C.) 6295(e)(3)) were only for gas products and the standards

used the annual fuel utilization efficiency (AFUE) descriptor, which applies to vented but not

unvented equipment. Section 430.2 defines a vented wall furnace, vented floor furnace, and

vented room heater as well. Chapter 3 of the preliminary TSD includes definitions and additional

information regarding the four direct heating equipment types.

2­6

EE-2006-STD-0129 and EERE-2006-BT-STD-0129 COMMENT 32.2
2.2.1.4 Input Capacity for Residential Pool Heaters

EPCA defined “pool heaters” as “an appliance designed for heating nonpotable water

contained at atmospheric pressure, including heating water in swimming pools, spas, hot tubs

and similar applications.” (42 U.S.C. 6291(25) and 10 CFR 430.2) DOE received several

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

framework document. Particularly, DOE received comments from interested parties regarding

the decision to exclude products having input capacities greater than 1 million Btu/h, and

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

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

preliminary rulemaking pool heaters with an input capacity greater than 1 million Btu/h, because

pool heater manufacturers market pool heaters with input capacities greater than 1 million Btu/h

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

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

heaters.

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

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

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

the scope of coverage for residential pool heaters. (A.O. Smith, No. 11 at p. 1; Raypak, Public

Meeting Transcript, No. 4.7 at p. 72) The Natural Resources Defense Council (NRDC) agreed

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

heaters rated up to 1 million Btu/h. (NRDC, Public Meeting Transcript, No. 4.7 at p. 73)

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

water contained at atmospheric pressure, including heating water in swimming pools, spas, hot

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

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

direction, DOE has decided not to include a specific input capacity limit to determine scope of

coverage for residential pool heaters.

However, DOE notes that residential pool heaters are considered a consumer product as

defined in EPCA. The definition of a consumer product within EPCA means “any article (other

than an automobile, as defined in section 32901(a)(3) of title 49) of a type—(A) which in

operation consumes, or is designed to consume, energy or, with respect to showerheads, faucets,

water closets, and urinals, water; and (B) which, to any significant extent, is distributed in

commerce for personal use or consumption by individuals; ... ” (42 U.S.C. 6291(1)) Because the

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

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

part 430 are intended to cover consumer products for residential use, DOE believes that an input

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

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

residential use (i.e., if it is marketed for use in a residence). (42 U.S.C. 6291(1) and (25))

2­7

EE-2006-STD-0129 and EERE-2006-BT-STD-0129 COMMENT 32.2
2.2.1.5 Spa Heater Coverage

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

defined as heaters for hot tub systems, where hot water is circulated by a pump. (EEI, No. 5 at p.

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

rulemaking, because people use their spas more frequently and for more cumulative hours than

their pools. (Southern California Gas Company, Public Meeting Transcript, No. 4.7 at p. 73­74)

Section 321 of EPCA defines pool heaters as being capable of “heating water in

swimming pools, spas, hot tubs, and similar applications.” (42 U.S.C. 6291(25)) Because EPCA

specifically includes spa heaters in the definition of pool heaters, DOE believes that spa heaters

are subject to the same energy conservation standards established for pool heaters. Spa heaters

and pool heaters perform similar functions and include similar features. Additionally, spa heaters

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

product to be different from pool heaters. Therefore, DOE includes spa heaters in the pool heater

product class.

2.2.2 Product Classes and Scope of Coverage

When evaluating and establishing energy conservation standards, DOE generally divides

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

performance­related features that affect efficiency. Different energy conservation standards may

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

DOE received several comments from interested parties regarding the product classes and

their organization that DOE included in today’s preliminary analyses. Specifically, DOE

received comments regarding the decision to exclude tabletop, electric instantaneous, solar, and

combination water heating products.

2.2.2.1 Tabletop Water Heaters

DOE received several comments on the product classes for residential water heaters. The

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

Awareness Project (ASAP), NRDC, the Northeast Power Coordinating Council (NPCC), and

Pacific Gas and Electric (PG&E) submitted a joint comment to DOE, hereafter referred to as the

“Joint Comment,” stating that DOE should include electric tabletop water heaters in the analysis.

(Joint Comment, No. 12 at pp. 4­5) EEI also suggested that DOE include tabletop water heaters

in the rulemaking. (EEI, No. 5 at p. 3) On the other hand, A.O. Smith supported DOE’s initial

conclusion in the framework document to exclude tabletop water heaters from the analysis. (A.O.

Smith, No. 11 at p. 1)

For the framework document, DOE excluded tabletop water heaters because size

restrictions do not allow the units to be any larger. Tabletop water heaters are primarily electric

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

these systems are located underneath tabletops in highly specialized applications, and that

2­8

EE-2006-STD-0129 and EERE-2006-BT-STD-0129 COMMENT 32.2
manufacturers already maximize the size of the water heater in order to meet the current

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

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

products, DOE is not aware of any feasible technological advancement that would increase

energy efficiency without increasing overall dimensions. Therefore, DOE has excluded tabletop

water heaters from consideration in its preliminary analyses.

2.2.2.2 Electric Instantaneous Water Heaters

Southern California Gas Company, American Gas Association (AGA), and EEI

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

products. (Southern California Gas Company, Public Meeting Transcript, No. 4.7 at p. 39; AGA,

No. 4.6 at p. 2; EEI, No. 5 at pp. 2–3; and AGA, No. 13 at p. 4)

DOE excluded electric instantaneous water heaters from consideration because there is

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

following consideration of the energy efficiency metric for water heaters, which is a combination

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

water heaters, have minor losses in recovery efficiency, and electric instantaneous water heaters

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

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

existing minimum energy conservation standard and utilize available technologies to the extent

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

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

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

conclusion.

2.2.2.3 Solar Water Heaters

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

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

solar technologies will not show up in DOE’s test procedures, and that a revision of the test

procedure would be required in order to receive credit for solar technologies. AHRI stated its

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

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

appropriate minimum efficiency standard, and that a potential loophole may exist for

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

GAMA, Public Meeting Transcript, No. 4.7 at pp. 50–51)

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

framework document).

<www1.eere.energy.gov/buildings/appliance_standards/residential/pdfs/heating_equipment_framework_092706.pdf

, p. 9> f Id., pp. 9–10.

2­9

EE-2006-STD-0129 and EERE-2006-BT-STD-0129 COMMENT 32.2
The Joint Comment and Heliocol USA, Inc. (Heliocol), on the other hand, stated their

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

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

other contexts. They also questioned DOE’s assumption that the sun is not a fuel source.

Heliocol added that DOE currently supports a rating and certification program for solar water

heaters, and that Federal and State tax credits are available to consumers. The joint commenters

also pointed out that DOE’s ENERGY STAR water heating program includes options for solarassisted water heating. Finally, NRDC stated that solar technology should be considered because

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

NRDC, Public Meeting Transcript, No. 4.7 at pp. 25–26, 49–50; Heliocol, No. 15 at pp. 1–2;

Joint Comment, No. 12 at pp. 3–4)

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

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

“energy” as meaning electricity or fossil fuels. (42 U.S.C 6291(3)) EPCA does not cover

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

also contains a provision stating, “the Secretary may, by rule, include other fuels within the

meaning of the term "energy" if he determines that such inclusion is necessary or appropriate to

carry out the purposes of this chapter.” (42 U.S.C. 6291(3)) Since DOE may include another type

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

prescribe energy conservation standards for products that receive their energy directly from

energy sources not specifically prescribed under EPCA.

In addition, problems remain with respect to creating a test procedure that would produce

repeatable results on which a standard would rely. Solar systems in particular may have different

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

additional sunlight than others. These differences can also exist on a house­to­house level

depending on factors such as tree coverage. As a result, incorporating a standard for solar­based

products at this time is also not possible.

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

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

water heating applications. Consequently, although DOE is not in a position to adopt a standard

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

2.2.2.4 Powered and Unpowered Gas­Fired Storage Water Heaters

AGA recommended that DOE divide the current class for gas storage water heaters (as

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

water heaters, including power vented storage and instantaneous gas­fired water heaters, and

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

unpowered water heaters provide a unique consumer utility and should not be eliminated by this

rulemaking. (AGA, No. 13 at p. 3)

2­10

EE-2006-STD-0129 and EERE-2006-BT-STD-0129 COMMENT 32.2
EPCA 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 feature affecting

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

incorporated into higher­efficiency gas­fired water heaters are technologies used by

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

unique utility opportunities.

2.2.2.5 Combination Heating Products

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

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

Refrigerating, and Air­Conditioning Engineers (ASHRAE), the American National Standards

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

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

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

boilers, DOE has decided not to include combination heating and water heating appliances in the

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

Notice of Proposed Rulemaking (ANOPR) for residential furnaces and boilers). DOE has also

decided not to include combination heating and water heating appliances in its preliminary

analyses for residential heating products. DOE does not have an existing test procedure to

determine the energy efficiency of combination appliances.

2.2.2.6 Energy­Efficiency Equations for Electric and Gas­Fired Storage Water

Heaters

In response to a request from AHRI and the storage water heater manufacturers, DOE

reviewed the energy­efficiency equations that define the existing Federal energy conservation

standards for gas­fired and electric storage water heaters. The energy­efficiency equations allow

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

storage volumes covered under the existing Federal energy conservation standard. For the

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

relationships between EF and rated storage volume for water heaters. However, DOE describes

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

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

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

the energy­efficiency equations for gas­fired and electric storage water heaters.

2.2.2.7 Product Class Divisions and Energy­Efficiency Equations for Oil­Fired

Storage Water Heaters

DOE also reviewed the product classes and energy­efficiency equations that define the

existing Federal energy conservation standards for oil­fired storage water heaters. For oil­fired

storage water heaters, DOE also surveyed AHRI’s Consumers' Directory for oil­fired storage

water heaters and available product literature to characterize the relationship between rated

2­11

EE-2006-STD-0129 and EERE-2006-BT-STD-0129 COMMENT 32.2
storage volume and the EF of products in today’s market. DOE found that manufacturers

produce models with rated storage volumes of 30, 32, and 50 gallons and that the EF decreases

with rated storage volume. Unlike gas­fired products, the EF of the most efficient models for

each rated storage volume in AHRI’s Consumers’ Directory decreases as rated storage volume

increases. Further, DOE believes the energy efficiency potentials are different due to the

increased jacket losses for larger tank surface areas. Consequently, DOE believes that the current

relationship between energy factor and rated storage volume for oil­fired storage water heaters

established by EPCA and reaffirmed by the previous water heater rulemaking is representative of

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

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

DOE seeks comment on the relationship between rated storage volume and EF established for

oil­fired storage type water heaters. See the issues for which DOE seeks comment within the

executive summary.

2.2.2.8 Product Class Divisions and Energy­Efficiency Equations for

Instantaneous Gas­Fired Water Heaters

DOE examined the product classes for instantaneous gas­fired water heaters by surveying

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

heaters are defined in 10 CFR part 430, subpart B, appendix E as having a storage capacity of 2

gallons or less. However, all of the instantaneous gas­fired water heaters listed in the AHRI

directory are rated at zero gallons. DOE did not find a relationship between rated storage volume

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

a minimum standard of 0.62 EF. As a result, DOE decided to examine the relationship between

EF and input rating, in kilo British thermal units per hour (kBtu/h), for the instantaneous gasfired water heaters currently available to consumers. DOE found that products are available with

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

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

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

classes for instantaneous gas­fired water heaters to include a single amended energy conservation

standard (i.e., one efficiency level) for all storage volumes and input capacities of instantaneous

gas­fired water heaters, similar to those for pool heaters. See the issues for which DOE seeks

comment within the executive summary.

2.2.2.9 Hearth and Fireplace Products

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

fireplaces, fireplace inserts, gas stoves, or log sets, can be used to provide residential space

heating. When used to furnish heat to a living space, vented hearth products provide the same

function and utility as vented heaters. The definition for vented home heating equipment (or

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

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

vented wall furnaces, vented floor furnaces, and vented room heaters. Vented hearth products

also furnish warmed air to the living space of a residence, directly from the device, without duct

2­12

EE-2006-STD-0129 and EERE-2006-BT-STD-0129 COMMENT 32.2
connections. Therefore, DOE believes the product classes that are covered by the vented heater

definition include vented hearth products.

DOE believes that the energy conservation standards provided in 10 CFR 430.32(i),

Direct Heating Equipment, apply to a vented hearth product if the product has energy­saving

features such as a blower or a thermostat, or if a function of the product is to provide for space

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

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

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

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

10 CFR 430.32(i).

Currently, DOE is aware of two types of vented hearth product designs, recessed and

non­recessed products. Recessed vented hearth products are similar in design to gas wall fan and

gravity­type furnaces, where the product is typically incorporated or attached to a wall. In the

case of a recessed vented hearth product, the hearth is incorporated or attached to a wall and may

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

similar in design to room heaters, which are typically free­standing and not recessed or attached

to a wall. In the case of a non­recessed vented hearth product, the hearth is free­standing and

may include fireplace or hearth aesthetics. Therefore, DOE believes that the energy conservation

standards for gas wall fan or gravity­type furnaces apply to recessed vented hearth products and

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

products.

AHRI suggested that DOE establish a new “design type” of “fireplace heater” for these

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

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

decorative hearths. AHRI said that safety standards should help DOE distinguish between

decorative and heater hearths. AHRI also recommended minimum annual fuel utilization

efficiency (AFUE) requirements for this new type of direct heating equipment, which correspond

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

1; GAMA, Public Meeting Transcript, No. 4.7 at pp. 62–63; GAMA, No. 16 at p. 2)

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

Vented Gas Fireplace Heaters, to define which products are covered in this rulemaking. Lennox

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

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

improve uniformity and repeatability. Lennox also supported the addition of a fireplace heater

product class. (Lennox, No. 17 at pp. 1–2)

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

heating equipment. Instead, the HPBA believes that hearth products should have their own

product class where hearth products, decorative gas fireplaces, and gas logs are clearly defined.

Furthermore, HPBA commented that hearth products should have two classes: heater rated gas

fireplaces and free standing gas heaters. HPBA stated that these products are already tested under

2­13

EE-2006-STD-0129 and EERE-2006-BT-STD-0129 COMMENT 32.2
ANSI Z21.88. It stated that these hearth products warrant an independent analysis because of

differences in primary function (heating or aesthetics), frequency of use, and design. HPBA also

stated that less stringent standards are justified for products that are used less frequently or

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

DOE believes that vented hearth products can be used to provide residential space

heating. When used to furnish heat to a living space, these products provide the same function

and utility as vented heaters. The definition for vented home heating equipment (or vented

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

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

wall furnaces, vented floor furnaces, and vented room heaters. Vented hearth products, which

include fireplaces, fireplace inserts, gas stoves, and log sets, also furnish warmed air to the living

space of a residence, directly from the device, without duct connections. Fireplace heaters also

provide the same utility and function as either gas wall furnaces or gas room heaters, and they do

not utilize any specific technologies unique to themselves. Additionally, AHRI’s Consumers’

Directory currently categorizes fireplace heaters as either room heaters or wall furnaces. DOE

requests comments on the need for a separate product class for fireplace heaters. See the issues

for which DOE seeks comment within the executive summary.

To help interested parties determine which product classes of direct heating equipment

their hearth products fall under, DOE proposes to add headings to the table in 10 CFR 430.32(i)

as follows (Table 2.1):

2­14

EE-2006-STD-0129 and EERE-2006-BT-STD-0129 COMMENT 32.2
Table 2.1 Product Classes for Direct Heating Equipment

Direct Heating Equipment Type Heating Capacity (Btu/h)

Gas Wall Fan Type Up to 42,000

and

Gas, Recessed, Fan­Type Hearth Products Over 42,000

Up to 10,000

Over 10,000 up to 12,000

Gas Wall Gravity Type Over 12,000 up to 15,000

and Over 15,000 up to 19,000

Gas, Recessed, Gravity­Type Hearth Products Over 19,000 up to 27,000

Over 27,000 up to 46,000

Over 46,000

Gas Floor Up to 37,000

Over 37,000

Up to 18,000

Gas Room Over 18,000 up to 20,000

and Over 20,000 up to 27,000

Gas, Non­Recessed Hearth Products Over 27,000 up to 46,000

Over 46,000

2.2.2.10 Electric Equivalents to Direct Heating Equipment

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

equivalents of gas­fired direct heating equipment in the rulemaking. (Laclede, No. 8 at p. 3)

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

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

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

electricity, 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

allow air to exit the conditioned space. Thus, all of the heat produced is released into the

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

significant energy savings potential from these products. For purposes of this preliminary

analysis, DOE will consider direct heating equipment as referring only to gas­fired vented home

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

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

that 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

energy efficiency.

