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Residential Heating 

Products Final Rule 

This page presents information 

on the analyses conducted for 

the energy conservation 

standards rulemaking for 

residential heating products. 

The U.S. Department of Energy 

(DOE) issued a final rule 

amending the energy 

conservation standards for 

residential water heaters, direct 

heating equipment, and pool 

heaters on March 31, 2010. 

Some of the following 

documents are available as 

Adobe Acrobat PDFs. Download 

Adobe Reader. 

z Energy Conservation 

Standards for Residential 

Water Heaters, Direct 

Heating Equipment, and 

Pool Heaters: Final Rule, 

March 31, 2010, as issued 

by the Secretary of 

Energy. (PDF 1.8 

MB) NOTE: The official 

version of the final rule 

will be published in the 

Federal Register in the 

near future. 

z Final Rule Technical 

Support Document: 

Coming soon 

z Final Rule Analytical Tools 

Contact Information 

Mohammed Khan

Project Manager for Heating 

EERE Information Center 

Programs and Offices 

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EE-2006-BT-STD-0129 COMMENT 105
 

[6450-01-P]
 

DEPARTMENT OF ENERGY
 

10 CFR Part 430
 

[Docket Number: EE–2006–BT-STD–0129] 


RIN 1904–AA90
 

Energy Conservation Program: Energy Conservation Standards for Residential 

Water Heaters, Direct Heating Equipment, and Pool Heaters 

AGENCY: Office of Energy Efficiency and Renewable Energy, Department of Energy. 

ACTION: Final rule. 

SUMMARY: The U.S. Department of Energy (DOE) is amending the existing energy 

conservation standards for residential water heaters (other than tabletop and electric 

instantaneous models), gas-fired direct heating equipment, and gas-fired pool heaters. It 

has determined that the amended energy conservation standards for these products would 

result in significant conservation of energy, and are technologically feasible and 

economically justified. 

DATES: The effective date of this rule is [INSERT DATE 60 DAYS AFTER DATE 

OF PUBLICATION IN THE FEDERAL REGISTER]. Compliance with the amended 

standards established for residential water heaters in today’s final rule is required starting 

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EE-2006-BT-STD-0129 COMMENT 105
 

 

 

on [INSERT DATE FIVE YEARS AFTER DATE OF PUBLICATION IN THE 

FEDERAL REGISTER], and compliance with the standards established for DHE and 

pool heaters is required starting on [INSERT DATE THREE YEARS AFTER DATE 

OF PUBLICATION IN THE FEDERAL REGISTER]. 

ADDRESSES: For access to the docket to read background documents, the technical 

support document, transcripts of the public meetings in this proceeding, or comments 

received, visit the U.S. Department of Energy, Resource Room of the Building 

Technologies Program, 950 L’Enfant Plaza, SW., 6th Floor, Washington, DC 20024, 

(202) 586-2945, between 9 a.m. and 4 p.m., Monday through Friday, except Federal 

holidays. Please call Ms. Brenda Edwards at the above telephone number for additional 

information regarding visiting the Resource Room. You may also obtain copies of certain 

previous rulemaking documents in this proceeding (i.e., framework document, notice of 

public meeting and announcement of a preliminary technical support document (TSD), 

notice of proposed rulemaking), draft analyses, public meeting materials, and related test 

procedure documents from the Office of Energy Efficiency and Renewable Energy’s 

website at: 

http://www1.eere.energy.gov/buildings/appliance_standards/residential/waterheaters.html 

. 

FOR FURTHER INFORMATION CONTACT: 

Mr. Mohammed Khan, U.S. Department of Energy, Energy Efficiency and 

Renewable Energy, Building Technologies Program, EE–2J, 1000 Independence Avenue, 

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EE-2006-BT-STD-0129 COMMENT 105
SW., Washington, DC 20585-0121. Telephone: (202) 586–7892. E-mail: Mohammed. 

Khan@ee.doe.gov. 

Mr. Eric Stas, U.S. Department of Energy, Office of the General Counsel, GC–71, 

1000 Independence Avenue, SW., Washington, DC 20585-0121. Telephone: (202) 586­

9507. Email: Eric.Stas@hq.doe.gov. 

SUPPLEMENTARY INFORMATION: 

Table of Contents 

I. Summary of the Final Rule and its Benefits

A. The Energy Conservation Standard Levels

B. Benefits and Costs to Purchasers of the Three Heating Products

1. Water Heaters

2. Direct Heating Equipment

3. Pool Heaters

C. Impact on Manufacturers

1. Water Heaters

2. Direct Heating Equipment

3. Pool Heaters

D. National Benefits

E. Conclusion

II. Introduction

A. Authority

B. Background

1. Current Standards

2. History of Standards Rulemaking for the Three Heating Products

III. General Discussion

A. Test Procedures

B. Technological Feasibility

1. General

2. Maximum Technologically Feasible Levels

C. Energy Savings

D. Economic Justification

1. Specific Criteria

a. Economic Impact on Consumers and Manufacturers

b. Life-Cycle Costs

c. Energy Savings

d. Lessening of Utility or Performance of Products

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EE-2006-BT-STD-0129 COMMENT 105
 

e. Impact of Any Lessening of Competition 

f. Need of the Nation to Conserve Energy 

g. Other Factors 

2. Rebuttable Presumption 

IV. Methodology and Discussion of Comments on Methodology 

A. Market and Technology Assessment 

1. DOE’s Determinations as to the Inclusion of Products in This Rulemaking 

a. Whether Certain Products are Covered Under the Act 

b. Covered Products Not Included in This Rulemaking 

2. Product Classes 

a. Water Heaters 

b. Direct Heating Equipment 

c. Pool Heaters 

B. Screening Analysis 

1. Comments on the Screening Analysis 

2. Heat Pump Water Heater and Condensing Gas-Fired Storage Water Heater 

Discussion 

a. Condensing Gas-Fired Water Heaters 

b. Heat Pump Water Heaters 

C. Engineering Analysis 

1. Representative Products for Analysis 

2. Efficiency Levels Analyzed 

a. Water Heaters 

b. Direct Heating Equipment 

c. Pool Heaters 

3. Cost Assessment Methodology 

a. Manufacturer Production Cost 

b. Manufacturer Selling Price 

4. Engineering Analysis Results 

5. Scaling to Additional Rated Storage Capacities 

6. Water Heater Energy Efficiency Equations 

D. Markups to Determine Product Price 

E. Energy Use Characterization 

1. Water Heaters 

2. Direct Heating Equipment 

3. Pool Heaters 

F. Life-Cycle Cost and Payback Period Analyses 

1. Product Price 

2. Installation Cost 

a. Water Heaters 

b. Direct Heating Equipment 

c. Pool Heaters 

3. Annual Energy Use 

4. Energy Prices 

5. Energy Price Trend 

6. Repair and Maintenance Costs 

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EE-2006-BT-STD-0129 COMMENT 105
7. Product Lifetime 

a. Water Heaters 

b. Direct Heating Equipment 

c. Pool Heaters 

8. Discount Rates 

9. Compliance Date 

10. Product Energy Efficiency in the Base Case 

11. Inputs to Payback Period Analysis 

G. National Impact Analysis - National Energy Savings and Net Present Value 

Analysis 

1. General 

2. Shipments 

a. Water Heaters 

b. Direct Heating Equipment 

c. Pool Heaters 

d. Impact of Standards on Shipments 

3. Base-Case and Standards-Case Efficiency Distributions 

4. National Energy Savings 

a. Annual Unit Energy Consumption 

b. Site-to-Source Energy Conversion 

5. Consumer Net Present Value 

a. Increased Total Installed Costs and Operating Cost Savings 

b. Discount Rates 

H. Consumer Subgroup Analysis 

I. Manufacturer Impact Analysis 

1. Water Heater Conversion Costs 

2. Manufacturer Markups and Markup Scenarios 

3. Pool Heater Conversion Costs 

4. Employment 

5. Access to Capital 

J. Employment Impact Analysis 

K. Utility Impact Analysis 

1. Effects of Standards on Energy Prices and Associated Benefits 

L. Environmental Assessment 

M. Monetizing Carbon Dioxide and Other Emissions Impacts 

1. Social Cost of Carbon 

a. Monetizing Carbon Dioxide Emissions 

b. Social Cost of Carbon Values Used in Past Regulatory Analyses 

c. Approach and Key Assumptions 

2. Monetary Values of Non-Carbon Emissions 

V. Discussion of Other Comments 

A. Trial Standard Levels and Proposed Standards 

1. Water Heaters 

2. Direct Heating Equipment 

3. Pool Heaters 

B. Compliance Date of Amended Standards 

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EE-2006-BT-STD-0129 COMMENT 105
VI. Analytical Results and Conclusions 

A. Trial Standard Levels 

1. Water Heaters 

2. Direct Heating Equipment 

3. Gas-Fired Pool Heaters 

B. Significance of Energy Savings 

C. Economic Justification 

1. Economic Impact on Consumers 

a. Life-Cycle Costs and Payback Period 

b. Consumer Subgroup Analysis 

c. Rebuttable Presumption Payback 

2. Economic Impact on Manufacturers 

a. Cash-Flow Analysis Results for Water Heaters 

b. Cash-Flow Analysis Results for Direct Heating Equipment 

c. Cash-Flow Analysis Results for Pool Heaters 

d. Impacts on Employment 

e. Impacts on Manufacturing Capacity 

f. Cumulative Regulatory Burden 

g. Impacts on Manufacturers That Are Small Businesses 

3. National Net Present Value of Consumer Costs and Benefits and National 

Employment Impacts 

4. Impact on Utility or Performance of Products 

5. Impact of Any Lessening of Competition 

6. Need of the Nation to Conserve Energy 

7. Other Factors 

D. Conclusion 

1. Overview 

2. Water Heaters 

3. Direct Heating Equipment 

4. Pool Heaters 

VII. Procedural Issues and Regulatory Review 

A. Review Under Executive Order 12866 

B. Review Under the Regulatory Flexibility Act 

C. Review Under the Paperwork Reduction Act of 1995 

D. Review Under the National Environmental Policy Act of 1969 

E. Review Under Executive Order 13132 

F. Review Under Executive Order 12988 

G. Review Under the Unfunded Mandates Reform Act of 1995 

H. Review Under the Treasury and General Government Appropriations Act, 1999 

I. Review Under Executive Order 12630 

J. Review Under the Treasury and General Government Appropriations Act, 2001 

K. Review Under Executive Order 13211 

L. Review Under the Information Quality Bulletin for Peer Review 

M. Congressional Notification 

VIII. Approval of the Office of the Secretary 

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EE-2006-BT-STD-0129 COMMENT 105
I. Summary of the Final Rule and its Benefits 

A. The Energy Conservation Standard Levels 

The Energy Policy and Conservation Act, as amended (42 U.S.C. 6291 et seq.; 

EPCA or the Act), provides that any new or amended energy conservation standard the 

Department of Energy (DOE) prescribes for covered consumer products, including 

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

referred to in this document as the “three heating products”) must be designed to “achieve 

the maximum improvement in energy efficiency . . . which the Secretary [of Energy] 

determines is technologically feasible and economically justified.” (42 U.S.C. 

6295(o)(2)(A)) Furthermore, the new or amended standard must “result in significant 

conservation of energy.” (42 U.S.C. 6295(o)(3)(B)) The standards in today’s final rule, 

which apply to certain types of the three heating products, satisfy these requirements. 

Table I.1 shows the standard levels DOE is adopting today. These standards will 

apply to the types of the three heating products listed in the table and manufactured for 

sale in the United States, or imported into the United States, on or after [INSERT DATE 

FIVE YEARS AFTER DATE OF PUBLICATION IN THE FEDERAL 

REGISTER] in the case of water heaters, or on or after [INSERT DATE THREE 

YEARS AFTER DATE OF PUBLICATION IN THE FEDERAL REGISTER] in 

the case of direct heating equipment and pool heaters. 

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EE-2006-BT-STD-0129 COMMENT 105
Table I.1 Amended Energy Conservation Standards for Residential Water Heaters, 

Direct Heating Equipment, and Pool Heaters 

Residential Water Heaters* 

Product Class Standard Level 

Gas-fired Storage For tanks with a Rated Storage 

Volume at or below 55 gallons: 

EF = 0.675 – (0.0015 x Rated 

Storage Volume in gallons) 

For tanks with a Rated Storage 

Volume above 55 gallons: 

EF = 0.8012 – (0.00078 x 

Rated Storage Volume in 

gallons) 

Electric Storage For tanks with a Rated Storage 

Volume at or below 55 gallons: 

EF = 0.960 – (0.0003 x Rated 

Storage Volume in gallons) 

For tanks with a Rated Storage 

Volume above 55 gallons: 

EF = 2.057 – (0.00113 x Rated 

Storage Volume in gallons) 

Oil-fired Storage EF = 0.68 – (0.0019 x Rated Storage Volume in gallons) 

Gas-fired Instantaneous EF = 0.82 – (0.0019 x Rated Storage Volume in gallons) 

Direct Heating Equipment** 

Product Class Standard Level 

Gas wall fan type up to 42,000 Btu/h AFUE = 75% 

Gas wall fan type over 42,000 Btu/h AFUE = 76% 

Gas wall gravity type up to 27,000 Btu/h AFUE = 65% 

Gas wall gravity type over 27,000 Btu/h up to 46, 000 Btu/h AFUE = 66% 

Gas wall gravity type over 46,000 Btu/h AFUE = 67% 

Gas floor up to 37,000 Btu/h AFUE = 57% 

Gas floor over 37,000 Btu/h AFUE = 58% 

Gas room up to 20,000 Btu/h AFUE = 61% 

Gas room over 20,000 Btu/h up to 27,000 Btu/h AFUE = 66% 

Gas room over 27,000 Btu/h up to 46,000 Btu/h AFUE = 67% 

Gas room over 46,000 Btu/h AFUE = 68% 

Gas hearth up to 20,000 Btu/h AFUE = 61% 

Gas hearth over 20,000 Btu/h and up to 27,000 Btu/h AFUE = 66% 

Gas hearth over 27,000 Btu/h and up to 46,000 Btu/h AFUE = 67% 

Gas hearth over 46,000 Btu/h AFUE = 68% 

Pool Heaters 

Product Class Standard Level 

Gas-fired Thermal Efficiency = 82% 

* EF is the “energy factor,” and the “Rated Storage Volume” equals the water storage capacity of a water 


heater (in gallons), as specified by the manufacturer. 


** Btu/h is “British thermal units per hour,” and AFUE is “Annual Fuel Utilization Efficiency.”
 

B. Benefits and Costs to Purchasers of the Three Heating Products 

1. Water Heaters 

Table I.2 presents the implications of today’s standards for consumers of 

residential water heaters. The economic impacts of the standards on consumers, as 

8
 

EE-2006-BT-STD-0129 COMMENT 105
measured by the average life-cycle cost (LCC) savings, are positive, even though the 

standards may increase some initial costs. For example, a typical gas storage water heater 

has an average installed price of $1,079 and average lifetime operating costs (discounted) 

of $2,473. To meet the amended standards, DOE estimates that the average installed price 

of such equipment will increase by $120, which will be offset by savings of $143 in 

average lifetime operating costs (discounted). 

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EE-2006-BT-STD-0129 COMMENT 105
 

Table I.2 Implications of Standards for Purchasers of Residential Water Heaters 


Product Class 

Energy 

Conservation 

Standard 

EF* 

Average 

Baseline 

Installed 

Price** 

$ 

Average 

Installed 

Price 

Increase 

$ 

Average 

Life-Cycle 

Cost 

Savings*** 

$ 

Median 

Payback 

Period 

Years 

Gas-Fired 

Storage Water 

Heater 

0.62 

(40 gallons) $1,072 $92 $6 2.0 

0.76 

(56 gallons) $1,261 $805 $77 9.8 

Weighted $1,079 $120 $18 2.3 

Electric Storage 

Water Heater 

0.95 

(50 gallons) $554 $140 $10 6.9 

2.0 

(56 gallons) $729 $974 $626 6.0 

Weighted $569 $213 $64 6.8 

Oil-Fired Storage 

Water Heater 

0.62 

(32 gallons) $1,974 $67 $295 0.5 

Gas-Fired 

Instantaneous 

Water Heater 

0.82 

(0 gallons) $1,779 $601 $6 14.8 

*The values are for the representative storage volumes (40 gallons for gas-fired storage water heaters, 50 

gallons for electric storage water heaters, 32 gallons for oil-fired storage water heaters, and 0 gallons for 

gas-fired instantaneous water heaters). The standard level is represented by an energy-efficiency equation, 

which specifies an EF level over the entire storage volume range. 

** For a baseline model. 

*** The average life-cycle cost savings refers to the average savings in the discounted life-cycle costs of 

owning and operating the product due to the standard. This value represents the net benefit (or cost) of a 

more-efficient product after considering both the increased installed price and the lifetime operating cost 

savings. 

2. Direct Heating Equipment 

Table I.3 presents the implications of today’s standards for consumers of direct 

heating equipment. The economic impacts of the standards on consumers, as measured by 

the average LCC savings, are positive, even though the standards may increase some 

initial costs. For example, a typical gas wall fan DHE has an average installed price of 

$1,832 and average lifetime operating costs (discounted) of $5,544. To meet the amended 

standards, DOE estimates that the average installed price of such equipment will increase 

10
 

EE-2006-BT-STD-0129 COMMENT 105
 

 

by $81, which will be more than offset by savings of $249 in average lifetime operating 

costs (discounted). 

Table I.3 Implications of Standards for Purchasers of Direct Heating Equipment at 

the Representative Rated Input Capacity Range 

Product Class 

Energy 

Conservation 

Standard* 

AFUE (%) 

Average 

Baseline 

Installed 

Price** 

$ 

Average 

Installed 

Price 

Increase 

$ 

Average 

Life-Cycle 

Cost 

Savings*** 

$ 

Median 

Payback 

Period 

Years 

Gas Wall Fan 76 $1,832 $81 $102 3.2 

Gas Wall Gravity 66 $1,433 $61 $21 7.5 

Gas Floor 58 $2,209 $54 $13 10.7 

Gas Room 67 $1,208 $83 $60 4.5 

Gas Hearth 67 $1,603 $82 $112 0.0 

*The values are for the representative input capacity ranges (>42,000 Btu/h for wall fan, >27,000 Btu/h and 

:46,000 Btu/h for wall gravity, >37,000 Btu/h for floor, >27,000 Btu/h and :46,000 Btu/h for room, and 

>27,000 Btu/h and :46,000 Btu/h for hearth). The standard levels vary by input capacity range. 

** For a baseline model. 

*** The average life-cycle cost savings refers to the average savings in the discounted life-cycle costs of 

owning and operating the product due to the standard. This value represents the net benefit (or cost) of a 

more-efficient product after considering both the increased installed price and the lifetime operating cost 

savings. 

3. Pool Heaters 

Table I.4 presents the implications of today’s standards for consumers of pool 

heaters. The economic impacts of the standards on consumers, as measured by the 

average LCC savings, are positive, even though the standards may increase some initial 

costs. For example, a typical pool heater has an average installed price of $3,240 and 

average lifetime operating costs (discounted) of $5,099. To meet the amended standards, 

DOE estimates that the average installed price of such equipment will increase by $103, 

which will be offset by savings of $226 in average lifetime operating costs (discounted). 

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EE-2006-BT-STD-0129 COMMENT 105
Table I.4 Implications of Standards for Purchasers of Pool Heaters at 250,000 Btu/h
 

Product Class 

Energy 

Conservation 

Standard* 

Thermal 

Efficiency 

(%) 

Average 

Baseline 

Installed 

Price** 

$ 

Average 

Installed 

Price 

Increase 

$ 

Average 

Life-Cycle 

Cost 

Savings*** 

$ 

Median 

Payback 

Period 

Years 

Gas-fired 82 $3,240 $103 $22 8.6 

*The values are for the representative input capacity of 250,000 Btu/h.
 

** For a baseline model.
 

*** The average life-cycle cost savings refers to the average savings in the discounted life-cycle costs of
 

owning and operating the product due to the standard. This value represents the net benefit (or cost) of a 


more-efficient product after considering both the increased installed price and the lifetime operating cost 


savings.
 

C. Impact on Manufacturers 

1. Water Heaters 

Using a real corporate discount rate of 8.9 percent for gas-fired and electric 

storage water heaters, 7.6 percent for oil-fired storage water heaters, and 9.5 percent for 

gas-fired instantaneous water heaters, which DOE calculated by examining the financial 

statements of residential water heater manufacturers, DOE estimates the industry net 

present value (INPV) of the manufacturing industry to be $880 million for gas-fired and 

electric storage water heaters, $9 million for oil-fired storage water heaters, and $648 

million for gas-fired instantaneous water heaters (all figures in 2009$). DOE expects the 

impact of the standards on the INPV of manufacturers of gas-fired and electric storage 

water heaters to range from a loss of 2.9 percent to a loss of 13.9 percent (a loss of $25.9 

million to a loss of $122.6 million). DOE expects the impact of the standards on the 

INPV of manufacturers of oil-fired storage water heaters to range from a loss of 2.0 

percent to a loss of 4.2 percent (a loss of $0.2 million to a loss of $0.4 million). DOE 

expects the impact of the standards on the INPV of manufacturers of gas-fired 

instantaneous water heaters to range from an increase of 0.4 percent to a loss of 0.2 

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EE-2006-BT-STD-0129 COMMENT 105
percent (an increase of $2.3 million to a loss of $1.2 million). Based on DOE’s interviews 

with the major manufacturers of residential water heaters, DOE expects minimal plant 

closings or loss of employment as a result of the standards. At the amended standard 

level, DOE does not expect significant impacts on competition in the overall water heater 

market. For gas-fired and electric storage water heaters, DOE believes there are primarily 

three major manufacturers who have established market positions. In addition, DOE 

believes there is another major appliance manufacturer with significant resources that has 

recently announced intentions to scale its efforts in the water heating market. For oil-fired 

storage water heaters and gas-fired instantaneous water heaters, DOE believes the 

standards-case market can at least sustain the base-case level of competition. 

2. Direct Heating Equipment 

Using a real corporate discount rate of 8.5 percent, which DOE calculated by 

examining the financial statements of direct heating equipment manufacturers, DOE 

estimates the INPV of the manufacturing industry to be $17 million for traditional direct 

heating equipment and $77 million for hearth direct heating equipment (both figures in 

2009$). DOE expects the impact of the standards on the INPV of manufacturers of 

traditional direct heating equipment to range from a loss of 7.2 percent to a loss of 23.6 

percent (a loss of $1.2 million to a loss of $3.9 million). DOE expects the impact of the 

standards on the INPV of manufacturers of hearth direct heating equipment to range from 

a loss of 0.3 percent to a loss of 1.2 percent (a loss of $0.2 million to a loss of $0.9 

million). Based on DOE’s interviews with the major manufacturers of both traditional 

and hearth direct heating equipment, DOE expects minimal plant closings or loss of 

13
 

EE-2006-BT-STD-0129 COMMENT 105
employment as a result of the standards. DOE believes the impact of the amended 

standards on competition in the traditional and hearth DHE market will not be significant 

because small manufacturers will be able to upgrade enough product lines to meet the 

standard, which in combination with product lines that currently meet the standard, will 

enable them to remain viable competitors. 

3. Pool Heaters 

Using a real corporate discount rate of 7.4 percent, which DOE calculated by 

examining the financial statements of pool heater manufacturers, DOE estimates the 

INPV of the manufacturing industry to be $49 million for gas-fired pool heaters (figures 

in 2009$). DOE expects the impact of the standards on the INPV of manufacturers of 

gas-fired pool heaters to range from an increase of 0.5 percent to a loss of 1.7 percent (an 

increase of $0.3 million to a loss of $0.8 million). Based on DOE’s interviews with the 

major manufacturers of pool heaters, DOE expects minimal plant closings or loss of 

employment as a result of the standards. DOE does not believe there will be any 

lessening of competition in the pool heater market as a result of the standards established 

by today’s final rule, because all of the manufacturers already offer at least one product 

line that meets or exceeds the standard level promulgated by today’s final rule. 

D. National Benefits 

DOE estimates the standards will save approximately 2.81 quads (quadrillion or 

1015) British thermal units (Btu) of energy over a 30-year period: 2.58 quads for 

residential water heaters during 2015–2045, and 0.21 and 0.02 quads for DHE and pool 

14
 

EE-2006-BT-STD-0129 COMMENT 105
heaters, respectively, during 2013–2043. The total of 2.81 quads is equivalent to all the 

energy consumed by nearly 15 million American households in a single year. By 2045, 

DOE expects the energy savings from today’s standards to eliminate the need for 

approximately three new 250 MW power plants. 

These energy savings will result in cumulative greenhouse gas emission 

reductions of approximately 164 million tons (Mt) of carbon dioxide (CO2), or an amount 

equal to that produced by approximately 46 million cars every year. Additionally, the 

standards will help alleviate air pollution by resulting in cumulative emissions reductions 

of approximately 125 kilotons (kt) for nitrogen oxides (NOX) and 0.54 tons of for power 

plant mercury (Hg). 

The estimated monetary value of the cumulative CO2 emissions reductions, based 

on a range of values from a recent interagency process, is $560 to $8,725 million. The 

estimated monetary value of the cumulative CO2 emissions reductions, based on the 

central value from the interagency process, is $2,861 million. The estimated net present 

monetary value of the other emissions reductions (discounted to 2010 using a 7-percent 

discount rate and expressed in 2009$) is $12.2 to 125 million for NOX. At a 3-percent 

discount rate, the estimated net present value of these emissions reductions is $27.2 to 

284 million for NOX. 

The national NPV of consumer benefit of today’s standards is $1.98 billion using 

a 7-percent discount rate and $10.11 billion using a 3-percent discount rate, cumulative 

15
 

EE-2006-BT-STD-0129 COMMENT 105
from 2013 to 2043 for DHE and pool heaters, and from 2015 to 2045 for water heaters, in 

2009$. This is the estimated present value of future operating cost savings minus the 

estimated increased costs of purchasing and installing the three types of heating products, 

discounted to 2010. 

The benefits and costs of today’s rule can also be expressed in terms of 

annualized values from 2013 to 2043 for DHE and pool heaters, and from 2015 to 2045 

for water heaters. Estimates of annualized values for the three types of heating products 

are shown in Table I.5, Table I.6, and Table I.7. The annualized monetary benefits are the 

sum of the annualized national economic value of operating cost savings (energy, 

maintenance, and repair), expressed in 2009$, plus the monetary value of the benefits of 

CO2 and NOX emission reductions. For the value of CO2 emission reductions, DOE uses 

the global Social Cost of Carbon (SCC) calculated using the average value derived using 

a 3-percent discount rate (equivalent to $21.40 per metric ton of CO2 emitted in 2010, in 

2007$). This value is a central value from a recent interagency process. The derivation of 

this value is discussed in section IV.M. The monetary benefits of cumulative emissions 

reductions are reported in 2009$ so that they can be compared with the other costs and 

benefits in the same dollar units. 

Although the above consideration of benefits provides a valuable perspective, 

please note the following: (1) The national operating cost savings are domestic U.S. 

consumer monetary savings found in market transactions, while the value of CO2 

reductions is based on a global value. Also, note that the central value is only one of four 

16
 

EE-2006-BT-STD-0129 COMMENT 105
SCC developed by the interagency workgroup. Other marginal SCC values for 2010 are 

$4.70, $35.10, and $64.90 per metric ton (2007$ for emissions in 2010), which reflect 

different discount rates and, for the highest value, the possibility of higher-than-expected 

impacts further out in the tails of the SCC distribution. (2) The assessments of operating 

cost savings and CO2 savings are performed with different computer models, leading to 

different time frames for analysis. The national operating cost savings is measured for the 

lifetime of heating products shipped in the period 2013–2043 (for DHE and pool heaters) 

or 2015-2045 (for water heaters). The value of CO2, on the other hand, reflects the 

present value of all future climate-related impacts (out to 2300) due to emitting a ton of 

carbon dioxide in each year of the forecast period. 

Using a 7-percent discount rate and the central SCC value, the combined cost of 

the standards adopted in today’s final rule for heating products is $1,285 million per year 

in increased equipment and installation costs, while the annualized benefits are $1,500 

million per year in reduced equipment operating costs, $169 million in CO2 reductions, 

and $7.7 million in reduced NOX emissions. At a 7-percent discount rate, the net benefit 

amounts to $391 million per year. Using a 3-percent discount rate and the central SCC 

value, the cost of the standards adopted in today’s rule is $1,249 million per year in 

increased equipment and installation costs, while the benefits of today’s standards are 

$1,843 million per year in reduced operating costs, $169 million in CO2 reductions, and 

$9.2 million in reduced NOX emissions. At a 3-percent discount rate, the net benefit 

amounts to $771 million per year. 

17
 

EE-2006-BT-STD-0129 COMMENT 105
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Table I.5 Annualized Benefits and Costs for Water Heaters (TSL 5)
 

Category 

Primary 

Estimate 

(AEO 

Reference 

Case) 

Low 

Estimate 

(Low 

Energy 

Price Case) 

High 

Estimate 

(High 

Energy 

Price 

Case) 

Units 

Year 

Dollars 

Disc. 