2.2.2.11 Product Class Divisions for Direct Heating Equipment

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

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

classes. (GAMA, Public Meeting Transcript, No. 4.7 at p. 60; GAMA, No. 4.5 at p. 2)

2­15

EE-2006-STD-0129 and EERE-2006-BT-STD-0129 COMMENT 32.2
In addition to considerations raised by interested parties in response to the framework

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

examined the relationship between energy efficiency (i.e., AFUE) and input rating for direct

heating equipment. The existing energy conservation standards were originally established by

NAECA and are differentiated by input capacity range. DOE examined the possibility of

consolidating product classes in chapter 3 of the preliminary TSD. DOE seeks comment on the

proposal to combine some of the direct heating equipment product classes. Chapter 3 describes

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

Gas wall fan­type direct heating equipment. For fan­type wall furnaces, DOE also

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

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

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

range of the products. For higher efficiency products (i.e., 78 percent AFUE and higher), DOE

noticed a trend where efficiency decreases as capacity increases. For lower efficiency products

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

capacity increases. Therefore, DOE believes that the two product classes for gas wall, fan­type

direct heating equipment should remain to distinguish these two trends. DOE seeks comment

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

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

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

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

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

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

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

furnaces divide these products into seven product classes based on input capacity ranges. The

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

in input capacity range (i.e., the larger the input capacity, the higher the AFUE requirements).

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

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

unnecessary. DOE believes that the five product classes labeled up to 10,000 Btu/h, over 10,000

and up to 12,000 Btu/h, over 12,000 and up to 15, 000 Btu/h, over 15,000 and up to 19,000

Btu/h, and over 19,000 and up to 27,000 Btu/h could be consolidated into a single product class

labeled up to 27,000 Btu/h. This would leave three product classes for gas wall gravity type

furnaces. DOE seeks comment on the relationship between the product classes and input ratings

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

equipment.

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

floor furnaces by reviewing AHRI’s Consumers' Directory and available product literature. The

AHRI directory lists only 23 products. The Federal energy conservation standard includes two

product classes divided by input ratings, one above and the other at or below 37,000 Btu/h.

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

2­16

EE-2006-STD-0129 and EERE-2006-BT-STD-0129 COMMENT 32.2
Btu/h. Additionally, only one of the 23 products on the market is rated as having an AFUE less

than 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

between the two product classes, the energy savings potential increases as the input capacity

range increases. This would suggest that, for gas floor­type furnaces, input capacity affects the

AFUE of the products. DOE seeks comment regarding the relationship between the input rating

ranges and the AFUE ratings for establishing product classes. DOE also seeks comment on the

possibility of establishing a single consolidated product class for gas floor­type direct heating

equipment.

Gas room­type direct heating equipment. DOE examined currently available room

heaters by reviewing AHRI’s Consumers' Directory and product literature. DOE surveyed all

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

products. DOE found that room heaters have inputs ranging from 15,000 to 70,000 Btu/h. DOE

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

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

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

range. DOE believes that some of the input capacity ranges could be further consolidated based

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

two lower input capacity ranges into a single product class (i.e., input ratings up to 20,000 Btu/h)

with a corresponding single amended energy conservation standard. As a result, four product

classes for gas room heaters would be established for the amended energy conservation

standards. DOE seeks comment regarding the possible reorganization of the product classes for

gas room­type direct heating equipment.

2.2.2.12 Electric Pool Heaters

AGA commented that DOE should add an electric pool heater product class, which

should include heat pump pool heaters. AGA suggested that DOE examine annual shipments to

determine the possible product classes for electric pool heaters. (AGA, No. 4.6 at pp. 2­3)

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

heaters in addition to gas­fueled pool products. (EEI, No. 5 at p. 5; Laclede, No. 8 at p. 9)

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

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

market shifts from gas pool products to electrical pool products. (Laclede, No. 8 at pp. 5 and 8)

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

market before adding a product class for them. (NRDC, Public Meeting Transcript, No. 4.7 at p.

73)

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

pool heaters, which would include heat pump pool heaters. DOE understands that manufacturers

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

g U.S. Department of Energy. A Consumer’s Guide to Energy Efficiency and Renewable Energy: Heat Pump

Swimming Pool Heaters. September 15, 2005.

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

2­17

EE-2006-STD-0129 and EERE-2006-BT-STD-0129 COMMENT 32.2
DOE currently has no test procedure to measure the coefficient of performance of a heat pump

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

heaters are based on a thermal efficiency metric. Therefore, DOE intends to consider amended

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

2.2.2.13 Product Class Divisions for Residential Pool Heaters

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

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

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

relationship between input capacity and thermal efficiency, and identified pool heaters with input

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

identify any trends to suggest a relationship exists between input rating and thermal efficiency.

Therefore, DOE believes the existing product class for gas­fired pool heaters is appropriate and

that a single amended energy conservation standard can be applied to all input ratings for

residential gas­fired pool heaters.

2.2.3 Technology Assessment

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

consideration for improving the efficiency of residential water heaters, direct heating equipment,

and pool heaters. Initially, these technologies encompass all those DOE believes are

technologically feasible. DOE removed those technology options whose energy consumption

could not be adequately measured by the existing DOE test procedure. Finally, DOE also

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

direct heating equipment, and pool heaters before moving on to the screening analysis. Chapter 3

of the preliminary TSD includes the detailed list of all technology options identified for each

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

2.3 SCREENING ANALYSIS

After DOE identified the technologies in the technology assessment that could potentially

improve the energy efficiency of residential heating products, DOE conducted the screening

analysis. The purpose of the screening analysis is to evaluate the technologies to determine

which options to consider further and which options to screen out. DOE consults with industry,

technical experts, and other interested parties in developing a list of technologies for

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

unsuitable for further consideration in this preliminary rulemaking. Chapter 4 of the preliminary

TSD, the screening analysis, contains details on the criteria that DOE uses.

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

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

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

with interested parties, DOE reviews the list to determine if the technologies described in chapter

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

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

2­18

EE-2006-STD-0129 and EERE-2006-BT-STD-0129 COMMENT 32.2
engineering analysis, DOE further considers the efficiency­enhancement options (i.e.,

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

2.3.1 Max­tech and Prototype Consideration for Water Heaters

DOE received several general comments on the general screening analysis methodology

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

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

amended energy conservation standard. Prototypes may exhibit performance during development

that is not realized under real­world operating conditions. Furthermore, A.O. Smith and Bock

stated 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

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

including condensing gas and oil­fired appliances and heat pump electrical appliances, before

screening them out. (EEI, No. 5 at p. 2)

DOE considers all four screening criteria listed above when conducting the screening

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

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

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

considering only one technology based on a prototype design: integral heat pump water heater

technology. For condensing technologies, DOE identified products currently available to

consumers. Heat pump and condensing water heaters are the max­tech technologies identified for

electric and gas­fired water heaters, respectively. DOE also considered reliability and

performance in real­world installations and determined the economic benefit, if any, of highefficiency products to consumers. For prototypes not distributed to consumers in the field, DOE

relied on published research results from reliability and performance testing efforts.

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

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

the market and technology assessment from further consideration. Chapter 4 of the preliminary

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

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

parties on a number of the technologies. DOE presents those comments and DOE’s decision.

Further details on the technologies presented below can also be found in Chapter 4 of this

preliminary TSD.

2.3.2 Flue damper for Oil­Fired Storage Water Heaters

Bock commented that DOE should eliminate flue dampers as a technology for storage

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

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

19 at p. 2)

2­19

EE-2006-STD-0129 and EERE-2006-BT-STD-0129 COMMENT 32.2
DOE agreed with Bock and did not consider flue dampers as a technology option for oilfired water heaters. In particular, DOE screened out buoyancy­operated flue dampers due to the

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

low energy of the combustion products. If the flue is blocked, harmful combustion products will

enter the space where the water heater is installed (i.e., in a residence).

2.3.3 Advanced Forms of Insulation for Storage Water Heaters

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

identify any manufacturers that have incorporated this technology into a commercially available

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

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

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

problems that manufacturers must first overcome. For example, manufacturers must demonstrate

durability over the life of the water heater by maintaining a vacuum seal for vacuum insulation

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

shock and vibration that can reduce the effectiveness of aergoel. As a result, DOE believes that it

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

forms of insulation technology. Chapter 4 of the TSD, the screening analysis, includes additional

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

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

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

regardless of design or fuel source. (EEI, No. 5 at p. 3) As stated above, DOE did not identify

any manufacturers that have incorporated advanced forms of insulation materials into a

commercially available product. DOE believes this technology is still in the research phase.

2.3.4 Heat Traps, Plastic Tanks, and Insulated Tank Bottoms for Storage Water Heaters

AHRI and Bock stated that DOE does not need to consider heat traps, plastic tanks, or

insulated tank bottoms. (GAMA, No. 4.5 at 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, plastic

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

ineffective. (A.O. Smith, No. 11 at p. 1) Bock further stated that plastic tanks do not increase

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

DOE did not consider heat traps to be a design option for increasing the efficiency of

electric and gas­fired storage water heaters. DOE found heat traps were incorporated in the

baseline models for electric and gas­fired water heaters.

DOE 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

water heaters.

2­20

EE-2006-STD-0129 and EERE-2006-BT-STD-0129 COMMENT 32.2
2.3.5 CO2 Heat Pump Water Heater

A CO2 heat pump water heater is a type of integral heat pump water heater that operates

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

water stored in the tank through a heat pump loop. In response to the heat pump water heater

technology identified in the framework document, DOE received several comments regarding

the screening analysis with respect to these types of water heaters.

AGA stated 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

exist today. AGA stated that the max­tech option shown in the framework document (i.e., 3.12

EF CO2 heat pump water heater) does not represent currently available products and is too

stringent. AGA stated that DOE’s uneven treatment of the max­tech technologies reflects an

ongoing bias against including heat pump water heaters in a water heater efficiency rulemaking,

whereas DOE has included condensing combustion water heaters, which it had excluded in the

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

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

available products. (GAMA, No. 4.5 at p. 3)

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

currently available to consumers on the market. DOE found CO2 heat pump water heaters are

only available outside of U.S. markets, where they have been made available by government

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

service of a CO2 heat pump water heater is not available in the United States on the scale

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

Accordingly, DOE has screened CO2 heat pumps from further consideration in the analysis.

2.3.6 Integral Heat Pump Water Heater

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

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

heat pump water heaters from further consideration in the analysis. This determination was

initially 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

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

analysis. The Department based this conclusion on the following factors: (1) a required capital

investment that was 2.3 times the industry net present value (at the time of the previous

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

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

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

65 FR 25049.

DOE has revisited the decision to screen out heat pump water heaters from the analysis in

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

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

2­21

EE-2006-STD-0129 and EERE-2006-BT-STD-0129 COMMENT 32.2
advancements 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

since 2001.

2.3.6.1 Practicability to Manufacture

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

increase production of heat pump water heaters to present sales levels of electric water heaters

before the effective date of the standard, which is 5 years after the publication of the final rule. In

the 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, and less than 0.17 percent

of all water heater sales) since the 1970s. 65 FR 25047. The latest ENERGY STAR analysis

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

year.

h DOE believes that the ENERGY STAR figures are aligned with present­day sales of heat

pump water heaters, including both integral and add­on products. DOE notes that the only

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

Currently, three manufacturers produce add­on heat pump water heaters; however, add­on heat

pump water heaters are not included in the preliminary analyses. DOE also notes that none of the

three major manufacturers of residential storage water heaters has a heat pump design (integral

or add­on) in their residential product line.

As the April 2000 NOPR notes, there are significant difficulties in capitalizing and

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

approximate 4 million electric water heater sales occurring annually.i

65 FR 25047. Heat pump

water heaters would require the introduction of a completely new product to the market with a

market volume greater than that of all room air­conditioner shipments in the United States.j

The

April 2000 NOPR also cites a 1994 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

investments in the 1994 Arthur D. Little report, DOE concluded in the April 2000 NOPR that

given the current levels of profitability of the water heater industry and the limited capital

resources, some manufacturers will be unable to finance these costs.k 65 FR 25048.

However, DOE recently announced final criteria for the ENERGY STAR program,

which applies to residential add­on or integral heat pump water heaters with a minimum energy

h U.S. Department of Energy, ENERGY STAR Residential Water Heaters: Final Criteria Analysis.

www.energystar.gov/ia/partners/prod_development/new_specs/downloads/water_heaters/WaterHeaterAnalysis_Fin

al.pdf. April 1, 2008.

Stanonik, F. A. AHRI Heating Products Data Submission. Air Conditioning, Heating, and Refrigeration Institute,

Arlington, VA. March 12, 2008.

j

U.S. Department of Energy–Office of Codes and Standards, Technical Support Document:

Energy Efficiency Standards for Consumer Products: Room Air Conditioners, Water Heaters, Direct Heating

Equipment, Mobile Home Furnaces, Kitchen Ranges and Ovens, Pool Heaters, Fluorescent Lamp Ballasts &

Television Sets, 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 Heat Pump

Water Heater Energy Efficiency Standard, August 31, 1994, Arthur D. Little Inc. Prepared for the Gas Appliance

Manufacturers Association.

2­22

i

EE-2006-STD-0129 and EERE-2006-BT-STD-0129 COMMENT 32.2
factor of 2.0 and a minimum first­hour rating requirement of 50 gallons per hour. DOE believes

that the ENERGY STAR program provides water heating manufacturers with an incentive to

produce heat pump water heaters for their product lines. The ENERGY STAR market

penetration goal is 10 percent of the market (approximately 480,000 units per year) by 2015.lIf

ENERGY STAR’s target becomes a reality by 2015, this would effectively begin a market

transformation by the effective date of the standard.

In addition, with DOE’s announcement of the ENERGY STAR program for residential

water heaters, General Electric (GE) announced that it will begin producing the General Electric

Hybrid Electric Water Heater, which “combines energy­saving heating technology with

traditional electric heating systems used in most standard water heaters on the market today

without sacrificing the amount of hot water it can deliver.” GE plans to make the product

available in the fourth quarter of 2009.m DOE believes more of the major manufacturers of

residential water heaters will begin to introduce heat pump water heaters, so they can participate

in the ENERGY STAR program and stay competitive. DOE seeks comment on whether

manufacturers would be able to finance the investment costs necessary to convert their entire

existing product lines to heat pump water heaters by the effective date of an amended standard in

order to meet a heat pump water heater standard. DOE also seeks comments as to what portion of

manufacturers’ product lines would be converted to heat pump water heaters by the effective

date of an amended standard in response to ENERGY STAR (e.g., if standards did not reach heat

pump water heater levels).

2.3.6.2 Practicability to Install

For consideration of a minimum energy conservation standard at an efficiency level

corresponding to heat pump water heaters, heat pump water heaters would need to be capable of

being installed in all of the types of installations currently serviced by the residential electric

storage­type water heating market. In the April 2000 NOPR, DOE concluded that heat pump

water heaters could be installed in most locations. 65 FR 25049. However, the April 2000 NOPR

also pointed out that heat pump water heaters could not be used as replacements for standard

electric water heaters in all installations. 65 FR 25048. The April 2000 NOPR used an example

of a small electric water heater that is often used in a mobile home, an under­counter application,

an apartment, a small condominium, or other application where space is limited. DOE estimated

that approximately 30 percent of all electric water heater installations are in residences smaller

than 1,000 square feet in size.n In many of these installations, space restrictions would make it

impossible to replace the existing electric resistance water heater with a heat pump water heater

design without significant and costly modifications to the existing space.

U. S. Department of Energy, ENERGY STAR Residential Water Heaters: Final Criteria Analysis.

www.energystar.gov/ia/partners/prod_development/new_specs/downloads/water_heaters/WaterHeaterAnalysis_Fin

al.pdf, April 1, 2008, p. 5. m ® General Electric, GE first to announce water heaters that will meet new DOE ENERGY STAR® standards.

<www.geconsumerproducts.com/pressroom/press_releases/appliances/energy_efficient_products/doetanklesshybrid.

htm> April 1, 2008. n U.S. Department of Energy – Energy Information Administration, Residential Energy

Consumption Survey: Household Energy Consumption and Expenditures 1997, 1999.