Rate 

Period 

Covered 

(2015­

2045) 

Benefits 

Energy 

Annualized 

Monetized 

(millions$/year) 

1407.0 1275.5 1537.5 2009 7% 30 

1729.6 1556.1 1902.9 2009 3% 30 

CO2 Monetized 

Value (at 

$4.7/Metric Ton, 

millions$/year)* 

43.5 43.5 43.5 2009 5% 30 

CO2 Monetized 

Value (at 

$21.4/Metric Ton, 

millions$/year)* 

158.6 158.6 158.6 2009 3% 30 

CO2 Monetized 

Value (at 

$35.1/Metric Ton, 

millions$/year)* 

245.7 245.7 245.7 2009 2.5% 30 

CO2 Monetized 

Value (at 

$64.9/Metric Ton, 

millions$/year)* 

483.8 483.8 483.8 2009 3% 30 

NOX Monetized 

Value (at 

$2,437/Metric 

Ton, 

millions$/year) 

7.0 7.0 7.0 2009 7% 30 

8.5 8.5 8.5 2009 3% 30 

Total Monetary 

Benefits 

(millions$/year)** 

1457.5­

1897.8 

1326­

1766.3 

1588­

2028.3 2009 7% 

range 

30 

1572.7 1441.1 1703.2 2009 7% 

1896.7 1723.2 2070.0 2009 3% 

1781.5 ­

2221.8 

1608 ­

2048.3 

1954.9 ­

2395.2 2009 3% 

range 

30 

Costs 

Annualized 

Monetized 

(millions$/year) 

1250.3 1184.5 1321.6 2009 7% 30 

1216.6 1145.7 1295.6 2009 3% 30 

Net Benefits/Costs 

Annualized 

Monetized, 

including CO2 

Benefits 

(million$/year)** 

207.2 - 647.5 141.5 ­

581.8 

266.4 ­

706.7 2009 7% 

range 

30 

322.4 256.6 381.5 2009 7% 30 

680.1 577.5 774.4 2009 3% 30 

565 - 1005.3 462.3 ­

902.6 

659.3 ­

1099.6 2009 3% 

range 

30 

* These values represent global values (in 2009$) of the social cost of CO2 emissions in 2010 under several 

scenarios. The values of $4.7, $21.4, and $35.1 per ton are the averages of SCC distributions calculated 

18 

EE-2006-BT-STD-0129 COMMENT 105
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

using 5%, 3%, and 2.5% discount rates, respectively. The value of $64.9 per ton represents the 95th 

percentile of the SCC distribution calculated using a 3% discount rate. See section IV.M for details. 

** Total Monetary Benefits for both the 3% and 7% cases utilize the central estimate of social cost of CO2 

emissions calculated at a 3% discount rate (averaged across three Integrated Assessment Models (IAMs)), 

which is equal to $21.4/ton in 2010 (in 2009$). The rows labeled as “7% Range” and “3% Range” calculate 

consumer and NOX cases with the labeled discount rate but add these values to the full range of CO2 values 

with the $4.7/ton value at the low end, and the $64.9/ton value at the high end. 

Table I.6 Annualized Benefits and Costs for Direct Heating Equipment (TSL 2) 

Category 

Primary 

Estimate 

(AEO 

Reference 

Case) 

Low 

Estimate 

(Low 

Energy 

Price Case) 

High 

Estimate 

(High 

Energy 

Price 

Case) 

Units 

Year 

Dollars 

Disc. 

Rate 

Period 

Covered 

(2013­

2043) 

Benefits 

Energy 

Annualized 

Monetized 

(millions$/year) 

82.2 78.8 84.6 2009 7% 30 

100.6 96.3 103.6 2009 3% 30 

CO2 Monetized 

Value (at 

$4.7/Metric Ton, 

millions$/year)* 

2.5 2.5 2.5 2009 5% 30 

CO2 Monetized 

Value (at 

$21.4/Metric Ton, 

millions$/year)* 

9.2 9.2 9.2 2009 3% 30 

CO2 Monetized 

Value (at 

$35.1/Metric Ton, 

millions$/year)* 

14.3 14.3 14.3 2009 2.5% 30 

CO2 Monetized 

Value (at 

$64.9/Metric Ton, 

millions$/year)* 

28.1 28.1 28.1 2009 3% 30 

NOX Monetized 

Value (at 

$2,437/Metric 

Ton, 

millions$/year) 

0.6 0.6 0.6 2009 7% 30 

0.6 0.6 0.6 2009 3% 30 

Total Monetary 

Benefits 

(millions$/year)** 

85.2-110.8 81.8-107.4 87.7-113.2 2009 7% 

range 

30 

91.9 88.5 94.4 2009 7% 

110.4 106.2 113.4 2009 3% 

103.7 - 129.3 99.5 - 125 106.7 ­

132.3 2009 3% 

range 

30 

Costs 

Annualized 

Monetized 

(millions$/year) 

27.7 27.7 27.7 2009 7% 30 

26.0 26.0 26.0 2009 3% 30 

19
 

EE-2006-BT-STD-0129 COMMENT 105
 

 

 

 

 

 

 

 

 

 

 

 

Net Benefits/Costs 

Annualized 

Monetized, 

including CO2 

Benefits 

(million$/year)** 

57.6 - 83.1 54.1 - 79.7 60 - 85.6 2009 7% 

range 

30 

64.3 60.8 66.7 2009 7% 30 

84.4 80.1 87.4 2009 3% 30 

77.7 - 103.2 73.4 - 99 80.7 ­

106.3 2009 3% 

range 

30 

* These values represent global values (in 2009$) of the social cost of CO2 emissions in 2010 under several 

scenarios. The values of $4.7, $21.4, and $35.1 per ton are the averages of SCC distributions calculated 

using 5%, 3%, and 2.5% discount rates, respectively. The value of $64.9 per ton represents the 95th 

percentile of the SCC distribution calculated using a 3% discount rate. See section IV.M for details. 

** Total Monetary Benefits for both the 3% and 7% cases utilize the central estimate of social cost of CO2 

emissions calculated at a 3% discount rate (averaged across three IAMs), which is equal to $21.4/ton in 

2010 (in 2009$). The rows labeled as “7% Range” and “3% Range” calculate consumer and NOX cases 

with the labeled discount rate but add these values to the full range of CO2 values with the $4.7/ton value at 

the low end, and the $64.9/ton value at the high end. 

Table I.7 Annualized Benefits and Costs for Pool Heaters (TSL 2) 

Category 

Primary 

Estimate 

(AEO 

Reference 

Case) 

Low 

Estimate 

(Low 

Energy 

Price Case) 

High 

Estimate 

(High 

Energy 

Price 

Case) 

Units 

Year 

Dollars 

Disc. 

Rate 

Period 

Covered 

(2013­

2043) 

Benefits 

Energy 

Annualized 

Monetized 

(millions$/year) 

10.6 10.1 10.9 2009 7% 30 

12.5 12.0 12.9 2009 3% 30 

CO2 Monetized 

Value (at 

$4.7/Metric Ton, 

millions$/year)* 

0.2 0.2 0.2 2009 5% 30 

CO2 Monetized 

Value (at 

$21.4/Metric Ton, 

millions$/year)* 

0.8 0.8 0.8 2009 3% 30 

CO2 Monetized 

Value (at 

$35.1/Metric Ton, 

millions$/year)* 

1.3 1.3 1.3 2009 2.5% 30 

CO2 Monetized 

Value (at 

$64.9/Metric Ton, 

millions$/year)* 

2.4 2.4 2.4 2009 3% 30 

NOX Monetized 

Value (at 

$2,437/Metric 

Ton, 

millions$/year) 

0.1 0.1 0.1 2009 7% 30 

0.1 0.1 0.1 2009 3% 30 

Total Monetary 10.8-13 10.4-12.6 11.1-13.3 2009 7% 30 

20
 

EE-2006-BT-STD-0129 COMMENT 105
 

 

 

 

 

 

 

 

 

 

 

 

 

Benefits 

(millions$/year)** 

range 

11.4 11.0 11.7 2009 7% 

13.4 12.8 13.7 2009 3% 

12.8 - 15 12.3 - 14.4 13.2 - 15.3 2009 3% 

range 

30 

Costs 

Annualized 

Monetized 

(millions$/year) 

6.9 6.9 6.9 2009 7% 30 

6.7 6.7 6.7 2009 3% 30 

Net Benefits/Costs 

Annualized 

Monetized, 

including CO2 

Benefits 

(million$/year)** 

3.9 - 6.1 3.4 - 5.6 4.2 - 6.4 2009 7% 

range 

30 

4.5 4.0 4.8 2009 7% 30 

6.7 6.2 7.1 2009 3% 30 

6.1 - 8.3 5.6 - 7.8 6.5 - 8.7 2009 3% 

range 

30 

* These values represent global values (in 2009$) of the social cost of CO2 emissions in 2010 under several 

scenarios. The values of $4.7, $21.4, and $35.1 per ton are the averages of SCC distributions calculated 

using 5%, 3%, and 2.5% discount rates, respectively. The value of $64.9 per ton represents the 95th 

percentile of the SCC distribution calculated using a 3% discount rate. See section IV.M for details. 

** Total Monetary Benefits for both the 3% and 7% cases utilize the central estimate of social cost of CO2 

emissions calculated at a 3% discount rate (averaged across three IAMs), which is equal to $21.4/ton in 

2010 (in 2009$). The rows labeled as “7% Range” and “3% Range” calculate consumer and NOX cases 

with the labeled discount rate but add these values to the full range of CO2 values with the $4.7/ton value at 

the low end, and the $64.9/ton value at the high end. 

Table I.8 Sum of Annualized Benefits and Costs for Heating Products Standards 

Category 

Primary 

Estimate 

(AEO 

Reference 

Case) 

Low 

Estimate 

(Low 

Energy 

Price Case) 

High 

Estimate 

(High 

Energy 

Price 

Case) 

Units 

Year 

Dollars 

Disc. 

Rate 

Period 

Covered 

Benefits 

Energy 

Annualized 

Monetized 

(millions$/year) 

1499.8 1364.4 1633.0 2009 7% 30 

1842.7 1664.4 2019.4 2009 3% 30 

CO2 Monetized 

Value (at 

$4.7/Metric Ton, 

millions$/year)* 

46.2 46.2 46.2 2009 5% 30 

CO2 Monetized 

Value (at 

$21.4/Metric Ton, 

millions$/year)* 

168.6 168.6 168.6 2009 3% 30 

21
 

EE-2006-BT-STD-0129 COMMENT 105
 

 

 

 

 

 

 

 

 

CO2 Monetized 

Value (at 

$35.1/Metric Ton, 

millions$/year)* 

261.3 261.3 261.3 2009 2.5% 30 

CO2 Monetized 

Value (at 

$64.9/Metric Ton, 

millions$/year)* 

514.2 514.2 514.2 2009 3% 30 

NOX Monetized 

Value (at 

$2,437/Metric 

Ton, 

millions$/year) 

7.6 7.6 7.6 2009 7% 30 

9.2 9.2 9.2 2009 3% 30 

Total Monetary 

Benefits 

(millions$/year)** 

1553.5 ­

2021.6 

1418.2 ­

1886.3 

1686.8 ­

2154.8 2009 7% 

range 

30 

1676.0 1540.6 1809.2 2009 7% 

2020.5 1842.2 2197.2 2009 3% 

1898 ­

2366.1 

1719.8 ­

2187.7 

2074.8 ­

2542.8 2009 3% 

range 

30 

Costs 

Annualized 

Monetized 

(millions$/year) 

1284.9 1219.1 1356.3 2009 7% 30 

1249.3 1178.4 1328.3 2009 3% 30 

Annualized 

Monetized, 

including CO2 

Benefits 

(million$/year)** 

268.7 - 736.7 199 - 667.1 330.6 ­

798.7 2009 7% 

range 

30 

391.1 321.5 453.0 2009 7% 30 

771.2 663.8 868.9 2009 3% 30 

648.8 ­

1116.8 

541.3 ­

1009.4 

746.5 ­

1214.6 2009 3% 

range 

30 

* These values represent global values (in 2009$) of the social cost of CO2 emissions in 2010 under several 

scenarios. The values of $4.7, $21.4, and $35.1 per ton are the averages of SCC distributions calculated 

using 5%, 3%, and 2.5% discount rates, respectively. The value of $64.9 per ton represents the 95th 

percentile of the SCC distribution calculated using a 3% discount rate. See section IV.M for details. 

** Total Monetary Benefits for both the 3% and 7% cases utilize the central estimate of social cost of CO2 

emissions calculated at a 3% discount rate (averaged across three IAMs), which is equal to $21.4/ton in 

2010 (in 2009$). The rows labeled as “7% Range” and “3% Range” calculate consumer and NOX cases 

with the labeled discount rate but add these values to the full range of CO2 values with the $4.7/ton value at 

the low end, and the $64.9/ton value at the high end. 

E. Conclusion 

Based upon the analysis culminating in this final rule, DOE has concluded that the 

benefits (energy savings, consumer LCC savings, positive national NPV, and emissions 

reductions) to the Nation of today’s amended standards outweigh their costs (a potential 

loss of manufacturer INPV and consumer LCC increases for some users of the three 

22
 

EE-2006-BT-STD-0129 COMMENT 105
 

 

 

 

 

 

 

 

 

heating products). Table 1.9 below summarizes total annualized monetized benefits and 

costs for these energy conservation standards. Today’s standards also represent the 

maximum improvement in energy efficiency that is technologically feasible and 

economically justified, and will result in significant energy savings for all three types of 

the heating products. At present, residential water heaters, DHE, and pool heaters that 

meet the new standard levels are either commercially available or available as prototypes. 

Table I.9 Summary Annualized Monetized Benefits and Costs 

Category ($million/year) 

Discount 

rate 

Benefits* 

1676.0 7% 

2020.5 3% 

Costs 

1284.9 7% 

1249.3 3% 

Net Benefits/Costs* 

391.1 7% 

771.2 3% 

*Annualized Monetized, including monetized CO2 and NOx benefits 

II. Introduction 

A. Authority 

Title III of EPCA sets forth a variety of provisions designed to improve energy 

efficiency. Part A1

 of Title III (42 U.S.C. 6291–6309) provides for the Energy 

Conservation Program for Consumer Products Other Than Automobiles. The program 

1

 This part was originally titled Part B. It was redesignated Part A in the United States Code for editorial 

reasons. 

23
 

EE-2006-BT-STD-0129 COMMENT 105
 

covers consumer products and certain commercial products (all of which are referred to 

hereafter as “covered products”), including the three heating products that are the subject 

of this rulemaking. (42 U.S.C. 6292(a)(4), (9), (11)) DOE publishes today’s final rule 

pursuant to Part A of Title III, which also provides for test procedures, labeling, and 

energy conservation standards for the three heating products and certain other types of 

products, and authorizes DOE to require information and reports from manufacturers. 

The test procedures for water heaters, vented DHE, and pool heaters appear at Title 10 of 

the Code of Federal Regulations (CFR) part 430, subpart B, appendices E, O, and P, 

respectively. 

EPCA prescribes specific energy conservation standards for the three heating 

products. (42 U.S.C. 6295(e)(1)-(3)) The statute further directs DOE to conduct two 

cycles of rulemakings to determine whether to amend these standards. (42 U.S.C. 

6295(e)(4)) This rulemaking represents the second round of amendments to the water 

heater standards, and the first round of amendments to the DHE and pool heater 

standards. The notice of proposed rulemaking (NOPR) in this proceeding (the December 

2009 NOPR; 74 FR 65852, 65858-59, 65866 (Dec. 11, 2009), and section II.B.2 below, 

provide additional detail on the nature and statutory history of the requirements for the 

three types of heating products. 

EPCA also provides criteria for prescribing amended standards for covered 

products generally, including the three heating products. As indicated above, any such 

amended standard must be designed to achieve the maximum improvement in energy 

24
 

EE-2006-BT-STD-0129 COMMENT 105
efficiency that is technologically feasible and economically justified. (42 U.S.C. 

6295(o)(2)(A)) Additionally, EPCA provides specific prohibitions on prescribing such 

standards. DOE may not prescribe an amended standard for any of the three heating 

products for which it has not established a test procedure. (42 U.S.C. 6295(o)(3)(A)) 

Further, DOE may not prescribe a standard if DOE determines by rule that such standard 

would not result in “significant conservation of energy,” or “is not technologically 

feasible or economically justified.” (42 U.S.C. 6295(o)(3)(B)) 

EPCA also provides that in deciding whether a standard is economically justified 

for covered products, DOE must, after receiving comments on the proposed standard, 

determine whether the benefits of the standard exceed its burdens by considering, to the 

greatest extent practicable, the following seven factors: 

1. The economic impact of the standard on manufacturers and consumers of the 

products subject to the standard; 

2. The savings in operating costs throughout the estimated average life of the 

covered products in the type (or class) compared to any increase in the price, initial 

charges, or maintenance expenses for the covered products that are likely to result from 

the imposition of the standard; 

3. The total projected amount of energy (or, as applicable, water) savings likely to 

result directly from the imposition of the standard; 

4. Any lessening of the utility or the performance of the covered products likely to 

result from the imposition of the standard; 

25
 

EE-2006-BT-STD-0129 COMMENT 105
 

 

5. The impact of any lessening of competition, as determined in writing by the 

Attorney General, that is likely to result from the imposition of the standard; 

6. The need for national energy and water conservation; and 

7. Other factors the Secretary of Energy (Secretary) considers relevant.

 (42 U.S.C. 6295(o)(2)(B)(i)(I)-(VII)) 

In addition, EPCA, as amended, establishes a rebuttable presumption that any 

standard for covered products is economically justified if the Secretary finds that “the 

additional cost to the consumer of purchasing a product complying with an energy 

conservation standard level will be less than three times the value of the energy (and as 

applicable, water) savings during the first year that the consumer will receive as a result 

of the standard,” as calculated under the test procedure in place for that standard. (42 

U.S.C. 6295(o)(2)(B)(iii)) 

EPCA also contains what is commonly known as an “anti-backsliding” provision. 

(42 U.S.C. 6295(o)(1)) This provision mandates that the Secretary not prescribe any 

amended standard that either increases the maximum allowable energy use or decreases 

the minimum required energy efficiency of a covered product. EPCA further provides 

that the Secretary may not prescribe an amended standard if interested persons have 

established by a preponderance of the evidence that the standard is likely to result in the 

unavailability in the United States of any product type (or class) with performance 

characteristics (including reliability), features, sizes, capacities, and volumes that are 

substantially the same as those generally available in the United States at the time of the 

26
 

EE-2006-BT-STD-0129 COMMENT 105
Secretary’s finding. (42 U.S.C. 6295(o)(4)) 

Under 42 U.S.C. 6295(q)(1), EPCA specifies requirements applicable to 

promulgating standards for any type or class of covered product that has two or more 

subcategories. Under this provision, DOE must specify a different standard level than that 

which applies generally to such type or class of product for any group of products “which 

have the same function or intended use, if . . . products within such group—(A) consume 

a different kind of energy from that consumed by other covered products within such type 

(or class); or (B) have a capacity or other performance-related feature which other 

products within such type (or class) do not have and such feature justifies a higher or 

lower standard” than applies or will apply to the other products. (42 U.S.C. 6295(q)(1)) 

In determining whether a performance-related feature justifies such a different standard 

for a group of products, DOE must consider “such factors as the utility to the consumer 

of such a feature” and other factors DOE deems appropriate. Id. Any rule prescribing 

such a standard must include an explanation of the basis on which DOE established such 

higher or lower level. (42 U.S.C. 6295(q)(2)) 

Section 310(3) of the Energy Independence and Security Act of 2007 (EISA 

2007; Pub. L. 110-140) amended EPCA to prospectively require that energy conservation 

standards address standby mode and off mode energy use. Specifically, when DOE 

adopts new or amended standards for a covered product after July 1, 2010, the final rule 

must, if justified by the criteria for adoption of standards in section 325(o) of EPCA, 

incorporate standby mode and off mode energy use into a single standard if feasible, or 

27
 

EE-2006-BT-STD-0129 COMMENT 105
otherwise adopt a separate standard for such energy use for that product. (42 U.S.C. 

6295(gg)(3)) Because DOE is adopting today’s final rule before July 2010, this 

requirement does not apply in this rulemaking, and DOE has not specifically addressed 

standby mode or off mode energy use here. DOE is currently working on a test procedure 

rulemaking to address the measurement of standby mode and off mode energy 

consumption for the three types of heating products that are the subject of this 

rulemaking. 

Finally, Federal energy conservation requirements for covered products generally 

supersede State laws or regulations concerning energy conservation testing, labeling, and 

standards. (42 U.S.C. 6297(a)–(c)) DOE can, however, grant waivers of Federal 

preemption for particular State laws or regulations, in accordance with the procedures 

and other provisions of section 327(d) of the Act. (42 U.S.C. 6297(d)) 

B. Background 

1. Current Standards 

On January 17, 2001, DOE published a final rule prescribing the current Federal 

energy conservation standards for residential water heaters manufactured on or after 

January 20, 2004, which set minimum energy factors (EFs) that vary based on the storage 

volume of the water heater, the type of energy it uses (i.e., gas, oil, or electricity), and 

whether it is a storage, instantaneous, or tabletop model. 66 FR 4474; 10 CFR 430.32(d). 

EPCA prescribes the Federal energy conservation standards for DHE and pool heaters. 

For DHE, these consist of minimum annual fuel utilization efficiency (AFUE) levels, 

28
 

EE-2006-BT-STD-0129 COMMENT 105
 

each of which applies to a type of unit (i.e., wall fan, wall gravity, floor, or room) and 

heating capacity range. (42 U.S.C. 6295(e)(3)); 10 CFR 430.32(i). For pool heaters, the 

Federal energy conservation standard prescribed by EPCA includes a single minimum 

thermal efficiency level. (42 U.S.C. 6295(e)(2)); 10 CFR 430.32(k). 

Table II.1, Table II.2, and Table II.3 present the current Federal energy 

conservation standards for residential water heaters, DHE, and pool heaters, respectively. 

The water heater standards, set forth in 10 CFR 430.32(d), consist of minimum energy 

factors (EF) that vary based on the rated storage volume of the water heater, the type of 

energy it uses (i.e., gas, oil, or electricity), and whether it is a storage, instantaneous, or 

tabletop model. The DHE standards, set forth in 42 U.S.C. 6295(e)(3) and 10 CFR 

430.32(i), consist of minimum annual fuel utilization efficiency (AFUE) levels, each of 

which applies to a particular type of gas-fired product (i.e., wall fan, wall gravity, floor, 

room) and input heating capacity range. (Although electric DHE are available, no Federal 

energy conservation standards exist for these products, and today’s final rule contains no 

such standards. For a more detailed discussion of DHE coverage under EPCA, see 74 FR 

65852, 65866 (Dec. 11, 2009) (the December 2009 NOPR)). The pool heater standards, 

set forth at 42 U.S.C. 6295(e)(2) and 10 CFR 430.32(k), consist of a thermal efficiency 

level. (Similar to the situation with DHE, this standard applies only to gas-fired products. 

Although electric pool heaters are available, no Federal energy conservation standards 

currently exist for other pool heaters, and today’s final rule contains no such standard. 

For a more detailed discussion of pool heater coverage, see 74 FR 65852, 65866-67 (Dec. 

11, 2009).) 

29
 

EE-2006-BT-STD-0129 COMMENT 105
Table II.1 Current Federal Energy Conservation Standards for Residential Water 

Heaters 

Product Class Energy Factor as of January 20, 2004 

Gas-Fired Storage Water Heater EF = 0.67 - (0.0019 x Rated Storage Volume in gallons) 

Oil-Fired Storage Water Heater EF = 0.59 - (0.0019 x Rated Storage Volume in gallons) 

Electric Storage Water Heater EF = 0.97 - (0.00132 x Rated Storage Volume in 

gallons) 

Tabletop Water Heater EF = 0.93 - (0.00132 x Rated Storage Volume in 

gallons) 

Gas-Fired Instantaneous Water 

Heater 

EF = 0.62 - (0.0019 x Rated Storage Volume in gallons) 

Instantaneous Electric Water Heater EF = 0.93 - (0.00132 x Rated Storage Volume in 

gallons) 

Table II.2 Current Federal Energy Conservation Standards for Direct Heating 

Equipment 

Direct Heating 

Equipment Design 

Type 

Product Class 

Btu/h 

Annual Fuel 

Utilization Efficiency, 

as of Jan. 1, 1990 

% 

Gas Wall Fan Up to 42,000 73 

Over 42,000 74 

Gas Wall Gravity 

Up to 10,000 59 

Over 10,000 and up to 12,000 60 

Over 12,000 and up to 15,000 61 

Over 15,000 and up to 19,000 62 

Over 19,000 and up to 27,000 63 

Over 27,000 and up to 46,000 64 

Over 46,000 65 

Gas Floor Up to 37,000 56 

Over 37,000 57 

Gas Room 

Up to 18,000 57 

Over 18,000 and up to 20,000 58 

Over 20,000 and up to 27,000 63 

Over 27,000 and up to 46,000 64 

Over 46,000 65 

Table II.3 Current Federal Energy Conservation Standards for Pool Heaters 

Product Class Thermal Efficiency as of January 1, 1990 

Gas-Fired Pool Heater Thermal Efficiency = 78% 

30
 

EE-2006-BT-STD-0129 COMMENT 105
2. History of Standards Rulemaking for the Three Heating Products 

Prior to being amended in 1987, EPCA included water heaters and home heating 

equipment as covered products. The amendments to EPCA effected by the National 

Appliance Energy Conservation Act of 1987 (NAECA; Pub. L. 100-12) included 

replacing the term “home heating equipment” with “direct heating equipment,” adding 

pool heaters as a covered product, establishing standards for the three heating products, 

and requiring that DOE determine whether these standards should be amended. (42 

U.S.C. 6295(e)(1)-(4)) As indicated above, DOE amended the statutorily-prescribed 

standards for water heaters in 2001 (66 FR 4474 (Jan. 17, 2001)), but has not amended 

the statutory standards for DHE or pool heaters. 

DOE commenced this rulemaking on September 27, 2006, by publishing on its 

website its “Rulemaking Framework for Residential Water Heaters, Direct Heating 

Equipment, and Pool Heaters.” (A PDF of the framework document is available at 

www.eere.energy.gov/buildings/appliance_standards/residential/pdfs/heating_equipment 

framework_092706.pdf.) DOE also published a notice announcing the availability of the 

framework document and a public meeting and requesting comments on the matters 

raised in the document. 71 FR 67825 (Nov. 24, 2006). The framework document 

described the procedural and analytical approaches that DOE anticipated using to 

evaluate potential energy conservation standards for the three heating products and 

identified various issues to be resolved in conducting the rulemaking. DOE held the 

framework document public meeting on January 16, 2009. 

31
 

EE-2006-BT-STD-0129 COMMENT 105
On January 5, 2009, having considered these comments, gathered additional 

information, and performed preliminary analyses as to standards for the three heating 

products, DOE announced an informal public meeting and the availability on its website 

of a preliminary technical support document (preliminary TSD). 74 FR 1643 (Jan. 13, 

2009). The preliminary TSD is available at: 

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

rs_prelim_tsd.html. The preliminary TSD discussed the comments DOE had received at 

the framework stage of this rulemaking and described the actions DOE had taken, the 

analytical framework DOE was using, and the content and results of DOE’s preliminary 

analyses. Id. at 1644, 1645. DOE convened the public meeting to discuss and receive 

comments on: (1) these subjects, (2) DOE’s proposed product classes, (3) potential 

standard levels that DOE might consider, and (4) other issues participants believed were 

relevant to the rulemaking. Id. at 1643, 1646. DOE also invited written comments on 

these matters. The public meeting took place on February 9, 2009. Many interested 

parties participated, and submitted written comments during the comment period. 

On December 11, 2009, DOE published a NOPR to consider amending the 

existing residential water heater, direct heating equipment, and pool heater energy 

conservation standards. 74 FR 65852. Shortly after, DOE also published on its website 

the complete TSD for the proposed rule, which incorporated the completed analyses DOE 

conducted and technical documentation for each analysis. The TSD included the LCC 

spreadsheet, the national impact analysis spreadsheet, and the manufacturer impact 

analysis (MIA) spreadsheet—all of which are available at: 

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EE-2006-BT-STD-0129 COMMENT 105
http://www1.eere.energy.gov/buildings/appliance_standards/residential/water_pool_heate 

rs_nopr.html. In the December 2009 NOPR, DOE proposed amended energy 

conservation standards for the three heating products as follows: 

Table II.4 Proposed Amended Energy Conservation Standards for Residential 

Water Heaters, Direct Heating Equipment, and Pool Heaters 

Residential Water Heaters* 

Product Class Proposed Standard Level 

Gas-fired Storage For tanks with a Rated Storage 

Volume at or below 60 gallons: 

EF = 0.675 – (0.0012 x Rated 

Storage Volume in gallons) 

For tanks with a Rated Storage 

Volume above 60 gallons: 

EF = 0.717 – (0.0019 x Rated 

Storage Volume in gallons) 

Electric Storage For tanks with a Rated Storage 

Volume at or below 80 gallons: 

EF = 0.96 – (0.0003 x Rated 

Storage Volume in gallons) 

For tanks with a Rated Storage 

Volume above 80 gallons: 

EF = 1.088 – (0.0019 x Rated 

Storage Volume in gallons) 

Oil-fired Storage EF = 0.68 – (0.0019 x Rated Storage Volume in gallons) 

Gas-fired Instantaneous EF = 0.82 – (0.0019 x Rated Storage Volume in gallons) 

Direct Heating Equipment** 

Product Class Proposed Standard Level 

Gas wall fan type up to 42,000 Btu/h AFUE = 76% 

Gas wall fan type over 42,000 Btu/h AFUE = 77% 

Gas wall gravity type up to 27,000 Btu/h AFUE = 70% 

Gas wall gravity type over 27,000 Btu/h up to 46, 000 Btu/h AFUE = 71% 

Gas wall gravity type over 46,000 Btu/h AFUE = 72% 

Gas floor up to 37,000 Btu/h AFUE = 57% 

Gas floor over 37,000 Btu/h AFUE = 58% 

Gas room up to 20,000 Btu/h AFUE = 62% 

Gas room over 20,000 Btu/h up to 27,000 Btu/h AFUE = 67% 

Gas room over 27,000 Btu/h up to 46,000 Btu/h AFUE = 68% 

Gas room over 46,000 Btu/h AFUE = 69% 

Gas hearth up to 20,000 Btu/h AFUE = 61% 

Gas hearth over 20,000 Btu/h and up to 27,000 Btu/h AFUE = 66% 

Gas hearth over 27,000 Btu/h and up to 46,000 Btu/h AFUE = 67% 

Gas hearth over 46,000 Btu/h AFUE = 68% 

Pool Heaters 

Product Class Proposed Standard Level 

Gas-fired Thermal Efficiency = 84% 

* EF is the “energy factor,” and the “Rated Storage Volume” equals the water storage capacity of a water 


heater (in gallons), as specified by the manufacturer. 


** Btu/h is “British thermal units per hour,” and AFUE is “Annual Fuel Utilization Efficiency.”
 

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EE-2006-BT-STD-0129 COMMENT 105
In the December 2009 NOPR, DOE identified 24 specific issues on which it was 

particularly interested in receiving the comments and views of interested parties. 74 FR 

65852, 65994-95 (Dec. 11, 2009). In addition, DOE also specifically requested comments 

and data that would allow DOE to further bring clarity to the issues surrounding heat 

pump water heaters and condensing water heaters, and determine how the issues 

discussed in the December 2009 NOPR could be adequately addressed prior to the 

compliance date of an amended national energy conservation standard for water heaters 

that would effectively require the use of such technology. 74 FR 65852, 65966-67 (Dec. 

11, 2009). DOE also held a public meeting in Washington, DC, on January 7, 2010, to 

hear oral comments on and solicit information on the issues just mentioned and any other 

matters relevant to the proposed rule. Finally, DOE received many written comments on 

these and other issues in response to the December 2009 NOPR, which are further 

presented and addressed throughout today’s notice. The December 2009 NOPR included 

additional, detailed background information on the history of this rulemaking. See 74 FR 

at 65852, 65859-60 (Dec. 11, 2009). 

III. General Discussion 

A. Test Procedures 

As noted above, DOE’s test procedures for residential water heaters, vented DHE, 

and pool heaters are set forth at 10 CFR part 430, subpart B, appendices E, O, and P, 

respectively. These test procedures are currently used to determine whether the three 

heating products comply with applicable energy conservation standards and as a basis for 

manufacturers’ representations as to the energy efficiency of these products. 

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EE-2006-BT-STD-0129 COMMENT 105
 

During this rulemaking, interested parties have asserted that the residential water 

heater test procedure does not: (1) reflect actual use of these water heaters by consumers; 

(2) permit accurate (i.e., consistent and repeatable) measurement of the efficiencies of 

electric resistance water heaters that have an EF of 0.95 EF and above; or (3) include all 

of the cost-effective efficiency measures available for water heaters. 74 FR 65852, 

65860-61 (Dec. 11, 2009). 

As to the first point, DOE believes the test procedure does reflect actual use of 

water heaters. It employs a hot water draw model, and data that incorporate correction 

factors that account for actual use of water heaters in U.S. homes. 74 FR 65852, 65860 

(Dec. 11, 2009). As to the second point, concerning accuracy of the test procedure, DOE 

explains in the December 2009 NOPR that manufacturer certification of several electric 

resistance water heaters with EFs of 0.95, as well as DOE testing of such models, 

demonstrate that the DOE test procedure can accurately measure the efficiencies of units 

at that level that use conventional, electric resistance technologies. 74 FR 65852, 65680­

81 (Dec. 11, 2009). As the December 2009 NOPR also indicates, units with efficiencies 

significantly above that level must use advanced technologies, for which the test 

procedure also permits accurate measurement of EF levels. 74 FR 65852, 65681 (Dec. 

11, 2009). Thus, because today’s standards for electric water heaters have two 

substantially different tiers – for capacities at or below 55 gallons, minimum EF levels 

equivalent to 0.95 at the representative storage capacity, and for larger capacities 

substantially higher minimum EF levels – DOE confirms that the existing test procedure 

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EE-2006-BT-STD-0129 COMMENT 105
will accurately determine the efficiencies of both models using conventional technologies 

to meet the lower tier and models that will have to use advanced technologies to meet the 

higher tier. Finally, the only specific cost-effective efficiency measure that commenters 

cited as being absent from DOE’s water heater test procedure is insulation on the tank 

bottom. 74 FR 65852, 65861 (Dec. 11, 2009). To the contrary, however, the test 

procedure addresses and gives credit for inclusion of such insulation in water heaters. 10 

CFR part 430, subpart B, appendix E, section 5. Although DOE recognizes that the test 

procedure does not reflect certain recent advances in energy saving technology, it is 

aware of no evidence that such technologies actually do or would result in significant, 

cost-effective energy savings under normal operating conditions for water heaters. Hence, 

omission of these technologies from the test procedure does not affect the efficiency 

levels considered in this rulemaking. DOE received no comments on this issue at the 

NOPR stage. Thus, DOE continues to believe, as stated in the December 2009 NOPR, 

that the appropriate time to address such omission is during the next revision of the test 

procedure. 

As to the DHE and pool heater test procedures, in the December 2009 NOPR, 

DOE proposed that its test procedures for vented DHE be applied to establish the 

efficiencies of vented gas hearth DHE. 74 FR 65852, 65861 (Dec. 11, 2009). DOE 

received no comments from interested parties raising any concern in this rulemaking 

about application of the DOE test procedures for vented DHE to other types of this 

product. In addition, DOE received no comments regarding application of its test 

procedures for pool heaters. 

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EE-2006-BT-STD-0129 COMMENT 105
 

EPCA, as amended by EISA 2007, requires DOE to amend the test procedures for 

the three types of heating products to include provisions for measurement of the 

products’ standby mode and off mode energy consumption. (42 U.S.C. 

6295(gg)(2)(B)(v)) DOE is actively working on a separate rulemaking to amend its test 

procedures for the three types of heating products to incorporate these measurements of 

standby mode and off mode energy consumption in the future. 

B. Technological Feasibility 

1. General 

As stated above, any standard that DOE establishes for any of the three heating 

products must be technologically feasible. (42 U.S.C. 6295(o)(2)(A) and (3)(B)) DOE 

considers a design or technology option to be technologically feasible if it is in use by the 

respective industry or if research has progressed to the development of a working 

prototype. “Technologies incorporated in commercial products or in working prototypes 

will be considered technologically feasible.” 10 CFR part 430, subpart C, appendix A, 

section 4(a)(4)(i). Once DOE has determined that particular technology options are 

technologically feasible, it evaluates each technology option in light of the following 

additional screening criteria: (1) practicability to manufacture, install, or service; (2) 

adverse impacts on product utility or availability; and (3) adverse impacts on health or 

safety. 

This final rule considers the same technology options as those evaluated in the 

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EE-2006-BT-STD-0129 COMMENT 105
December 2009 NOPR. (See chapter 3 and 4 of the TSD accompanying this notice.) All 

of these technologies have been used or are in use in commercially-available products, or 

exist in working prototypes. Also, these technologies all incorporate materials and 

components that are commercially available in today’s supply markets for the products 

covered by this final rule. DOE received several comments on the technology options 

considered in the rulemaking and the preliminary conclusions drawn by applying the four 

screening criteria to them. A detailed discussion of the comment and response can be 

found in section IV.B. Therefore, DOE determined that all of the efficiency levels 

evaluated in this notice are technologically feasible. 

2. Maximum Technologically Feasible Levels 

As required by 42 U.S.C. 6295(p)(1), in developing the December 2009 NOPR, 

DOE identified the efficiency levels that would achieve the maximum improvements in 

energy efficiency that are technologically feasible (max-tech levels) for the three heating 

products. 74 FR 65852, 65861-62 (Dec. 11, 2009). (See chapter 5 of the TSD.) Except for 

the levels for electric and gas-fired storage water heaters and gas wall gravity DHE, DOE 

received no comments on the December 2009 proposed rule to lead DOE to consider 

changes to these levels. Therefore, for today’s final rule, the max-tech levels for all 

classes of the three heating products, except for the electric and gas-fired water heaters 

and gas wall gravity DHE, are the max-tech levels identified in the December 2009 

NOPR. 

The max-tech levels considered for today’s rule are provided in Table III.1. See 

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EE-2006-BT-STD-0129 COMMENT 105
section IV.C.2 for additional details of the max-tech efficiency levels and discussion of 

related comments from interested parties on the December 2009 NOPR. 

Table III.1 Max-Tech Efficiency Levels for the Residential Heating Products 

Rulemaking for the Representative Products 

Product Class Representative Product Max-Tech Efficiency Level 

Residential Water Heaters 

Gas-Fired Storage Water 

Heater 

Rated Storage Volume = 40 

Gallons 

EF = 0.77 

Electric Storage Water Heater Rated Storage Volume = 50 

Gallons 

EF = 2.35 

Oil-Fired Storage Water 

Heater 

Rated Storage Volume = 32 

Gallons 

EF = 0.68 

Gas-Fired Instantaneous 

Water Heater 

Rated Storage Volume = 0 

Gallons, Rated Input Capacity 

= 199,999 Btu/h 

EF = 0.95 

Direct Heating Equipment 

Gas Wall Fan Type Rated Input Capacity = Over 

42,000 Btu/h 

AFUE = 80% 

Gas Wall Gravity Type Rated Input Capacity = Over 

27,000 Btu/h and up to 46,000 

Btu/h 

AFUE = 70% 

Gas Floor Type Rated Input Capacity = Over 

37,000 Btu/h 

AFUE = 58% 

Gas Room Type Rated Input Capacity = Over 

27,000 Btu/h and up to 46,000 

Btu/h 

AFUE = 83% 

Gas Hearth Type Rated Input Capacity = Over 

27,000 Btu/h and up to 46,000 

Btu/h 

AFUE = 93% 

Pool Heaters 

Gas-Fired Rated Input Capacity = 

250,000 Btu/h 

Thermal Efficiency = 95% 

C. Energy Savings 

DOE forecasted energy savings over a 30-year analysis period in its national 

impact analysis (NIA) through the use of an NIA spreadsheet tool, as discussed in the 

December 2009 NOPR. 74 FR 65862, 65908-14, 65954 (Dec. 11, 2009). 

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EE-2006-BT-STD-0129 COMMENT 105
One of the criteria that governs DOE’s adoption of standards for covered products 

is that the standard must result in “significant conservation of energy.” (42 U.S.C. 

6295(o)(3)(B)) While EPCA does not define the term “significant,” the U.S. Court of 

Appeals for the District of Columbia Circuit, in Natural Resources Defense Council v. 

Herrington, 768 F.2d 1355, 1373 (D.C. Cir. 1985), indicated that Congress intended 

“significant” energy savings in this context to be savings that were not “genuinely 

trivial.” DOE’s estimates of the energy savings for energy conservation standards at each 

of the TSLs considered for today’s rule indicate that the energy savings each would 

achieve are nontrivial. Therefore, DOE considers these savings “significant” within the 

meaning of Section 325 of EPCA. 

D. Economic Justification 

The following section discusses how DOE has addressed each of the seven factors 

that it uses to determine if energy conservation standards are economically justified. The 

comments DOE received on specific analyses and DOE’s response to those comments are 

summarized and presented throughout section IV. 

1. Specific Criteria 

As noted earlier, EPCA provides seven factors to evaluate in determining whether 

an energy conservation standard for covered products is economically justified. (42 

U.S.C. 6295(o)(2)(B)(i)) The following sections summarize how DOE has addressed 

each of those seven factors in evaluating efficiency standards for the three heating 

products. 

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EE-2006-BT-STD-0129 COMMENT 105
a. Economic Impact on Consumers and Manufacturers 

As required by EPCA, DOE considered the economic impact of potential 

standards on consumers and manufacturers of the three heating products. (42 U.S.C. 

6295(o)(2)(B)(i)(I)) For consumers, DOE measured the economic impact as the change in 

installed cost and life-cycle operating costs (i.e., the change in LCC). (See section IV.F 

and VI.C.1.a, and chapter 8 of the final rule TSD.) DOE investigated the impacts on 

manufacturers through the manufacturer impact analysis (MIA). (See sections IV.I and 

VI.C.2 of today’s final rule, and chapter 12 of the final rule TSD.) The economic impact 

on consumers and manufacturers is discussed in detail in the December 2009 NOPR. 74 

FR 65852, 65862-63, 65897-908, 65915-22, 65932-54, 65984-92 (Dec. 11, 2009). 

b. Life-Cycle Costs 

As required by EPCA, DOE considered the life-cycle costs of the three heating 

products. (42 U.S.C. 6295(o)(2)(B)(i)(II)) LCC is discussed at length in the December 

2009 NOPR. 74 FR 65852, 65863, 65897-908, 65915, 65932-35 (Dec. 11, 2009). DOE 

calculated the sum of the purchase price (including associated installation costs) and the 

operating expense (including energy, maintenance, and repair expenditures), discounted 

over the lifetime of the equipment, to estimate the range in LCC benefits that consumers 

would expect to achieve due to standards. 

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EE-2006-BT-STD-0129 COMMENT 105
 

c. Energy Savings 

Although significant conservation of energy is a separate statutory requirement 

for imposing an energy conservation standard, EPCA also requires DOE, in determining 

the economic justification of a proposed standard, to consider the total projected energy 

savings that are expected to result directly from the standard. (42 U.S.C. 

6295(o)(2)(B)(i)(III)) As in the December 2009 NOPR, for today’s final rule, DOE used 

the NIA spreadsheet results in its consideration of total projected savings that are directly 

attributable to the standard levels DOE considered. 74 FR 65852, 65862, 65908-14, 

65954 (Dec. 11, 2009). 

d. Lessening of Utility or Performance of Products 

In selecting today’s standard levels, DOE did not consider trial standard levels for 

the three heating products that would lessen the utility or performance of such products. 

(42 U.S.C. 6295(o)(2)(B)(i)(IV)). As explained in the December 2009 NOPR, DOE 

determined that none of the trial standard levels under considerations would reduce the 

utility or performance of the products subject to this rulemaking. 74 FR 65852, 65863, 

65956 (Dec. 11, 2009). 

e. Impact of Any Lessening of Competition 

DOE considers any lessening of competition that is likely to result from 

standards. Accordingly, as discussed in the December 2009 NOPR (74 FR 65852, 65863, 

65956 (Dec. 11, 2009)), DOE requested that the Attorney General transmit to the 

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EE-2006-BT-STD-0129 COMMENT 105
 

 

 

Secretary, not later than 60 days after publication of the proposed rule, a written 

determination of the impact, if any, of any lessening of competition likely to result from 

the standards proposed in the December 2009 NOPR, together with an analysis of the 

nature and extent of such impact. (42 U.S.C. 6295(o)(2)(B)(i)(V) and (B)(ii)) 

To assist the Attorney General in making such a determination, DOE provided the 

U.S. Department of Justice (DOJ) with copies of the December 2009 proposed rule and 

the NOPR TSD for review. The Attorney General’s determination is discussed in section 

VI.C.5 below, and is reprinted at the end of this rule. DOJ did not believe the standards 

proposed in the December 2009 NOPR for water heaters and pool heaters would likely 

lead to a lessening of competition. However, DOJ was concerned about the potential of 

the proposed standards to impact competition in the traditional DHE categories if no 

more than one or two DHE manufacturers chose to continue to produce products in any 

one of the categories. DOJ requested that DOE consider the potential impact on 

competition in determining the final standards for these categories. (DOJ, No. 99 at pp. 1­

2)2

 DOJ’s comment and DOE’s response are further described in section VI.C.5. 

f. Need of the Nation to Conserve Energy 

In considering standards for the three heating products, the Secretary must 

consider the need of the Nation to conserve energy. (42 U.S.C. 6295(o)(2)(B)(i)(VI)) The 

2

 “DOJ, No. 99 at pp. 1-2” refers to: (1) to a statement that was submitted by the U.S. Department of 

Justice. It was recorded in the Resource Room of the Building Technologies Program in the docket under 

“Energy Conservation Program: Energy Conservation Standards for Residential Water Heaters, Direct 

Heating Equipment, and Pool Heaters,” Docket Number EERE-2006–BT–STD–0129, as comment number 

99; and (2) a passage that appears on pages 1 through 2 of that statement. 

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EE-2006-BT-STD-0129 COMMENT 105
Secretary recognizes that energy conservation benefits the Nation in several important 

ways. The non-monetary benefits of standards are likely to be reflected in improvements 

to the security and reliability of the Nation’s energy system. Today’s standards will also 

result in environmental benefits. As discussed in detail in the December 2009 NOPR (74 

FR 65852, 65863, 65923-29, 65956-61 (Dec. 11, 2009)) and in sections IV.K, IV.L, and 

IV.M, DOE has considered these factors in considering whether to adopt standards for 

the three heating products, primarily through its utility impact analysis, environmental 

assessment, and monetization of anticipated emissions reductions. 

g. Other Factors 

EPCA directs the Secretary of Energy, in determining whether a standard is 

economically justified, to consider any other factors that the Secretary deems to be 

relevant. (42 U.S.C. 6295(o)(2)(B)(i)(VII)) In adopting today’s standards, the Secretary 

considered the potential impact of standards on certain identifiable groups of consumers 

who might be disproportionately impacted by any national energy conservation standard 

level. For certain water heaters and DHE, DOE considered the impacts of standards on 

low-income households and senior-only households, and of these water heaters, DOE 

also considered the impacts of standards on households in multi-family housing and in 

manufactured homes. 74 FR 65852, 65863, 65934-35, 65961-62 (Dec. 11, 2009). 

In addition, DOE considered the uncertainties associated with whether, in order to 

adequately serve the water heater market: (1) manufacturers could ramp up production of 

heat pump water heaters; (2) heat pump component manufacturers could increase 

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EE-2006-BT-STD-0129 COMMENT 105
production; and (3) enough servicers and installers of water heaters could be retrained. 74 

FR 65852, 65863-64, 65877-78, 65962, 65965-66 (Dec. 11, 2009). Lastly, DOE 

considered the issues identified in the December 2009 NOPR surrounding the product 

division used in the two-slope energy-efficiency equations, promulgation of different 

standards for a subset of products, the heat pump water heater market, as well as the 

condensing water heater market. 74 FR 65852, 65966-67 (Dec. 11, 2009). These issues 

are addressed as presented below in section VI.D.2. 

2. Rebuttable Presumption 

As set forth in 42 U.S.C. 6295(o)(2)(B)(iii), EPCA states that there is a rebuttable 

presumption that an energy conservation standard is economically justified if the 

increased installed cost for a product that meets the standard is less than three times the 

value of the first-year energy (and, as applicable, water) savings resulting from the 

standard, as calculated under the applicable DOE test procedure. DOE’s LCC and 

payback period (PBP) analyses generate values that calculate the payback period for 

consumers of potential energy conservation standards, which include, but are not limited 

to, the payback period contemplated under the rebuttable presumption test described 

above. However, DOE routinely conducts a full economic analysis that considers the full 

range of impacts, including those to the consumer, manufacturer, Nation, and 

environment, as required under 42 U.S.C. 6295(o)(2)(B)(i). The results of this analysis 

serve as the basis for DOE to definitively evaluate the economic justification for a 

potential standard level (thereby supporting or rebutting the results of any preliminary 

determination of economic justification). The results of DOE’s PBP analysis can be 

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EE-2006-BT-STD-0129 COMMENT 105
 

found in sections VI.C.1.a and VI.C.1.c.
 

IV. Methodology and Discussion of Comments on Methodology 

DOE used several analytical tools that it developed previously and adapted for use 

in this rulemaking. One is a spreadsheet that calculates LCC and PBP. Another tool 

calculates national energy savings and national NPV that would result from the adoption 

of energy conservation standards. DOE also used the Government Regulatory Impact 

Model (GRIM), along with other methods, in its MIA to determine the impacts on 

manufacturers of standards for the three heating products. Finally, DOE developed an 

approach using the Energy Information Administration’s (EIA) National Energy 

Modeling System3

 (NEMS) to estimate the impacts of such standards on utilities and the 

environment. Chapters 3 through 16 of the TSD and the December 2009 NOPR discuss 

each of these analytical tools in detail. 74 FR 65852, 65897-919, 65923-29 (Dec. 11, 

2009). 

As a basis for this final rule, DOE has continued to use the spreadsheets and 

approaches explained in the December 2009 NOPR. DOE used the same general 

3

 The NEMS model simulates the energy sector of the U.S. economy. EIA uses NEMS to prepare its AEO, 

a widely-known energy forecast for the United States. The EIA approves the use of the name NEMS to 

describe only an AEO version of the model without any modification to code or data. For more information 

on NEMS, refer to The National Energy Modeling System: An Overview 1998. DOE/EIA–0581 (98) (Feb. 

1998) (available at: http://tonto.eia.doe.gov/FTPROOT/forecasting/058198.pdf). The version of NEMS 

used for appliance standards analysis is called NEMS-BT. Because the present analysis entails some minor 

code modifications and runs the model under various policy scenarios that deviate from AEO assumptions, 

the name “NEMS-BT” refers to the model as used here. (“BT” stands for DOE’s Building Technologies 

Program.) NEMS-BT offers a sophisticated picture of the effect of standards because it accounts for the 

interactions between the various energy supply and demand sectors and the economy as a whole. 

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EE-2006-BT-STD-0129 COMMENT 105
methodology as applied in the December 2009 NOPR, but revised some of the 

assumptions and inputs for the final rule in response to stakeholder comments. The 

following sections discuss these comments and revisions. 

A. Market and Technology Assessment 

When beginning an energy conservation standards rulemaking, DOE develops 

information that provides an overall picture of the market for the products concerned, 

including the purpose of the products, the industry structure, and market characteristics. 

This activity includes both quantitative and qualitative assessments based primarily on 

publicly-available information. DOE presented its market and technology assessment for 

this rulemaking in the December 2009 NOPR and chapter 3 of the NOPR TSD. 74 FR 

65852, 65864-72 (Dec. 11, 2009). The assessment included product definitions, 

delineation of the products included in the rulemaking, product classes, manufacturers, 

quantities and types of products offered for sale, retail market trends, and regulatory and 

non-regulatory initiative programs. As discussed below, commenters raised a variety of 

issues related to the market and technology assessment, to which DOE responds in the 

following sections. 

1. DOE’s Determinations as to the Inclusion of Products in This Rulemaking 

a. Whether Certain Products are Covered Under the Act 

i. Solar-Powered Water Heaters and Pool Heaters 

As fully explained in the December 2009 NOPR, DOE has concluded that it 

presently lacks authority to prescribe standards for these products because EPCA 

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EE-2006-BT-STD-0129 COMMENT 105
 

 

currently covers only water heaters and pool heaters that use electricity or fossil fuels, 

and because any energy conservation standard currently adopted under EPCA for these 

two products must address or be based on the quantity of these fuels, but not solar power, 

that the product consumes. 74 FR 65852, 65864 (Dec. 11, 2009). In addition, DOE 

currently lacks authority to adopt standards for solar-powered water heaters because 

EPCA’s definition of “water heater” includes only products that use “oil, gas, or 

electricity to heat potable water.” (42 U.S.C. 6291(27); 10 CFR 430.2) Because DOE did 

not receive additional feedback from interested parties, DOE did not change its position 

on solar-powered water heaters and pool heaters as presented in the December 2009 

NOPR and summarized above. 

ii. Add-On Heat Pump Water Heaters 

DOE did not propose in the December 2009 NOPR to adopt standards for a 

residential product that is commonly known as an add-on heat pump water heater. This 

product typically is marketed and used as an add-on component to a separately 

manufactured, fully-functioning electric storage water heater. The add-on device, by 

itself, is not capable of heating water and lacks much of the equipment necessary to 

operate as a water heater. DOE has concluded, therefore, that the device does not meet 

EPCA’s definition of a “water heater” and currently is not a covered product. 74 FR 

65852, 65865 (Dec. 11, 2009). 

In response to DOE’s preliminary conclusions set forth in the December 2009 

NOPR regarding add-on heat pump water heaters, the American Council for an Energy 

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EE-2006-BT-STD-0129 COMMENT 105
 

Efficient Economy (ACEEE) stated that add-on heat pump water heaters should not have 

been excluded from the rulemaking. (ACEEE, No. 79 at p. 5) According to the 

commenter, the December 2009 NOPR language used to exclude them could as readily 

be used to exclude split system air conditioners as add-ins to furnace systems, since they 

are not fully functional without the furnace’s air handler. ACEEE argued that add-on heat 

pump water heaters could provide an important opportunity for cost-effective resistive 

unit retrofits, and standards are required to help exclude low-performance units that will 

not meet consumer needs. Otherwise, ACEEE asserted that there is danger that failures of 

low-performance add-on units will damage the reputation of the integral heat pump water 

heater product class, as it is not clear that consumers will easily differentiate the two 

product subclasses. 

In response, DOE does not agree with ACEEE’s comparison of add-on heat pump 

water heaters to central air conditioning and heating systems. Unlike components in a 

split air-conditioning system, add-on heat pump water heaters are paired to an electric 

storage water heater which is fully functional when it leaves the manufacturing facility. 

Components in a split air-conditioning system do not work independently until paired 

together in the field. As DOE previously stated, the add-on device, by itself, is not 

capable of heating water and lacks much of the equipment necessary to operate as a water 

heater. DOE is not swayed by the commenter’s speculative assertions regarding the 

future performance of add-on heat pump water heaters. Accordingly, DOE has concluded 

that an add-on heat pump water heater does not meet EPCA’s definition of a “water 

heater” and currently is not a covered product. 

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EE-2006-BT-STD-0129 COMMENT 105
iii. Gas-Fired Instantaneous Water Heaters with Inputs Above and Below Certain 

Levels 

During this rulemaking, DOE considered whether to evaluate for standards gasfired instantaneous water heaters with inputs greater than 200,000 Btu/h or less than 

50,000 Btu/h. DOE determined that the former do not meet EPCA’s definition of a 

“water heater,” given the specific portions of the definition pertaining to “instantaneous 

type units.” (42 U.S.C. 6291(27)(B)) As to the latter, DOE determined that 

manufacturers are not currently producing any gas-fired instantaneous water heaters with 

an input capacity less than 50,000 Btu/h. Therefore, DOE did not propose standards for 

products with an input capacity above 200,000 Btu/h or below 50,000 Btu/h. 74 FR 

65852, 65865 (Dec. 11, 2009). DOE did not receive any comments on this issue at the 

NOPR stage, so the above approach has been retained for this final rule, and accordingly, 

no standards are being adopted for gas-fired instantaneous water heaters with inputs 

greater than 200,000 Btu/h or less than 50,000 Btu/h. 

iv. Residential Pool Heaters with Input Capacities Above Certain Levels and 

Coverage of Spa Heaters 

At the framework stage of this rulemaking, DOE considered excluding pool 

heaters with an input capacity greater than 1 million Btu/h, and commenters suggested 

that DOE should exclude products with an input capacity greater than 400,000 Btu/h. The 

rulemaking covers pool heaters that meet EPCA’s definitions of “pool heater” (which 

provides no capacity limitation) and of “consumer product.” (42 U.S.C. 6291(25); 42 

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U.S.C. 6291(1)). DOE tentatively concluded that these provisions, and standards adopted 

under them, would apply to any pool heater distributed to any significant extent as a 

consumer product for residential use, regardless of input capacity. In addition, DOE 

tentatively concluded that pool heaters marketed as commercial equipment, which 

contain additional design modifications related to safety requirements for commercial 

installation, would not be covered by such standards. Therefore, DOE did not propose to 

limit application of the standards developed in this rulemaking to pool heaters with an 

input capacity below a specified level. 74 FR 65852, 65865 (Dec. 11, 2009). 

In response to this position in the December 2009 NOPR, DOE received three 

comments urging DOE to establish an input capacity limit for residential pool heaters. 

Zodiac Pool Systems (Zodiac) asserted that DOE should consider setting different 

minimum efficiency levels for pool heaters with input ratings of up to 400,000 British 

thermal units per hour (Btu/h) and for those with input ratings above 400,000 Btu/h. 

Zodiac stated its belief that there may be some benefits to be gained if what Zodiac 

referred to as “commercial” pool heaters (i.e., those units rated above 400,000 Btu/h 

input) required a higher minimum efficiency level than that for “residential” pool heaters 

(i.e., those units rated up to 400,000 Btu/h input). According to the commenter, 

commercial-type units are operated longer and in general, continuously, thereby 

increasing the potential payback in efficiency and energy savings over the life of the 

product. (Zodiac, No. 68 at p. 2) 

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Lochinvar asserted that DOE should limit the input capacity for residential pool 

heaters to 400,000 Btu/h and that DOE should add an additional classification for 

commercial pool heaters above 400,000 Btu/h. According to the commenter, practically 

all of the residential pool heaters sold today have pool heater inputs of 400,000 Btu/h and 

below. Lochinvar stated that residential pool heater sales by pool heater manufacturers do 

not include pumps. Residential pool heaters are designed to accept a wide range of water 

flows to meet the customers’ demands because the residential market is mature with a 

wide variety of pool distribution accessories (e.g., pumps that mate with water filtration 

systems, water temperature controls, and valving components). Therefore, pumps are not 

supplied because this is a variable that cannot be anticipated by the pool heater 

manufacturer. Thus, for efficiency rating purposes, pool heater thermal efficiency, as 

calculated by DOE’s test procedure, does not include the pump energy. In contrast, 

Lochinvar pointed out that commercial pool heater applications require much higher 

volumes of water to be circulated in a primary pool loop that incorporates large filtration 

systems and pool water conditioning and monitoring equipment. Commercial pool 

heaters are designed to tap off of the primary pool loop and, via means of a separate 

pump, circulate pool water through the commercial pool heater to be heated and then 

delivered back to the pool loop. The ratio of water flow through commercial pool loop 

systems to that flowing through the pool heater is anywhere from 5 to 15 times. In these 

applications, commercial pool heater sales always provide or specify matching pumps to 

ensure sufficient water flow through the heat exchanger. Accordingly, the contribution of 

pump energy is included in the industry commercial pool heater test procedure and 

combustion efficiency metric. (Lochinvar, No. 56.6 at p. 2) 

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AHRI recommended that consideration be given in the future to creating separate 

subclasses to distinguish between commercial and residential pool heaters from a market 

perspective. Comments have previously been provided noting the major differences 

between pool heaters for commercial applications versus residential applications, 

specifically in terms of construction, control schemes, and how they go to market. 