<http://www.eia.doe.gov/emeu/recs/recs97/publicusefiles.html>

2­23

l

EE-2006-STD-0129 and EERE-2006-BT-STD-0129 COMMENT 32.2
An integral heat pump water heater with a compressor, evaporator coil, and evaporator

fan mounted on top of the storage tank will add approximately 8 to 16 inches to the top of the

tank. Assuming that for a given volume there is no change in tank geometry from the electric

resistance model, this extra height of the heat pump design will present installation problems

where the existing water heater enclosure is height limited, as is the case with many existing

lowboy water heater installations. Early field tests also found that the space in which the heat

pump water heater is located must be large enough to provide adequate air flow and must

provide ready access for air filter changes on the heat pump evaporator coil.

The April 2000 NOPR also pointed out that the refrigeration subsystem of a heat pump

water heater needs sufficient flow of warm air across the evaporator coils to serve as a heat

source. Without this heat source, the heat pump cannot function and must revert to electric

resistance operation. Placing the heat pump water heater in a nonventilated closet may not

provide an adequate heat source. Operation in heat pump mode will generally require warm air

exchange between the house and the closet on the order of 100 cubic feet per minute or more.

This turnover is unlikely to be achieved with natural ventilation through a closet door. A heat

pump water heater installed behind even a fully louvered closet door could experience short

cycling of cold exhaust air, affecting efficiency and capacity, and thus performance of the unit.

Consumers must also include a system to manage the condensate produced at the

evaporator coil. When air blows across the coil, moisture in the air is condensed to liquid

because of the low temperatures present in the coil. The amount of liquid produced is primarily a

function of humidity. Heat pump water heaters installed in unconditioned spaces in the South,

East, and Midwest United States can be expected to produce between several quarts to several

gallons of condensate per day during the cooling season. Locating the heat pump in the

conditioned space will not eliminate all the condensate buildup unless the air conditioning

system can dehumidify the air. Because eliminating all the moisture in the air with the air

conditioning system is difficult to ensure in practice, a condensate drain is usually included in

designs. However, drain piping may complicate hall closet, attic, garage, or other installations

where access to a drain may not be readily available. A condensate pump may be needed to

move condensate to a drain.

Since the April 2000 NOPR and the January 2001 final rule, additional testing has been

conducted on the prototype heat pump water heater. In 2004, the CEC published a report with

results of testing of a refined heat pump water heater, based on the design from the April 2000

NOPR.o Testing and redesign has produced a market­optimized model. According to the report,

20 redesigned units were installed for testing in actual operating conditions. The report found

that the redesign required a high installation cost ($1,100 to $1,450), but that the heat pump

water heater design offered attractive energy savings for consumers. Additionally, the report

cites that cost reductions may be possible by reducing the costs of individual heat pump

o California Energy Commission, Design Refinement and Demonstration of a Market­Optimized Heat­Pump Water

Heater, April 2004.

2­24

EE-2006-STD-0129 and EERE-2006-BT-STD-0129 COMMENT 32.2
components and by simplifying the overall design.p For example, the design could be made

lighter to reduce the number of technicians required for installations (two technicians were

required for these tests), and the design and operation could be modified to streamline the

installation process and reduce the amount of time required for installation.

Regarding condensate management, the 2004 CEC report also cited several instances

where complicated installations were required for condensate disposal. All of the heat pump

water heaters required condensate drains and some installations required extensive piping

through walls and condensate pumps to move liquids to remote locations, which resulted in

increased installation and material costs.

The 2004 heat pump water heater redesign also includes an option for a condensate

management system (CMS) as an alternative to a condensate drain. The CMS includes an

electric resistance system to evaporate condensate as it collects, rather than drain it. Although

costly piping installations are avoided, operating this resistive element will reduce the overall

energy efficiency.

Installation of heat pump water heaters is expected to be less of a problem with

traditional single­family homes. Products are commonly installed in basements, garages, or

utility rooms where access to condensate drainage is available, and where cool air from the heat

pump water heater is not likely to negatively affect the main living space. However, installations

under stairwells and in closets remain common and are expected to generate installation and

performance problems. Additionally, condensate pumps may be needed in these areas.

During the previous rulemaking for residential water heaters, DOE received a comment

from the Georgia Power and Alabama Power companies showing that between 20 and 30 percent

of their consumers have water heaters installed in locations unacceptable for heat pump water

heaters, primarily due to air volume constraints.q The April 200 NOPR anticipated that specific

housing subgroups, such as apartment units, should expect an even higher incidence of

installation problems.

DOE believes that heat pump water heaters could be installed in most locations of electric

storage water heaters. For this preliminary rulemaking, DOE considered the various installation

situations for heat pump water heaters, and found that installation would be practical in these

situations and estimated the installation costs. Chapter 8 of this TSD of the life­cycle cost (LCC)

analysis includes details on installation costs.

In its recent press release, GE announced its integral heat pump water heater design for

2009. 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 Market­Optimized Heat­Pump Water

Heater, April 2004. q Dieckmann, J. T., R. F. Topping, and C. E. Shorey, Technical Analysis of the Proposed DOE Electric Heat Pump

Water Heater Energy Efficiency Standard, August 31, 1994, Arthur D. Little Inc. Prepared for the Gas Appliance

Manufacturers Association.

2­25

EE-2006-STD-0129 and EERE-2006-BT-STD-0129 COMMENT 32.2
connections and footprint of a traditional tank hot water heater, and that it is “perfect” for new

construction or replacement.r

DOE discusses the installation costs of heat pump water heaters in Chapter 6 of the LCC.

However, DOE specifically seeks comments on how the market for heat pump water heaters has

changed since the April 2000 NOPR and January 2001 final rule, and the number of installations

that would incur a significant increase in cost due to extensive modifications that will need to be

made to the residence to accommodate a heat pump water heater. See the issues for which DOE

seeks comment within the executive summary.

2.3.6.3 Product Reliability and Practicability to Service

During the April 2000 NOPR, DOE noted that long­term reliability in heat pump water

heater products has not been established, and many interested parties voiced concerns. DOE also

noted that virtually all heat pump water heater programs since the 1980s were discontinued in the

United States due to poor reliability in programs and product designs.

Northeast Utilities (NU) commented during the April 2000 NOPR that it was the only

utility to place a substantial order (more than 2,000 units) for heat pump water heaters in the past

5 years. NU stated that it installed only 600 of these 2,000 heat pump water heaters because of a

failure rate exceeding 10 percent.s DOE is aware that other heat pump water heater programs

have been conducted since the January 2001 final rule and requests comments and information

about these programs. See the issues for which DOE seeks comment within the executive

summary.

The existing service and maintenance infrastructure for electric water heaters consists

mostly of plumbers, who will likely be capable of installing residential heat pump water heaters

because of similar installation procedures. However, repair and maintenance problems associated

with an installed heat pump water heater may require a skilled heat pump technician who can

troubleshoot the components of a heat pump water heater, including the refrigerant compressor,

expansion device, piping, refrigerant­to­air heat exchanger (evaporator), refrigerant­to­water heat

exchanger (condenser), fan, sensors, complex controls, defrosters, freeze protection, and electric

resistance backup elements. These components are far more complex than the typical electric

water heater, which requires two screw­in electric resistance elements, a tank, and thermostat

controls. Plumbers generally do not have training or background in repairing appliances such as

a failing heat pump water heater. Plumbers are also not a logical source of labor for these repairs

because they are among the highest­paid residential contractors. Premature (non­tank) heat pump

water heater failures are typically caused by failure of the electrical components (fans, pumps,

electronic controls, or wiring) or through loss of refrigerant. Generally, this type of repair work is

done by small appliance repair personnel who repair refrigerators, freezers, room air

r ® General Electric, GE first to announce water heaters that will meet new DOE ENERGY STAR® standards.

www.geconsumerproducts.com/pressroom/press_releases/appliances/energy_efficient_products/doetanklesshybrid.h

tm, April 1, 2008. s Morante, P., Water Heater Standards Rulemaking, DOE Docket Number EE­RM­97­900, Comment No. 40,

December 7, 1998, Northeast Utilities.

2­26

EE-2006-STD-0129 and EERE-2006-BT-STD-0129 COMMENT 32.2
conditioners, and other “white” goods (e.g., washing machines). Small appliance repair

personnel have backgrounds in troubleshooting fans, pumps, wiring, and controls and are often

certified to repair low­ and high­pressure, hermetically sealed refrigeration equipment.

The refrigerant in heat pump water heaters itself presents reliability issues because it can

leak out of a system gradually, resulting in decreased performance, or leak out of the system

entirely, resulting in system failure. If leaks occur, the refrigerant usually escapes from the

pressurized system in the form of a gas. DOE assumes that the same safety concerns that are

established for residential refrigerator appliances can be applied to heat pump water heaters.

Any failure of these system components can cause heat pump water heaters to stop

functioning. By comparison, gas or electric water heaters are less complex because they have

fewer parts, controls, and systems, and are therefore relatively maintenance free. The most likely

point of failure of either electric or gas water heaters is a leak from the tank wall, leading to

complete replacement. Heat pump water heaters can still fail in the same manner as a gas or

electric water heater, in addition to failures associated with the other heat pump components

previously mentioned. For these reasons, repair of heat pump water heater components (when

possible) may be an attractive alternative to simple replacement.

Heat pump water heater repair costs might be reduced by sending the failed unit back to

the manufacturer for reconditioning—already a common practice in the residential refrigerator

industry. Appliances are returned to the factory for reconditioning and resale, and replacements

are installed rather than servicing the original unit. However, the heat pump water heater

manufacturers and service technicians would need to develop the infrastructure to facilitate this

practice.

Although many of these serviceability concerns still exist in the market today, an

extensive reliability study that Oak Ridge National Lab (ORNL) published in May 2002 found

heat pump water heaters to be more reliable than heat pump water heaters analyzed in previous

studies.tThe study examined 10 prototype drop­in heat pump water heaters and ran the units

through a durability test to represent approximately 10 years of normal compressor cycling

(which would meet the hot water needs of a residence). The study found that the heat pump

portion of the heat pump water heaters experienced no compressor, evaporator fan, or power

relay failures during the durability test run.

The study also examined the effects of degradation in performance of heat pump water

heaters over the test period. Efficiency measurements on all units showed that the prototype heat

pump 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 to 2.1.

t

Baxter, Van B. and R. L. Linkous. Durability Testing of a Drop­In Heat Pump Water Heater.

www.ornl.gov/sci/btc/pdfs/TM2002_92.pdf. May 2002.

2­27

EE-2006-STD-0129 and EERE-2006-BT-STD-0129 COMMENT 32.2
The study concluded that none of the heat pump water heaters suffered any performance

degradation after undergoing more than 7,000 compressor cycles in the durability test.u

However, the 2004 CEC report cited failures during separate field testing. The rate of

failures was “higher than would be acceptable in the residential water heater market,” the report

said. Failures primarily involved the control system. Of the 20 units installed, nine units

experienced failures with the control board and six of those control boards were replaced

entirely. However, the manufacturer indicated that these failures were addressed and corrected in

subsequent designs.v

ORNL conducted another reliability test in 2004 with five units. This test included the

redesigned units cited in the 2004 CEC report. The test was similar to the 2002 ORNL reliability

test cited previously. ORNL reported that no units failed the durability test. Additionally, two

units included CMSs instead of condensate drain systems. The results of the test included

recommendations for the manufacturer, particularly a control board redesign, more robust

electrical and mechanical components, and a more vigorous quality assurance program at the

point of manufacture.w

2.3.6.4 Other Considerations

Southern Company stated that a heat pump water heater in an interior location will likely

produce unacceptable noise levels. (Southern Company, No. 10 at p. 2) DOE’s review of the

2004 CEC report found that field test participants complained about the increase in noise levels.x

The CEC report found that heat pump water heater noise levels are in the range of 45 to 60

decibels (dB), and that installations near occupied spaces created undesirable conditions for

some participants. The report recommended that noise reduction methods should be considered.

2.3.6.5 Preliminary Conclusions from the Screening Analysis for Heat Pump

Water Heaters

DOE did not screen out integral heat pump water heaters in the preliminary analyses.

Although DOE has presented some of the same market barriers identified in the April 2000

NOPR for residential water heaters, it also has found some significant changes, studies, and

advancements in the market since the January 2001 final rule. DOE seeks specific comments on

the viability of heat pump water heaters as a technology for electric storage­type water heaters

and whether heat pump water heaters would be practicable to manufacture, service, and install on

a scale 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 Drop­In Heat Pump Water Heater.

http://www.ornl.gov/sci/btc/pdfs/TM2002_92.pdf. May 2002, p. 1. v California Energy Commission, Design Refinement and Demonstration of a Market­Optimized Heat­Pump Water

Heater, April 2004. w Baxter, Van B. and R. L. Linkous. Heat Pump Water Heater Durability Testing – Phase II.

http://www.ornl.gov/sci/btc/pdfs/hpwh­durtst2­TM­2004­111.pdf. May 2004. x California Energy Commission, Design Refinement and Demonstration of a Market­Optimized Heat­Pump Water

Heater, April 2004.

2­28

EE-2006-STD-0129 and EERE-2006-BT-STD-0129 COMMENT 32.2
which is 5 years after publication of the final rule. See the issues for which DOE seeks comment

within the executive summary.

2.3.7 Condensing Technologies Used in Direct Heating Equipment

Lennox commented that DOE should delete condensing as a technology for direct heating

equipment. The company believes that the test procedures do not provide measurements or

calculations to establish the energy reduction resulting from condensing a portion of the water

vapor in the flue gas. Lennox also states that it is difficult to implement a condensate drain on a

freestanding room heater. (Lennox, No. 17 at p. 3)

DOE screened out condensing pulse combustion, but considered condensing technologies

for room heaters because DOE identified a fully condensing room heater currently available to

consumers. This efficiency level represents the max­tech efficiency level for this product class.

2.3.8 Improved Blower Motor Efficiency for Direct Heating Equipment, Increased

Insulation for Floor Furnaces, and Air Circulation Fans for Direct Heating

Equipment

AHRI and Lennox commented that improved blower motor efficiency, increased

insulation for floor furnaces, and air circulation fans for direct heating equipment do not need to

be considered because no efficiency gain will result. Additionally, Lennox believes that DOE

may not have authority under the Energy Policy Act of 2005 (EPACT 2005) to regulate blower

motor efficiency. (GAMA, No. 16 at p. 2; Public Meeting Transcript, No. 4.7 at p. 68; Lennox,

No. 17 at p. 2)

Section 135 of EPACT 2005 amends section 325 of EPCA to provide DOE the authority

to prescribe energy conservation standards or energy use standards for electricity used to

circulate air through duct work of residential furnaces. (42 U.S.C. 6295(f)(4)(D)) As explained

below, DOE agrees with Lennox’s assertion that DOE does not have the authority to regulate

blower motor efficiency for direct heating equipment.

Direct heating equipment is defined as “a class of home heating equipment, not including

furnaces, designed to furnish warmed air to the living space of a residence, directly from the

device, without duct connections....” (10 CFR 430.2) Consequently, direct heating equipment do

not circulate air through duct work with blower motors.

DOE 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

motor designs for direct heating equipment applications is an ongoing challenge and no

substantial gain in energy efficiency has occurred in recent years. Brushless direct current (DC)

electric motors may increase energy efficiency, but this technology has not yet penetrated the

market. Thus, it is not practicable to manufacture, install, and service this technology for direct

2­29

EE-2006-STD-0129 and EERE-2006-BT-STD-0129 COMMENT 32.2
heating equipment, and DOE will not consider improved fan or blower motor efficiency in the

analysis.

2.3.9 Floor Furnace Safety Issues

AHRI also commented that insulating the floor furnace might cause the floor grate

temperature to rise to a level that can create a safety issue. (GAMA, Public Meeting Transcript,

No. 4.7 at pp. 68–69)

DOE did not screen out increased insulation for floor furnaces because insulation can

prevent heat from escaping into the unconditioned space of the subfloor. Floor furnaces are

installed with the majority of the unit placed outside of the conditioned space. Thus, insulation

prevents losses of heat through the outer casing.

Regarding AHRI’s assertion that insulating the floor furnaces may cause the floor grate

temperature to rise, DOE found that floor furnace models, including baseline models, are

equipped with a thermal cut­out switch to prevent floor grate temperatures from rising to unsafe

levels. The thermal cut­out switch is designed to cut power to the gas valve and prevent it from

operating so that gas cannot be supplied to the burner when operating temperatures exceed rated

temperatures of the floor furnace.

2.4 ENGINEERING ANALYSIS

The engineering analysis (chapter 5) establishes the relationship between the

manufacturing production cost and the efficiency for each residential heating product. This

relationship serves as the basis for cost/benefit calculations in terms of individual consumers,

manufacturers, and the Nation. Chapter 5 discusses product classes DOE analyzed, the

representative baseline units, the incremental efficiency levels, the methodology DOE used to

develop the manufacturing production costs, the cost­efficiency curves, the impact of efficiency

improvements on the considered products, and the methodology DOE used to extend the analysis

to low­shipment­volume product classes.

In the engineering analysis, DOE evaluates a range of product efficiency levels and their

associated manufacturing costs. The purpose of the analysis is to estimate the incremental

manufacturer selling prices (MSPs) for a product that would result from increasing efficiency

levels above the level of the baseline model in each product class. The engineering analysis

considers technologies not eliminated in the screening analysis. The LCC analysis uses the costefficiency relationships developed in the engineering analysis.

DOE typically structures its engineering analysis around one of three methodologies: (1)

the design­option approach, which calculates the incremental costs of adding specific design

options to a baseline model; (2) the efficiency­level approach, which calculates the relative costs

of achieving increases in energy efficiency levels without regard to the particular design options

used to achieve such increases; and/or (3) the reverse­engineering or cost­assessment approach,

2­30

EE-2006-STD-0129 and EERE-2006-BT-STD-0129 COMMENT 32.2
which involves a “bottom­up” manufacturing cost assessment based on a detailed bill of

materials derived from tear­downs of the product being analyzed.

For the preliminary analysis, DOE used both the efficiency level approach to identify

incremental improvements in efficiency for each product and the cost­assessment approach to

develop a cost for each efficiency level. This approach involved physically disassembling

commercially available products, consulting with outside experts, reviewing publicly available

cost and performance information, and modeling equipment cost. The efficiency levels that DOE

considered in the engineering analysis are attainable by using information about technologies

currently available on the market and commonly incorporated into residential heating products

by manufacturers. In addition, DOE associated each efficiency level with a specific technology

to provide interested parties with additional transparency of assumptions and results and the

ability to perform independent analyses for verification. Chapter 5 of the preliminary TSD

describes the methodology that DOE used to perform the efficiency level analysis and derive the

cost­efficiency relationship.

In response to the approach outlined in the framework document, DOE received

comments regarding the following issues: (1) the baseline products for instantaneous gas­fired

water heaters and pool heaters; (2) the maximum technology efficiency levels; (3) the efficiency

levels analyzed in the preliminary engineering analysis; and (4) the energy­efficiency equations

for gas­fired and electric storage water heaters.

2.4.1 Baseline Products

DOE used baseline products in the engineering analysis to establish a reference point for

improving the energy efficiency of each product class. Chapter 5 of the preliminary TSD

includes 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 gasfired water heaters may not be representative as the instantaneous gas­fired water heater market

develops. (Joint Comment, No. 12 at p. 6)

Although DOE recognizes many of the instantaneous gas­fired water heaters available on

the market today are above the Federal minimum energy conservation standard, there are still

several models offered with an energy factor (EF) of 0.62. The baseline model represents the

minimum technology and lowest­cost product that a manufacturer can produce. DOE believes

the lowest­cost instantaneous gas­fired water heater a manufacturer can produce would be at the

Federal minimum energy conservation standard level and would contain only the minimum

technologies necessary to meet the standard. DOE will take into account more efficiency

products and the distribution of efficiencies within the market in the national impacts analysis.

2­31

EE-2006-STD-0129 and EERE-2006-BT-STD-0129 COMMENT 32.2
2.4.1.2 Gas­Fired Pool Heaters

DOE developed two baseline gas­fired pool heaters—the first with a standing pilot

ignition system and the second with an electronic ignition system. DOE distinguished between

the two ignition systems because of the energy use difference between electronic ignition and

standing pilot systems. The DOE test procedure does not account for these differences in energy

use in the thermal efficiency metric. The thermal efficiency descriptor specified by EPCA and

measured by DOE’s test procedure does not take into account the energy efficiency benefits of

ignition sources that are alternatives to standing pilots (e.g., electronic ignition). The thermal

efficiency descriptor also does not account for additional energy consumption of a continuous,

standing pilot light when the burner is off because it is a steady­state test procedure and thermal

efficiency is determined when the burner is on. Therefore, standards expressed in terms of this

descriptor cannot require use of such alternative ignition sources or capture their full energy

savings benefit. Consequently, DOE developed two baseline products and two efficiency

pathways to capture the benefits and differences in energy use associated with electronic

ignition.

2.4.2 Maximum Technology Efficiency Levels

DOE has determined the maximum improvement in energy efficiency that is

technologically feasible (“max­tech”) for water heaters, direct heating equipment, and pool

heaters, as required by section 325(o) of EPCA. (42 U.S.C. 6295(o)) DOE identified the maxtech levels as part of the engineering analysis. Chapter 5 includes additional details on the maxtech levels DOE determined for this preliminary stage.

In response to the framework document, interested parties commented on the energy

efficiency 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 Level for Electric

Storage Water Heaters

As discussed previously, DOE does not consider add­on heat pump water heaters to be

covered products and excluded them from this rulemaking. An add­on heat pump water heater

does not meet EPCA’s definition of water heater because it does not include a storage tank and is

not capable of heating water for use by itself. However, DOE has tentatively decided not to

screen out integral heat pump water heaters. Consequently, DOE surveyed the market for

currently available integral heat pump water heaters.

As noted above in the screening analysis discussion (section 2.3.6.1), only a few

manufacturers have sold integral heat pump water heaters over the years and recently, the only

manufacturer producing this type of equipment has since removed its heat pump water heater

model from the market. One major manufacturer, however, has announced its plans to release a

heat pump water heater in late 2009, which would be eligible for the ENERGY STAR labeling

program for residential water heaters (i.e., it will be rated with an EF of at least 2.0). DOE based

2­32

EE-2006-STD-0129 and EERE-2006-BT-STD-0129 COMMENT 32.2
its analysis of integral heat pump water heaters on the design that was previously offered for sale

and prototypes that will be introduced into the market in the coming years.

AGA urged DOE to include heat pump water heaters as the max­tech option for electric

water heaters to maintain consistency with a condensing gas­fired water heater as the max­tech

option for gas­fired water heaters. AGA also commented that there are heat pump water heaters

available today. (AGA, No. 4.6 at p. 3) NRDC supported DOE’s proposal to analyze heat pump

water heaters as a technology for electric storage water heaters. NRDC stated its belief that heat

pump water heaters provide the same service as electric storage water heaters. (NRDC, Public

Meeting Transcript, No. 4.7 at p. 41)

On the other hand, Southern Company stated that there are several limitations with heat

pump water heaters that make them impractical as a technology for storage water heaters.

(Southern Company, Public Meeting Transcript, No. 4.7 at p. 38) AHRI also believes that the

efficiency levels DOE analyzes should reflect currently available products. (GAMA, No. 4.5 at

p. 3)

EEI, Bock, AHRI, and A.O. Smith commented that the highest efficiency level for

electric storage water heaters is probably not as high as the 3.12 EF, which is based on a

Japanese prototype heat pump water heater that is not readily available for installation in the

United States. (EEI, No. 5 at p. 5; GAMA, No. 4.5 at p. 3; A.O. Smith and Bock, Public Meeting

Transcript, No. 4.7 at pp. 106­108; A.O. Smith, No. 11 at p. 1) EEI and A.O. Smith stated their

belief that the maximum available efficiency level for electric storage water heaters is closer to

2.0 EF. (EEI, No. 5 at p. 5; A.O. Smith, No. 11 at p. 1)

Since the framework document was published, DOE screened out CO2 heat pump water

heaters (a type of integral heat pump water heater, see section 2.3.5 above) from the analysis due

to serviceability, manufacturability, and installation concerns. These concerns were raised by

many interested parties in response to the framework document. For the preliminary analysis,

DOE 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

Analysis section above.

2.4.2.2 Condensing Water Heaters as the Max­Tech Efficiency Level for GasFired Storage Water Heaters

As proposed in the framework document, DOE included condensing technology as the

max­tech for gas­fired storage water heaters.

AGA pointed out that there are no condensing gas water heaters commercially available

on the market. (AGA, Public Meeting Transcript, No. 4.7 at p. 17) A.O. Smith also questioned

DOE’s choice of a condensing water heater as the max­tech technology for residential gas­fired

water heaters. (A.O. Smith, Public Meeting Transcript, No. 4.7 at p. 106­07) A.O. Smith stated

that a value of 0.82 EF (instead of the 0.86 EF initially proposed) would be a more appropriate

2­33

EE-2006-STD-0129 and EERE-2006-BT-STD-0129 COMMENT 32.2
value for the max­tech level for a gas­fired storage water heater with a recovery efficiency of 95

percent. (A.O. Smith, No. 11 at p. 1)

DOE found several commercially available condensing water heaters. Although several

of these models have an input rating of 76,000 Btu/h, just above the residential limit, DOE notes

that many of them have been placed into residences and are marketed for high­efficiency

residential applications. Because of their higher input rating, these condensing gas­fired water

heaters are tested using the thermal efficiency test for commercial equipment. After reviewing

several reports and talking to manufacturers and industry experts, DOE has concluded that these

condensing gas­fired water heaters, when tested using the test procedure for residential products,

would obtain EF ratings in the range of 0.75 to 0.80 EF. DOE used 0.77 EF as the max­tech

efficiency level because that was the most common EF rating found for a condensing gas­fired

water heater. DOE believes that manufacturers would make minor changes to these commercial

units to include them in their residential product offering, including adding flammable vapor

ignition resistant (FVIR) technology. Consequently, DOE used an EF value of 0.77 to represent

the max­tech efficiency level of gas­fired storage water heaters.

2.4.2.3 Condensing Direct Heating Equipment as the Max­Tech Efficiency Level

for Gas­Fired Room Heaters

Lennox commented that DOE should delete condensing as a technology for direct heating

equipment. Lennox also stated that it is difficult to implement a condensate drain on a

freestanding room heater. (Lennox, No. 17 at p. 3)

DOE found that gas wall fan­type, gas wall gravity­type, and gas floor­type direct heating

equipment are all equipped with induced draft combustion systems and these technologies

correspond to the max­tech efficiency levels. Manufacturers of gas room­type direct heating

equipment produce products capable of condensing operations at 93 percent AFUE. DOE

considered only products with efficiencies in the representative input capacity range for

identification of the max­tech efficiency levels. DOE did not consider condensing operations as

Lennox suggested for three of the four types of direct heating equipment. However, DOE did

identify a fully condensing room heater currently on the market. The installation manual for that

heater states that it can be installed in an existing fireplace or as a freestanding stove and can be

vented using polyvinyl chloride (PVC) piping. DOE seeks additional comment on Lennox’s

concerns regarding condensate drains on freestanding room heaters. See the issues for which

DOE seeks comment within the executive summary.

2.4.2.4 Condensing Pool Heaters as the Max­Tech Efficiency Level for Gas­Fired

Pool Heaters

AHRI and Raypak commented that DOE should not examine condensing technology for

pool heaters. (AHRI, No. 4.5 at p. 2; Raypak, Public Meeting Transcript, No. 4.7 at pp. 81)

Raypak commented that DOE should not consider condensing pool heaters because a substantial

number of residential pool heaters are installed outdoors and there are concerns about the

condensate management in cold weather. (Raypak, Public Meeting Transcript, No. 4.7 at p. 81)

2­34

EE-2006-STD-0129 and EERE-2006-BT-STD-0129 COMMENT 32.2
DOE identified a commercially available residential pool heater with a thermal efficiency

level of 95 percent currently offered for sale. DOE’s identification of the max­tech efficiency

level for residential pool heaters does not include consideration of the pool heater operation

frequency or the cost justification of the technology. Instead, DOE only identifies the max­tech

efficiency based on prototypes or existing commercially available products. Because pool heaters

with this efficiency level already are offered for sale, DOE considered the max­tech efficiency

level to be 95 percent thermal efficiency with condensing technology incorporated.

2.4.3 Identification of Efficiency Levels for Analysis

In the engineering analysis, DOE established energy efficiency levels for each product

class to reflect the current heating products markets. Additionally, DOE associated each

efficiency level selected with a particular technology or combination of technologies, thus

making its engineering analysis more transparent. See Chapter 5 for details on the efficiency

levels and the associated technologies. DOE also received several comments on the efficiency

levels and the technologies associated with those levels.

2.4.3.1 Near­Condensing Efficiency Levels for Pool Heaters

AHRI and A.O. Smith stated that DOE should not consider 86 percent thermal efficiency

for pool heaters because that level of thermal efficiency has significant issues relative to

undesirable condensation. AHRI is concerned that this condensation will present problems and

safety issues in the field as a result of appliance and vent corrosion and installations in freezing

ambient air locations. (GAMA, No. 4.5 at p. 3; Public Meeting Transcript, No. 4.7 at p. 114­15;

A.O. Smith, No. 11 at p. 1)

DOE also received feedback from pool heater manufacturers during the engineering

interviews, which echoed the statements made by AHRI and A.O. Smith regarding pool heaters

at near­condensing levels. Manufacturers commented that pool heaters operating near 85 and 86

percent thermal efficiency operate at near­condensing levels. Operating at these levels may result

in corrosive condensation formation. Corrosion may occur when the combustion products (which

include water vapor) cool and condense on the surface of the pool heater flue. Manufacturers

stated that this condensation may react corrosively with the flue (e.g., rust) and cause damage.

Manufacturers also expressed concern about the risk and additional costs to mitigate the

risk of bodily harm if standards require pool heaters at these energy efficiency levels.

Manufacturers stated that certain variations and constraints must be addressed that require a

margin of safety. The safety margin is needed to account for variations due to manufacturing

tolerances; gas quality; and differences in installation configurations, altitude, ambient

conditions, and installer experience. Increasing the stringency of the Federal energy conservation

standards reduces that margin of safety, and amended energy conservation standards at 85 to 86

percent thermal efficiency for pool heaters do not provide an adequate safety margin. As a result

of these increased standards, manufacturers would likely contemplate either incorporating

condensing designs at 85 and 86 thermal efficiency to avoid safety issues associated with

2­35

EE-2006-STD-0129 and EERE-2006-BT-STD-0129 COMMENT 32.2
corrosive condensation formation in certain installations or choose not to manufacture products

at these levels.

DOE surveyed the market of commercially available pool heaters and found at least four

models available with a thermal efficiency value of 86 percent. Therefore, DOE kept 86 percent

thermal efficiency in the analysis. However, DOE seeks comments on how manufacturers would

choose to mitigate corrosive condensation formation at 86 percent thermal efficiency and the

changes that they would make to the product design if the amended energy conservation

standards were at 86 percent thermal efficiency. See the issues for which DOE seeks comment

within the executive summary.

2.4.3.2 Standing Pilot and Electronic Ignition Systems for Gas­Fired Pool

Heaters

Raypak stated that the vast majority of pool heaters use intermittent pilots and do not use

standing pilot lights. (Raypak, Public Meeting Transcript, No. 4.7 at p. 123) In consideration of

Raypak’s comment, DOE also analyzed the pool heater market to determine which heaters have

standing pilot ignition versus electronic ignition. After surveying the pool heater market, DOE

determined that electronic ignition is offered in products covering the whole range of

efficiencies, whereas standing pilot ignition systems are offered only in products corresponding

to the first three intermediate efficiency levels. DOE distinguished between the two ignition

systems because of the energy use difference between electronic ignition and standing pilot

systems. The DOE test procedure does not account for these energy use differences in the

thermal efficiency metric. Consequently, DOE developed two baseline products and two

efficiency pathways for Efficiency Levels 1–3. Chapter 5 includes additional details and the

efficiency 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, DOE also reviewed the

energy­efficiency equations that define the existing Federal energy conservation standards for

gas­fired and electric storage water heaters. In particular, DOE is reviewing the relationship

between EF and rated storage volume for these two product classes. DOE is also investigating

alternative energy­efficiency equations to define amended energy conservation standards. See

Chapter 5 of the preliminary TSD for more information on the representative rated storage

volumes, the efficiency levels analyzed, the relationship of the current market to the current

energy conservation standards, and the relationship between EF and rated storage volume.