(AHRI, No. 91 at p. 10) 

As DOE discussed in the December 2009 NOPR, EPCA places no capacity limit 

on the pool heaters it covers in terms of its definition of “pool heater.” (42 U.S.C. 

6291(25)) Furthermore, EPCA covers pool heaters as a “consumer product,” (42 U.S.C. 

6291(2), 6292(a)(11)) and defines “consumer product,” in part, as an article that “to any 

significant extent, is distributed in commerce for personal use or consumption by 

individuals.” (42 U.S.C. 6291(1)) These provisions establish that EPCA, and standards 

adopted under it, apply to any pool heater distributed to any significant extent as a 

consumer product for residential use, regardless of input capacity. In light of the above 

and based upon the distinct differences articulated by commenters between the residential 

and commercial pool heater markets and products, DOE has concluded that further 

delineation by adding an input capacity limit is not necessary. Specifically, pool heaters 

marketed as commercial equipment, which contain additional design modifications 

related to safety requirements for installation in commercial buildings, are not covered by 

this standard. This would include pool heating systems that are designed to meet a high 

volume flow and are matched with a pump from the point of manufacture to 

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accommodate the needs of commercial facilities. DOE believes manufacturers can 

distinguish those units from pool heaters distributed to any significant extent as a 

consumer product for residential use, regardless of input capacity. 

As to spa heaters, the EPCA definition for “pool heater” clearly encompasses 

them. (42 U.S.C. 6291(25)) Therefore, in the December 2009 NOPR, DOE tentatively 

concluded that they are covered by EPCA, and included them in this rulemaking. 

Furthermore, DOE tentatively concluded that because spa heaters and pool heaters 

perform similar functions, include similar features, and lack performance or operating 

features that would cause them to have inherently different energy efficiencies, a separate 

product class for such units is not warranted. 74 FR 65852, 65865-66 (Dec. 11, 2009). 

DOE did not receive any comments in response to its proposed treatment of spa heaters 

in the December 2009 NOPR. Consequently, DOE has concluded that spa heaters are 

included within EPCA under the definition of “pool heater” and do not warrant a separate 

product class. 

v. Vented Hearth Products 

The following two paragraphs summarize DOE’s reasons, explained in greater 

detail in the December 2009 NOPR for concluding that EPCA covers vented hearth 

products and for including them in this rulemaking. 74 FR 65852, 65866 (Dec. 11, 2009). 

When EPCA was amended to include energy conservation standards for “direct 

heating equipment,” that term replaced the term “home heating equipment” in the Act. 

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However, EPCA has never defined either of these terms. Instead, DOE regulations define 

“home heating equipment,” stating that the term includes “vented home heating 

equipment.” 10 CFR 430.2. These definitions inform the meaning of “direct heating 

equipment,” but, to provide clarity in the future, in today’s rule DOE is incorporating into 

its regulations a definition of this term that is identical to the existing definition of “home 

heating equipment.” 

Vented hearth products include gas-fired products such as fireplaces, fireplace 

inserts, stoves, and log sets that typically include aesthetic features and that provide space 

heating. DOE has concluded that such products meet its definition of “vented home 

heating equipment,” because they are designed to furnish warmed air to the living space 

of a residence. DOE has also concluded, therefore, that they are covered products under 

EPCA and are properly classified as DHE. Accordingly, DOE proposed and today is 

adopting standards for vented hearth products. 

In the December 2009 NOPR, DOE also pointed out that vented hearth products 

would be subject to the same product testing and certification requirements that currently 

apply to DHE. 74 FR 65852, 65866 (Dec. 11, 2009). In order to help manufacturers 

determine more easily whether their vented hearth direct heating equipment is covered 

under DOE’s regulations, DOE proposed to adopt the following definition of “vented 

hearth heater”: 

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Vented hearth heater means a vented, freestanding, recessed, zero clearance 

fireplace heater, a gas fireplace insert or a gas-stove, which simulates a solid fuel 

fireplace and is designed to furnish warm air, without ducts to the space in which 

it is installed. 

74 FR 65852, 65867-68 (Dec. 11, 2009). 

The Air-Conditioning, Heating, and Refrigerating Institute (AHRI), the Hearth, 

Patio, and Barbeque Association (HPBA), and Empire Comfort Systems (Empire) do not 

support DOE’s proposed definition “vented hearth heater” as presented above and in the 

December 2009 NOPR. However, these three interested parties do support DOE’s 

decision to establish vented gas fireplace heaters as a separate type of direct heating 

equipment. AHRI, HPBA, and Empire urged DOE to use the definition of “vented gas 

fireplace heater” as presented in the American National Standards Institute (ANSI) 

Standard Z21.88, Vented Gas Fireplace Heaters, so as to directly connect it to this safety 

standard. By law, manufacturers are required to list and label these types of appliances to 

approved safety standards such as ANSI Z21.88. By using this safety standard reference, 

the interested parties argued that DOE and others would be able to distinguish vented gas 

fireplace heaters from decorative gas appliances certified to ANSI Z21.50, Vented Gas 

Fireplaces, and ANSI Z21.60, Decorative Gas Appliances for Installation in Solid-Fuel 

Burning Fireplaces, thereby eliminating a significant opportunity for confusion in the 

marketplace after the new energy conservation standards take effect. The interested 

parties argued that when the National Appliance Energy Conservation Act was being 

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developed, it was recognized that there were decorative gas appliances that were 

marketed based on the aesthetic appeal of a simulated solid fuel fireplace or stove. The 

interested parties asserted that those same products are available in the marketplace today 

and need to be excluded from inclusion in this rulemaking in a proactive manner, 

preferably by using the consensus safety standard designation in the definition and adding 

an explanatory note to the definition stating that ANSI Z21.50 and ANSI Z21.60 

appliances are not vented gas fireplace heaters. The interested parties suggested the 

following definition of “vented gas fireplace heater”: 

Vented Gas Fireplace Heater. A vented appliance which simulates a solid fuel 

fireplace and furnishes warm air, with or without duct connections, to the space in 

which it is installed. A vented gas fireplace heater is such that it may be controlled 

by an automatic thermostat. The circulation of heated room air may be by gravity 

or mechanical means. A vented gas fireplace heater may be freestanding, 

recessed, zero clearance, or a gas fireplace insert. 

(AHRI, No. 91 at pp. 13-14; HPBA, No. 75 at p. 1; Empire, No. 100 at p. 3; AHRI, 

Public Meeting Transcript, No. 57.4 at pp. 48-49; HPBA, Public Meeting Transcript, No. 

57.4 at pp. 42 and 51; and Empire, Public Meeting Transcript, No. 57.4 at pp. 50) 

ACEEE also suggested that it would be reasonable for DOE to not set efficiency 

regulations for purely decorative products with an output capacity less than or equal to 

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6,000 Btu/h. However, ACEEE asserted that an upper limit is necessary to prevent 

subterfuge and confusion with actual heating appliances. (ACEEE, No. 79 at p. 6) 

DOE agrees with the interested parties that further modifications to the definition 

of “vented hearth heater” is necessary to provide clear guidance to the industry regarding 

which products are covered under DOE’s regulations. DOE’s definition of “vented home 

heating equipment” limits the coverage of vented home heating equipment to include 

only those units “designed to furnish warmed air to the living space of a residence.” 10 

CFR 430.2. DOE notes that it is often difficult to determine the intended purpose of 

fireplace product currently sold. Units designed to furnish warmed air to the living space 

and purely decorative units often share very similar external appearances, unit 

construction, and input capacities. Some interested parties suggested DOE use the ANSI 

safety standards to distinguish coverage in the marketplace. DOE does not believe that 

using ANSI safety standards would be a suitable solution to this problem since many of 

those products classified as “decorative fireplaces” under the ANSI safety standards are 

very similar in construction to fireplace heaters and provide warm air to the residence. 

DOE notes that the primary difference between the two types of hearth products is 

that decorative units are intended only to provide the ambiance and aesthetic utility 

associated with a solid fuel (e.g., wood-burning) fireplace with little or no heat output to 

the living space, while heating hearth products are intended to provide heat to the living 

space along with the aesthetic utility. Heating-type products are often shipped with 

additional accessories that decorative products do not have, such as thermostats to control 

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the heat output and blowers that distribute hot air to the room. DOE research suggests 

that this additional equipment is typically optional and hence not very useful to 

distinguish between heaters and decorative units. 

After carefully considering the public comments and conducting additional 

research, DOE believes implementing a maximum input capacity limit will likely result 

in a clear distinguishable way for DOE, manufacturers, and consumers to identify which 

products provide “warmed air to the residence,” as compared with those designed purely 

for aesthetic purposes. Because of the nature of hearth products (i.e., the presence of a 

flame), all hearth products create heat and nearly all of the hearth products provide some 

amount of that heat, however small that may be, to the surrounding living space. 

Unlike fireplace heaters, decorative hearth products provide a unique utility, 

specifically offering the ambiance and aesthetic appeal provided by the flame without 

adding significant heat to the conditioned space. By way of explanation, some consumers 

that wish to purchase purely decorative hearth products live in warmer climates where 

any additional heat provided to the residence would be undesirable. However, these 

consumers still want the aesthetic appeal provided by the flame. As the efficiency of the 

vented hearth product is increased, the more useful heat is provided to the space. So in 

response to comments, DOE is adopting an approach that would maintain the utility and 

availability of decorative hearth products. 

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In order to determine whether a maximum input capacity limit is a good indicator 

of intended use, DOE reviewed the market for vented hearth products, including those 

products marketed as heaters and decorative appliances. DOE research identified 

products marketed for heating and decorative purposes offered across the entire range of 

input capacities. Many of the units produced solely for decorative purposes come with the 

capability to vary the input capacity in order to change the magnitude of the flame. Since 

manufacturers provide consumers, installers, and contractor with a means to change the 

input capacity of the unit to better match consumers’ aesthetic desires and heating needs, 

DOE believes input capacity is indicative of the type of intended use of the vented hearth 

heater. 

DOE believes that consumers desiring a purely decorative unit will choose to buy 

units which minimize the heat furnished to their living space, thereby reducing the 

impacts on the cooling loads of their house for those living in warmer climates. DOE 

contacted several contractors in warmer climates, where decorative appeal is presumably 

the consumers’ top priority. From these discussions and further review of the product 

literature, DOE found that many hearth products allow the input capacity to be modulated 

via the gas valve. In warmer climates, contractors frequently suggest to their customer to 

turn down the gas supply to minimize the amount of heat radiated and convected to the 

air within the residence. Some installation companies even offer optional venting 

products and dampers, which attempt to direct the heat to other parts of the residence or 

outdoors. Even though decorative hearth products are offered with a large range of input 

capacities, DOE research hence suggests that the input rating is typically significantly 

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reduced for applications in conditions in which the flames are purely ornamental to 

minimize heat provided to the residence. This is shown by the variability in the input 

ratings offered for a given model as described in manufacturer catalog data, which can be 

field-adjusted based on the amount of heat desired within the residence. 

DOE believes that hearth products intended for decorative purposes provide a 

specific aesthetic utility that consumers value. In its analysis, DOE considered the value 

of this aesthetic quality and the additional heat load that such systems produce. DOE 

believes that a maximum input capacity of 9,000 Btu/h is an appropriate cut-off for 

decorative appliances since existing hearth-type DHE units featuring adjustable input 

capacities operate at or below this input capacity limit. DOE choose 9,000 Btu/h because 

other gas appliances found in a house, which may have unintended heating loads, such as 

a burner on a gas-cook top, are also found at this input capacity. By allowing 

manufacturers the option of producing vented hearth heaters that are excluded from the 

standards amended in today’s final rule, DOE is preserving the ability of manufacturers 

to continue selling decorative units, consumers can continue to enjoy them, and 

unintended heat loads are limited to no more than 1⁄2 of a ton of heating capacity per 

decorative unit. DOE research suggests that manufacturers can comply relatively 

inexpensively with the coverage established by the “vented hearth heater” definition by 

reducing the maximum input capacity of the gas delivery system through the use of a 

restrictor plate, modifying the gas valve, or altering the flame orifice. All of these options 

are currently available or utilized within the industry today. DOE believes most likely 

solution that will be used by hearth manufacturers to meet DOE’s restriction on input 

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capacity would be to use a restrictor plate because it is the most inexpensive. A restrictor 

plate would ensure that limitations were placed upon the gas line such that the maximum 

input capacity of the fireplace is less than 9,000 Btu/h. DOE notes that all vented hearth 

heaters which manufacturers produce to be purely decorative units must be designed so 

that the consumer cannot override this 9,000 Btu/h maximum input capacity limit in the 

field. 

DOE chose to include a maximum input capacity limitation, instead of an output 

capacity limit as ACEEE suggested, because a very inefficient unit could have a very 

high input capacity and use a lot of energy, while meeting DOE’s limitation on output 

capacity. 

DOE realizes its amended definition of “vented hearth heater” will include all 

types of hearth units with maximum input capacities above the specified limit, including 

all products that are currently referred to as fireplace heaters and some products that are 

currently deemed as decorative within the marketplace. DOE also notes that this 

maximum input capacity corresponds to the output capacity suggested by ACEEE, 

assuming the unit is about two-thirds efficient, which is an efficiency that is comparable 

to the standard level being adopted today for vented gas hearth heaters. Therefore, DOE 

is modifying the “vented hearth heater” definition to include a maximum input capacity 

limit of 9,000 Btu/h for purely decorative units. 

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AHRI, HBPA, and Empire asserted that DOE should amend its definition of 

“vented hearth heater” to include duct connections. While duct connections were 

excluded from the original “direct heating equipment” definition, the interested parties 

stated that this exclusion is unnecessary for vented gas fireplace heaters because they are 

allowed to have duct connections by design. The interested parties argued that there is no 

reason for DOE to exclude these currently-available appliances merely based upon the 

presence of ducting, particularly given that the limiting definition of “vented home 

heating equipment” was written before the products were introduced. (AHRI, No. 91 at 

pp. 13-14; HPBA, No. 75 at pp. 1-2; Empire, No. 100 at p. 3) 

DOE agrees with these interested parties and is extending coverage to both ducted 

and ductless vented hearth heater products. DOE believes this modification will provide 

equal treatment to similar products offered on the market today. DOE’s research 

confirmed that some vented hearth heater models have the ability to connect to ducts and 

distribute the heat furnished to the space throughout the house. In order to include both 

ducted and ductless vented hearth products, DOE is amending the definitions of “vented 

hearth heater” and “vented home heating equipment” for inclusion at 10 CFR 430.2. 

Lastly, DOE is making a number of editorial changes to the definition of “vented hearth 

heater” proposed in the December 2009 NOPR, in order to make the definition easier to 

read. As adopted, these definitions read as follows: 

Vented hearth heater means a vented appliance which simulates a solid fuel 

fireplace and is designed to furnish warm air, with or without duct connections, to the 

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space in which it is installed. The circulation of heated room air may be by gravity or 

mechanical means. A vented hearth heater may be freestanding, recessed, zero clearance, 

or a gas fireplace insert or stove. Those heaters with a maximum input capacity less than 

or equal to 9,000 British thermal units per hour (Btu/h), as measured using DOE’s test 

procedure for vented home heating equipment (10 CFR part 430, subpart B, appendix O), 

are considered purely decorative and are excluded from DOE’s regulations. 

DOE is also amending its definition of “vented home heating equipment or vented 

heater” in 10 CFR 430.2 to include vented hearth heaters with duct connections. This 

modification is necessary in order for the definition of “vented home heating equipment 

or vented heater” to be consistent with the definition of “vented hearth heater.” DOE is 

also amending this definition to add “vented hearth heater” to the list of products – 

“vented wall furnace, vented floor furnace, and vented room heater” – that the definition 

currently states are included as vented home heating equipment. As stated in the 

December 2009 NOPR and above, vented hearth products already meet DOE’s definition 

for “vented home heating equipment.” This is true regardless of whether the term “vented 

hearth heater” is added to that definition. Thus, the addition of that term merely clarifies 

the existing definition, and is a technical correction that does not alter the substance of 

the definition. As amended, the definition reads as follows: 

Vented home heating equipment or vented heater means 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 

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exceed 10 inches beyond the casing may be permitted and except for vented hearth 

heaters, which may be with or without duct connections) and includes: vented wall 

furnace, vented floor furnace, vented room heater, and vented hearth heater. 

b. Covered Products Not Included in This Rulemaking 

As the December 2009 NOPR explains in detail, unvented direct heating 

equipment, electric pool heaters, and combination water heating/space heating products 

all are covered products under EPCA, but no Federal energy conservation standards exist 

for them. 74 FR 65852, 65866-76 (Dec. 11, 2009). DOE did not propose standards for 

them in this rulemaking, because, in the case of unvented DHE, a standard could produce 

little energy savings (largely due to the fact that any heat losses are dissipated directly 

into the conditioned space) and because of limitations in the applicable DOE test 

procedure, and in the case of the other two products, because of the lack of an appropriate 

DOE test procedure. Id. 

By contrast, standards currently apply to tabletop and electric instantaneous water 

heaters. (10 CFR 430.32(d)) But, as explained in the December 2009 NOPR, an increase 

in the current standard levels for tabletop products is not feasible, and would force them 

off the market, and an increase in the levels for electric instantaneous products would, at 

best, save little energy. 74 FR 65852, 65867 (Dec. 11, 2009). Therefore, DOE also did 

not propose amended standards for these products. 

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With regard to these five covered products, DOE sees no reason to change the 

conclusions expressed in the December 2009 NOPR, and takes no further action in 

today’s final rule. DOE did not receive any comments in response to its proposed 

treatment of these five covered products in the December 2009 NOPR. Consequently, 

DOE is not adopting standards for these products in today’s final rule. 

2. Product Classes 

In evaluating and establishing energy conservation standards, DOE generally 

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

performance-related feature that justifies a different standard for products having such 

feature. (See 42 U.S.C. 6295(q)) In deciding whether a feature justifies a different 

standard, DOE must consider factors such as the utility of the feature to users. Id. DOE 

normally establishes different energy conservation standards for different product classes 

based on these criteria. 

Table IV.1 presents the product classes for the three types of heating products 

under consideration in this rulemaking. The subsections below provide additional details 

and a discussion of comments relating to the product classes for the three heating 

products in response to the December 2009 NOPR proposals. 

Table IV.1 Product Classes for the Three Heating Products 

Residential Water Heater Type Characteristics 

Gas-Fired Storage Type Nominal input of 75,000 Btu/h or less; rated 

storage volume from 20 to 100 gallons 

Oil-Fired Storage Type Nominal input of 105,000 Btu/h or less; rated 

storage volume of 50 gallons or less 

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Electric Storage Type Nominal input of 12 kW (40,956 Btu/h) or less; 

rated storage volume from 20 to 120 gallons 

Gas-Fired Instantaneous 

Nominal input of over 50,000 Btu/h up to 

200,000 Btu/h; rated storage volume of 2 

gallons or less 

Direct Heating Equipment Type Heating Capacity (Btu/h) 

Gas Wall Fan Type Up to 42,000 

Over 42,000 

Up to 27,000 

Gas Wall Gravity Type Over 27,000 and up to 46,000 

Over 46,000 

Gas Floor Up to 37,000 

Over 37,000 

Up to 20,000 

Gas Room Over 20,000 and up to 27,000 

Over 27,000 and up to 46,000 

Over 46,000 

Up to 20,000 

Gas Hearth Over 20,000 and up to 27,000 

Over 27,000 and up to 46,000 

Over 46,000 

Pool Heater Type Characteristics 

Residential Pool Heaters Gas-fired 

a. Water Heaters 

As presented in the December 2009 NOPR, residential water heaters can be 

divided into various product classes categorized by physical characteristics that affect 

product efficiency. Key characteristics affecting the energy efficiency of the residential 

water heater are the type of energy used and the volume of the storage tank. 74 FR 

65852, 65868-71 (Dec. 11, 2009). These product classes are differentiated by the type of 

energy used (i.e., electric, gas, or oil) and the type of storage for the water heater (i.e., 

storage, tabletop, or instantaneous). In this rulemaking, DOE has excluded tabletop water 

heaters and electric instantaneous water heaters from consideration for the reasons 

discussed above. 74 FR 65852, 65868 (Dec. 11, 2009). 

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In response to the December 2009 NOPR analysis and the issues for which DOE 

specifically sought comment, DOE received several comments from interested parties 

about DOE’s proposed product classes and their organization for residential water 

heaters. These comments are summarized and addressed immediately below. 

i. Low-Boy Water Heaters 

General Electric (GE), A.O. Smith Corporation (A.O. Smith), Bradford White 

Corporation (BWC), and AHRI supported the need for a separate product class for lowboy water heaters, which are electric storage water heaters that are shorter in higher and 

wider in diameter than traditional water heaters. (GE, No. 84 at p. 1; A.O. Smith, No. 76 

at p. 2; BWC, No. 61 at p. 3; AHRI, No. 91 at p. 3; Rheem, No. 89 at p. 11; and A. O. 

Smith, Public Meeting Transcript, No. 57.4 at pp. 55-56) ACEEE, EarthJustice, and 

ASAP disagreed and supported DOE’s position in the December 2009 NOPR, which did 

not establish a separate product class for low-boy electric storage water heaters. (ACEEE, 

No. 79 at p. 8; EarthJustice, No. 83 at p. 1; and ASAP, Public Meeting Transcript, No. 

57.4 at p. 60) The individual commenters’ rationales and further justification are 

presented below. 

GE asserted the low-boy water heaters should be separated into their own product 

class, because in some categories, the benefits of unique size, configuration, and 

functionality are very important to consumers. In this product category, the unique 

functionality of a low-boy water heater happens to focus on the physical dimensions of 

the product. GE asserted that some consumers prefer or require the lower overall product 

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height, as they do not have the space available for a standard-sized water heater. (GE, No. 

84 at p. 1) 

A.O. Smith strongly asserted that a separate class for low-boy water heaters is 

justified, for many of the same reasons that a separate class is already established for 

table-top water heaters. According to the commenter, low-boy water heaters are 

predominately used in installations where height is a constraint, such as where a furnace 

or air-handler is mounted on a rack above the low-boy water heater in an equipment 

closet. Because low-boy water heaters are already a larger diameter unit than the baseline 

design, increasing the diameter even more by requiring additional insulation thickness 

would make the heater too large to fit into the space available in most replacement 

situations (again, such as the closet/rack example above). A.O. Smith stated its belief that 

there will be a loss of utility for low-boy heaters if they are not put into a separate class 

with an EF less than proposed for the “standard” heater. (A.O. Smith, No. 76 at p. 2) 

BWC supports a separate product class for low-boy water heaters because they 

have very specific applications. Low-boy water heaters are frequently used in 

condominiums where additional space is unavailable and a gas water heater cannot be 

used due to venting limitations. When used in these applications, BWC claimed that lowboys use less water than typical standard electric water heaters. Therefore, BWC asserted 

low-boy water heaters have a different utility than standard electric water heaters. (BWC, 

No. 61 at p. 3) 

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AHRI asserted that low-boy water heaters use electricity, but are not offered in 

the same range of volumes as standard electric storage water heaters. Most low-boys are 

offered in 30-gallon and 40-gallon sizes. AHRI asserted that the December 2009 NOPR 

mischaracterizes the functionality or utility of these products. Low-boy models have the 

unique feature of being able to be installed in short, confined spaces in a dwelling. But, as 

is the case with countertop electric water heaters, the constraints dictated by the spaces in 

which these products are installed affect the options for increasing the efficiency of lowboy electric models. Many low-boy models today may have efficiencies comparable to 

standard size electric water heaters, but they do not have the same potential for further 

increasing their efficiency. Accordingly, AHRI argued that this separate product class 

should have a minimum EF standard that is 0.01 less than that proposed for electric 

storage water heaters. (AHRI, No. 91 at p. 3) 

Rheem asserted that low-boy electric water heaters (i.e., electric storage water 

heaters ranging from 20 to 50 gallons) are typically installed under a counter or stacked 

(air handler) in high-density housing, such as apartment and condominium communities. 

According to Rheem, any size increase driven by a significant change in the EF 

requirements would affect the product geometry (diameter and height) and drive the 

potential use of multiple, smaller, point-of-use electric or instantaneous electric water 

heaters. (Rheem, No. 89 at p. 11) 

ACEEE asserted that low-boy water heaters designed to fit beneath conventional 

cabinets are similar to “table-top” units, with similar trade-offs in terms of capacity and 

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improved efficiency (through thicker insulation). ACEEE agrees with DOE’s reasoning 

in the December 2009 NOPR that low-boys can be designed to meet the proposed 

standards by using thicker insulation, higher set-point settings, and a tempering valve, 

and, therefore, ACEEE opined that, in general, no special product class is needed. 

However, as a compromise, ACEEE stated that it could support a special class for lowboys designed for small living units, but with an upper capacity limit of 30 gallons, in 

order to prevent “leakage” of lower-efficiency units into the general water heater 

applications. If larger units are also included, ACEEE expressed concern that significant 

growth in low-boy sales would be expected, leading to a significant loss in energy 

savings relative to use of higher-efficiency conventional units. (ACEEE, No. 79 at pp. 8­

9) 

EarthJustice stated that a separate product class for low-boy water heaters is not 

justified. According to the commenter, DOE’s analyses demonstrate that water heaters in 

these configurations can meet the efficiency standards under consideration for electricstorage and gas-storage water heaters, respectively (see 74 FR 65852, 65869 (Dec. 11, 

2009)). (EarthJustice, No. 83 at p. 1) 

NRDC also stated that “low-boy” water heaters do not warrant a separate product 

class, because these products could become a low-cost loophole to the standard if allowed 

to be less efficient than traditional tank-type water heaters. (NRDC, No. 85 at p. 6) 

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ASAP agreed with DOE’s position not to establish a separate product class for 

low-boy water heaters, as presented in the December 2009 NOPR. ASAP warned DOE to 

keep a close eye on lower standards for particular product classes, which can result in 

market shares for those products increasing and reduction of the overall energy savings 

associated with the energy conservation standards. (ASAP, Public Meeting Transcript, 

No. 57.4 at p. 60) 

After careful consideration, DOE does not agree with certain commenters that a 

separate product class needs to be established for low-boy water heaters. As noted above, 

in evaluating and establishing energy conservation standards, DOE generally divides 

covered products into classes by the type of energy used, or by capacity or another 

performance-related feature that justifies a different standard. (See 42 U.S.C. 6295(q)) 

DOE notes that low-boy water heaters use the same type of energy as other water heaters 

(i.e., gas or electricity) and are offered in a range of storage volumes. Thus, the type of 

energy used and the functionality of low-boy units are similar to other types of water 

heaters. DOE acknowledges that low-boy water heaters are only offered in certain 

volume sizes, which tend to be at the lower end of the range (i.e., below 50 gallons). 

While many of the commenters pointed to specific size-constrained applications where 

low-boy water heaters are installed, DOE reviewed the market and found that low-boy 

water heaters are generally classified as water heaters that have a shorter height and wider 

diameter. However, unlike tabletop water heaters, low-boy water heaters did not seem to 

have a uniform or common platform size. Instead, the physical dimensions of low-boy 

water heaters varied by manufacturer, model, and efficiency, but this is also true of the 

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entire electric storage water heating market. Water heater manufacturers offer a range of 

options to consumers, including various physical dimensions that are not unique to lowboy units. (See chapter 3 of the TSD.) Furthermore, DOE does not believe each different 

combination of physical dimensions currently available on the market warrants a separate 

product class. DOE reaffirmed its position in the December 2009 NOPR that the size 

constraints of these units do not appear to impact energy efficiency, since many “lowboy” models have efficiencies that are comparable to standard-size water heaters 

currently available on the market. DOE’s research suggests that there are currently 

multiple low-boy units offered that will meet the standards being adopted in today’s final 

rule for electric storage water heater less than 55 gallons. Specifically, DOE found 

multiple low-boy models at 0.95 EF with a rated storage volume of 50 gallons. 

Consequently, for the reasons above, DOE is not establishing a separate product class for 

low-boy water heaters. 

ii. Ultra-Low NOX Water Heaters 

In the December 2009 NOPR analysis, DOE did not propose to establish a 

separate product class for ultra-low NOX gas-fired storage water heaters. 74 FR 65852, 

65869-70 (Dec. 11, 2009). However, DOE did specifically analyze these water heaters as 

compared to traditional gas-fired storage water heaters with standard burners. 74 FR 

65852, 65882-83 (Dec. 11, 2009). In response to the treatment of ultra-low NOX gas-fired 

storage water heaters in the December 2009 NOPR, DOE received a number of different 

comments. A.O. Smith, BWC, AHRI, and Rheem urged DOE to establish a separate 

product class for ultra-low NOX gas-fired water heaters. (A.O. Smith, No. 76 at p. 2; 

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BWC, 61 at p. 3; AHRI, No. 91 at p. 3; A.O. Smith, Public Meeting Transcript, No. 57.4 

at pp. 56-57; and AHRI, Public Meeting Transcript, No. 57.4 at pp. 57-58) On the other 

hand, ACEEE, EarthJustice, and NRDC agreed with DOE’s position in the December 

2009 NOPR that ultra-low NOX gas-fired water heaters should not have their own 

product class. Further details provided by each commenter are presented below. 

A.O. Smith asserted that the burner technology needed to comply with the South 

Coast Air Quality Management District’s (SCAQMD) ultra-low NOX requirements and 

the changes to the water heater technology that are needed to meet increased efficiency 

requirement are “operationally contradictory” with each other. The types of burners 

currently used to comply with the ultra-low NOX requirement in atmospheric heaters are 

much more restrictive (higher pressure drop) than conventional burners. Since these ultralow NOX heaters also must comply with the flammable vapor ignition resistance 

requirements, they also have flame arrestors on the air inlet, which add more restriction 

(pressure drop) to the system. In order to boost the efficiency, the flue baffle must be 

made more effective, which means making it more restrictive. The increased pressure 

drops due to all three components taken together is enough to offset the thermal 

buoyancy of the atmospheric venting design, and cause the heater to no longer work. The 

only way to overcome the additional restriction would be to add a blower and/or powerburner to the heater, which would greatly increase the manufacturing and installation 

costs of the heater. (A.O. Smith, No. 76 at p. 2) 

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BWC asserted that ultra-low NOX gas-fired water heaters should be a separate 

product class because they have distinct design differences compared to standard 

atmospheric gas water heaters. The unique design requirements for ultra-low NOX gasfired water heaters greatly limit their capacity to increase the efficiency while 

maintaining a lower level of emissions. (BWC, 61 at p. 3) 

AHRI challenged the December 2009 NOPR’s tentative conclusions that ultralow NOX gas-fired models provide the same utility as standard gas-fired storage water 

heaters, while simply using a distinct burner to achieve the ultra-low NOX emissions. 

AHRI argued that standard gas-fired water heaters do not offer the same utility as the 

ultra-low NOX models because the standard gas-fired water heater cannot heat water 

efficiently while also emitting NOX at a very low rate. Regardless of its efficiency, a 

standard residential gas-fired water heater cannot be sold or installed in many areas in 

California. According to AHRI, the feature of ultra-low NOX emissions is a unique 

performance characteristic that imposes different conditions on how, and at what 

expense, the efficiency of these models can be increased. As is the case with low-boy 

electric models, AHRI asserted that ultra-low NOX water heaters should have a separate 

product class with a minimum EF standard that is 0.01 less than that proposed for gasfired storage water heaters. (AHRI, No. 91 at p. 4) 

ACEEE stated that there is no reason for a separate product class with separate 

standards for ultra-low NOX water heaters. According to ACEEE, these units can meet 

the same standards as conventional equipment, if they incorporate induced draft (power 

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vent) to compensate for the combined pressure drop of the better baffle, FVIR, and ultralow NOX burner. If stakeholders want an exception, the commenter suggested that this 

should be dealt with by the waiver process rather than by establishing another dead-end 

class of atmospherically-vented equipment. (ACEEE, No. 79 at p. 9) 

EarthJustice stated that separate a product class for ultra-low NOX gas-fired water 

heaters is not justified. The commenter pointed to DOE’s own analysis, which arguably 

demonstrates that water heaters in these configurations can meet the efficiency standards 

under consideration for electric storage and gas storage water heaters, respectively (see 

74 FR 65852, 65869, 65881 (Dec. 11, 2009)). (EarthJustice, No. 83 at p. 1) 

NRDC likewise argued that there should not be a separate product class for ultralow NOX gas-fired water heaters. NRDC stated that the efficiency requirements 

considered in the rulemaking can be met in ultra-low NOX gas-fired units by moving to 

power vent technology and probably with other routes. Therefore, the commenter 

concluded that there is no need to allow a less-stringent standard for these products when 

the proposed requirements can be met. (NRDC, No. 85 at p. 6) 

After considering public comments on this issue, DOE has decided not to change 

its position from the December 2009 NOPR and continues to believe that a separate 

product class does not need to be established for ultra-low NOX gas-fired storage water 

heaters. As noted above, in evaluating and establishing energy conservation standards, 

DOE generally divides covered products into classes by the type of energy used, or by 

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capacity or other performance-related feature that justifies a different standard for 

products having such feature. (See 42 U.S.C. 6295(q)) Ultra-low NOX gas-fired storage 

water heaters use the same type of energy (i.e., gas) and are offered in comparable 

storage volumes to traditional gas-fired storage water heaters using standard burners. In 

deciding whether the product incorporates a performance feature that justifies a different 

standard, DOE must consider factors such as the utility of the feature to users. Id. In 

terms of water heating, DOE believes ultra-low NOX water heaters provide the same 

utility to the consumer. However, DOE also notes that ultra-low NOX water heaters do 

incorporate a specific burner technology allowing these units to meet the strict emissions 

requirements of local air quality management districts. Some of the commenters pointed 

out that the increased pressure drops could adversely impact the efficiency levels. DOE 

agreed with this assertion and maintained its methodology for handling ultra-low NOX 

gas-fired storage water heaters, which included development of a separate analysis for 

these products, as detailed in the December 2009 NOPR. 74 FR 65852, 65881-82 (Dec. 

11, 2009). See section IV.C.2.a for additional details. This analysis showed that 

implementing power venting and the same insulation increases as those for standard gasfired water heaters would result in slightly lower efficiencies due to the additional 

pressure restrictions resulting from the addition of the ultra-low NOX burner. Therefore, 

DOE implemented technologies at lower efficiency levels for ultra-low NOX gas-fired 

storage water heaters in order to achieve the same efficiencies as those identified for 

standard gas-fired storage water heaters. Based on the teardown analysis of ultra-low 

NOX water heaters, DOE believes that ultra-low NOX gas-fired storage water heaters will 

be able to meet the standards that are being adopted in today’s final rule using available 

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technologies currently on the market. Therefore, for the above reasons, DOE has decided 

not to establish a separate product class for ultra-low NOX gas-fired storage water heaters 

in this final rule. 

iii. Heat Pump Water Heaters 

Throughout the rulemaking, DOE has treated heat pump water heaters as a design 

option for electric storage water heaters rather than a separate product class, as further 

explained and detailed in the preliminary analysis. (See Chapter 2 of the preliminary 

analysis TSD and the discussion in the December 2009 NOPR (74 FR 65852, 65870-81 

(Dec. 11, 2009).) A heat pump water heater represents a merging of two technologies: (1) 

an electric resistance storage water heater with tank and controls; and (2) a refrigeration 

circuit similar to that found in a residential air-conditioner. Heat pump water heaters use 

existing heat pump technology to extract heat from the surrounding air (typically at room 

temperature) for heating stored water. For electric water heaters, this is an alternative to 

resistive heating, which transfers heat from the electric resistance element to the water. 

DOE received several comments from interested parties in response to its treatment of 

heat pump water heaters and its request for comment on some of the issues identified 

surrounding heat pump water heaters. Some commenters urged DOE to establish separate 

product classes for traditional electric resistance storage water heaters and heat pump 

water heaters, while others agreed with DOE’s classification of heat pump water heaters. 

Their specific comments and DOE’s response are presented below. 

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General Electric stated support for DOE's proposal to not create a separate 

product class for heat pump water heaters, as they are designed to replace traditional 

electric water heaters in most residences, and have similar consumer functionalities. (GE, 

No. 84 at p. 1) 

Daikin asserted that electric resistance water heaters should be placed in the same 

product class as heat pump water heaters. Anecdotally, Daikin stated that in the European 

Union, the European Parliament has classified both of these products in the same 

category for energy efficiency regulatory purposes, and the commenter further stated that 

in Japan, electric resistance water heaters have practically disappeared from the market as 

of 2010. In addition, Daikin stated that heat pump water heaters usually have a back-up 

electric heater. If heat pump water heaters are classified separately, there will be a 

difficult question about whether the back-up electric heater requires heat pump water 

heating systems to remain in the other category for some purposes. However, Daikin 

suggested that if DOE decides to establish a heat pump water heater product class, then it 

should be subdivided based on the following three criteria: (1) refrigerant type; (2) heat 

source (i.e., air to water heat pump); and (3) add-on or integrated type system (i.e., heat 

pump system and a tank). (Daikin, No. 82 at pp. 1-2) 

Northwest Energy Efficiency Alliance (NEEA) stated there is not a need for a 

separate class of water heaters based on heat pump versus resistance elements. According 

to NEEA, all of the current product offerings have a first-hour rating that is equivalent to 

an electric resistance heated product of the same size. From a consumer utility standpoint, 

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the products are equivalent in terms of delivery of hot water for an equivalent tank size. 

These products are all designed as integrated, “drop-in” replacement units according to 

product literature that NEAA has reviewed from A.O. Smith, Rheem, and General 

Electric. (NEEA, No. 88 at p. 2) 

In its comments, EarthJustice opposed establishing a separate product class for 

heat pump water heaters, based on the following rationale. EarthJustice asserted that 

EPCA provides both mandatory and permissive authority for DOE to establish new 

product classes for covered products. (See 42 U.S.C. 6295(o)(4) and (q)(1)) However, 

aside from the unique situation of a covered product capable of consuming different 

kinds of energy (42 U.S.C. 6295(q)(1)(A)), EarthJustice argued that EPCA only 

mandates the creation of multiple product classes when the failure to do so would 

eliminate certain truly unique product attributes from the market. (42 U.S.C. 6295(o)(4)) 

In contrast, while DOE does have discretion to create separate classes for products based 

on the presence of “a capacity or other performance-related feature,” the Department may 

exercise this authority only if “such feature justifies a [different] standard.” 42 U.S.C. 

6295(q)(1)(B)) For the reasons explained below, EarthJustice argued that the plain 

language of EPCA forecloses an interpretation that the establishment of separate product 

classes for electric resistance and heat pump water heaters is warranted or required. First, 

EarthJustice stated that as DOE notes in the December 2009 NOPR, there is no 

distinction between heat pump and electric resistance water heaters with regard to 

operational utility. Accordingly, EarthJustice argued that because heat pump and electric 

resistance water heaters provide identical service, there is no basis for DOE to conclude 

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that separate product classes for these technologies are necessary to preserve the 

availability in the market of a distinct “feature” with utility to the user of the product (see 

42 U.S.C. 6295(o)(4)). 

At the public hearing on the December 2009 NOPR, representatives from some 

manufacturers asserted that a separate product class for heat pump water heaters was 

needed to address the fraction of households that would otherwise experience higherthan-normal installation costs to replace a water heater using electric resistance heating 

with one using a heat pump. However, EarthJustice stated that even if DOE’s analysis 

confirms that there is a cost penalty to install a heat pump water heater in some 

applications, this fact, standing alone, would not support the creation of separate product 

classes for heat pump and electric resistance water heaters. In all standards rulemakings, 

EarthJustice reasoned that some households will face higher incremental costs to install 

products meeting revised standards, but the proper approach under EPCA is to consider 

these impacts in calculating consumers’ average lifecycle cost and payback period for the 

standard levels under consideration (see 42 U.S.C. 6295(o)(2)(B)(i)(II)). According to 

EarthJustice, to use an increase in the installed cost for a portion of shipments as the basis 

for a separate product class would be an end-run around the other factors Congress 

required DOE to consider in assessing the economic justification for a standard (see 42 

U.S.C. 6295(o)(2)(B)(i)). The commenter suggested that DOE’s recent statements in the 

commercial clothes washers rulemaking reinforce this point. There, an industry 

commenter argued that a particular product design merited a separate product class on the 

basis of its low installed cost. 75 FR 1122, 1130 (Jan. 8, 2010). In response, DOE 

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explained that it “does not consider first cost a ‘feature’ that provides consumer utility for 

purposes of EPCA. DOE acknowledges that price is an important consideration to 

consumers, but DOE accounts for such consumer impacts in the [lifecycle cost] and 

[payback period] analyses conducted in support of this rulemaking.” Id. at 1134. 

EarthJustice stated that DOE’s refusal to use installed costs as the basis for a separate 

product class for commercial clothes washers is faithful to EPCA’s text, and there is no 

justification for adopting a contrary approach for water heaters. (EarthJustice, No. 73 at 

pp. 1-3) 

NRDC also stated that heat pump water heaters do not warrant a separate product 

class since heat pump water heater and an electric tank type water heater provide the 

same consumer utility. (NRDC, No. 85 at p. 5) 

On the other hand, Southern Company (Southern) stated its belief that there is 

more of a functional difference between heat pump water heaters and electric resistance 

water heaters than with other products for which DOE has established separate product 

classes, including refrigerators (top freezer versus side-by-side), window air conditioners 

(for location of louvers), and transformers (a multitude of different phases and sizes). 

Southern Company argued that heat pump water heaters should be treated as a separate 

product class because the heat pump water heater transfers cold air from the heat pump to 

the surrounding space and are noisier than electric resistance water heaters. (Southern, 

No. 90 at p. 5) 

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BWC recommended a separate product class be established for heat pump water 

heaters because the primary fuel source is air instead of electricity. Heat pump water 

heaters can attain greater efficiencies, because while electricity is being converted to heat 

the water like a typical electric resistance water heaters, heat is also being moved from 

the surrounding environment to the stored water via the heat pump. In order for heat 

pump water heaters to maximize efficiency, they must recover slowly, which changes the 

utility of the water heater. According to BWC, the same size heat pump water heater is 

not providing the same performance as the equivalent size electric resistance heater. 

(BWC, No. 61 at p. 4) 

AHRI reaffirmed its position that heat pump water heaters should be a separate 

product class. AHRI argued that DOE’s tentative conclusion that heat pump water heaters 

do not require a separate product class because they provide hot water just like a 

traditional electric storage water heater is invalid because it fails to recognize how the 

heat pump water heater produces that hot water and how the heat pump water heater’s 

performance is effected by the environment in which it is installed. AHRI asserted that 

the following characteristics make heat pump water heaters unique: (1) water is heated by 

energy extracted from the air; (2) the heating capacity is variable depending on the 

temperature of the air provided to the heat pump; (3) the unit cannot heat water above 

approximately 135 degrees Fahrenheit; (4) the unit must be installed in a space large 

enough to provide the necessary volume of air for the unit to adequately heat water; (5) 

the unit cools the air in the household; (6) the unit requires a condensate drain as part of 

the installation; (7) the unit cannot be adjusted to meet increases in demand without 

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relying on the electric resistance elements; (8) the unit can heat water as long as there is 

adequate airflow through the heat pump, and thus, a heat pump with electrical power but 

with a clogged air filter will not heat water; and (9) the unit needs a back up water 

heating means that can operate when the heat pump cannot meet the load. (AHRI, No. 91 

at pp. 4-6) 

In response to these NOPR comments, DOE does not agree that heat pump water 

heaters meet the requirements for establishing a separate product class. Specifically, DOE 

does not believe heat pump water heaters provide a different utility from traditional 

electric resistance water heaters. Heat pump water heaters provide hot water to a 

residence just as a traditional electric storage water heater does. While AHRI noted that 

heat pump water heaters utilize heat extracted from the air to heat the water, both heat 

pump water heaters and traditional electric resistance storage water heaters use electricity 

as the primary fuel source. AHRI’s recitation of operational differences associated with 

water heaters that utilize heat pump technology does not establish that the mode of 

heating water is performance-related feature or provides a unique utility. As pointed out 

by GE, current manufacturers of heat pump water heaters are marketing these products as 

direct replacements for traditional electric resistance water heaters. The rated storage 

volumes and first hour ratings of the heat pump water heaters currently on the market are 

comparable to the traditional electric resistance water heaters. Some of the commenters 

pointed out that heat pump water heaters require special installation considerations, but to 

account for this, DOE applied in its analysis specific installation costs, where applicable, 

to heat pump water heaters. (See section IV.F.2 of today’s notice for more details on 

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treatment of the installation costs.) Consequently, DOE has concluded that heat pump 

water heaters can replace traditional electric resistance storage water heaters in most 

residences, although the installation requirements may be quite costly. For these reasons, 

DOE has decided not to establish a separate product class for heat pump water heaters. 

iv. Unpowered Gas-fired Water Heaters 

The American Gas Association (AGA) asserted that unpowered gas-fired storage 

water heaters should be an independent product class. An unpowered gas-fired storage 

water heater is one that does not utilize line electricity in order to provide hot water to the 

residence. For many customers during a power outage, unpowered gas-fired water heaters 

are the only utility system that provides a source of heat. AGA believes that this 

occurrence is sufficiently frequent to justify the treatment of unpowered gas-fired storage 

water heaters as an independent product class, consistent with DOE’s charge to establish 

product classes based on type of energy used, capacity, and in this case, “other 

performance-related feature” such as those that provide utility to consumers. (AGA, No. 

78 at pp. 6-7) 

DOE does not agree with AGA’s assertion that unpowered gas-fired storage water 

heaters meet the criteria for the establishment of a separate product class. Both powered 

and unpowered gas-fired storage water heaters use gas as the primary fuel source, and 

both provide the same basic utility to consumers, which is to supply hot water to the 

residence. DOE does not believe that having the ability to maintain hot water during 

power outages when the electricity is not working provides enough additional utility to 

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consumers to warrant a separate product class. DOE believes that power outages are 

infrequent events that can be handled by a number of different market solutions such as 

back-up power systems. 

b. Direct Heating Equipment 

DHE can be divided into various product classes categorized by physical 

characteristics and rated input capacity, both of which affect product efficiency and 

function. Key characteristics affecting the energy efficiency of DHE are the physical 

construction (e.g., fan wall units contain circulation blowers), intended installation (e.g., 

floor furnaces are installed with the majority of the unit outside of the conditioned space), 

and input capacity. 

In the December 2009 NOPR, DOE proposed consolidating the product classes 

for four types of DHE and adding product classes for one type of DHE. DOE discusses 

the full details of its proposals in the December 2009 NOPR. 74 FR 65852, 65871-72 

(Dec. 11, 2009). In response to the proposed product class consolidation, AHRI took the 

position that the Federal energy conservation standards should not change for direct 

heating equipment, which would include not consolidating any of the existing BTU range 

categories or range levels. (AHRI, Public Meeting Transcript, No. 57.4 at p. 85) 

Empire Comfort Products (Empire) stated that if DOE condenses the product 

classes for direct heating equipment, it will reduce the manufacturers’ flexibility to 

increase efficiency. (Empire, Public Meeting Transcript, No. 57.4 at p. 86) 

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Neither AHRI nor Empire provided any additional insight to explain why the 

proposed reduction in product classes would limit a manufacturer’s ability to increase the 

efficiency of direct heating equipment. DOE believes the consolidation of product classes 

reflects the current models offered by manufacturers. As discussed in the December 2009 

NOPR, DOE carefully reviewed product catalogs and performance directories to 

determine the relationship between AFUE and input rating found among products listed 

in the AHRI Directory. For each of the five types of DHE, DOE found that manufacturers 

do not produce products in some of the input capacity ranges or that some of the 

efficiency characteristics of these products are similar. DOE explained each of these 

changes in the NOPR along with its proposal to further consolidate the product classes, 

where applicable. 74 FR 65852, 65871-72 (Dec. 11, 2009). For each product class, DOE 

characterized this relationship, and the commenters have provided no data or rationale as 

to why DOE’s characterization was incorrect. Consequently, DOE is adopting the 

consolidated product classes as proposed in the December 2009 NOPR. Table IV.2 

presents the product classes for DHE being adopted by this rulemaking. 

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Table IV.2 Product Classes for Direct Heating Equipment
 

Direct Heating Equipment Type Input Heating Capacity 

Btu/h 

Gas Wall Fan Type Up to 42,000 

Over 42,000 

Gas Wall Gravity Type 

Up to 27,000 

Over 27,000 and up to 46,000 

Over 46,000 

Gas Floor Up to 37,000 

Over 37,000 

Gas Room 

Up to 20,000 

Over 20,000 and up to 27,000 

Over 27,000 and up to 46,000 

Over 46,000 

Gas Hearth 

Up to 20,000 

Over 20,000 and up to 27,000 

Over 27,000 and up to 46,000 

Over 46,000 

c. Pool Heaters 

As discussed in the December 2009 NOPR, the existing Federal energy 

conservation standards for pool heaters correspond to the efficiency levels specified by 

EPCA, as amended (42 U.S.C. 6295(e)(2)), and codified in 10 CFR 430.32(k), 

classifying residential pool heaters with one product class. This product class is 

distinguished by fuel input type (i.e., gas-fired). 74 FR 65852, 65872 (Dec. 11, 2009). 

B. Screening Analysis 

The purpose of the screening analysis is to evaluate the technology options 

identified in the market and technology assessment as having the potential to improve the 

efficiency of products and to determine which technologies to consider further and which 

to screen out based on the four screening criteria. DOE consulted with industry, technical 

experts, and other interested parties to develop a list of technologies for consideration. 

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DOE then applied the following four screening criteria to determine which design options 

are suitable for further consideration in the standards rulemaking: 

1. Technological feasibility. DOE considers technologies incorporated in 

commercial products or in working prototypes to be technologically feasible. 

2. Practicability to manufacture, install, and service. If mass production and 

reliable installation and servicing of a technology in commercial products could be 

achieved on the scale necessary to serve the relevant market at the time the standard 

comes into effect, then DOE considers that technology practicable to manufacture, install, 

and service. 

3. Adverse impacts on product utility or product availability. If DOE determines a 

technology would have a significant adverse impact on the utility of the product to 

significant subgroups of consumers, or would result in the unavailability of any covered 

product type with performance characteristics (including reliability), features, sizes, 

capacities, and volumes that are substantially the same as products generally available in 

the United States at the time, it will not consider this technology further. 

4. Adverse impacts on health or safety. If DOE determines that a technology will 

have significant adverse impacts on health or safety, it will not consider this technology 

further. 

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See 10 CFR part 430, subpart C, appendix A, (4)(a)(4) and (5)(b). 

As presented in the December 2009 NOPR, DOE identified a number of 

technology options that might be used to improve the efficiency of residential heating 

products during the market and technology assessment. 74 FR 65852, 65872-79 (Dec. 11, 

2009). See chapter 3 of the December 2009 NOPR and final rule TSDs for more 

information and the complete list of technologies identified by DOE. DOE then applied 

the screening criteria listed above to determine which technologies would be carried 

through the analysis. Table IV.3 through Table IV.5 show the technology options that 

were screened-in during the December 2009 NOPR screening analysis. 

Table IV.3 Technologies DOE Considered for the Water Heater Engineering 

Analysis 

Technology Water Heater Type by Fuel Source 

Storage Instantaneous 

Gas-fired Electric Oil-fired Gas-fired 

Increased Jacket Insulation X X X 

Foam Insulation X 

Improve/Increased Heat Exchanger 

Surface Area 

X X X X 

Enhanced Flue Baffle X X 

Direct-Vent (Concentric Venting) X 

Power Vent X X X 

Electronic (or Interrupted) Ignition X X X 

Heat Pump Water Heater X 

Condensing X X X 

Table IV.4 Technologies DOE Considered for the Direct Heating Equipment 

Engineering Analysis 

Technology 

Increased Heat Exchanger Surface Area 

Direct-Vent (Concentric Venting) 

Electronic Ignition 

Induced Draft 

Two Stage and Modulating Operation 

Condensing 

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Table IV.5 Technologies DOE Considered for the Pool Heater Engineering Analysis
 

Technology 

Increased Heat Exchanger Surface Area 

More Effective Insulation (Combustion Chamber) 

Power Venting 

Sealed Combustion 

Condensing 

1. Comments on the Screening Analysis 

In response to the screening analysis presented in the December 2009 NOPR, 

DOE received several comments from interested parties. 

In the December 2009 NOPR, CO2 heat pump water heaters were a technology 

option screened out by DOE for electric storage water heaters, because DOE research 

suggests U.S. manufacturers do not have the necessary infrastructure to support 

manufacturing, installation, and service of CO2 heat pump water heaters on the scale 

necessary to serve the relevant market by the compliance date of an amended energy 

conservation standard. 74 FR 65852, 65873 (Dec. 11, 2009). In general, ACEEE stated 

that it strongly objected to the screening analysis because DOE considered only 

technologies available in U.S.-manufactured water heaters and screened out technologies 

used in other domestic products, as well as ones used in the global market. (ACEEE, No. 

79 at p. 2) ACEEE stated that DOE's screening out of CO2 as a heat pump water heater 

refrigerant is absurd, given the fact that 1.7 million of them had been sold worldwide 

through the end of 2008, and that there is a 5-year lead time before the standards 

compliance date in which manufacturers could design a CO2 heat pump water heater. 

(ACEEE, No. 79 at p. 2) 

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Conversely, Rheem commented that CO2 refrigerants were appropriately screened 

out. (Rheem, No. 89 at p. 8) AHRI noted that there is a huge heat pump business in the 

U.S. for air conditioning and space heating, and no significant percentage of those 

products use CO2 as the refrigerant. DOE believes AHRI is using the air conditioning and 

space heating industry as an example of an industry with significant expertise in working 

refrigerants, but that still does not use CO2 refrigerants in its heating and cooling 

products. Even though DOE is investigating the use of CO2 as a refrigerant in water 

heating applications, AHRI’s example demonstrates that U.S. manufacturers and service 

industries do not have the expertise in using or handling CO2 as a typical refrigerant in 

cooling applications. Therefore, AHRI stated its belief that CO2 heat pumps have been 

properly screened out because it is not the prevailing technology in North America. 

Further, AHRI stated that for standards that will apply to U.S. industry, DOE should not 

unnecessarily expand this rulemaking by looking at what might be happening in other 

parts of the world. (AHRI, Public Meeting Transcript, No. 57.4 at pp. 133-134) A.O. 

Smith stated that CO2 heat pump water heaters sold and installed in Japan are certified to 

different levels of standards requirements than those that exist in the U.S., and those heat 

pump water heaters would not be certifiable in the U.S. (A.O. Smith, Public Meeting 

Transcript, No. 57.4 at pp. 134-135) 

In response, DOE believes that CO2 heat pump water heaters were properly 

screened out during the December 2009 NOPR analysis. DOE notes that technologies are 

not screened out solely because they are not yet available in the U.S. market. 

Technologies, such as CO2 heat pump water heaters, which are available overseas, are 

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screened out if the U.S. does not have the necessary infrastructure to support such a 

technology on the scale necessary by the compliance date of the standard. As described in 

chapter 4 of the final rule TSD (Screening Analysis), CO2 heat pump water heaters were 

screened out because the necessary infrastructure to support manufacturing, installation, 

and service of CO2 heat pump water heaters is not available in the United States, and will 

not be available on the scale necessary to serve the relevant market at the time of the 

compliance date of the standard. ACEEE did not provide any new evidence that would 

cause DOE to change its position on this issue, and, therefore, DOE continued to screen 

out CO2 heat pump water heaters for the final rule analysis. DOE notes that pursuant to 

Section 612 of the Clean Air Act, the U.S. EPA has found CO2 an acceptable refrigerant 

for use in the U.S. in certain applications (e.g., retail food refrigeration), but has not made 

such a ruling on the use of CO2 in water heating heat pumps. EPA indicates that to date it 

has not received any submission under the SNAP program for the use of CO2 in such 

devices. For additional information on EPA’s Significant New Alternative Policy 

(SNAP) program (see http://www.epa.gov/ozone/snap/. 

 ACEEE asserted that DOE fails to differentiate between low-voltage (i.e., 24 

volt) and line-voltage (i.e., 120 volt) power requirements for gas-fired equipment 

auxiliaries such as igniters, controls, and fans. The commenter stated that line voltage 

requires a power outlet reachable by a 6 foot power cord on the water heater, which 

would require a new outlet in some retrofits, while a remote low-voltage plug-in power 

supply can use much longer supply lines that could support electronic ignition and 

electro-mechanical flue dampers. ACEEE stated that a recent study of standby losses of 

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atmospheric water heaters shows losses large enough that ACEEE infers that these 

features would be quite cost-effective, and that such products have been demonstrated in 

the past (for the SCAQMD) and in gas stoves. (ACEEE, No. 79 at p. 3) ACEEE stated 

that requiring gas-fired appliances to have an electrical connection does not diminish 

utility because it is not an issue in the minds of the public, and if the capability of gasfired products to operate during power outages was important, then local building codes 

would require backup non-electric heating capabilities for houses with electric water 

heaters. (ACEEE, Public Meeting Transcript, No. 57.4 at pp. 38-39) 

In response, DOE agrees with ACEEE that requiring gas-fired appliances to have 

an electrical connection does not diminish utility, and DOE notes that this rationale was 

not provided for screening out any of the technologies that DOE did not consider in the 

analysis. Further, DOE notes that many of the design options for gas-fired appliances 

included electronic components, such as electronic ignitions and power venting. 

Louisville Tin & Stove (LTS) commented that the proposed standards for DHE 

would reduce consumer utility because they would lose the ability to heat without 

electricity and/or lose the ability to retrofit. (LTS, No. 56.7 at p. 2) Empire stated adding 

components that require electricity would cause the elimination of the gas wall gravity, 

gas room, gas floor, and gas hearth categories because their main purpose is to provide 

efficient heating and be able to provide heat during a power outage or for consumers who 

do not have electricity. (Empire, No. 100 at p. 2) 

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Although DOE recognizes the consumer utility of direct heating equipment that 

can be operated in the event of a power outage, DOE also notes that there are direct 

heating equipment available on the market equipped with an electronic ignition that 

utilize battery backup systems to allow for operation during power outages. As a result, 

DOE does not believe the use of an electronic ignition would reduce the consumer utility 

of direct heating equipment. DOE also does not believe that adding electrical components 

would reduce the ability to retrofit these products, thereby causing the elimination of 

product classes. The addition of certain electrical components (e.g., an electronic 

ignition) does not require products to be any larger than products currently available that 

have no electric components, and thus, DOE does not believe this will prevent products 

from being retrofitted. DOE also does not believe adding larger electrical components 

(e.g., blower fans) would cause the elimination of any products, because DOE only 

considers the addition of blower fans for certain product classes which have products that 

have demonstrated that the technology is possible (i.e., gas wall fan DHE, gas room 

DHE, and gas hearth DHE). For gas wall gravity DHE, where the inclusion of a fan 

would shift products into the gas wall fan DHE product class, DOE does not consider a 

fan as a design option. 