2.4.4.1 Review of the Energy­Efficiency Equations for Gas­Fired and Electric

Storage Water Heaters

As part of the engineering analysis for residential water heaters, DOE reviewed the

energy­efficiency equations that define the existing Federal energy conservation standards for

gas­fired and electric storage water heaters. The energy­efficiency equations allow DOE to

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

volumes covered under the existing Federal energy conservation standard. In the following

2­36

EE-2006-STD-0129 and EERE-2006-BT-STD-0129 COMMENT 32.2
section, DOE describes the methodology used to expand the analysis conducted for the

representative storage volumes at each efficiency level to the full rated storage volume ranges.

See section 5.6 of Chapter 5 of the TSD for more information on the representative rated storage

volumes and the efficiency levels analyzed.

DOE uses energy­efficiency equations to characterize the relationship between rated

storage volume and energy factor. The energy­efficiency equations consider the increases in

standby losses as tank volume increases. As the storage tank volume increases, the tank surface

area increases. The larger surface area results in higher heat transfer rates that result in higher

jacket losses. Other losses to consider are the feed through losses as well as the flue losses (for

gas­fired water heaters). The current energy factor equations show that for each water heater

class, as the rated storage volume increases, the minimum energy factor decreases.

For the existing Federal energy conservation standards, the slope and the intercept of

each energy­efficiency equation are constant for each product class. Table 2.2 shows the energyefficiency equations of the existing Federal energy conservation standards for gas­fired and

electric storage water heaters.

Table 2.2 Existing Federal Energy Conservation Standards for Residential Gas­Fired

and Electric Storage Water Heaters

Residential Water Heater Class Minimum Energy Factor (EF)

Gas­Fired Storage Type 0.67 – (0.0019 × Rated Storage Volume in gallons)

Electric Storage Type 0.97 – (0.00132 × Rated Storage Volume in gallons)

For the preliminary analyses, DOE reviewed AHRI’s March 2008 Consumers' Directory

of Certified Efficiency Ratings for Heating and Water Heating Equipment and developed a

database 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

design characteristics of each water heater model. The manufacturers’ catalogs include

information on efficiency ratings, product series descriptions, jacket insulation thicknesses,

ignition types, and drafting methods (i.e., natural or power vented drafting).

DOE used its database and additional product information to help characterize the

relationship between EF and rated storage volume of models currently on the market for gasfired and electric storage water heaters. DOE also compared the EFs and rated storage volumes

from its database of products to the energy­efficiency equations defined by the existing Federal

energy conservation standards. Generally, the current products demonstrate a similar trend of

decreasing efficiency with increasing rated storage volume.

However, as the efficiency of the models increases, the relationship between the EF and

rated storage volume does not closely follow the relationship described by the current Federal

energy conservation standards. Since the 2001 water heater rulemaking, manufacturers have

2­37

EE-2006-STD-0129 and EERE-2006-BT-STD-0129 COMMENT 32.2
continued to introduce storage water heaters with higher efficiencies. Manufacturers currently

offer several models with similar features (i.e., models from the same product series) that have

the same energy factors, but a variety of different rated storage volumes. In theory, the energy

factor should decrease with increasing storage volume for a given design primarily due to the

increases in losses as a result of increased tank surface area. However, these few high efficiency

model series seem to exhibit the same EF even though their rated storage volumes vary. DOE

believes there are several plausible explanations including the precision of the test procedure at

higher efficiencies (i.e., the number of significant digits reported during the EF calculation is not

adequate to discern differences in actual values of the energy factors of high efficiency storage

water heater in the full range of storage volume), the possibility for small design changes that are

not described in the product literature, as well as the possibility for the geometry of the storage

tanks to be slightly different for the larger rated volumes, which would affect the heat loss

characteristics of the tank. To further investigate the relationship between EF and rated storage

volume, DOE reviewed the current market to try and establish a revised set of energy­efficiency

equations based on available models for gas­fired and electric storage water heaters.

2.4.4.2 DOE’s Review of the Current Water Heater Market

DOE reviewed the gas­fired and electric storage water heaters currently listed in AHRI’s

Consumers’ Directory and further described in manufacturers’ catalogs to examine the

relationship between energy factor and rated storage volume. When examining the energyefficiency equations, DOE considered:

• input and feedback from interested parties;

• energy­efficiency potentials of screened­in technologies;

• standby heat loss;

• analysis from previous rulemakings;

• Federal energy conservation standards (to prevent backsliding); and

• energy­efficiency levels developed for this rulemaking.

The existing Federal energy conservation standard applies to gas­fired storage water

heaters ranging from 20 to 100 gallons. The majority of models in AHRI’s Consumers’

Directory have rated storage volumes between 30 and 75 gallons. DOE selected 40 gallons as the

representative rated storage volume for this class of water heater (see section 5.4 of Chapter 5 of

the preliminary TSD for more details), and the corresponding energy conservation standard at 40

gallons is 0.59 EF.

The existing Federal energy conservation standard applies to electric storage water

heaters ranging from 20 to 120 gallons. The majority of models in AHRI’s Consumers’

Directory have rated storage volumes between 30 and 120 gallons. DOE selected 50 gallons as

the representative rated storage volume for this class of water heater (see section 5.4 of Chapter 5

of the preliminary TSD for more details), and the corresponding conservation standard at 50

gallons is 0.90 EF.

2­38

EE-2006-STD-0129 and EERE-2006-BT-STD-0129 COMMENT 32.2
In general, DOE found that EF decreases with increasing rated storage volume for the

available models in the product database for both gas­fired and electric storage water heaters.

However, for the most common storage volumes, DOE found a few model series having similar

EFs, while varying in rated storage volumes. See Chapter 5 of the preliminary TSD for more

information and market graphs.

2.4.4.3 Existing Federal Energy Conservation Standards and Revised EnergyEfficiency Equations Using the Current Energy­Efficiency Equation

Slope

DOE examined revised energy­efficiency equations by expanding efficiency levels,

which were developed in the engineering analysis (see section 5.5 of Chapter 5 of the

preliminary TSD for more details), to a full range of tank sizes by using the equation slopes as

defined by the existing Federal energy conservation standards. DOE did not alter the slopes for

this portion of the analysis, and only changed the position of the intercepts (i.e., the point that

intersects zero gallons).

Gas­Fired Storage Water Heaters. For gas­fired storage water heaters, DOE considered

six efficiency levels above the baseline efficiency level. DOE generally found that there are

products currently manufactured that meet or exceed the majority of the considered efficiency

levels for volume sizes ranging from 40 to 75 gallons. The market data suggest that the slope of

the equation that defines the current Federal energy conservation standard may not reflect the

characteristics of the entire market because there are models currently available having similar

EFs with different rated storage volumes. Additionally, DOE found that at small rated volumes

(i.e., less than 30 gallons) and large rated volumes (i.e., 100 gallons) manufacturers do not

currently offer models that would meet some of the efficiency levels that DOE is considering.

For example, at 100 gallons, the existing water heater market would be eliminated by all of the

efficiency levels being considered if equations have the same slope as the current Federal energy

conservation standard.

Electric Storage Water Heaters. For electric storage water heaters, DOE considered five

efficiency 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

consumers) for this portion of the analysis. DOE generally found that electric storage water

heaters currently manufactured meet or exceed the majority of efficiency levels for volume sizes

ranging from 30 to 120 gallons. As with gas­fired storage water heaters, the market data for

electric storage water heaters suggests that the slope of the equation that defines the current

Federal energy conservation standard may not reflect the characteristics of the entire market

because there are models currently available with similar EFs, while ranging in rated storage

volumes. Additionally, DOE found that manufacturers do not currently offer models that would

meet all of the energy efficiency levels DOE is considering for the full range of rated storage

volumes. For example, DOE found that at small rated volumes (i.e., less than 50 gallons)

manufacturers do not currently offer models that would meet the efficiency levels DOE is

considering that exceed 0.95 EF.

2­39

EE-2006-STD-0129 and EERE-2006-BT-STD-0129 COMMENT 32.2
DOE seeks comment from interested parties on the approach for developing energyefficiency equations that maintains the slope of the existing Federal energy­efficiency equations.

2.4.4.4 Alternative Approach for Developing Revised Energy­Efficiency

Equations for Gas­Fired and Electric Storage Water Heaters

DOE developed an alternative approach for revising the energy­efficiency equations

based on the database of products and four constraints. DOE applied the following constraining

criteria to the development process:

• for gas­fired water heaters, each energy­efficiency equation must include units with the

specified efficiency level at 40 gallon rated storage volume;

• for electric storage water heaters, each energy­efficiency equation must include units with

the specified efficiency level at 50 gallon rated storage volume;

• the energy­efficiency equations cannot result in a standard that falls below current

standards over the entire rated volume range; and

• for electric storage water heaters, the energy­efficiency equation should not lead to a

standard greater than 0.95 EF for the 20 to 120 gallon rated volume range.

DOE chose this approach because it takes into account the models currently available on

the market, considers the technologies incorporated into those models, and attempts to optimize

the number of models across the entire rated volume range that would meet the efficiency levels

DOE is considering. (See Chapter 5 of the preliminary TSD for a graphical demonstration of the

potential energy­efficiency equations resulting from this approach). Additionally, the approach

attempts to minimize the number of models that would be eliminated from the market by the

efficiency levels DOE is considering across the entire range of storage volumes. DOE

accomplished this by accounting for all of the models currently available in the gas­fired and

electric storage water heater markets, and considered the technologies incorporated into those

models. Next, DOE attempted to identify the different product series and the models that belong

to each product series. DOE then assigned an efficiency level to each of these series based on the

efficiency level at the representative rated volume. Finally, DOE used the assumptions outlined

above and the data points within each series to develop a line to define the equation for each

efficiency level. DOE then varied the slope of the line to maximize the number of models in the

series that meet the efficiency levels DOE is considering in the full range of rated storage

volumes. See Chapter 5 of the preliminary TSD for additional explanation and a graphical

demonstration of the approach.

The information provided in the product database, manufacturers’ specifications, and

other publicly available literature does not include all of the details regarding the specific energyefficiency features incorporated in each water heater design. Based on the extent of the

information, these energy­efficiency equations may represent manufacturing practices, consumer

preferences, and marketing efforts, while not representing the energy­efficiency potential of

screened­in technologies or the heat loss characteristics of the entire rated volume range.

2­40

EE-2006-STD-0129 and EERE-2006-BT-STD-0129 COMMENT 32.2
For example, as DOE previously noted, manufacturers offer several models with similar

features (i.e., models from the same product series) that are currently available on the market

with the same energy factors in a variety of different rated storage volumes. The fact that water

heaters of different volumes can have the same EF could be a result of manufacturers adding

insulation (e.g., to the top of the tank, to the feed­throughs, etc) or making design modifications

that are not described in the manufacturer catalogs as rated volume increases. Such design

changes could offset any increase in heat loss as surface area increases and this would alter the

relationship between heat loss (and ultimately EF) and rated volume for that particular product

series. Manufacturers may do this to produce product lines where EF is constant across a range

of rated volumes as a means to market high efficiency water heaters to specific consumers.

DOE was not able to verify the relationship between EF and rated volume and how it

changes for different rated volume ranges and at various efficiency levels based solely on AHRI

data or publicly available literature. Specifically, DOE was not able to identify the specific

technologies that manufacturers use or add to water heaters as rated volume increases to maintain

the same EF. In addition, the reporting precision of the test procedure at higher efficiencies does

not allow for the precise discernment of how small losses affect EF as the rated storage volume

increases. Lastly, relying on available data, DOE could not verify that the geometry of the

storage tank design is identical through the entire range of storage volumes. See section Chapter

5 of the preliminary TSD for more information on the investigation of the energy­efficiency

equations for this rulemaking.

2.4.4.5 Validation of the Energy­Efficiency Equations for Gas­Fired and Electric

Storage Water Heaters

In order to further verify the relationship between EF and rated storage volume, DOE is

planning to verify the EF of various models currently on the market through third party testing

and teardown of these models to identify potential geometry and design differences. As DOE

previously mentioned, some manufacturers produce high efficiency models of gas­fired and

electric storage water heaters where the energy­efficiency technologies remain constant (e.g., the

same insulation thickness) across a range of rated volumes while maintaining the same EF for all

products. This seems contrary to DOE’s understanding that jacket losses should increase as the

surface area of the tank increases with rated volume. Thus, DOE believes that to obtain constant

EF for a range of rated volumes, manufacturers would make insulation improvements, for

example, to offset the increase in heat loss as a result of increasing surface area or make

geometric modifications to the tank design. However, the market data and manufacturers'

catalogs suggest this is not the case for some product series, and these data are not sufficient to

confirm specifically how manufacturers achieve constant EF. Consequently, DOE plans to test

and teardown water heater models currently available on the market in order to validate its

approach for the development of the EF equations.

During the engineering analysis, DOE investigated the design changes manufacturers

employ to improve EF only for the representative gas­fired and electric storage water heaters

(i.e., 40 and 50 gallon products, respectively). However, DOE did not extend the teardown

analysis to other rated volumes to determine if manufacturers use the same methods to increase

2­41

EE-2006-STD-0129 and EERE-2006-BT-STD-0129 COMMENT 32.2
energy efficiency across the entire rated volume range. The above­described additional analysis

will allow DOE to determine the changes manufacturers employ for a given model series as the

rated storage volume of the tank increases.

DOE will conduct testing according to the water heater test procedure specified in 10

CFR 430, subpart B, appendix E (the same test procedure used by manufacturers to certify

products in AHRI’s Consumers’ Directory) to verify the EF values. Ideally, DOE would test a

model 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 number of model series

at various efficiencies and for a variety of different manufacturers. DOE will choose models to

test by selecting product series from multiple major manufacturers that span the range of rated

volumes within each product class and that span the range of efficiency levels. After completion

of testing, DOE will conduct a teardown analysis to confirm the specific technologies that affect

energy efficiency and the volumetric characteristics of the tank. DOE will adjust the energyefficiency equations based on the results of this analysis.

DOE seeks comments from interested parties on an approach for developing the energyefficiency equations for all of the efficiency levels DOE is considering in the full range of rated

storage volumes. Specifically, DOE seeks comment on the alternative approach based on model

series that takes into account current market data from AHRI’s Consumers’ Directory and uses

these data to generate revised equation slopes that minimize the number of models that would be

eliminated from the market. Lastly, DOE seeks comment from interested parties on the

validation of the energy­efficiency equations DOE is considering, particularly its proposed

product testing and teardown approach.

2.5 MARKUPS TO DETERMINE PRODUCT PRICE

DOE used manufacturer­to­consumer markups to convert the manufacturer selling prices

estimated in the engineering analysis to customer prices, which then were used in the life­cycle

cost (LCC), payback period (PBP), and manufacturer impact analyses. DOE calculates markups

for baseline products (baseline markups) and for more efficient products (incremental markups)

based on the markups at each step in the distribution channel. The overall incremental markup

relates the change in the manufacturer sales price of higher­efficiency models (the incremental

cost increase) to the change in the retailer or distributor sales price.

In order to develop markups, DOE must identify how the products are distributed from

the manufacturer to the customer (the distribution channels). After establishing appropriate

distribution channels for each of the product classes, DOE relied on economic data from the U.S.

Census Bureau and other sources to define how prices are marked up as the products pass from

the manufacturer to the customer.

DOE estimated manufacturer­to­customer markups for residential heating products.

Analysis of distribution markups for water heaters focused on two distribution paths, for which

markups at individual points along those paths were calculated. One path involved sales through

a wholesale distributor and then a general contractor or plumbing supplier before products reach

2­42

EE-2006-STD-0129 and EERE-2006-BT-STD-0129 COMMENT 32.2
the final customer. A second path involved sales to major retail distributors and then national

retail and home­improvement stores to the end customer. In the second distribution path, where

products are bought for replacement, end customers typically purchase products that they either

install themselves or hire a contractor to install.

The distribution channel for water heaters differs for replacement and new construction

applications. For replacement applications, manufacturers sell to either plumbing distributors or

large retail outlets (typically large home­supply stores). A.O. Smith stated that the retail water

heater distribution channel generally passes from the retailer directly to the consumer, not from

the retailer to a contractor and then the consumer. (A.O. Smith No. 11 at p. 1) Laclede stated that

DOE’s analysis of distribution channels should include building­product “super stores,” because

they sell to both homeowners and contractors. (Laclede, No. 8 at p. 12) Agreeing with these

comments, DOE developed two distribution channels for replacement water heaters: (1) a retail

outlet sells to the consumer, who either hires someone to install or self­installs; and (2) a

plumbing distributor sells to a contractor, who then sells to, and installs, for the consumer.