However, DOE does recognize that in certain instances, consumers will have to 

install electrical power outlets near the heating equipment, thereby increasing the cost of 

retrofitting the product. These costs are addressed during DOE’s analysis of installation 

costs and are described in section IV.F.2 of this document. Accordingly, DOE continued 

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to screen-in electronic ignition and other electronic components for the final rule analysis 

of direct heating equipment. 

2. Heat Pump Water Heater and Condensing Gas-Fired Storage Water Heater 


Discussion 


In the December 2009 NOPR, DOE specifically requested comment regarding the 

screening process for the advanced technologies used as the basis for the max-tech levels 

for gas-fired storage and electric storage water heater (i.e., heat pump water heaters and 

condensing gas-fired storage water heaters). 74 FR 65852, 65878 (Dec. 11, 2009). DOE 

received a multitude of comments on this topic, which are summarized below. 

a. Condensing Gas-Fired Water Heaters 

DOE received several comments specifically related to condensing gas-fired 

water heater technology. ACEEE noted that all three of the full-line water heater 

manufacturers in the U.S. currently manufacture commercial condensing products. 

(ACEEE, Public Meeting Transcript, No. 57.4 at p. 127) Further, ACEEE stated that at 

least one condensing gas-fired storage water heater is actively marketed for residential 

applications and is shipped with a residential thermostat. ACEEE recognized that this 

product is easy to install, with height, diameter, and installation requirements similar to 

standard power-vent units. ACEEE asserted that the only skills required for installing 

condensing gas-fired water heaters, beyond those already required for installing 

conventional gas-fired water heaters, are those common to the installation of condensing 

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furnaces and air conditioners -- cutting and gluing PVC pipe, and hooking up a 

condensate pump, if required. (ACEEE, No. 79 at p. 11) 

ASAP stated that the manufacturing capacity required for condensing gas-fired 

storage water heaters at TSL 5 (i.e., approximately 4 percent, as estimated in the 

December 2009 NOPR) would be well within the capacity of manufacturers to serve the 

market. (ASAP, Public Meeting Transcript, No. 57.4 at p. 126) AHRI stated that 

manufacturers could probably convert their production of 75-gallon gas-fired water 

heaters to make only condensing 75-gallon gas-fired storage water heaters within five 

years. (AHRI, Public Meeting Transcript, No. 57.4 at p. 119) 

In addition, A.O. Smith stated that they manufacture commercial condensing gasfired water heaters that are ultra-low NOX, and, therefore, it is technologically feasible to 

have an ultra-low NOX condensing water heater. (A.O. Smith, Public Meeting Transcript, 

No. 57.4 at p. 123) 

In light of the comments above from interested parties supporting the 

technologically feasibility and the practicability of manufacturing, installing, and 

servicing condensing gas-fired water heaters, DOE has concluded that this technology 

option was appropriately screened-in and considered during the December 2009 NOPR 

analysis, and DOE continued to consider condensing gas-fired water heaters in the final 

rule analysis. 

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b. Heat Pump Water Heaters 

DOE received several comments specifically related to the screening analysis for 

heat pump water heater technology. These comments related to adverse impacts on 

product utility, as well as the practicability to manufacture, install, and service heat pump 

water heaters. 

Regarding adverse impacts on product utility, the American Public Power 

Association (APPA) commented that for electric storage water heaters at TSL 5 and TSL 

6 (i.e., levels requiring heat pump water heater technology), the utility of the product 

would be lessened, although no further explanation was provided. (APPA, No. 92 at p. 3) 

Rheem stated that the utility of heat pump water heaters is not equivalent to electric 

storage water heaters because of the reduced delivery performance of heat pump water 

heaters. As evidence of the reduced delivery performance, Rheem cited ENERGY 

STAR's requirement of a minimum first hour rating of 50 gallons for heat pump water 

heaters, which is below the 67 gallons that Rheem claimed is typical for conventional 

technologies at that capacity. (Rheem, No. 89 at p. 8) The first hour rating is the amount 

of hot water in gallons the heater can supply per hour (starting with a tank full of hot 

water). If the first hour rating were reduced for heat pump water heaters, this would 

impact consumer utility because the water heater would not provide the consumer with 

the same amount of hot water as with a traditional electric resistance water heater. 

In response, DOE does not believe that any lessening of utility will occur for 

electric storage water heaters that use heat pump water heater technology, as asserted by 

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APPA and Rheem. In response to APPA’s comment (as explained in the December 2009 

NOPR), DOE does not believe the use of heat pump technology will diminish the utility 

of electric storage water heaters, and DOE believes that these products will provide the 

same utility to the consumer as electric storage water heaters using traditional electric 

resistance technology. 72 FR 65852, 65876-77 (Dec. 11, 2009). In response to Rheem’s 

assertion that heat pump water heaters provide a reduced first hour rating, and thereby 

reduce consumer utility, DOE examined the first hour ratings of heat pump water heaters 

available on the market. DOE identified heat pump water heaters currently available on 

the market that have first hour ratings of up to 67 gallons, which Rheem states is typical 

for an electric resistance water heater. DOE also notes that electric storage water heater 

models in the AHRI Directory of certified equipment at the representative 50-gallon 

storage volume have first hour ratings ranging from 48 to 68 gallons, and for 50-gallon 

heat pump water heaters currently available on the market, the first hour ratings range 

from 63 to 67 gallons. Thus, DOE has concluded that the integrated heat pump water 

heater technology does not cause any lessening of utility since it provides similar first 

hour ratings as water heaters that utilize electric resistance technology. 

Regarding practicability to manufacture, install, and service heat pump water 

heaters, DOE received numerous comments from interested parties. The views of 

interested parties are summarized below, along with DOE’s conclusions based on the 

results of the comments received. 

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AHRI stated that to convert the U.S. water heater industry from producing four 

million electric resistance units per year to all heat pump water heaters is an unreasonable 

expectation. (AHRI, Public Meeting Transcript, No. 57.4 at p. 90) AHRI pointed out that 

converting existing product lines to manufacturing of heat pump water heaters would be 

difficult, because manufacturers would continue to manufacture electric resistance water 

heaters in order to meet consumer demand before the compliance date of the standard. 

(AHRI, Public Meeting Transcript, No. 57.4 at pp. 101-103) 

Bock asserted that with heat pump water heaters, there is no infrastructure to 

teach and train technicians to properly install and maintain those units. Bock asserted that 

training technicians of electric resistance, gas-fired, and oil-fired water heaters to install 

and maintain heat pump water heaters could not be done quickly. (Bock, Public Meeting 

Transcript, No. 57.4 at p. 96) Similarly, Bradford White stated that there is no 

infrastructure to repair and maintain heat pump water heaters. Bradford White stated that 

water heater service contractors would need to be extensively retrained, and that it would 

be impossible for them to train plumbers to install and maintain heat pump water heaters 

in sufficient time. (Bradford White, No. 61 at p. 3) 

In support of heat pump water heaters, GE stated that it does believe that heat 

pump water heaters are manufacturable in a reasonable timeframe. (GE, No. 84 at p. 1) 

Further, GE commented that it currently has a nationwide network for heat pump water 

heater product service, and is developing a nationwide installation base to ensure that its 

consumers can readily purchase, install, and repair their heat pump water heaters. (GE, 

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No. 84 at p. 1) The commenter noted that it is currently working with two national 

partners and numerous regional distributors to have its heat pump water heater available 

in most markets and to develop its water heater installation network. GE forecasted that 

the availability, service, installation, and manufacturability of heat pump water heaters 

will not present a significant obstacle to the market acceptance of such units. (GE, No. 84 

at p. 2) The commenter stated that installation of a heat pump water heater is only slightly 

more complex than installing an electric resistance water heater, and is easily within the 

capabilities of any residential plumber. GE did acknowledge that service of the sealed 

refrigeration system can be more complex, but stated that it believes that this can be 

adequately handled by the national network of appliance technicians and plumbers. (GE, 

No. 84 at p. 2) 

NPCC commented that several manufacturers already have heat pump water 

heater products and business plans to sell heat pump water heaters over the next five 

years, a schedule well before the compliance date of the relevant amended energy 

conservation standards. Therefore, NPCC believes that it is within the ability of 

manufacturers to produce heat pump water heater units on the scale necessary to serve the 

market for large-volume products. (NPCC, Public Meeting Transcript, No. 57.4 at p. 107) 

NPCC also stated that it believes there is adequate lead time for those manufacturers who 

still must develop new products, since standards will not take effect for five years. 

(NPCC, No. 87 at p. 5) Further, NPCC stated that DOE's concern about the 

manufacturability of heat pump water heaters and the capacity of manufacturers to ramp 

up production are overstated, because two major manufacturers already appear 

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committed to manufacturing significant quantities of heat pump water heaters and a third 

manufacturer also appears likely to do the same. NPCC asserted that because new energy 

conservation standards for water heaters will not go into effect for five years, 

manufacturers will have ample time to “ramp up” the production of these high-efficiency 

models to meet the limited market expected at TSL 5. (NPCC, No. 87 at pp. 5-6) 

Regarding practicability to install heat pump water heaters, the commenter stated that 

heat pump water heaters currently on the market are drop-in replacements for electric 

resistance water heaters, and are advertised as such by manufacturer literature. NPCC 

commented that this fact, along with the fact that a national home improvement chain has 

agreed to sell Rheem's heat pump water heater unit, are evidence that both manufacturers 

and retailers believe that the installation of “advanced” water heater technology is not a 

significant barrier to its adoption. (NPCC, No. 87 at pp.3-4) NPCC stated that DOE's 

concern regarding whether the service infrastructure’s lack of familiarity with advanced 

technologies would act as a deterrent to their adoption also appears unwarranted, due to 

the fact that : (1) manufacturers are already offering these products; (2) manufacturers 

will have 5 years to train and deploy a service force; (3) major manufacturers with 

product on the market offer a 10-year warranty; (4) GE has a set up a nationwide network 

of authorized service technicians who are being trained to both install and service its 

“advanced technology” water heaters; and (5) Rheem has stated that its heat pump water 

heater uses a sealed heat pump and that no HVAC experience is needed, so no additional 

service technician training is required. (NPCC, No. 87 at p. 4) 

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NEEP stated that based on the documented ENERGY STAR-qualified water 

heating units on the market, heat pump water heaters and condensing gas water heaters 

are commercially viable, manufacturable, and have a growing infrastructure of service 

and maintenance professionals. (NEEP, No. 86 at p.1) NEEP stated that according to a 

recent advertisement by Rheem and the Home Depot, their ENERGY STAR-qualified 

heat pump water heater “installs as easily as a standard electric storage water heater," and 

thus, NEEP commented that installation issues are clearly not as serious as many 

manufacturers claim. (NEEP, No. 86 at p. 2) 

NEEA commented that regarding a potential scale-up in response to a large utility 

program opportunity that was being considered for heat pump water heaters, major 

manufacturers assured them that scale-up to large manufacturing numbers is not a 

limiting factor. (NEEA, No. 88 at pp. 2-3) The commenter stated all of the heat pump 

water heater units being offered for sale are designed as drop-in integrated units that 

require no more connections than a conventional electric resistance tank. NEEA asserted 

that there is nothing in principle about heat pump water heater technology that makes it 

substantively more difficult than a current replacement with a standard electric tank. 

NEEA also stated that all heat pump water heaters offered for sale in 2010 have sealed 

refrigeration components (similar to a refrigerator or a room air-conditioner that do not 

require service) and have 10-year warranties, an indication of manufacturers’ confidence 

in the long-term reliability of the systems. NEEA commented that a duct to vent cold air 

to the outdoors is required in some heat pump water heater installations, and that 

installing such a duct is no more complicated than installing a flue for a gas-fired water 

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heater, which is well within the skill set of existing water heater installers. (NEEA, No. 

88 at p. 3) 

ACEEE commented that five years from final rule publication to the compliance 

date is sufficient time to design, test, tool up, manufacture, and certify a brand new 

product. (ACEEE, No. 79 at pp. 13) ACEEE stated that manufacturing capacity should 

not be a concern for heat pump water heaters, given the five-year lead time between the 

standards’ effective date and compliance date. The commenter also stated that resistive 

tank water heaters and refrigeration engines like the ones used in heat pump water heaters 

are mature technologies that can be integrated to manufacture heat pump water heaters. 

(ACEEE, No. 79 at p. 4) ACEEE commented that TSL 5 would require new production 

lines for about 9 percent of the product, which should be manageable and in the scale of 

expected investments in new production lines. (ACEEE, No. 79 at p. 10) Regarding 

practicability to install heat pump water heaters, ACEEE stated that the arguments 

regarding training time for installers and servicers are vastly overblown. The commenter 

noted further that the websites of the leading providers of ENERGY STAR heat pump 

water heaters do not contain language that would void warrantees if such units are homeowner installed, and such units are now sold by major “big box” retailers and Internet 

sales outlets. (ACEEE, No. 79 at p. 10) With regard to servicing, ACEEE stated that 

although a heat pump water heater operates more hours per year than a room air 

conditioner, it is basically the same kind of technology, and will require no routine 

service beyond that which can be done by the homeowner (i.e., filter cleaning). Thus, 

ACEEE argued that at least for heat pump water heaters with appropriate diagnostics, 

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there are no skills required beyond those one would expect from a typical refrigerator 

repair person. (ACEEE, No. 79 at p. 10) ACEEE stated that in January 2010, the GE 

Hybrid electric heat pump water heater will be sold at Lowe’s, Sears, and other locations, 

presumably to do-it-yourself installers, and in examining the warranties available on-line, 

ACEEE found no restrictions as would limit product installation to certified or qualified 

trades people. From this, the commenter inferred that there are no special skills expected 

for installation of these heat pump water heater products. (ACEEE, No. 79 at p. 12) 

ACEEE asserted that the skill set required to service heat pump water heaters is the same 

as the skill set associated with fixing the refrigeration engines of room air conditioners, 

refrigerators, and similar light equipment. Similarly, the commenter argued that servicing 

of condensing gas water heaters uses the same skill sets as condensing boilers. Thus, 

ACEEE stated that it believes that over the next five years, the emergence and market 

penetration of incentive programs for both types of products will lead to adequate 

supplies of servicers with the requisite skills. (ACEEE, No. 79 at p. 12) 

The Joint Advocacy comment4

 (submitted by ASAP) stated that the limited scope 

of the December 2009 NOPR TSL 5 (i.e., the TSL requiring electric storage water heaters 

4

 The joint advocacy comment was submitted by ASAP on behalf of multiple organizations, including: 

ACEEE, National Association of State Energy Officers, California Energy Commission, Consumer 

Federation of America, PG&E, ASE, ASAP, National Consumer Law Foundation, NRDC, National Grid, 

National Insulation Association, North American Insulation Manufacturers Association, NEEP, NPCC, 

Sierra Club, Iowa Office of Energy, New Hampshire Office of Energy and Planning, Office of the Ohio 

Consumers’ Council, California Public Utilities Commission, New Mexico Public Regulation Commission, 

Public Utility Commission of Oregon, New Jersey Board of Public Utilities, Community Environmental 

Center, Conservation Law Foundation, Environmental Defense Fund, Environment America, 

Environmental Law and Policy Center, Environmental and Energy Study Institute, Midwest Energy 

Efficiency Alliance, Southern Alliance for Clean Energy, Southwest Energy Efficiency Project, Urban 

Green Council (U.S. Green Building Council of New York), Arizona PIRG, Energy Coordinating Agency 

of Philadelphia, Environment Illinois, Environment Texas, Michigan Environmental Council, NW Energy 

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larger than 55 gallons to use heat pump water heater technology), combined with the 

five-year lead time before the compliance date, will make the new standards more 

manageable for manufacturers, equipment installers, and servicers than standards which 

effectively require heat pump water heaters and condensing gas products in all sizes. (The 

Joint Advocacy Comment, No. 102 at p. 2) 

ASE stated that for the December 2009 NOPR’s TSL 5, the advanced technology 

requirements are limited to a modest share of total water heater shipments, which is a 

sensible means of addressing the issue of manufacturers being able to scale up the 

production of these products to meet the needs of the market. (ASE, No. 77 at p. 2) 

A.O. Smith stated that a facility to produce 2 million heat pump water heaters per 

year (i.e., A.O. Smith’s approximate share of the entire electric storage water heater 

market) would take 2-3 years to implement. (A.O. Smith, No. 76 at p. 3) 

Daikin stated that heat pump technology can be easily introduced to existing 

electric resistance water heater manufacturers from the air conditioning and refrigerator 

manufacturing sectors. The commenter noted that European and Japanese electric 

resistance heat pump manufacturers have already obtained the necessary heat pump 

technology and have heat pump water heater manufacturing lines up and running. Daikin 

stated its belief that taking into account the significance of the introduction of heat pump 

Coalition, Ohio Environmental Council, Oklahoma Sustainability Network, Texas Ratepayer’s 

Organization to Save Energy, National Community Action Foundation, and Fresh Energy. 

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technology to unfamiliar manufacturers, at least one to two years would be required for 

this change to be implemented after publication of the final rule. (Daikin, No. 82 at p. 2) 

After reviewing the comments from interested parties above, DOE believes that 

integrated heat pump water heaters and condensing gas-fired storage water heaters were 

properly screened in for the December 2009 NOPR analysis, and DOE continued to 

consider this technology for the final rule analysis. Based on the comments of interested 

parties, including those from manufacturers, DOE has concluded that given the five-year 

lead time, the practicability to manufacture, install, and service heat pump water heaters 

and condensing gas-fired storage water heaters is not a concern that would justify 

eliminating these technologies from consideration in this analysis. However, DOE further 

considered the concerns of interested parties regarding heat pump water heaters and 

condensing gas-fired storage water heaters for the selection of the final standard level. 

Because DOE did not change any of its conclusions about the screening analysis 

for technologies for the December 2009 NOPR analysis, DOE screened in the same 

technologies for the final rule (shown in Table IV.3 through Table IV.5). For more 

information about the technologies that were screened out, and the reasoning for those 

options being screened out, see chapter 4 of the final rule TSD. 

DOE believes that all of the efficiency levels discussed in today’s notice are 

technologically feasible. The technologies that DOE examined have been used (or are 

being used) in commercially-available products or working prototypes. Furthermore, 

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these technologies all incorporate materials and components that are commercially 

available in today’s supply markets for the residential heating products that are the 

subject of this final rule. 

C. Engineering Analysis 

The engineering analysis develops cost-efficiency relationships to show the 

manufacturing costs of achieving increased efficiency. As explained in the December 

2009 NOPR, DOE conducted the engineering analysis for heating products using both the 

efficiency level approach to identify incremental improvements in efficiency for each 

product and the cost-assessment approach to develop the manufacturer production cost 

(MPC) at each efficiency level. 74 FR 65852, 65879-96 (Dec. 11, 2009). DOE first 

identified the most common residential heating products on the market and determined 

their corresponding efficiencies and the distinguishing technology features associated 

with those levels. After identifying the most common products that represent a crosssection of the market, DOE gathered information about these selected products using 

reverse-engineering methodologies, product information from manufacturer catalogs, and 

discussions with manufacturers and other experts of water heaters, DHE, and pool 

heaters. This approach provided useful information, including identification of potential 

technology paths manufacturers use to increase energy efficiency. 

DOE used information gathered by reverse-engineering multiple manufacturers’ 

products spanning the range of efficiency levels for each of the three product categories 

to generate bills of materials (BOMs), which describe each product in detail, including all 

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manufacturing steps required to make and/or assemble each part. DOE developed a cost 

model that converted the raw information BOMs into MPCs. By applying derived 

manufacturer markups to the MPCs, DOE calculated the manufacturer selling prices 

(MSPs) and constructed industry cost-efficiency curves. 

In response to the December 2009 NOPR, DOE received comments from 

interested parties on various aspects of the engineering analysis, including: (1) efficiency 

levels analyzed and technology options; (2) manufacturer production costs; (3) shipping 

costs; (4) scaling of storage water heater MPCs to other storage volumes; and (5) the 

energy efficiency equations. A further discussion of the engineering analysis 

methodology, a discussion of the comments DOE received, DOE’s response to those 

comments, and any changes DOE made to the engineering analysis methodology or 

assumptions as a result of those comments is presented in the sections below. See chapter 

5 of the final rule TSD for additional details about the engineering analysis. 

1. Representative Products for Analysis 

As explained in the December 2009 NOPR, DOE reviewed all of the product 

classes of residential water heaters, DHE, and pool heaters for the engineering analysis. 

Within each product type, DOE chose units for analysis that represent a cross-section of 

the residential heating products market. The December 2009 NOPR contains specific 

details about DOE’s selection of representative units for each type of heating product. 74 

FR 65852, 65879-81 (Dec. 11, 2009). The analysis of these representative products 

allowed DOE to identify specific characteristics that could be applied to all of the 

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products across a range of storage and input capacities, as appropriate. In response to the 

December 2009 NOPR, DOE did not receive any comments regarding the representative 

units analyzed, and as a result, DOE did not change the representative units from the 

December 2009 NOPR analysis. The representative units for each product class are 

shown in Table IV.6 below. For more details about the selection of the representative 

units for each product class, see chapter 5 of the final rule TSD. 

Table IV.6 Representative Products Analyzed 

Residential Water Heaters 

Residential Water Heater Class Representative Storage Volume 

(gallons) 

Gas-Fired Storage Type 40 

Electric Storage Type 50 

Oil-fired Storage Type 32 

Instantaneous Gas Fired 0 

(199,000 Btu/h input capacity) 

Direct Heating Equipment 

Direct Heating Equipment Design Type Representative Input Rating Range (Btu/h) 

Gas Wall Fan Over 42,000 

Gas Wall Gravity Over 27,000 and up to 46,000 

Gas Floor Over 37,000 

Gas Room Over 27,000 and up to 46,000 

Gas Hearth Over 27,000 and up to 46,000 

Residential Pool Heaters 

Pool Heaters Product Class Representative Input Rating (Btu/h) 

Gas-fired Pool Heaters 250,000 

2. Efficiency Levels Analyzed 

For each of the representative products, DOE analyzed multiple efficiency levels 

and estimated manufacturer production costs at each efficiency level. These efficiency 

levels were presented in detail in the December 2009 NOPR. 74 FR 65852, 65881-89 

(Dec. 11, 2009). DOE analyzed from the baseline efficiency level to the maximum 

technologically feasible (max-tech) efficiency level for each product class. The baseline 

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units in each product class were used as reference points against which DOE measured 

changes resulting from potential amended energy conservation standards. These units 

generally represent the basic characteristics of equipment in that product class, just meet 

current Federal energy conservation standards, and provide basic consumer utility. DOE 

established intermediate energy efficiency levels for each of the product classes that are 

representative of efficiencies that are typically available on the market through a 

complete review of AHRI’s product certification directory, manufacturer catalogs, and 

other publicly-available literature. DOE determined the maximum improvement in 

energy efficiency that is technologically feasible (max-tech) for water heaters, DHE, and 

pool heaters, as required by section 325(o) of EPCA. (42 U.S.C. 6295(o)). For the 

representative product within a given product class, DOE could not identify any working 

products or prototypes at higher efficiency levels that were currently available beyond the 

identified max-tech level at the time the analysis was performed. 

a. Water Heaters 

Table IV.7 through Table IV.11 in this section show the efficiency levels 

analyzed at the representative rated storage volume for each of the water heater product 

classes for the final rule. These tables also show the technology pathways identified by 

DOE which could be used to reach the identified efficiency levels. DOE received several 

comments (discussed below) in response to the efficiency levels and possible technology 

pathways presented in the December 2009 NOPR for gas-fired storage water heater. 

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Rheem stated that for 40-gallon gas-fired storage water heaters at TSL 4 (i.e., 0.63 

EF), DOE underestimates the insulation thickness that would be required. Rheem 

asserted that 3 inches of insulation would be required to reach this efficiency level, 

instead of the 2 inches that DOE estimated in the December 2009 NOPR. In addition, 

Rheem stated that for 50-gallon electric storage water heaters, DOE estimates 4 inches of 

foam insulation are needed to achieve TSL 4 (i.e., 0.95 EF) but that DOE should 

recognize there are diminishing returns for added foam insulation. Further, Rheem 

asserted that the increased insulation requirements will result in increased product cost, 

shipping cost, life-cycle cost, space constraint frequency, and reduce consumer payback. 

(Rheem, No. 89 at p. 10) Similarly, Bradford White stated that when increasing 

insulation thickness to improve water heater efficiency, there is a diminishing return and 

a point at which increasing insulation does not result in any further efficiency gain. 

Bradford White asserted that to attain the efficiencies in the December 2009 NOPR, 

additional changes would be required besides increasing insulation thickness. (Bradford 

White, No. 61 at p. 1) 

As described in the December 2009 NOPR, DOE performed extensive research 

regarding the technologies required to reach each efficiency level for the representative 

rated storage volumes analyzed. 74 FR 65852, 65884 (December 11, 2009). DOE 

research suggested that the insulation thicknesses listed at various efficiency levels 

identified are consistent with products available on the market. DOE reviewed 

manufacturer literature (which typically includes information on energy factor and 

insulation thicknesses) and then reverse-engineered several gas-fired water heaters to 

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verify the technologies used to improve energy efficiency, including insulation 

thicknesses. For the December 2009 NOPR analysis, DOE also hired an independent 

testing facility to determine the EF of a representative sample of water heaters across 

multiple efficiency levels. (See chapter 5 of the December 2009 NOPR TSD for 

additional details.) These water heaters were subsequently disassembled to verify the 

technologies used to increase energy efficiency. DOE was able to measure the insulation 

thicknesses on the sides, top, and bottom of each water heater unit disassembled. For 

these reasons, DOE believes the results of its assessment of insulation thicknesses at 

various efficiency levels are accurate and maintained the same insulation thicknesses for 

the final rule analysis. 

AGA stated that efficiency level 2 for gas-fired storage water heaters should 

include power venting, because according to industry testing and research, the prevailing 

technology at that level will be a power-vented design, not an atmospheric design. (AGA, 

Public Meeting Transcript, No. 57.4 at pp. 35-36) Further, AGA stated that the majority 

of the models on the market rated at this efficiency level are not atmospherically vented, 

and contended that atmospherically-vented models at 0.63 EF would have recovery 

efficiencies high enough such that they require venting modifications because of the 

possibility for corrosive condensate to occur. (AGA, No. 78 at p. 8) If proper venting is 

not installed, corrosion from condensate can cause leaks in the venting system, which in 

turn can allow combustion by-products (e.g., carbon monoxide) to infiltrate into areas 

where such by-products are not desirable, possibly leading to serious injury or death. 

Thus, AGA recommended that DOE should consider only power-venting technology as 

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the design option at efficiency level 2 for reasons of installation safety and practicality, 

and asserted that continuing to rely upon atmospheric technology for the efficiency level 

2 design would violate statutory requirements for DOE to avoid implementing efficiency 

standards that would pose an increased safety risk to consumers. (AGA, No. 78 at p. 10) 

In response, DOE notes that there are products currently available on the market 

at efficiency level 2 that do not use a power-venting design. The manufacturer literature 

for these products does not indicate that there are certain instances in which the 

installation of these products would be unsafe. Therefore, DOE did not change its 

technology options at efficiency level 2. However, DOE does recognize the venting 

concerns of gas-fired storage water heaters at efficiency level 2 with high recovery 

efficiencies. DOE addresses this issue in section IV.F.2 (Installation Cost). 

A.O. Smith strongly recommended that DOE lower the max-tech level for gasfired storage water heaters from the 0.80 EF level identified in the December 2009 NOPR 

for the representative 40-gallon storage volume. A.O. Smith stated that the 0.80 EF level 

identified as the max-tech for gas-fired storage water heaters by the Super Efficient Gas 

Water Heating Appliance Initiative (SEGWHAI) program and in a presentation by A.O. 

Smith at the 2009 ACEEE Hot Water Forum were based on theoretical modeling, and not 

operational prototypes. A.O. Smith also commented that the ENERGY STAR level of 

0.80 EF is based on similar modeling, and stated that discussions are underway with DOE 

regarding the need to lower the Energy Star level to 0.77 EF. A.O. Smith stated they have 

recently built and tested a number of condensing gas-fired water heater prototypes that 

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result in actual performance that is somewhat lower than predicted by the models. 

Consequently, A.O. Smith expressed support for 0.77 EF as the max-tech level for 40 

gallon gas-fired storage water heaters. (A.O. Smith, No. 76 at pp. 1-2) 

In the preliminary analysis, DOE proposed to use 0.77 EF as the max-tech level 

for gas-fired storage water heaters at the representative rated storage volume (see chapter 

5 of the preliminary analysis TSD for more details). In response to this proposal in the 

preliminary analysis, DOE received comments from interested parties stating that the 

max-tech efficiency level considered for gas-fired storage water heaters in this 

rulemaking should be harmonized with the ENERGY STAR level for residential 

condensing gas-fired storage water heaters, and DOE subsequently revised the max-tech 

level to 0.80 EF for the December 2009 NOPR analysis. 74 FR 65852, 65883 (Dec. 11, 

2009). DOE believes there is some uncertainty regarding the efficiencies that can be 

achieved by gas-fired storage water heaters because there are no products currently 

available on the market and to date only prototypes have been developed for residential 

applications. For the final rule, DOE has reviewed confidential data characterizing the 

performance of residential gas-fired storage water heater prototypes and has concluded 

that 0.77 EF is more representative of the condensing water heaters likely to enter the 

market. As such, DOE has revised its max-tech efficiency level for the final rule so that at 

the 40-gallon representative capacity, the efficiency level is 0.77 EF, as shown in Table 

IV.7. 

Table IV.7 Forty-Gallon Gas-Fired Storage Water Heater (Standard Burner) 

Efficiency Levels 

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Efficiency Level (EF) Technology 

Baseline (EF = 0.59) Standing Pilot and 1” Insulation 

Efficiency Level 1 (EF = 0.62) Standing Pilot and 1.5” Insulation 

Efficiency Level 2 (EF = 0.63) Standing Pilot and 2.0” Insulation 

Efficiency Level 3 (EF = 0.64) Electronic Ignition, Power Vent and 1” 

Insulation 

Efficiency Level 4 (EF = 0.65) Electronic Ignition, Power Vent and 1.5” 

Insulation 

Efficiency Level 5 (EF = 0.67) Electronic Ignition, Power Vent and 2” 

Insulation 

Efficiency Level 6 – Max-Tech (EF = 0.77) Condensing, Power Vent, 2” Insulation 

Regarding the technology options for ultra-low NOX gas-fired storage water 

heaters, ACEEE stated that once an inducer fan is added to an ultra-low NOX product, the 

ultra-low NOX design factor is not a prohibitive feature. (ACEEE, Public Meeting 

Transcript, No. 57.4 at pp. 127) A.O. Smith stated that the only way for ultra-low NOX 

water heaters to overcome the additional restriction added by increased flue baffling 

(needed to promote heat exchange and increase efficiency) would be to add a blower 

and/or power-burner to the heater, which would greatly increase the manufacturing and 

installation costs of the heater. (AO Smith, No. 76 at p. 2) 

DOE tentatively concluded in the December 2009 NOPR that ultra-low NOX gasfired water heaters require the introduction of additional technologies to achieve the same 

efficiency as standard gas-fired water heaters. For the December 2009 NOPR, DOE 

performed a teardown analysis of ultra-low NOX gas-fired storage water heaters. 74 FR 

65852, 65881 (Dec. 11, 2009). (Details about DOE’s December 2009 NOPR analysis of 

ultra-low NOX storage water heaters are available in chapter 5 of the December 2009 

NOPR TSD.) DOE research showed that implementing power venting and the same 

insulation increases as those for standard gas-fired water heaters would result in slightly 

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lower efficiencies due to the additional pressure restrictions resulting from the addition of 

the ultra-low NOX burner. Therefore, DOE implemented technologies at lower efficiency 

levels for ultra-low NOX gas-fired storage water heaters in order to achieve the same 

efficiencies as those identified for standard gas-fired storage water heaters. Based on the 

teardown analysis of ultra-low NOX water heaters, DOE believes that the levels identified 

for ultra-low NOX gas-fired storage water heaters are achievable using the technologies 

identified in 

Table IV.8. In its comments, ACEEE does not present any new data or evidence to 

support its assertion that once a power venting design is implemented, ultra-low NOX 

gas-fired storage water heaters can achieve the same efficiencies as gas-fired water 

heaters with standard burners. As a result, DOE maintained the technologies and 

efficiency levels identified in the December 2009 NOPR for the final rule, with the 

exception of the max-tech level, which was reduced to 0.77 EF for the reasons described 

above. 

Table IV.8 Forty-Gallon Gas-Fired Storage Water Heater (Ultra-low NOX Burner) 

Efficiency Levels 

Efficiency Level (EF) Technology 

Baseline (EF = 0.59) Standing Pilot and 1” Insulation 

Efficiency Level 1 (EF = 0.62) Standing Pilot and 2” Insulation 

Efficiency Level 2 (EF = 0.63) Electronic Ignition, Power Vent, and 1” 

Insulation 

Efficiency Level 3 (EF = 0.64) Electronic Ignition, Power Vent and 1.5” 

Insulation 

Efficiency Level 4 (EF = 0.65) Electronic Ignition, Power Vent and 2” 

Insulation 

Efficiency Level 5 (EF = 0.67) Not Attainable (would go to condensing) 

Efficiency Level 6 – Max-Tech (EF = 0.77) Condensing, Power Vent, 2” Insulation 

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DOE also received several comments relating to the max-tech efficiency levels 

for electric storage water heaters, which was identified as 2.2 EF at the 50-gallon 

representative rated storage volume in the December 2009 NOPR. 74 FR 65852, 65884 

(Dec. 11, 2009). GE stated that the heat pump water heater it has in production has an EF 

of 2.35 at standard DOE test conditions, which is higher than the max-tech level 

identified in the December 2009 NOPR for electric storage water heaters. (GE, No. 84 at 

p.1) A.O. Smith also stated that the 2.2 EF max-tech in the December 2009 NOPR is too 

low, citing the GE heat pump water heater that is rated at 2.3 EF as evidence. A.O. Smith 

stated that the heat pump water heater max-tech level should be increased to 2.3 EF or 

higher if there is data available showing higher levels are feasible. (A.O. Smith, No. 76 at 

p. 2) Further, A.O. Smith stated that because of heat pumps using CO2 as a refrigerant 

and because other heat pump technologies exist, the max-tech possible is higher than 2.2 

EF. (A.O. Smith, Public Meeting Transcript, No. 57.4 at p. 131) ACEEE stated that DOE 

does not have an appropriate max-tech for electric storage water heaters because it 

inappropriately screened out CO2 heat pump water heaters, which are commercially 

available in other countries. (ACEEE, Public Meeting Transcript, No. 57.4 at p. 130) 

Additionally, ACEEE stated that the GE product with an EF of 2.35 exceeds DOE’s 

December 2009 NOPR max-tech level of 2.2 EF (ACEEE, No. 79 at p. 8) 

Daikin stated that DOE's proposed max-tech for heat pump water heaters of 2.2 

EF is reasonable and appropriate, and is an achievable standard for heat pump water 

heaters. (Daikin, No. 82 at p.1) 

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 Inresponse, DOE estimated the max-tech efficiency for electric storage water 

heaters for the December 2009 NOPR before any integrated heat pump water heaters 

were commercially available on the market. In the time since the December 2009 

NOPR’s publication, several heat pump water heater models have become available to 

consumers. The highest EF of the heat pump water heater models currently on available 

on the market is 2.35 EF at 50 gallons. While DOE does acknowledge A.O. Smith’s and 

ACEEE’s point that a CO2 heat pump water heater could provide an even higher EF, that 

technology was screened out during the screening process (see section IV.B.1), and DOE 

is not considering that technology as a viable way of reaching the max-tech level. As a 

result, DOE has revised the max-tech level for the final rule to be 2.35 EF at the 

representative 50-gallon rated storage volume, as shown in Table IV.9. 

Table IV.9 Fifty-Gallon Electric Storage Water Heater Efficiency Levels 

Efficiency Level (EF) Technology 

Baseline (EF = 0.90) 1.5” Foam Insulation 

Efficiency Level 1 (EF = 0.91) 2” Foam Insulation 

Efficiency Level 2 (EF = 0.92) 2.25” Foam Insulation 

Efficiency Level 3 (EF = 0.93) 2.5” Foam Insulation 

Efficiency Level 4 (EF = 0.94) 3” Foam Insulation 

Efficiency Level 5 (EF = 0.95) 4” Foam Insulation 

Efficiency Level 6 (EF = 2.0) Heat Pump Water Heater 

Efficiency Level 7 – Max-Tech (EF = 2.35) Heat Pump Water Heater, More-Efficient 

Compressor 

DOE received only one comment in response to the efficiency levels and 

technology pathways presented in the December 2009 NOPR for oil-fired storage water 

heaters. In the December 2009 NOPR, DOE determined that oil-fired storage water 

heaters would have to use a multi-flue design to achieve efficiency levels 6 and 7 (i.e., 

0.66 and 0.68 EF for the 32-gallon representative rated storage volume). 74 FR 65852, 

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65885-86 (Dec. 11, 2009). Bradford White stated that at the efficiency level proposed in 

the December 2009 NOPR for oil-fired storage water heaters (i.e., efficiency level 5, or 

0.62 EF for the 32 gallon representative rated storage volume), reaching the required 

efficiency will likely require the use of multi-flue designs, thereby adding tremendous 

cost to residential designs. (Bradford White, No. 61 at p. 2) 

In response, DOE identified the technologies at each efficiency level by 

examining the designs of products currently available on the market at each efficiency 

level. Oil-fired storage water heaters are currently available on the market at 0.62 EF, 

which do not utilize a multi-flue design or other proprietary technology. As a result, DOE 

believes that the technology options identified in the December 2009 NOPR at efficiency 

level 5 are appropriate, and has retained the same efficiency levels and technologies for 

the final rule. Accordingly, DOE did not include a multi-flue design at efficiency level 5 

for the final rule analysis. 

Table IV.10 Thirty-Two-Gallon Oil-Fired Storage Water Heater with Burner 

Assembly 

Efficiency Level (EF) Technology 

Baseline (EF = 0.53) 1” Fiberglass Insulation 

Efficiency Level 1 (EF = 0.54) 1.5” Fiberglass Insulation 

Efficiency Level 2 (EF = 0.56) 2” Fiberglass Insulation 

Efficiency Level 3 (EF = 0.58) 2.5” Fiberglass Insulation 

Efficiency Level 4 (EF = 0.60) 2” Foam Insulation 

Efficiency Level 5 (EF = 0.62) 2.5” Foam Insulation 

Efficiency Level 6 (EF = 0.66) 1” Fiberglass Insulation, and Multi-Flue Design 

Efficiency Level 7 – Max-Tech (EF = 0.68) 1” Foam Insulation, and Multi-Flue Design 

DOE did not receive any comments in response to the efficiency levels and 

technology options presented in the December 2009 NOPR analysis for gas-fired 

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instantaneous water heaters. 74 FR 65852, 65886-87 (Dec. 11, 2009). DOE believes that 

the efficiencies and technology options presented for gas-fired instantaneous water 

heaters in the December 2009 NOPR are still valid and continued to use the same 

technologies and efficiency levels in the final rule analysis. 

Table IV.11 Zero-Gallon Gas-Fired Instantaneous Water Heater, 199,000 Btu/h 

Input Capacity 

Efficiency Level (EF) Technology 

Baseline (EF = 0.62) Standing Pilot 

Efficiency Level 1 (EF = 0.69) Standing Pilot and Improved Heat Exchanger 

Area 

Efficiency Level 2 (EF = 0.78) Electronic Ignition And Improved Heat 

Exchanger 

Efficiency Level 3 (EF = 0.80) Electronic Ignition and Power Vent 

Efficiency Level 4 (EF = 0.82) Electronic Ignition, Power Vent, Improved Heat 

Exchanger Area 

Efficiency Level 5 (EF = 0.84) Electronic Ignition, Power Vent, and Improved 

Heat Exchanger Area 

Efficiency Level 6 (EF = 0.85) Electronic Ignition, Power Vent, Direct Vent, 

and Improved Heat Exchanger Area 

Efficiency Level 7 (EF = 0.92) Electronic Ignition, Power Vent, Direct Vent, 

Condensing 

Efficiency Level 8 – Max Tech (EF = 0.95) Electronic Ignition, Power Vent, Direct Vent, 

Condensing (Max-Tech) 

b. Direct Heating Equipment 

Table IV.12 through Table IV.16 present the efficiency levels DOE examined for 

the final rule analysis for DHE. In the December 2009 NOPR analysis, DOE identified 

various efficiency levels for gas wall fan DHE. 74 FR 65852, 65887 (Dec. 11, 2009). 

DOE did not receive any comments pertaining to its efficiency levels or technologies 

identified for the gas wall fan product in the December 2009 NOPR analysis. After 

reviewing the efficiency levels and technologies, DOE has determined that the same 

efficiency levels and technologies are still appropriate and continued to use them in the 

final rule analysis. 

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Table IV.12 Gas Wall Fan-Type DHE (Over 42,000 Btu/h) Efficiency Levels 


Efficiency Level (AFUE) Technology 

Baseline 

(AFUE = 74) 

Standing Pilot 

Efficiency Level 1 

(AFUE = 75) 

Intermittent Ignition and Two-Speed Blower 

Efficiency Level 2 

(AFUE = 76) 

Intermittent Ignition and Improved Heat Exchanger 

Efficiency Level 3 

(AFUE = 77) 

Intermittent Ignition, Two-Speed Blower, and Improved Heat 

Exchanger 

Efficiency Level 4 – Max-Tech 

(AFUE = 80) 

Induced Draft and Electronic Ignition 

For gas wall gravity DHE, DOE identified efficiency levels and technology 

options in the December 2009 NOPR analysis, which included a 72-percent AFUE level 

as the max-tech that could be achieved using electronic ignition. 74 FR 65852, 65887-88 

(Dec. 11, 2009). DOE received several comments in response to the efficiency levels and 

technologies for gas wall gravity DHE presented in the December 2009 NOPR. These 

comments and DOE’s response are discussed below. 

Williams stated that due to factors such as interior stud-wall installation, the lack 

of an electricity requirement, and limited height footprint, gravity wall heaters do not 

lend themselves to the addition of a fan, and the commenter asserted that the TSD 

recommendations centered almost exclusively on the incorporation of a fan for improving 

efficiency of DHE. (Williams, No. 96 at p. 2) Further, Williams stated that a threepercent AFUE difference between a gravity wall and fan wall heater is not plausible. 

Williams also commented that DOE's assumption that increased efficiencies of three 

percent to nine percent can be attained by using an electronic ignition is unproven. 

(Williams, No. 96 at p. 2) 

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Empire stated that to improve efficiency of DHE, larger heat exchanger surface 

areas would be needed and, as a result, the overall size of the unit may increase. 

Furthermore, Empire stated that many of the modifications necessary to improve the 

efficiency of gas wall gravity DHE would require electricity. (Empire, Public Meeting 

Transcript, No. 57.4 at p. 166) LTS stated that it is not optimistic that it could 

manufacture gravity wall furnaces at the proposed level, because meeting that level 

would require a larger heat exchanger and cabinet and, consequently, the product would 

lose its retrofit ability. (LTS, No. 56.7 at p. 1) 

In consideration of the comments above, DOE reevaluated its efficiency levels 

and technologies for gas wall gravity DHE for the final rule. After reexamining the 

current market for gas wall gravity DHE for the final rule, DOE concluded that at the 

efficiency levels analyzed by DOE in the December 2009 NOPR, some gas wall gravity 

DHE models are available on the market, but these models are not in the representative 

rated capacity range. Therefore, DOE revised the efficiency levels analyzed for the final 

rule to more accurately reflect the current market for products within the representative 

rated capacity. DOE notes that the revised efficiency levels do not require the use fans, 

and allow for heat exchangers to be sized so that the units can be easily retrofitted. In 

addition, although no gas wall gravity products that use an electronic ignition system are 

available on the market, DOE maintained the assumption from the December 2009 

NOPR that an electronic ignition could be added to gas wall gravity products to improve 

the AFUE by 1 percent. DOE does not believe that a reduction of consumer utility will 

occur by requiring electrical power for an electronic ignition because these products 

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could incorporate a battery backup to mitigate any concerns about operation during 

power outages. 

Regarding Williams’ assertion that the AFUE increases from an electronic 

ignition have not been proven, DOE agrees that the actual AFUE increase resulting from 

the addition of an electronic ignition will be highly variable based on the characteristics 

of each individual product, and the results of this have not been demonstrated in gas wall 

gravity DHE on the market. Because no products are available on the market in this 

product class that utilize electronic ignition, it is difficult to determine the exact impact of 

utilizing an electronic ignition for gas wall gravity DHE. However, consideration under 

the DOE test procedures for vented home heating equipment (10 CFR part 430, subpart 

B, appendix O) led DOE to believe it is reasonable to assume that a 1-percent increase in 

AFUE would be achieved with the addition of an electronic ignition. Section 4.1.17 of 

DOE’s test procedures for vented home heating equipment lists the AFUE equation as: 

AFUE = 0.9681ss-wt – 1.78DF – 1.89DS – 129PF – 2.8LJ + 1.81 

Of particular relevance in the AFUE equation above is the PF term, which is the 

pilot fraction and accounts for the AFUE reduction caused by the standing pilot. PF is 

defined as the ratio of the pilot light input to the total input of the product. If DOE 

assumes a typical pilot light input of 400 Btu/h, the minimum pilot fraction for the 

representative input range for gas wall gravity DHE would be 0.009. When multiplied by 

the 129 coefficient provided in the equation, a pilot fraction of 0.009 would yield slightly 

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over a 1-percent AFUE reduction according to the equation. Therefore, DOE assumes 

that the elimination of a standing pilot would provide about a 1-percent AFUE increase 

for the representative capacity range. DOE used gas wall gravity DHE with an electronic 

ignition to represent the max-tech efficiency level because the incorporation of electronic 

ignition does not require significant modifications to the installation space that would 

limit consumers’ ability to retrofit the product. Table IV.13 shows the revised efficiency 

levels for gas wall gravity DHE that were used in the final rule analysis. 

Table IV.13 Gas Wall Gravity DHE (Over 27,000 Btu/h and up to 46,000 Btu/h) 

Efficiency Levels 

Efficiency Level (AFUE) Technology 

Baseline (AFUE = 64) Standing Pilot 

Efficiency Level 1 (AFUE = 66) Standing Pilot and Improved Heat Exchanger 

Efficiency Level 2 (AFUE = 68) Standing Pilot and Improved Heat Exchanger 

Efficiency Level 3 (AFUE = 69) Standing Pilot and Improved Heat Exchanger 

Efficiency Level 4 – Max Tech (AFUE = 70) Electronic Ignition 

For gas floor DHE, gas room DHE, and gas hearth DHE, DOE surveyed the 

market and identified a number of efficiency levels for these products based on the 

technologies available for each product class in the December 2009 NOPR analysis. 74 

FR 65852, 65888 (Dec. 11, 2009). DOE did not receive any comments about the 

efficiency levels and technologies identified for these products. After reviewing the 

efficiency levels and technologies for each of these three product classes, DOE 

determined that the efficiency levels and technologies examined in the December 2009 

NOPR are still appropriate and maintained them for the final rule analysis. Table IV.14 

through Table IV.16 show the efficiency levels analyzed for gas floor, gas room, and gas 

hearth DHE. 

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Table IV.14 Gas Floor DHE (Over 37,000 Btu/h) Efficiency Levels 


Efficiency Level (AFUE) Technology 

Baseline (AFUE = 57) Standing Pilot 

Efficiency Level 1 – Max Tech 

(AFUE = 58) 

Standing Pilot and Improved Heat Exchanger 

Table IV.15 Gas Room DHE (Over 27,000 Btu/h and up to 46,000 Btu/h) Efficiency 

Levels 

Efficiency Level (AFUE) Technology 

Baseline (AFUE = 64) Standing Pilot 

Efficiency Level 1 (AFUE = 65) Standing Pilot and Improved Heat Exchanger 

Efficiency Level 2 (AFUE = 66) Standing Pilot and Improved Heat Exchanger 

Efficiency Level 3 (AFUE = 67) Standing Pilot and Improved Heat Exchanger 

Efficiency Level 4 (AFUE = 68) Standing Pilot and Improved Heat Exchanger 

Efficiency Level 5 – Max Tech (AFUE = 83) Electronic Ignition and Multiple Heat Exchanger 

Design 

Table IV.16 Gas Hearth DHE (Over 27,000 Btu/h and up to 46,000 Btu/h) Efficiency 

Levels 

Efficiency Level (AFUE) Technology 

Baseline (AFUE = 64) Standing Pilot 

Efficiency Level 1 (AFUE = 67) Electronic Ignition 

Efficiency Level 2 (AFUE = 72) Fan Assisted 

Efficiency Level 3 – Max Tech (AFUE = 93) Condensing 

c. Pool Heaters 

Table IV.17 shows the efficiency levels analyzed for the final rule analysis for 

pool heaters. In response to the December 2009 NOPR analysis, DOE received several 

comments related to the efficiency levels and technologies identified for pool heaters, 

particularly for efficiency level 5 (i.e., 84-percent thermal efficiency). 

AHRI asserted that DOE has incorrectly analyzed the measures required to 

manufacture gas-fired pool heaters capable of achieving a minimum thermal efficiency of 

84 percent. Further, AHRI stated that manufacturers must design products to address the 

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entire range of installation situations that the product could experience, and if a particular 

replacement installation presents concerns about possible excessive condensation for a 

heater with 83- or 84-percent thermal efficiency, the option currently exists to install a 

slightly less efficient pool heater and minimize this concern. However, AHRI asserted 

that because this option will no longer exist if DOE adopts TSL 4, manufacturers will 

have to use more corrosion-resistant (and more expensive) stainless steel in the heat 

exchangers. (AHRI, No. 91 at p. 9) 

Similarly, Raypak stated its belief, based on their own testing conducted to 

evaluate ways to achieve higher efficiency from their products that more-expensive 

stainless steel materials will be required to properly deal with the increased amount of 

condensate at higher efficiency levels (i.e., anything greater than TSL 2). Further, Raypak 

stated that atmospheric products currently on the market do condense (although they are 

designed to minimize condensation), so increasing the efficiency level will both increase 

the amount of condensation and reduce the life of the product, unless more-expensive 

stainless steel materials are used to manage condensate more effectively. (Raypak, No. 67 

at p. 3) 

Zodiac also stated that 84-percent thermal efficiency for gas-fired pool heaters 

approaches the point at which condensing occurs, and that condensation as a byproduct of 

combustion is acidic and can cause corrosion to important components of the heater, 

including the venting material if the proper type of venting is not installed. Zodiac stated 

that corrosion from condensate can lead to leaks in the venting system, which in turn can 

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allow combustion by-products to infiltrate into areas where such by-products are not 

desirable. Zodiac asserted this can subsequently contribute to creating a carbon monoxide 

hazard in the event that abnormal combustion ever occurs, which can lead to serious 

injury or death. (Zodiac, No. 68 at pp. 1-2) 

In response to these comments, DOE notes that in the engineering analysis, DOE 

examined pool heaters that are currently available on the market at 84-percent thermal 

efficiency. DOE determined that these products did not incorporate stainless steel heat 

exchangers. In addition, manufacturer literature does not specify instances when these 

products could cause unsafe installations, and where less-efficient products should be 

used to minimize corrosive condensate. Instead, manufacturer literature advertises safety 

features that minimize condensate, such as a manual bypass that will raise the incoming 

water temperature to reduce the formation of corrosive condensate. Because these 

products currently exist on the market and seem to be capable of safe operation with 

condensate being mitigated using less expensive methods than incorporating stainless 

steel materials, DOE did not consider stainless steel heat exchangers at 84-percent 

thermal efficiency for the final rule. Additionally, DOE notes that typically pool heaters 

are installed outdoors or outside of the living space, so these products are unlikely to 

cause safety concerns in most installations. DOE does not believe manufacturers would 

largely deviate from the designs currently on the market in the event of a standard at this 

efficiency level, and, thus, DOE based its technologies on products currently available on 

the market at 84-percent thermal efficiency. As a result, DOE maintained the pool heater 

efficiency levels analyzed for the December 2009 NOPR in the final rule analysis. 

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Table IV.17 Gas-Fired Pool Heater (250,000 Btu/h) Efficiency Levels 


Efficiency Level (Thermal Efficiency) Technology 

Baseline (Thermal Efficiency = 78)* 

Efficiency Level 1 (Thermal Efficiency = 79)* Improved Heat Exchanger Design 

Efficiency Level 2 (Thermal Efficiency = 81)* Improved Heat Exchanger Design 

Efficiency Level 3 (Thermal Efficiency = 82)* Improved Heat Exchanger Design, More 

Effective Insulation (Combustion Chamber) 

Efficiency Level 4 (Thermal Efficiency = 83) Power Venting 

Efficiency Level 5 (Thermal Efficiency = 84) Power Venting, Improved Heat Exchanger 

Design 

Efficiency Level 6 (Thermal Efficiency = 86) Sealed Combustion, Improved Heat 

Exchanger Design 

Efficiency Level 7 (Thermal Efficiency = 90) Sealed Combustion, Condensing 

Efficiency Level 8 – Max-Tech 

(Thermal Efficiency = 95) 

Sealed Combustion, Condensing, Improved 

Heat Exchanger Design 

*Technologies incorporating either a standing pilot or electronic ignition. Efficiency Levels above 3 

include electronic ignition. 

3. Cost Assessment Methodology 

a. Manufacturer Production Cost 

As explained in the December 2009 NOPR, DOE’s process for developing 

manufacturer production costs (MPCs) consisted of several steps. First, DOE selected 

representative models that corresponded to the representative rated storage volumes and 

input capacities, and that represented the most common designs and characteristics 

available in products on the market. DOE then performed a teardown analysis of the 

selected models, which included disassembling the selected products into their base 

components and characterizing each component according to its weight, dimensions, 

material, quantity, and the manufacturing processes used to fabricate and assemble it. The 

teardown analysis for this rulemaking included a total of over 60 physical and virtual 

teardowns of water heaters, DHE, and pool heaters during the preliminary and NOPR 

analysis phases. 74 FR 65852, 65889-93 (Dec. 11, 2009). 

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DOE used the data gathered during the teardown analysis to generate bills of 

materials (BOMs) that incorporate all materials, components, and fasteners classified as 

either raw materials or purchased parts and assemblies, and characterize the materials and 

components by weight, manufacturing processes used, dimensions, material, and 

quantity. DOE developed a cost model using Microsoft Excel that converts the materials 

and components in the BOMs into dollar values based on the price of materials, labor 

rates associated with manufacturing and assembling, and the cost of overhead and 

depreciation. To convert the information in the BOMs to dollar values, DOE collected 

information on labor rates, tooling costs, raw material prices, and other factors. For 

purchased parts, the cost model estimates the purchase price based on volume-variable 

price quotations and detailed discussions with manufacturers and component suppliers. 

For fabricated parts, the prices of raw metal materials (e.g., tube, sheet metal) are 

estimated on the basis of 5-year averages. The cost of transforming the intermediate 

materials into finished parts is estimated based on current industry pricing. 

For the final rule analysis, DOE updated all of the labor rates, tooling costs, raw 

material prices, and the purchased parts costs. DOE calculated new 5-year average 

materials prices using the U.S. Department of Labor’s Bureau of Labor Statistics (BLS) 

Producer Price Indices (PPIs) for various raw metal materials from 2005 to 2009, which 

incorporate the changes within each material industry and inflation. DOE also used BLS 

PPI data to update current market pricing for other input materials such as plastic resins 

and purchased parts. Finally, DOE adjusted all averages to 2009$ using the gross 

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domestic product implicit price deflator. Chapter 5 of the final rule TSD describes DOE’s 

cost model and definitions, assumptions, and estimates. 

Additionally, because integrated heat pump water heaters became available on the 

market before the completion of the final rule analysis, DOE was able to perform 

teardown analyses and develop detailed BOMs for multiple heat pump water heaters. 

DOE used the BOMs to develop the MPCs for heat pump water heaters, which DOE 

found affirmed the MPCs developed for the December 2009 NOPR analysis that were 

based on a theoretical heat pump water heater design (since no heat pump water heaters 

were available on the market at the time of the December 2009 NOPR analysis). The 

teardown analysis of heat pump water heaters allowed DOE to refine its MPCs for these 

products for the final rule analysis. 

DOE received several comments in response to the manufacturer production costs 

and methodology presented in the December 2009 NOPR. ACEEE stated its 

disappointment that DOE did not perform retrospective analysis of the costs of products 

affected by changes in efficiency standards. ACEEE recommended that DOE balance the 

current approach to developing the cost-efficiency relationship by considering the 

historical results of rulemakings, arguing that manufacturer production costs for product 

redesigns almost inevitably result in lower consumer prices for more-efficient goods than 

DOE has typically estimated in its rulemaking analyses for energy conservation 

standards. Further, ACEEE stated that DOE’s reasoning that it cannot speculate about 

specific changes manufacturers might adopt, is no reason to reject analysis of the 

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historical pattern of manufacturer responses. ACEEE cited published work by a DOE 

contractor purportedly showing that most standards yield consumer prices lower than 

projected by the Department, and ACEEE stated that empirical results are simply more 

credible than those relied upon in DOE’s rulemaking record, particularly for the future 

costs of products that include technology shifts and very low market shares today, such as 

heat pump water heaters. (ACEEE, No. 79 at p. 3) 

In response, DOE reiterates its tentative conclusion in the December 2009 NOPR 

that DOE’s manufacturing cost estimates seek to gauge the most likely industry response 

to meet the requirements of proposed energy conservation standards. DOE’s analysis of 

manufacturing cost must be based on currently-available technology that would provide a 

nonproprietary pathway for compliance with a standard once it becomes effective, and, 

thus, DOE cannot speculate on future product and market innovation. In response to a 

change in energy conservation standards, manufacturers have made a number of changes 

to reduce costs in the past. DOE understands manufacturers have re-engineered products 

to reduce cost, made changes to manufacturing process to reduce labor costs, and moved 

production to lower-cost areas to reduce labor costs. However, these are individual 

company decisions, and it is impossible for DOE to forecast such decisions. DOE does 

not know of any data that would allow it to determine the precise course a manufacturer 

may take. Furthermore, while manufacturers have been able to reduce the cost of 

products that meet previous energy conservation standards, there are no data to suggest 

that any further reductions in cost are possible. Therefore, it would not be appropriate to 

speculate about cost reduction based upon prior actions of manufacturers of either the 

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same or other products. Setting energy conservation standards upon relevant data is 

particularly important given EPCA’s anti-backsliding provision at 42 U.S.C. 6295(o)(1). 