2.6 ENERGY USE CHARACTERIZATION

The energy use characterization, which assesses the energy savings potential from

adopting higher efficiency standards, provides the basis for the energy savings values used in the

LCC and subsequent analyses. DOE calculated the energy savings for each heating product class

compared to baseline models. As part of the characterization, DOE made certain engineering

assumptions regarding product application, including how the products are operated and under

what conditions. Those assumptions are documented in chapter 7 of the preliminary TSD, which

also provides more detail about DOE’s approach.

2.6.1 Water Heaters

For residential storage­type water heaters, DOE relied on an energy use analysis tool, the

water heater analysis model, and a hot water draw model. For this rulemaking, DOE modified

earlier versions of the tools, which were used to conduct the previous rulemaking that concluded

in 2001. Combined with data from the Energy Information Administration’s (EIA’s) Residential

Energy Consumption Survey (RECS), these analysis tools enable DOE to establish the variation

in water heater energy consumption in the United States.

AGA commented that, for purposes of simplification and consistency with numerous

studies on hot water usage, DOE should use a parametric assumption for hot water usage and

calculate associated energy use consistent with DOE's test procedures for water heaters. (AGA,

No. 4.6 at p. 4) DOE estimated hot water use with a draw model that accounts for key factors in

calculating the average daily volume of hot water used by individual households. DOE’s model,

an earlier version of which was used in the previous water heater rulemaking, better accounts for

variability in hot water use among households than a parametric approach because it allows for

variation in the factors that affect hot water use, such as the number of occupants and the

presence of appliances that use hot water. In addition, some of the assumptions in the method are

based on field studies of hot water use in homes.

2­43

EE-2006-STD-0129 and EERE-2006-BT-STD-0129 COMMENT 32.2
The hot water draw model incorporates parameters for hot water use by clothes washers

and dishwashers. EEI commented that, when considering the annual hot water usage of

residential water heaters, DOE should consider the effects of recent energy conservation

standards on home appliances that use hot water. New standards for clothes washers and

dishwashers and new technologies that decrease their energy consumption will reduce the annual

hot water consumption of residential water heaters. (EEI, No. 5 at p. 5) Agreeing with EEI’s

comment, DOE adjusted the parameters in the model to account for expected changes in hot

water use by new clothes washers and dishwashers.

The operation of heat pump water heaters is affected by the temperature of the air

surrounding the water heater (the ambient temperature). Depending on the ambient temperature,

a heat pump water heater operates either in heat pump mode or in electric resistance mode. The

calculation method DOE used assumes that the water heater operates in electric resistance mode

continuously when the monthly average ambient temperature is less than 32 °F (which may

occur if the unit is installed in a garage or outdoor closet). Southern Company commented that,

compared with other water heaters, heat pump water heaters have slow recovery times, so they

operate in the electric resistance mode part of the time even when the monthly ambient

temperature 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

unit’s total operating time. DOE included this factor in its analysis.

DOE’s approach accounts for the fact that a heat pump water heater draws heat from the

space in which it is located. When a home is being heated, operation of a heat pump water heater

located in a conditioned space increases the house heating load; when the home is being cooled,

water heater operation may decrease the cooling load. Southern Company stated that a heat

pump water heater in an interior location functions as an air conditioner, which could produce

overcooling in summer and in winter could cause the space heating system to work harder.

Southern Company commented that because those potential effects require installing ductwork to

vent the cold air outdoors or to unconditioned space when a heat pump is installed in an interior

closet, the analysis should include those costs. (Southern Company, No. 10 at p. 2)

DOE agrees with Southern Company about the effects of a heat pump water heater on a

home’s energy use for space heating and air conditioning. DOE investigated the cost of the

ductwork and fan that might be installed to counteract the overcooling issue. DOE believes that,

rather than installing additional ductwork, most households would choose to use their heating

system more frequently to deal with the increased heating load. To account for these indirect

effects on home heating (and cooling), DOE estimated the impact on energy consumption for

space heating and air conditioning for each home in the RECS subsample of homes containing

electric water heaters with the water heater located in the conditioned space. For each such

home, DOE estimated the impact of a heat pump water heater on space heating only during

heating months and the impact on air conditioning only during cooling months. DOE then

calculated the amount of heat removed by the heat pump water heater. To account for times

during the summer months when the air conditioner is not operating, DOE reduced by one­third

the estimated cooling benefit from the water heater.

2­44

EE-2006-STD-0129 and EERE-2006-BT-STD-0129 COMMENT 32.2
For analyzing instantaneous gas­fired water heaters, DOE modified the approach used for

storage water heaters to account for the absence of a storage tank. AHRI stated that DOE's

analysis of instantaneous gas­fired water heaters should utilize empirical data, not estimates from

the test procedure. (GAMA, Public Meeting Transcript, No. 4.7 at p. 131) To ascertain the extent

of instantaneous gas­fired water heater energy usage in the field, DOE reviewed a CEC study of

these installations. This study pointed to a performance drop­off at small draw volumes.y To

account for this phenomenon, the study recommends reducing the listed EF for instantaneous

gas­fired water heaters by 8.8 percent. Thus an instantaneous gas­fired water heater rated at 0.82

EF would be viewed as rated at 0.748 EF. Because it believes the empirical data from the study

are credible, DOE incorporated the recommendation by increasing by 8.8 percent the calculated

energy use of instantaneous gas­fired water heaters at each EF.

2.6.2 Direct Heating Equipment and Pool Heaters

DOE relied on the assumptions in the DOE test procedures to establish the typical annual

energy consumption of direct heating equipment and pool heaters. AHRI stated that DOE should

not use its test procedure in the LCC analysis to estimate typical annual energy consumption for

the three types of heating products (water heaters, direct heating equipment, and pool heaters).

(GAMA, No. 4.5 at p. 3) Regarding water heaters, DOE agrees, and so did not use the test

procedure to estimate typical annual energy consumption. For direct heating equipment and pool

heaters, DOE used the test procedure, but modified some of the assumptions to better reflect

actual operating conditions. For direct heating equipment, DOE used home heating loads from

RECS instead of the average assumptions in the test procedure. For pool heaters, DOE used pool

heater heating loads from RECS instead of the average test procedure assumptions.

To represent actual households likely to purchase and use direct heating equipment, DOE

developed a household sample from RECS 2001. The sample comprises units that used a

floor/wall furnace, fireplace, or heater as the primary or secondary source of heat. AHRI

questioned whether RECS data can provide useful information on energy use of direct heating

equipment. (GAMA, No. 4.5 at p. 3) DOE believes that the sample size for direct heating

equipment is large enough to provide representative data on the conditions under which U.S.

households use such products.

AHRI noted that direct heating equipment, in most cases, is used to provide supplemental

heating. (GAMA, Public Meeting Transcript, No. 4.7 at p. 133) DOE agrees with the comment,

and therefore used RECS data to estimate the energy use of direct heating equipment when

employed to provide supplemental heating. For households for which it is evident that the natural

gas 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

RECS 2001. For households that used a gas furnace as the primary heating equipment and direct

heating equipment as a secondary heat source, DOE adjusted the house heating load to estimate

the energy use of the direct heating equipment. RECS reports the fraction of heating energy

y Davis Energy Group, Measure Information Template: Tankless Gas Water Heaters, 2006.

2­45

EE-2006-STD-0129 and EERE-2006-BT-STD-0129 COMMENT 32.2
consumed by the secondary products. DOE reduced the house heating load ascribable to direct

heating equipment by subtracting the estimated amount of heat provided by the secondary

system.

To represent actual households likely to purchase and use pool heaters, DOE developed a

household sample from RECS 2001. AHRI questioned whether RECS data can provide useful

information on the energy usage of pool heaters. (GAMA, No. 4.5 at p. 3) Although the RECS

sample for pool heaters is relatively small, DOE believes that it is the best available source for

estimates of pool heater energy use in the field. Commenting that the annual operation of pool

heaters differs significantly from that of spa heaters, EEI recommended that DOE analyze annual

energy usage for pool and spa heaters separately. (EEI, No. 5 at p. 6) To account for the different

energy use characteristics of residential pool and spa heaters, DOE used a distribution of values

for operating hours that encompasses a wide range of situations, including those with and

without spa heating. DOE did not analyze energy usage for pool heaters and spa heaters

separately.

2.7 LIFE­CYCLE COST AND PAYBACK PERIOD ANALYSES

New energy conservation standards affect products’ operating expenses—usually

decreasing them—and consumer prices for the products—usually increasing them. DOE

analyzed the net effect of amended standards on consumers by evaluating the net LCC. To

evaluate the net LCC, DOE used the cost­efficiency relationship derived in the engineering

analysis, along with the energy costs derived from the energy use characterization. Inputs to the

LCC calculation include the installed cost of a product to the consumer (consumer purchase price

plus installation cost), operating expenses (energy expenses and maintenance costs), the lifetime

of the unit, and a discount rate.

Because the installed cost of a product typically increases while operating cost typically

decreases in response to new standards, there is a time in the life of products having higher­thanbaseline efficiency when the net operating­cost benefit (in dollars) since the time of purchase is

equal to the incremental first cost of purchasing the higher­efficiency product. The length of time

required for products to reach this cost­equivalence point is known as the payback period (PBP).

DOE conducted the LCC and PBP analyses using typical values to reflect energy

consumption in the field. DOE identified several input values for estimating the LCC, including

retail prices; electricity prices; discount rate; maintenance, repair, and installation costs; and

product lifetimes.

DOE developed discount rates from estimates of the interest rate, or finance cost, applied

to purchases of residential products. Following accepted principles of financial theory, the

finance cost of raising funds to purchase such products can be interpreted as: (1) the financial

cost of any debt incurred to purchase products, principally interest charges on debt, or (2) the

opportunity cost of any equity used to purchase products, principally interest earnings on

household equity.

2­46

EE-2006-STD-0129 and EERE-2006-BT-STD-0129 COMMENT 32.2
2.7.1 Installation Costs

In the framework document, DOE noted that differences in installation cost for the three

heating products depend largely on the products’ electrical power and venting requirements.

AHRI and Laclede agreed with this concept, although Laclede noted that installation costs vary

depending on whether a product is installed in new construction or as a retrofit to an existing

structure. (GAMA, No. 4.5 at p. 4; Laclede, No. 8 at p. 14) A.O. Smith stated that providing an

electrical outlet for gas appliances and venting systems is the rule rather than the exception for

many of the proposed technology options. (A.O. Smith, No. 4.7 at p. 177) As discussed in more

detail in chapter 8, when DOE accounted for products’ electrical power and venting requirements

in estimating installation costs, new construction and replacement installations were considered

separately.

ACEEE stated that, although the costs for venting systems are likely to be higher for

more efficient gas­fired products, there also may exist a step function whereby condensing

products are less expensive to install than are mid­efficiency products. (ACEEE, No. 4.7 at p.

178) DOE’s analysis of venting system costs follows the installation practices recommended in

the manufacturers’ product literature. DOE accounted for the venting system costs at each

considered energy efficiency level.

A.O. Smith commented that the installation cost for a condensing water heater includes

an added cost for providing for condensate disposal. (A.O. Smith, No. 4.7 at p. 177) Because

DOE’s approach reflects current condensing water heater design, which incorporates a singlepipe power­vent, a cost for condensate disposal is included.

Southern California Gas Company stated that hundreds of thousands of its consumers

have water heaters installed in closets and cabinets, where clearance is not adequate to

accommodate larger water heaters. Compliance with a new standard therefore could require

some modifications. (Southern California Gas Company, Public Meeting Transcript, No. 4.7 at p.

172) DOE’s analysis of energy efficiency levels for gas water heaters does not assume thicker

insulation than what is currently used. Thus, compliance with any of the considered levels would

require no modifications.

In some houses, the original water heater location may be too small to accommodate a

replacement electric water heater of the same rated volume when the new water heater’s

insulation is 2.5, 3, or 4 inches thick. Rheem stated that DOE should consider the added cost to

modify installations for water heaters that are physically larger. (Rheem, Public Meeting

Transcript, No. 4.7 at p. 167) DOE assumed that when such space constraints exist, some

households will use the next smaller­size water heater and increase the thermostat set point to

compensate for the lower storage volume. DOE used RECS 2001 to identify the percentage of

houses in the sample that would have space­constrained applications. For such houses, DOE

increased the thermostat set point of a water heater having a smaller storage volume so that the

total energy content of the water delivered is the same as that delivered by the original water

heater at a lower temperature. DOE added the cost of a tempering valve if the new set point

exceeded 140 °F. If an energy efficiency level requires 3 inches of insulation, additional cost

2­47

EE-2006-STD-0129 and EERE-2006-BT-STD-0129 COMMENT 32.2
may be incurred in some replacement applications (for example, to disassemble and reassemble

door jambs). DOE added a cost for removing and replacing door jambs to half of all electric

water heaters that are located in a conditioned space.

As discussed in section 2.6, heat pump water heaters draw heat from the space in which

they are located. Southern Company commented that heat pump water heaters may overcool the

area of a home where they are installed and may not be suitable without expensive building

modifications. (Southern Company, No. 10 at p. 2) Southern Company suggested that many

consumers will have to install a separate venting system to exhaust the air cooled by the heat

pump water heater. As discussed previously, DOE believes it is more likely that most affected

consumers would choose to use the heating system to compensate for the cooling effect of the

heat pump water heater instead of installing a separate venting system. DOE therefore did not

include costs for installing a separate venting system, instead accounting for the additional

heating and cooling costs that consumers would incur.

Southern Company commented that because heat pump water heaters require proper

venting to operate effectively, there may be added costs for attaching a condensate pump.

(Southern Company, No. 10 at p. 2) For indoor replacement installations in which the heat pump

water heater is installed inside a non­ventilated closet, DOE added a cost for making adjustments

to accommodate the water heater, including adding ventilation via a fully louvered closet door.

DOE estimated that this cost would occur in half the indoor replacement installations of heat

pump water heaters. For one­fourth of the replacement installations, DOE included a cost for

adding a condensate pump and a longer water line to the drain.

AGA stated that DOE should include all the cost components of installing instantaneous

gas­fired water heaters, particularly in retrofit applications, which require new gas hookups and

flue installation. (AGA, No. 13 at p. 4) For new construction applications, DOE included the cost

of adding a gas line branch, installing a vent system, and adding water piping, as well as the cost

of setting up the water heater. For replacements, the installation cost includes the cost of adding a

gas line branch and water piping; the labor for disconnecting and removing the old water heater;

a removal/disposal fee; a permit fee; and the cost of setting up the new instantaneous water

heater, including a new venting system.

2.7.2 Rebound Effect

In calculating energy consumption, DOE considered the rebound effect (also called a

take­back effect, or offsetting behavior), which refers to the increased energy consumption

resulting from actions that increase energy efficiency and reduce consumer costs. The rebound

effect assumes that consumers give up some of the potential energy savings to receive more

service. AGA and AHRI stated that the analysis should include a rebound effect. (AGA, No. 4.6

at p. 4; GAMA, No. 4.5 at p. 4) ACEEE urged DOE to justify its belief in a rebound effect.

(ACEEE, Public Meeting Transcript, No. 4.7 at p. 157) EEI commented that water heaters

produce less of a rebound effect than other products. (EEI, No. 5 at p. 6)

2­48

EE-2006-STD-0129 and EERE-2006-BT-STD-0129 COMMENT 32.2
To determine how the rebound effect may impact the energy savings for the considered

heating products, DOE searched the literature on the rebound effect. DOE also considered how

the National Energy Modeling system (NEMS), which is used for developing EIA's Annual

Energy Outlook (AEO), incorporates a rebound effect. Based on available information, DOE

used a rebound effect of 10 percent for water heaters, 15 percent for direct heating equipment,

and 10 percent for pool heaters. For more detail on the rebound effect, see chapter 8 of the

preliminary TSD.

2.7.3 Energy Prices

DOE used EIA’s energy price data to determine prices of electricity, natural gas, oil, and

liquefied petroleum gas in 2006. DOE used projections of those energy prices from EIA’s AEO

for 2008 to estimate future energy prices.

EEI commented that DOE should use annual energy prices when analyzing products used

year­round, and seasonal prices for products used primarily during specific seasons. (EEI, No. 5

at p. 6) For water heaters, DOE estimated monthly energy consumption and developed monthly

average energy prices. For pool heaters and direct heating equipment, DOE estimated annual

energy consumption and used annual average energy prices.

Laclede stated that DOE did not propose using consumer marginal energy rates as the

basis for calculating energy savings in the framework document, whereas they were used in the

recent NOPR for residential furnaces and boilers. Laclede advocated using consumer marginal

energy rates, because they reflect changes in consumer utility bills as a function of consumption.

(Laclede, No. 8 at p. 13) DOE did not use marginal energy rates in the current analysis because

EIA no longer provides the data required to estimate marginal energy prices for RECS

households.

2.7.4 Maintenance and Repair Costs

DOE considered expected changes to maintenance, repair, and installation costs for the

products covered in this rulemaking. Typically, small incremental changes in product efficiency

produce no, or only minor, changes in repair and maintenance costs over baseline efficiency

products. Products having efficiencies that are significantly greater than baseline efficiencies can

incur increased repair and maintenance costs since they are more likely to incorporate

technologies that are new to the industry.

EEI commented that DOE should consider the impact on repair and maintenance costs of

increases in water heater size due to increased energy efficiency. EEI noted that many water

heaters are located in small spaces, making repairs and maintenance of larger units more difficult

and expensive. (EEI, No. 5 at p. 6) DOE believes that the range of repair and maintenance costs

it used for water heaters accounts for a range of circumstances, including locations in small

spaces.

2­49

EE-2006-STD-0129 and EERE-2006-BT-STD-0129 COMMENT 32.2
Regarding water heater repair costs, AHRI stated that DOE should not assume that

components, such as electronic ignition, a damper, or power venting, will last the life of the

water heater without needing repair or replacement. (GAMA, Public Meeting Transcript, No. 4.7

at p. 176) Agreeing with AHRI’s comment, DOE determined that gas­fired water heaters that

include pilot ignition, electronic ignition, power­vent, or condensing technologies may incur

repair costs during the lifetime of the water heater.

Southern Company stated that the operating manuals for instantaneous gas­fired water

heaters prescribe mandatory maintenance requirements, and that DOE’s evaluation should

include those costs. (Southern Company, No. 10 at p. 3) Because DOE found that all

manufacturers recommend these water heaters be de­limed annually to minimize deposition of

sediment, maintain operating efficiency, and prolong product life, a cost for this maintenance

was included.

Raypak suggested that DOE consider the increased maintenance costs associated with

liquefied natural gas (LNG). Raypak noted that it is more difficult for products that have higher

efficiencies 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 in

appliances. If DOE determines that LNG adversely impacts the performance of the three heating

products, the 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

instantaneous gas­fired water heaters. (A.O. Smith, No. 11 at p. 2) Because DOE found that 20

years is the average lifetime most often cited in the literature, it used this value along with a

distribution ranging from 8 to 30 years.

2.8 NATIONAL IMPACT ANALYSIS

The national impact analysis assesses the net present value (NPV) of total consumer lifecycle cost (LCC) and net energy savings (NES). DOE determined both the NPV and NES for the

performance levels considered for the product classes analyzed. To make the analysis more

accessible and transparent to all interested parties, DOE prepared a Microsoft Excel spreadsheet

model to forecast NES and the national consumer economic costs and savings resulting from

new standards. The spreadsheet model uses as inputs typical values (as opposed to probability

distributions). To assess the effect of input uncertainty on NES and NPV results, DOE may

conduct sensitivity analyses by running scenarios on specific input variables.

2.8.1 Shipments Analysis

Forecasts of product shipments are needed to calculate the national impacts of standards

on energy use, NPV, and future manufacturer cash flows. DOE developed shipment forecasts

based on an analysis of key market drivers for each considered product. The shipments models

take an accounting approach, tracking market shares of each product class and the vintage of

units in the existing stock. Stock accounting uses product shipments as inputs to estimate the age

2­50

EE-2006-STD-0129 and EERE-2006-BT-STD-0129 COMMENT 32.2
distribution of in­service product stocks for all years. The age distribution of in­service product

stocks is a key input to calculations of both the NES and NPV, because operating costs for any

year depend on the age distribution of the stock.

AGA, along with several other stakeholders, expressed concern that if new standards

result in increased first costs for gas water heaters, consumers might switch to electric water

heaters. (AGA, No. 4.6 at p. 4) AGA added that implementing requirements for flammable vapor

ignition resistant (FVIR) designs and low nitrogen oxides (NOx) already have altered the

economics of natural gas water heating. Adding the impacts of new standards could impose a

significant price disadvantage on residential gas water heating, further endangering the viability

of residential natural gas water heating. (AGA, No. 4.6 at p. 2) The American Public Gas

Association (APGA) commented that DOE should consider that the market barriers for

consumers switching from electric­powered to gas­fired appliances are much lower than the

market barriers for switching from gas­fired to electric­powered appliances. APGA added that

increased energy conservation standards will encourage further consumer switching from natural

gas to electric water heating, particularly in southern climates. (APGA, No. 7 at pp. 1 and 3)

Laclede stated that the retrofit costs involved in replacing gas appliances can induce consumers

to switch to appliances powered by electricity or other fuels. The greater cost of higherefficiency gas equipment also may induce homebuilders to switch to less efficient and more

polluting electric resistance appliances. (Laclede, No. 8 at p. 7) Laclede also commented that

technologies that require gas­fired appliances to utilize electrical hookups increase installation

costs, further shifting the market away from gas appliances. (Laclede, No. 8 at p. 14) Laclede

stated that fuel­switching scenarios should be fully quantified in the analysis of proposed

standards. (Laclede, No. 8 at p. 2)

DOE acknowledged the potential for energy conservation standards to induce product

switching, especially for water heaters. The cost of replacing a gas­fired storage water heater

with an electric one is substantial because of the complexity of the installation. Ordinarily, a 30­

amp electric connection is not available near existing gas­fired water heaters. In addition,

because it takes longer for an electric storage water heater to recover heated capacity, a larger

electric tank may be necessary to replace a gas unit. In new construction, the choice of a water

heater depends primarily on the availability of natural gas. If natural gas is available, builders

generally will install a gas­fired water heater.

In both new construction and the replacement market, a large increase in the price of a

gas­fired water heater compared to an electric water heater likely would be necessary to induce

consumers to replace a gas water heater with an electric unit, or to induce builders to install an

electric water heater instead of a gas unit. DOE’s current LCC results suggest that efficiency

levels that significantly increase the installed cost of gas water heaters are not cost­effective by a

large margin. Therefore, DOE did not include in its analysis switching from a gas­fired to an

electric storage water heater.

Chapter 9 of the preliminary TSD provides additional details on the shipments analysis.

2­51

EE-2006-STD-0129 and EERE-2006-BT-STD-0129 COMMENT 32.2
2.8.2 National Energy Savings Analysis

The inputs for determining the national energy savings (NES) for each product analyzed

are: (1) annual energy consumption per unit, (2) shipments, (3) product stock, (4) national energy

consumption, and (5) site­to­source conversion factors. DOE calculated the national energy

consumption by multiplying the number of units, or stock, of each product (by vintage) by the

unit energy consumption (also by vintage).z DOE calculated annual NES based on the difference

in national energy consumption for the base case (without new efficiency standards) and for each

higher efficiency standard. DOE estimated energy consumption and savings based on site

energy, and converted the electricity consumption and savings to source energy. Cumulative

energy savings are the sum of the NES for each year.

The stock of a product is dependent on annual shipments and the lifetime of the product.

DOE projected shipments under the base efficiency case and higher efficiency standards cases

for various product efficiency scenarios and product efficiency trends. DOE’s shipments model

assumed that shipments of new products are driven by new construction as well as stock

replacements.

2.8.3 Net Present Value Analysis

The inputs for determining net present value (NPV) are: (1) total annual installed cost, (2)

total annual savings in operating costs, (3) a discount factor, (4) present value of costs, and (5)

present value of savings. DOE calculated net savings each year as the difference between the

base case and each standards case in total savings in operating costs and total increases in

installed costs. DOE calculated savings over the life of each product, accounting for differences

in yearly energy rates. DOE calculated NPV as the difference between the present value of

operating cost savings and the present value of total installed costs. DOE used a discount factor

to discount future costs and savings to present values.

DOE calculated increases in total installed costs as the product of the difference in total

installed cost between the base case and standards case (i.e., once the standards take effect).

Because the more efficient products bought in the standards case usually cost more than products

bought in the base case, cost increases appear as negative values in the NPV.

DOE expressed savings in operating costs as decreases associated with the lower energy

consumption of products bought in the standards case compared to the base efficiency case.

Total savings in operating costs are the product of savings per unit and the number of units of

each vintage that survive in a given year.

2.8.4 Efficiency Scenarios and Trends

Several of the inputs for determining NES and NPV depend on the product efficiency.

DOE developed efficiency trends for the base case and standards cases. These trends specify the

average annual historical and forecasted shipments­weighted product efficiencies.

z Vintage represents the age of the product.

2­52

EE-2006-STD-0129 and EERE-2006-BT-STD-0129 COMMENT 32.2
DOE used data from industry sources to develop average shipments­weighted efficiency

trends for the considered products. After establishing efficiency trends, DOE derived annual

energy consumption based on relationships between efficiency and unit energy consumption.

DOE used a roll­up efficiency scenario in developing its forecasts of efficiency trends

after standards take effect. Under a roll­up scenario, all products that perform at levels below a

prospective standard are moved, or rolled­up, to the minimum performance level allowed under

the standard. The distribution of products that meet the higher efficiency standard levels is

unaffected. DOE used the roll­up scenario to determine efficiency distributions beginning in the

first year a new standard takes effect. The distributions remain constant throughout the forecast

period.

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

standard levels on consumers who purchase the considered products. The Joint Comment stated

that DOE should consider the broad economic implications of the fact that natural gas prices will

decline in response to the increased efficiency of gas­fired products, incorporating this factor

when weighing the economic benefits and burdens of standards that stipulate higher energy

efficiency levels. (Joint Comment, No. 12 at p. 5) To evaluate potentially important indirect

effects of energy conservation standards on energy users in general, DOE analyzed the potential

impacts of new water heater standards on natural gas prices and the associated benefits for all

natural gas consumers in all sectors of the economy.

DOE considered two scenarios for new water heater standards. One scenario examined

the effects of selected efficiency standards levels on gas­fired storage water heaters (at 0.63 EF),

instantaneous gas­fired water heaters (at 0.85 EF), and electric storage water heaters (at 0.95 EF).

These are the energy efficiency levels found to have the greatest average LCC savings and

greatest NPV of consumer benefit. The selected standard for electric storage water heaters was

0.95 EF. The second scenario (the max­tech scenario), examined the effects on water heaters of

standards that reflect the max­tech energy efficiency levels identified in the preliminary

engineering analysis. This scenario indicates the upper bound for impacts on natural gas prices.

DOE’s analysis used a variant of the modeling program NEMS, known as NEMS­BT,

which has been modified to account for the natural gas savings associated with possible

standards. Like other widely used energy­economic models, NEMS incorporates parameters to

estimate the changes in energy prices that would result from an increase or decrease in energy

demand. The response of price to a decrease in demand is termed the “inverse price elasticity.”

The overall inverse price elasticity observed in NEMS changes over the forecast period based on

the model’s dynamics of natural gas supply and demand.

Although there is only a small estimated reduction in natural gas prices resulting from

new water heater standards, the associated economy­wide savings in natural gas expenditures

over the forecast period are substantial. DOE calculated the nominal savings in total natural gas

2­53

EE-2006-STD-0129 and EERE-2006-BT-STD-0129 COMMENT 32.2
expenditures in each year by multiplying the annual change in the wellhead natural gas price by

the annual total U.S. natural gas consumption associated with each scenario. The NPV of the

savings in natural gas expenditures for 2015–2030 (with a 7 percent discount rate) was calculated

to be $0.8 billion for the selected efficiency levels scenario and $2.7 billion for the max­tech

scenario. The water heater standards would continue to result in reduced gas demand (and

corresponding cost savings) after 2030 (the last year in the NEMS forecast). The estimated

economy­wide savings for 2015–2043 (the period used to estimate the NPV of the national

consumer benefits from water heater standards) has an NPV of $1.0 billion for the selected

efficiency levels scenario and $3.6 billion in the max­tech scenario.

Chapter 10 of the preliminary TSD provides additional details regarding the national

impacts analysis.

2.9 PRELIMINARY MANUFACTURER IMPACT ANALYSIS

DOE performed a preliminary manufacturer impact analysis (MIA) to estimate the

financial impact of higher energy conservation standards on manufacturers of the three heating

products, and to calculate the impact of such standards on employment and manufacturing

capacity. The MIA has both quantitative and qualitative aspects. The quantitative part of the

MIA relies on the government regulatory impact model (GRIM), an industry­cash­flow model

customized for these three industries. The GRIM inputs are information regarding the industry

cost structure, shipments, and revenues. This includes information from many of the analyses

described above, such as manufacturing costs and prices from the engineering analysis and

shipments forecasts. The key GRIM output is the industry net present value (NPV). Different

sets of assumptions (scenarios) will produce different results. The qualitative part of the MIA

addresses factors such as equipment characteristics, characteristics of particular firms, and

market and equipment trends, and includes assessment of the impacts of standards on subgroups

of manufacturers. The complete preliminary MIA is described in chapter 12 of the preliminary

TSD.

DOE will conduct each MIA in this rulemaking in three phases, and will further tailor the

analytical framework for each MIA based on comments from interested parties. In Phase I, DOE

creates an industry profile to characterize the industry and identify important issues that require

consideration. In Phase II, DOE prepares an industry cash­flow model and an interview

questionnaire to guide subsequent discussions. In Phase III, DOE interviews manufacturers, and

assesses the impacts of standards both quantitatively and qualitatively. DOE assesses industry

and subgroup cash flow and NPV using the GRIM. DOE then assesses impacts on competition,

manufacturing capacity, employment, and regulatory burden based on manufacturer interview

feedback and discussions.

Until recently, DOE reported MIA results in its standards rulemakings only during the

NOPR phase of the rulemaking. However, DOE is now evaluating and reporting preliminary

MIA information in this preliminary analysis. DOE gathered this information during the

preliminary manufacturer interviews conducted for the engineering analysis.

2­54

EE-2006-STD-0129 and EERE-2006-BT-STD-0129 COMMENT 32.2
In response to the process outlined in the framework document for conducting the MIA,

DOE received comments on the residential gas­fired storage and instantaneous water heating

market. ACEEE stated 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 efficiency standards

affect domestic manufacturing and in particular how standards influence consumers' choice of

storage versus instantaneous water heaters. ACEEE commented that most or all instantaneous

water heaters are built offshore, and the potential employment and manufacturer impact would

seem to be dominated by a loss of market share for storage water heater manufacturers. Bock

stated similar concerns regarding loss of market share to offshore manufacturers. (ACEEE and

Bock, Public Meeting Transcript, No. 4.7 at pp. 210–211, 217–218)

NRDC stated that to the extent that other countries are ahead of the United States on

energy conservation standards, other countries are going to bring down the costs of moreefficient technologies. Domestic manufacturers will thus face a potential loss of domestic

employment as a result of offshore competition. NRDC encouraged DOE to examine

international competition and consider how amended standards at various levels or different

timeframes can assure that domestic companies have a global lead in storage water heater

technology and are at least competitive globally with instantaneous water heaters. (NRDC,

Public Meeting Transcript, No. 4.7 at pp. 214–215)

On the other hand, Laclede Gas Co. commented that it believes DOE is overly focused on

manufacturing impacts. Laclede Gas Company said that most manufacturers produce gas­fueled

and electric models, and therefore shifts in purchasing patterns will have less impact on these

manufacturers since they will not lose sales as consumers switch from gas­fueled to electric

appliances. (Laclede Gas Company, No. 8 at pp. 9–10)

As part of the preliminary MIA, DOE asked manufacturers about the potential impacts of

amended energy conservation standards on their business, employment levels, market share, and

competitive positions within the marketplace. Manufacturers stated potential loss of market share

to international manufacturers as a concern. As outlined above, potential equipment switching

and the potential for DOE to change the current purchasing patterns of consumers with amended

energy conservation standards are major concerns for gas­fired storage water heating

manufacturers. As part of the NOPR phase of the rulemaking, DOE will seek comments from

manufacturers about their potential loss of market share, changes in the efficiency distribution

within each industry, and the total reduction in product shipments at each amended energy

conservation standard level DOE is considering. DOE will then estimate the impacts on each of

the three industries both quantitatively and qualitatively. DOE seeks further comment from

interested parties about the impact of amended standards on domestic manufacturers. See the

issues for which DOE seeks comment within the executive summary.

The following is an overview of the information DOE will collect and the analysis that

will be conducted during the preliminary MIA. For more detail on the MIA, see chapter 12 of the

preliminary TSD.

2­55

EE-2006-STD-0129 and EERE-2006-BT-STD-0129 COMMENT 32.2
2.9.1 Industry Cash­Flow Analysis

The industry cash­flow analysis relies primarily on the GRIM. DOE uses the GRIM to

analyze the financial impacts of more stringent energy conservation standards on the industry

that produces the products covered by the standard. The GRIM analysis uses many factors to

determine annual cash flows from a new standard: annual expected revenues; manufacturer

costs, including cost of goods sold, depreciation, research and development, selling, general, and

administrative expenses; taxes; and conversion capital expenditures. DOE compares the results

against base­case projections that involve no new standards. The financial impact of new

standards is then the difference between the two sets of discounted annual cash flows. Other

performance metrics, such as return on invested capital, are also available from the GRIM. For

more information on the industry cash­flow analysis, refer to chapter 12 of the preliminary TSD.

2.9.2 Manufacturer Subgroup Analysis

Industry cost estimates are not adequate to assess differential impacts among subgroups

of manufacturers. For example, small and niche manufacturers, or manufacturers whose cost

structure differs significantly from the industry average, could experience a more negative

impact from the imposition of standards. Ideally, DOE would consider the impact on every firm

individually; however, since this usually is not possible, DOE typically uses the results of the

industry characterization to group manufacturers exhibiting similar characteristics.

DOE outlined the process it uses to establish manufacturer subgroups in the framework

document and sought comment from interested parties on any potential subgroups within the

three industries. AHRI questioned the need for manufacturer subgroups for residential storage

water heaters, direct heating equipment, and pool heaters, because there are relatively few

manufacturers. (GAMA, Public Meeting Transcript, No. 4.7 at pp. 218­219)

At this point DOE is characterizing the impacts on residential heating products on the

residential water heating industry, the direct heating equipment industry, and the pool heating

industry. As AHRI suggested, DOE did not identify any manufacturer subgroups within the

industry, except small manufacturers. DOE will consider the possibility of small businesses

being affected by the promulgation of amended energy conservation standards for the three

heating products. DOE identified a handful of small businesses within each industry in chapter 3

of the preliminary TSD. During the manufacturer interview process conducted as part of the

NOPR, DOE will discuss the potential subgroups and subgroup members it has identified for the

analysis. DOE will encourage the manufacturers to recommend subgroups or characteristics that

are appropriate for the subgroup analysis. For more detail on the manufacturer subgroup

analysis, see chapter 12 of the preliminary TSD.

2.9.3 Competitive Impacts Assessment

DOE must also consider whether a new standard is likely to reduce industry competition,

and the Attorney General must determine the impacts, if any, of any reduced competition. DOE

will make a determined effort to gather and report firm­specific financial information and

2­56

EE-2006-STD-0129 and EERE-2006-BT-STD-0129 COMMENT 32.2
impacts. The competitive impacts assessment will focus on assessing the impacts on smaller

manufacturers. DOE will base this assessment on manufacturing cost data and information

collected from interviews with manufacturers. The manufacturer interviews will focus on

gathering information to help assess asymmetrical cost increases to some manufacturers,

increased proportion of fixed costs potentially increasing business risks, and potential barriers to

market entry (e.g., proprietary technologies). The notice of proposed rulemaking will be

submitted to the Attorney General for a review of the impacts of standards on competition. The

Attorney General’s comments on the proposed rule will be considered in preparing the final rule.

2.9.4 Cumulative Regulatory Burden

DOE recognizes and seeks to mitigate the overlapping effects on manufacturers of new or

revised DOE standards and other regulatory actions affecting the same equipment. DOE will

analyze and consider the impact on manufacturers of multiple, product­specific regulatory

actions. Based on its own research and discussions with manufacturers, DOE identified several

regulations relevant to the three heating products, including low­NOX and ignition source

requirements (e.g., South Coast Air Quality Management District (SCAQMD) requirements),

amended energy conservation standards for other products made by heating products

manufacturers, State energy conservation standards, and international energy conservation

standards.

DOE outlined the cumulative regulatory burden process in the framework document and

sought comment from interested parties on any additional regulations facing the heating products

industry. In response to the cumulative regulatory burden discussion in the framework document,

AGA and Rheem commented that DOE must consider the costs of compliance with FVIR and

low and super low NOX standards for gas­fired storage water heaters when calculating the costefficiency relationship and baseline costs. They also stated that DOE must consider the impacts

of these increased costs on competition and market share for gas­fired water heaters. (AGA,

Public Meeting Transcript, No. 4.7 at p. 16­17; Rheem, Public Meeting Transcript, No. 4.7 at p.

220; AGA, No. 7 at p. 2; AGA, No. 4.6 at p. 2)

DOE included the costs of compliance with FVIR for gas­fired storage water heaters

when it estimated the manufacturer production costs in the engineering analysis. Additionally,

DOE discussed the costs of FVIR compliance with manufacturers during the engineering and

preliminary MIA interviews to obtain feedback on the compliance burden resulting from FVIR

compliance. Additionally, DOE based the gas­fired water heater analysis on low­ NOX water

heaters that are manufactured for States and regions with emissions requirements. However,

DOE did not account for the cost of compliance or the additional costs of super­low NOX

requirements, similar to the SCAQMD requirements facing water heater manufacturers. DOE

seeks comments on the cost of compliance with super­low NOX requirements. See the issues for

which DOE seeks comment within the executive summary.

2­57

EE-2006-STD-0129 and EERE-2006-BT-STD-0129 COMMENT 32.2
2.9.5 Preliminary Results for the Manufacturer Impact Analysis

As part of the preliminary MIA, DOE discussed potential impacts of amended energy

conservation standards with manufacturers responsible for a majority of residential heating

product sales. These discussions took place during the interviews DOE conducted for the

engineering analysis. The interviews provided valuable information that DOE used to evaluate

the impacts of amended energy conservation standards on manufacturers’ cash flows,

manufacturing capacities, and employment levels. DOE discusses its findings from the

preliminary MIA interviews in the executive summary and in chapter 12 of the preliminary TSD.

2.10 LIFE­CYCLE COST SUBGROUP ANALYSIS

The LCC subgroup analysis evaluates economic impacts on selected groups of consumers

who might be adversely affected by a change in the national energy conservation standards for

the considered products. DOE evaluates impacts on particular subgroups of consumers in part by

analyzing the LCC impacts and PBP for those particular consumers.

DOE will use the LCC spreadsheet model to evaluate impacts on consumer subgroups.

DOE can analyze the LCC for any subgroup by applying the LCC spreadsheet model to only that

subgroup. DOE is particularly sensitive to increases in the consumer price of the considered

products, wishing to avoid a negative economic impact on any identified consumer subgroup.

2.11 UTILITY IMPACT ANALYSIS

The utility impact analysis includes an analysis of the effect of new energy conservation

standards on the electric and the gas utility industries. For this analysis, DOE adapted NEMS,

which is a large multi­sectoral, partial­equilibrium model of the U.S. energy sector that the EIA

has developed throughout the past decade, primarily for preparing EIA’s AEO. In previous

rulemakings, a variant of NEMS (currently termed NEMS­BT, BT referring to DOE’s Building

Technologies Program), was developed to better address the specific impacts of an energy

conservation standard.

NEMS, which is available in the public domain, produces a widely recognized baseline

energy forecast for the United States through the year 2030. The typical NEMS outputs include

forecasts of electricity sales, prices, and electric generating capacity. DOE conducts the utility

impact analysis as a scenario that departs from the latest AEO reference case. In other words, the

energy savings impacts from amended energy conservation standards are modeled using NEMSBT to generate forecasts that deviate from the AEO reference case.

AGA stated that DOE's analysis approach is insufficient for capturing the impacts of

appliance energy efficiency standards on gas utilities, and unresponsive to meeting the process

improvement rule requirements to examine gas utility impacts. AGA urged DOE to recognize

that potentially lowered residential gas demand due to energy conservation standards can reduce

returns on capital investment and alter decisions to extend mains and services for new

2­58

EE-2006-STD-0129 and EERE-2006-BT-STD-0129 COMMENT 32.2
consumers. (AGA, No. 4.6 at p. 3) The Joint Commenters stated that DOE should capture the

full range of impacts on utility system operating costs, capacity, and reliability for both electric

and gas utilities. (Joint Comment, No. 12 at p. 10) Laclede stated that NEMS is not transparent

and DOE should explore alternative models for conducting the utility impact analysis. (Laclede

Gas Co., No. 8 at p. 16)

Historically, DOE’s approach to the utility impact analysis, based on NEMS, has been to

evaluate the impact of standards only on utility energy sales. NEMS is not suited to

characterizing impacts of standards on gas utilities other than those measured by sales, and DOE

is unaware of any analytical tools that would enable an analysis of financial impacts on utilities

at a national level. Therefore, DOE plans to continue using NEMS for the utility impact analysis,

but 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

and natural gas from market shifts from storage water heaters to instantaneous water heaters.

(EEI, No. 5 at p. 7) DOE’s approach to evaluating the energy use of the three heating products

does not include evaluating demand load profiles (i.e., usage by time of day). Therefore, DOE is

unable to quantify the potential impacts on peak demand for electricity and natural gas from

either changes in product efficiency or product shifts. Further, standards on electric instantaneous

water 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

considered in this rulemaking.

2.12 ENVIRONMENTAL IMPACT ANALYSIS

The intent of the environmental assessment is to fulfill requirements to properly quantify

and consider the environmental effects of all new Federal rules. The primary environmental

effects of energy conservation standards for heating products would be reduced power plant

emissions resulting from reduced consumption of electricity. DOE will assess these

environmental effects by using NEMS­BT to provide key inputs to its analysis. The portion of

the environmental assessment that will be produced by NEMS­BT considers three pollutants,

sulfur dioxide (SO2), nitrogen oxides (NOX), and mercury (Hg), and one other emission (carbon,

as carbon dioxide).

The Clean Air Act Amendments of 1990 set an SO2 emissions cap on all power

generation. The attainment of this target, however, is flexible among generators through the use

of emissions allowances and tradable permits. Although NEMS includes a module for SO2

allowance trading and delivers a forecast of SO2 allowance prices, accurate simulation of SO2

trading implies that the effect of energy conservation standards on physical emissions will be

zero because emissions will always be at or near the ceiling. However, there is an SO2 benefit

from energy conservation, in the form of a lower SO2 allowance expenditures. DOE will

examine the potential monetary impact or value of an SO2 benefit that may arise from a standard.

NOX and Hg emissions are not currently subject to regulatory emissions caps. The U.S.

Environmental Protection Agency (EPA) issued the Clean Air Interstate Rule (CAIR) on March

2­59

EE-2006-STD-0129 and EERE-2006-BT-STD-0129 COMMENT 32.2
10, 2005. 70 FR 25162 (May 12, 2005). On July 11, 2008, the U.S. Court of Appeals for the

District of Columbia Circuit (D.C. Circuit) issued its decision in North Carolina v.

Environmental Protection Agency, in which the court vacated the CAIR and remanded to EPA to

promulgate a rule consistent with the court’s opinion. 531 F.3d 896 (D.C. Cir. 2008). If left in

place, the CAIR would have permanently capped emissions of NOX in 28 eastern States and the

District of Columbia. However, upon consideration of petitions for review, the D.C. Circuit

decided on December 23, 2008 to allow CAIR to remain in effect until it is replaced by a rule

consistent with the court's earlier opinion. North Carolina v. EPA, No. 05­1244, 2008 WL

5335481 (D.C. Cir. Dec. 23, 2008). Therefore, DOE’s Environmental Analysis will be based on

CAIR, pending revision by EPA. See www.epa.gov/cleanairinterstaterule. Similarly, the EPA

issued the Clean Air Mercury Rule (CAMR). 70 FR 28606 (May 18, 2005). CAMR would have

permanently capped emissions of mercury for new and existing coal­fired power plants in all

States by 2010. On February 8, 2008, the D.C. Circuit issued its decision in New Jersey v.

Environmental Protection Agencyaa, in which the D.C. Circuit, among other actions, vacated the

CAMR.

Both with and without emissions caps, decreased power production at emitting power

plants can have environmental­related economic benefits. When NOX and Hg emissions are

subject to emissions caps, electricity demand reductions may result in incremental changes in the

prices of emissions allowances in cap­and­trade emissions markets rather than physical

emissions reductions. When there are physical emissions reductions, economic benefits can

accrue from the decreased environmental damage from lower emissions. Therefore, both with

and without emissions caps, standards can produce an environmental­related economic benefit in

the form of lower prices for emissions allowance credits or a monetary value of the economic

benefits of lower emissions. Therefore in addition to potential physical emissions reductions,

DOE will examine the potential monetary value of NOX and Hg benefits that may arise from a

standard.

The results for the environmental assessment are similar to NEMS results as published in

the AEO. These results include power sector emissions for SO2, NOX, Hg, and carbon in fiveyear forecasted increments. The outcome of the analysis for each analyzed standard level will be

reported as a deviation from the AEO 2008 reference (base) case.

NEMS does not estimate emissions at homes from gas­fired appliances (e.g., gas­fired

water heaters, direct heating equipment and gas pool heaters). Therefore, DOE plans to conduct

an analysis that includes separate estimates of the effect of energy conservation standards on

CO2, NOx, and SO2 emissions from gas­fired appliances, based on simple emissions factors

derived from the literature.

NRDC stated that DOE should not only calculate the reduction in carbon emissions, but

also assign a monetary value to that reduction. (NRDC, Public Meeting Transcript, No. 4.7 at p.

240) In addition to providing estimates of quantitative impacts of heating products standards on

carbon dioxide emissions and other emissions, DOE will consider the use of monetary values to

aa Case No. 05­1097, 2008 WL 341338 at * (DC Cir. Feb. 9,2008)

2­60

EE-2006-STD-0129 and EERE-2006-BT-STD-0129 COMMENT 32.2
represent the potential value of such emissions reductions. DOE expects to base its estimates of

the monetary value of emissions reductions on the economic benefits likely to result from such

reductions. DOE will also examine a range of monetary values.

For more detail on the environmental assessment, refer to the environmental assessment

report in the preliminary TSD.

2.13 EMPLOYMENT IMPACT ANALYSIS

The imposition of standards can affect employment both directly and indirectly. Direct

employment impacts are changes, produced by new standards, in the number of employees at

plants that produce the covered products and at the affiliated distribution and service companies.

DOE evaluated direct employment impacts in the manufacturer impact analysis. Indirect

employment impacts that occur because of the imposition of standards may result from

consumers shifting expenditures between goods (the substitution effect) and from changes in

income and overall expenditure levels (the income effect). DOE will utilize Pacific Northwest

National Laboratory’s impact of sector energy technologies (ImSET) model to investigate the

combined direct and indirect employment impacts. The ImSET model, which was developed for

DOE’s Office of Planning, Budget, and Analysis, estimates the employment and income effects

energy­saving technologies produce in buildings, industry, and transportation. In comparison

with simple economic multiplier approaches, ImSET allows for more complete and automated

analysis of the economic impacts of energy conservation investments.

2.14 REGULATORY IMPACT ANALYSIS

In the NOPR stage, DOE will prepare a regulatory impact analysis (RIA) pursuant to

Executive Order 12866, Regulatory Planning and Review, 58 FR 51735, October 4, 1993, which

is subject to review under the Executive Order by the Office of Information and Regulatory

Affairs at the Office of Management and Budget. The RIA addresses the potential for nonregulatory approaches to supplant or augment energy conservation standards in order to improve

the energy efficiency or reduce the energy consumption of the products covered under this

rulemaking.

DOE recognizes that voluntary or other non­regulatory efforts by manufacturers, utilities,

and other interested parties can substantially affect energy efficiency or reduce energy

consumption. DOE will base its assessment on the actual impacts of any such initiatives to date,

but also will consider information presented by interested parties regarding the impacts existing

initiatives might have in the future.

2­61

EE-2006-STD-0129 and EERE-2006-BT-STD-0129 COMMENT 32.2