At the December 2009 NOPR public meeting, A.O. Smith stated that the cost 

impact studies for ultra-low NOX in combination with condensing technology should be 

reworked extensively because it is significantly more complex to implement an ultra-low 

NOX design with a condensing gas-fired water heater than a non-condensing gas-fired 

water heater. (A.O. Smith, Public Meeting Transcript, No. 57.4 at p. 124) A.O. Smith 

also commented at the public meeting that for ultra-low NOX gas-fired storage water 

heaters, the MPC at efficiency level 6 for an ultra-low NOX condensing gas water heater 

is considerably too low (A.O. Smith, Public Meeting Transcript, No. 57.4 at p. 139) 

However, in its written submission, A.O. Smith stated that they believe DOE’s 

manufacturer production costs in the December 2009 NOPR are all reasonably accurate. 

(A.O. Smith, No. 76 at p. 3) DOE believes A.O. Smith’s written statement clarified A.O. 

Smith’s opinion regarding the manufacturer production costs, and thus, DOE did not 

change its approach to developing MPCs for ultra-low NOX condensing water heaters. 

Turning to pool heaters, AHRI stated that the manufacturing cost for pool heater 

models to comply with TSL 4 (i.e., 84-percent thermal efficiency) is underestimated by 

DOE. (AHRI, No. 91 at p. 8) Similarly, Raypak asserted that DOE does not account for 

the stainless steel material improvements (a significant cost increase) at any TSL below 

fully condensing. (Raypak, No. 67 at p. 3) 

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In response, DOE did not include the cost of a stainless steel heat exchanger 

design in its analysis of pool heaters at 84-percent thermal efficiency, because DOE’s 

MPC for this product is based on models at 84-percent thermal efficiency that are 

currently available on the market, as explained in section IV.C.2.c, DOE does not have 

sufficient reason to believe that in the event of a minimum energy conservation standard 

at this efficiency level, manufacturers would completely redesign their products at this 

efficiency. Thus, DOE disagrees with AHRI and Raypak, and does not believe that the 

pool heater MPC at 84-percent thermal efficiency was underestimated for the December 

2009 NOPR and has continued to use that MPC for the final rule analysis. 

b. Manufacturer Selling Price 

The manufacturer selling price (MSP) is the price at which the manufacturer can 

recover all production and non-production costs and earn a profit. The MSP should be 

high enough to recover the full cost of the product (i.e., full production and nonproduction costs), and yield a profit. For heating products, DOE calculates the MSP in 

one of two ways, depending on the product type. For gas-fired instantaneous water 

heaters, DHE, and pool heaters, the MSP is the MPC multiplied by a manufacturer 

markup. For gas-fired, electric, and oil-fired storage water heaters, the size of the unit is 

largely dependent on the final standard requirement, and as a result, the shipping costs are 

much different at each efficiency level. Therefore, in the December 2009 NOPR analysis, 

DOE separated the shipping costs of storage water heaters from the manufacturer markup 

to more transparently show the impacts of standards on the shipping costs of storage 

water heaters. The MSP for gas-fired, electric, and oil-fired storage water heaters was 

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calculated as the MPC multiplied by the manufacturer markup (less the percentage of 

markup usually attributed to shipping cost) plus the shipping cost per unit. See chapter 5 

of the final rule TSD for more information regarding the manufacturer markup. 

i. Manufacturer Markup 

The manufacturer markup is a non-production cost multiplier that DOE applies to 

the full MPC to account for corporate non-production costs and profit. To calculate the 

manufacturer markups for the preliminary analysis, DOE used 10-K reports from 

publicly-owned residential heating products companies. DOE presented the calculated 

markups to manufacturers during interviews conducted for the December 2009 NOPR 

MIA analysis, and considered the feedback from manufacturers in order to supplement 

the calculated markup. DOE then refined the markups for each type of residential heating 

product to better reflect the residential heating products market. DOE used a constant 

markup to reflect the MSPs of the baseline products as well as more-efficient products. 

DOE used this approach because amended standards may result in high-efficiency 

products (which currently are considered premium products) becoming the baselines. 

In regards to the manufacturer markups and methodology for determining 

manufacturer markups in the December 2009 NOPR, DOE did not receive any feedback 

from interested parties. After reviewing the manufacturer markups used for the December 

2009 NOPR, DOE continued to use the same manufacturer markups for the final rule. 

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ii. Shipping Cost for Storage Water Heaters 

The final step in DOE’s cost-assessment methodology was to calculate the 

shipping cost for storage water heaters. Typically, the cost of shipping is fully accounted 

for in the manufacturer markup, and as noted above, this was DOE’s approach for direct 

heating equipment, pool heaters, and gas-fired instantaneous water heaters. For storage 

water heaters, however, shipping costs are highly variable because the size of the unit is 

largely dependent upon the efficiency level being considered. Thus, DOE separated the 

shipping cost from manufacturer markup for storage water heaters. 

For the final rule, DOE used many of the same assumptions used in the December 

2009 NOPR to calculate shipping costs. DOE calculated shipping costs based on a typical 

53-foot straight-frame trailer with a storage volume of 4,240 cubic feet, and assumed an 

average cost of $4,000 per trailer load. DOE examined the average sizes of water heaters 

at each efficiency level and storage volume, and determined the number of units that 

would fit in each trailer based on assumptions about the arrangement of water heaters in 

the trailer. 

In response to the shipping costs presented in the December 2009 NOPR, 

Bradford White stated that the increases in shipping costs at higher efficiency levels are 

far too low. (Bradford White, Public Meeting Transcript, No. 57.4 at pp. 40-41) 

However, DOE notes that Bradford White did not provide any new data regarding 

shipping costs in response to the December 2009 NOPR. Further, Bradford White 

expressed strong disagreement with the shipping costs used for the December 2009 

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NOPR analysis, arguing that at the increased insulation thicknesses presented in the 

December 2009 NOPR, DOE's shipping costs are very much underestimated. (Bradford 

White, No. 61 at p. 1) 

In response to these comments, DOE reexamined the shipping costs for the final 

rule analysis. DOE made several changes to its December 2009 NOPR assumptions for 

the final rule, including changes to the packaging dimensions of heat pump water heaters 

and changes to assumptions about the arrangement power vented gas-fired units on the 

trailer. For example, for the final rule analysis, DOE was able to examine actual heat 

pump water heaters available on the market, which allowed DOE to refine its estimated 

shipping dimensions of these units by increasing the dimensions to more accurately 

reflect the packaging of products that have recently become available to consumers. The 

increased shipping dimensions led to an increase the shipping cost (as manufacturers 

would be able to fit fewer units per shipping load). As a result, DOE was able to revise its 

shipping costs to more accurately reflect the cost to ship products currently available on 

the market. However, DOE notes that the shipping costs developed for the final rule 

represent estimates of the cost per unit shipped if the trailer were fully loaded with the 

same product (i.e., same type of water heater at the same efficiency level and same 

storage volume). DOE recognizes that in reality, manufacturers will likely mix different 

products of various storage volumes and efficiencies to try to optimize the use of space 

within the trailer, which will cause some variation in the actual shipping costs per unit. 

For a full description of shipping costs for storage water heaters, see chapter 5 of the final 

rule TSD. 

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4. Engineering Analysis Results 

The results of the engineering analysis are reported as cost-efficiency data in the 

form of MSP (in dollars) versus efficiency (EF for water heaters, AFUE for DHE, and 

thermal efficiency for pool heaters). The results from the engineering analysis are the 

basis for the subsequent analyses in the final rule and were used in the LCC analysis to 

determine consumer prices for residential heating products at the various potential 

standard levels. Chapter 5 of the final rule TSD provides the full list of MPCs and MSPs 

at each efficiency level for each analyzed representative product. 

5. Scaling to Additional Rated Storage Capacities 

As discussed in the December 2009 NOPR, to account for the large variation in 

the rated storage volumes of residential storage water heaters and differences in both 

usage patterns and first cost to consumers of water heaters larger or smaller than the 

representative capacity, DOE scaled its MPCs and efficiency levels for the representative 

rated storage volumes to several discrete rated storage volumes higher and lower than the 

representative storage volume for each storage water heater product class. 74 FR 65852, 

65893-94 (Dec. 11, 2009) DOE developed the MPCs for water heaters at each of the 

rated storage volumes shown in Table IV.18. The MPCs developed for this analysis were 

used in the downstream LCC analysis, where a distribution of MPCs was used based on 

the estimated market share of each rated storage volume (see section IV.F). 

Table IV.18 Additional Water Heater Storage Volumes Analyzed 

Water Heater Product Class Storage Volumes Analyzed (Gallons, 

U.S.) 

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Gas-fired Storage 30, 50, 65, 75 

Electric Storage 30, 40, 66, 80, 119 

Oil-fired Storage 50 

As described in the December 2009 NOPR, DOE developed the MPCs for the 

analysis of additional storage volumes by creating a cost model based on teardowns of 

products at nominal storage volumes outside the representative volume across a range of 

efficiencies and manufacturers. The cost model accounts for changes in the size of water 

heater components that would scale with tank volume, while assuming other components 

(e.g., gas valves, thermostats, controls) remain largely the same across the different 

storage volume sizes. DOE estimated the changes in material and labor costs that occur at 

volume sizes higher and lower than the representative volume based on observations 

made during teardowns, which allowed DOE to accurately model certain characteristics 

that are not identifiable in manufacturer literature. Additional details and the results of 

DOE’s analysis for the additional storage volumes are presented in chapter 5 of the final 

rule TSD (engineering analysis). 

In response to the scaled MPCs developed for the December 2009 NOPR 

analysis, DOE received feedback from several interested parties. Southern Company and 

AHRI commented that DOE's assumption that for heat pump water heaters, the heat 

pump output capacity would not change as a function of tank size is likely incorrect. 

Southern Company stated that a heat pump with a higher capacity would be used on a 

119-gallon tank than on a 30-gallon tank. As a result, the commenters stated their belief 

that DOE's scaling of costs for the heat pump water heater efficiency levels may be 

incorrect. (Public Meeting Transcript, No. 57.4 at pp. 152-155) Further, Southern 

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Company stated that the reason the heating elements in electric resistance heaters have 

the same output capacity across the full range of gallon sizes is because they max-out the 

standard circuit. (Southern Company, Public Meeting Transcript, No. 57.4 at p. 155) A.O. 

Smith also commented that a 119-gallon heat pump water heater would likely have a 

higher-capacity refrigerant circuit than a 30-gallon heat pump water heater. (A.O. Smith, 

Public Meeting Transcript, No. 57.4 at p. 157) 

DOE’s analysis of electric storage water heaters currently available on the market 

revealed that electric storage water heaters use the same capacity heating elements across 

the range of storage volumes to provide the same amount of heat input to the water. DOE 

notes that for heat pump water heaters, the heat pump unit serves essentially the same 

function as the electric resistance element in electric storage water heaters (i.e., heating 

the water). Because heat pump modules paired with electric water heaters currently 

available on the market demonstrate that the same amount of heating capability as 

compared to the electric elements found in conventional water heaters and both of these 

types of heaters can be used to satisfy the heating requirements of the full range of water 

heater storage volumes, DOE believes the same amount of heat input from a heat pump 

can also be used to satisfy the heating requirements for the full range of storage volumes. 

Therefore, DOE does not believe an increase in the heat pump capacity would be 

required at larger tank storage volumes. DOE believes that the same amount of heat 

pump heating capacity will be adequate to serve the water heating needs across the entire 

range of storage volumes, and as a result manufacturers would be unlikely to increase the 

size and capacity of the heat pump unit as the storage volume increases. Therefore, DOE 

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maintained the assumption that the heat pump unit will not scale with storage volume for 

the final rule analysis. 

EEI stated that for large water heaters (66 to 119 gallons), DOE's costs to go from 

TSL 4 (electric resistance) to TSL 5 (heat pump water heaters) are between $20 and $26, 

which are vastly understated. (EEI, No. 95 at p. 5) 

In response, DOE believes that EEI misinterpreted the scaled MPCs presented in 

the December 2009 NOPR analysis. EEI appears to have been considering the MPC 

differences between TSLs, whereas the December 2009 NOPR only lists the cost 

differences between efficiency levels. Heat pump water heater technology is 

implemented for larger-storage-volume products at the December 2009 NOPR TSL 5; 

however, DOE does not consider heat pump water heater technology in the engineering 

analysis for efficiency level 5, but instead considers it at efficiency level 6 for all product 

classes. The December 2009 NOPR TSL 5 was a combination of efficiency level 5 for 

the smaller storage volume sizes (55 gallons or less), and efficiency level 6 for the larger 

storage volume sizes (greater than 55 gallons). Thus, DOE believes the scaled MPCs at 

the higher gallon sizes and higher efficiency levels presented in the December 2009 

NOPR were correct. 

6. Water Heater Energy Efficiency Equations 

For this rulemaking, DOE reviewed the energy efficiency equations that define 

the existing Federal energy conservation standards for residential water heaters. The 

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energy efficiency equations characterize the relationship between rated storage volume 

and energy factor and 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 standards. The energy efficiency equations allow DOE to account 

for the increases in standby losses as tank volume increases. The current energy 

efficiency equations show that for each water heater class, the minimum energy factor 

decreases as the rated storage volume increases. 

As described in the December 2009 NOPR, DOE reviewed market data and 

product literature for gas-fired and electric storage water heaters and developed two 

approaches for amending the existing energy efficiency equations for gas-fired and 

electric storage water heaters in the preliminary analysis. 74 FR 65852, 65894-96 (Dec. 

11, 2009). One approach was to maintain the same slope used in the existing equations 

(found at 10 CFR 430.32(d)), but to incrementally increase the intercepts. The second 

approach was to adjust the slope of the energy efficiency equations based on the review 

of the storage water heater models currently on the market. The advantage of the second 

approach was to acknowledge the changes in the product efficiencies that have occurred 

since the previous standards were set, and to account for these changes. DOE examined 

the efficiencies of models with varying storage volumes, but with the same or similar 

design features and varied the slope of the line to maximize the number of models in the 

series that meet the efficiency levels that DOE is considering in the full range of rated 

storage volumes. 

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The standard levels proposed in the December 2009 NOPR were based on the 

results of the second approach for gas-fired and electric storage water heaters. For oilfired storage water heaters and gas-fired instantaneous water heaters, DOE only used the 

first approach to develop energy efficiency equations due to the limited number of 

models available on the market and limited data to justify modifying the equations. In 

response to the energy efficiency equations presented in the December 2009 NOPR, DOE 

received feedback from several interested parties. 

A.O. Smith stated it supports the energy-efficiency equations as generally being 

appropriate for the various efficiency levels. A.O. Smith endorsed the equations 

applicable to TSL 4, and strongly recommended that they not be revised from those 

proposed in the December 2009 NOPR. (A.O. Smith, No. 76 at p. 2) 

Bradford White expressed its disagreement with the energy efficiency equations 

proposed for electric storage water heaters. In particular, Bradford White commented that 

the efficiency level 4 equation (EF=-0.00060(VR) + 0.965) should be used for VR : 65 

gallons and that the efficiency level 3 equation (EF = -0.00155(VR) +1.026) should be 

used for VR > 65 gallons. Bradford White asserted that these changes are necessary to 

prevent the disproportionate EF increase that was proposed on larger volumes that have 

to combat higher standby losses. (Bradford White, No. 61 at p.4) 

Similarly, AHRI recommended that DOE revise the energy efficiency equation 

for TSL 4 for electric storage water heaters above 65 gallons, because AHRI believes it 

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represents a disproportionately large increase in the EF requirement for these units. AHRI 

asserts that because larger electric storage water heaters have a smaller surface-area-tovolume ratio, increased insulation is less effective in achieving energy efficiency gains, 

and as a result, the projected efficiencies are overstated. AHRI recommended that for 

electric storage water heaters above 65 gallons, DOE should select the equation for TSL 

3 (EF=1.051 - (0.00168*Rated Storage Volume)) as the standard. (AHRI, No. 91 at p. 2) 

Rheem also stated that the energy-efficiency equation for gas-fired storage water 

heaters at TSL 4 disproportionately imposes higher minimum EF values for largecapacity gas-fired storage water heaters. Rheem expressed concern that the uneven 

treatment of large-capacity units would encourage work-around solutions and product 

shifts. In addition, Rheem stated that the energy efficiency equation for electric storage 

water heaters at TSL 4 disproportionately impacts large-capacity electric storage water 

heaters. Rheem recommends that the equation read EF=1.026 - (0.00155 x Rated Storage 

Volume in gallons) for capacities above 55 gallons, in order to yield balance for highcapacity units. (Rheem, No. 89 at p. 12) 

In light of the comments above, DOE reexamined the energy efficiency equations 

proposed in the December 2009 NOPR for gas-fired and electric storage water heaters. 

The energy efficiency equations are intended to represent the relationship between 

efficiency and storage volume so that the same technology could be used to meet the EF 

requirement for the entire range of gallon capacities. After examining the characteristics 

of products on the market at each efficiency level and gallon size, and based on the 

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results of the testing and teardown analysis done prior to the December 2009 NOPR, 

DOE believes that the energy efficiency equations, as presented in the December 2009 

NOPR, accurately represent the relationship between efficiency and storage volume. The 

equations developed by DOE have two slopes and decline faster for the larger storage 

volumes than the smaller storage volumes. The slopes developed for the December 2009 

NOPR incorporated the results of testing and a physical examination (through teardowns) 

of the features incorporated into units across various gallon sizes and efficiency levels. 

Through this process, DOE was able to determine the efficiencies that can be achieved 

using the same technologies across the range of rated storage volumes. DOE then 

developed equations based on the results of this analysis to create efficiency levels that 

allow products to utilize the same technology across the range of storage volumes. 

 DOE believes that the equations have a proportionate impact on both largerstorage-volume units and smaller-storage-volume units. While DOE acknowledges that 

the efficiency levels in the proposed TSLs (which are determined based on a variety of 

factors, see section VI.A for more details) may be paired in a way which requires 

different efficiency levels utilizing different technologies for water heaters at various 

storage volumes, DOE does not believe this applies for the energy efficiency equations in 

the engineering analysis, which are based on constant technologies across the full range 

of storage volumes. The commenters did not provide any new data or evidence to lead 

DOE to conclude that the outcome of its analysis for the December 2009 NOPR is not 

valid. 

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As a result, DOE is maintaining the energy efficiency equations presented in the 

December 2009 NOPR, with only minor changes to account for the new max-tech levels 

described in section IV.C.2. For the max-tech energy efficiency equation (i.e., EL 6) for 

gas-fired storage water heaters, DOE maintained the slope used in the December 2009 

NOPR, but shifted the efficiency requirements down so that at the EF requirement at the 

40-gallon representative rated storage volume is 0.77 EF instead of 0.80 EF. Similarly, 

for the max-tech equation (i.e., EL 7) for electric storage water heaters, DOE maintained 

the same slope, but shifted the equation upwards so that the efficiency requirement at the 

50-gallon representative rated storage volume is 2.35 EF instead of 2.2 EF. See section 

IV.C.2.a for discussion of the max-tech efficiency levels. 

DOE did not receive any comments regarding the proposed approach for oil-fired 

storage water heater energy efficiency equations presented in the December 2009 NOPR 

and has used the same approach in the final rule. Similarly, DOE did not receive any 

comments objecting to the proposed approach for gas-fired instantaneous water heater 

energy efficiency equations presented in the December 2009 NOPR and has used the 

same approach in the final rule. Table IV.19 through Table IV.22 show the energy 

efficiency equations for residential water heaters. For more information on the energy 

efficiency equations, see chapter 5 of the final rule TSD. 

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Table IV.19 Energy Efficiency Equations for Gas-Fired Storage Water Heaters
 

Efficiency Level Minimum Energy Factor 

(20 to 60 Gallons) 

Minimum Energy Factor 

(Over 60 and up to 100 

Gallons) 

Baseline Energy Efficiency 

Equation 

EF = -0.00190(VR)+0.670 

EL 1 Energy Efficiency Equation EF = -0.00150(VR)+0.675 EF = -0.00190(VR)+0.699 

EL 2 Energy Efficiency Equation EF = -0.00120(VR)+0.675 EF = -0.00190(VR)+0.717 

EL 3 Energy Efficiency Equation EF = -0.00100(VR)+0.680 EF = -0.00190(VR)+0.734 

EL 4 Energy Efficiency Equation EF = -0.00090(VR)+0.690 EF = -0.00190(VR)+0.750 

EL 5 Energy Efficiency Equation EF = -0.00078(VR)+0.700 EF = -0.00190(VR)+0.767 

EL 6 Energy Efficiency Equation EF = -0.00078(VR)+0.8012 

Table IV.20 Energy Efficiency Equations for Electric Storage Water Heaters
 

Efficiency Level Minimum Energy 

Factor 

(20 to 80 Gallons) 

Minimum Energy Factor 

(Over 80 and up to 120 

Gallons) 

Baseline Energy Efficiency 

Equation 

EF = -0.00132(VR)+0.97 

EL 1 Energy Efficiency Equation EF = -0.00113(VR)+0.97 EF = -0.00149(VR)+0.999 

EL 2 Energy Efficiency Equation EF = -0.00095(VR)+0.967 EF = -0.00153(VR)+1.013 

EL 3 Energy Efficiency Equation EF = -0.00080(VR)+0.966 EF = -0.00155(VR)+1.026 

EL 4 Energy Efficiency Equation EF = -0.00060(VR)+0.965 EF = -0.00168(VR)+1.051 

EL 5 Energy Efficiency Equation EF = -0.00030(VR)+0.960 EF = -0.00190(VR)+1.088 

EL 6 Energy Efficiency Equation EF = -0.00113(VR)+2.057 

EL 7 Energy Efficiency Equation EF = -0.00113(VR)+2.406 

Table IV.21 Energy Efficiency Equations for Oil-Fired Storage Water Heaters
 

Efficiency Level Minimum Energy Factor 

EL 1 Energy Efficiency Equation EF = -0.0019(VR)+0.60 

EL 2 Energy Efficiency Equation EF = -0.0019(VR)+0.62 

EL 3 Energy Efficiency Equation EF = -0.0019(VR)+0.64 

EL 4 Energy Efficiency Equation EF = -0.0019(VR)+0.66 

EL 5 Energy Efficiency Equation EF = -0.0019(VR)+0.68 

EL 6 Energy Efficiency Equation EF = -0.0019(VR)+0.72 

EL 7 Energy Efficiency Equation EF = -0.0019(VR)+0.74 

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Table IV.22 Energy Efficiency Equations for Gas-Fired Instantaneous Water 

Heaters 

Efficiency Level Minimum Energy Factor 

EL 1 Energy Efficiency Equation EF = -0.0019(VR)+0.69 

EL 2 Energy Efficiency Equation EF = -0.0019(VR)+0.78 

EL 3 Energy Efficiency Equation EF = -0.0019(VR)+0.80 

EL 4 Energy Efficiency Equation EF = -0.0019(VR)+0.82 

EL 5 Energy Efficiency Equation EF = -0.0019(VR)+0.84 

EL 6 Energy Efficiency Equation EF = -0.0019(VR)+0.85 

EL 7 Energy Efficiency Equation EF = -0.0019(VR)+0.92 

EL 8 Energy Efficiency Equation EF = -0.0019(VR)+0.95 

D. Markups to Determine Product Price 

DOE used manufacturer-to-consumer markups to convert the manufacturer selling 

prices estimated in the engineering analysis to customer prices, which then were used in 

the life-cycle 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 higher-efficiency models (the incremental cost increase) to the change in the 

retailer or distributor sales price. 

In order to develop markups, DOE identifies how the products are distributed 

from the manufacturer to the customer (the distribution channels). DOE estimated 

manufacturer-to-customer markups for residential heating products based on separate 

distribution channels for water heaters, direct heating equipment, and pool heaters. 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 

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are marked up as the products pass from the manufacturer to the customer. A detailed 

description of the distribution channels and the markup applied at each step in the 

distribution process can be found in chapter 6 of the December 2009 NOPR TSD. DOE 

did not receive any comments on development of markups, and it used the same approach 

for the final rule as it used for the December 2009 NOPR. 

E. 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. For each considered efficiency level within 

each heating product class, DOE calculated the potential energy savings 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 TSD, 

which also provides more detail about DOE’s approach. 

DOE determined the annual energy use in the field by using a nationallyrepresentative set of housing units for each type of product. The housing units were 

selected from EIA’s Residential Energy Consumption Survey (RECS). The December 

2009 NOPR analysis and today’s final rule used the 2005 RECS, which was the latest 

data set available. (See http://www.eia.doe.gov/emeu/recs/.) 

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1. Water Heaters 

For residential storage-type water heaters, DOE relied on an energy use analysis 

tool, the water heater analysis model (WHAM), 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 2005 RECS, 

these analytical tools enable DOE to establish the variation in water heater energy 

consumption in the United States. 

DOE determined the annual energy consumption of water heaters in actual 

housing units by considering the primary factors that determine energy use: (1) hot water 

use per household; (2) the energy efficiency characteristics of the water heater; and (3) 

water heater operating conditions other than hot water draws. DOE used a hot water draw 

model to determine hot water use for each household in the sample. The characteristics of 

each water heater’s energy efficiency were taken from the engineering analysis. DOE 

developed water heater operating conditions (other than hot water draws) from weather 

data and other relevant sources. DOE calculated the energy use of water heaters using 

WHAM, which accounts for a range of operating conditions and energy efficiency 

characteristics of water heaters. 

For heat pump water heaters that would be located indoors, overcooling of the 

indoor space as a result of the unit’s operation is a potential problem. DOE assumed that 

the majority of households that would be affected by indoor operation of a heat pump 

water heater would not want to incur the cost of a venting system, and would instead 

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operate their heating and cooling systems to compensate for the effects of the heat pump 

water heater. To account for this indirect increase in home heating (and the decrease in 

cooling during summer months), DOE estimated the associated energy consumption by 

space heating and air conditioning equipment for the appropriate homes in the RECS 

subsample for electric water heaters, and included this energy use in its analysis. 

A.O. Smith stated that to replace an electric resistance water heater with a heat 

pump water heater, the heat pump water heater will either require a larger tank to 

effectively utilize the heat pump cycle, or if a larger tank is not provided, the unit will run 

in the electric resistance mode and diminish the benefits of having a heat pump water 

heater. (A.O. Smith, No. 76 at pp. 2-3) In the December 2009 NOPR analysis and the 

final rule analysis, DOE estimated the fraction of heat pump water heater operation that 

would be in electric resistance mode for each unit in the subsample. The fraction 

estimated to be in electric resistance mode varies from 10 to 50 percent in the subsample. 

Southern stated that heat pump water heaters do not perform well in temperatures 

outside the 45°-120° F range, and it pointed out that there are locations where ambient 

temperatures are outside this range. (Southern, No. 90 at p. 3) DOE accounted for the 

ambient temperatures likely to be faced in heat pump water heater locations by assuming 

electric resistance heating operation under extreme temperatures. 

For gas-fired instantaneous water heaters, DOE modified the approach used for 

storage water heaters to account for the absence of a storage tank. DOE applied a 

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performance adjustment factor to account for evidence that the rated energy efficiency of 

instantaneous water heaters does not accurately portray actual performance. 

2. Direct Heating Equipment 

The household sample developed for DHE is comprised of 2005 RECS housing 

units that used a floor/wall furnace, fireplace, or heater as the primary or secondary 

source of heat. DOE relied on the assumptions in the DOE test procedure (10 CFR part 

430, subpart B, appendix O) to establish the typical annual energy consumption of direct 

heating equipment. However, to better reflect actual operating conditions, DOE used 

home heating loads derived from RECS instead of the average assumptions in the test 

procedure. 

Williams stated that DHE is used in many applications as a secondary heat source, 

where the primary heat source is turned down and the DHE provides heat to the occupied 

zone only. (Williams, No. 96 at p. 1) For the December 2009 NOPR and today’s final 

rule, for those RECS 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 portion of the load met by only the direct heating 

equipment. 

DOE did not receive any other comments on its approach for estimating energy 

consumption of direct heating equipment, and it has used essentially the same approach 

and data for the final rule. 

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3. Pool Heaters 

DOE estimated energy consumption of pool heaters in a representative sample of 

housing units from the 2005 RECS. DOE relied on the assumptions in the DOE test 

procedure (10 CFR part 430, subpart B, appendix P) to establish the typical annual 

energy consumption of pool heaters. However, to better reflect actual operating 

conditions, DOE used pool heater heating loads derived from RECS instead of the 

average test procedure assumptions. 

The calculation of pool heater energy consumption at each considered efficiency 

level depends on the assumed fraction of products that use a pilot light. In the December 

2009 NOPR analysis, DOE used data based on the number of models in the market to 

estimate that 26.5 percent of units use a pilot light. Raypak stated that 8 percent of pool 

heaters are millivolt pool heaters (i.e., use a pilot light). (Raypak, No. 67 at p. 2) Given 

that Raypak’s estimate is based upon actual shipments data, DOE believes that the value 

it cited likely better reflects the actual market than the NOPR estimate based on the 

number of models. Therefore, for the final rule analysis, DOE adopted the value cited by 

Raypak. 

F. Life-Cycle Cost and Payback Period Analyses 

DOE conducted LCC and PBP analyses to evaluate the economic impacts on 

individual consumers of potential amended energy conservation standards for the three 

types of residential heating products. The LCC represents total consumer expenses during 

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the life of an appliance, including purchase and installation costs plus operating costs 

(expenses for energy use, maintenance, and repair). To compute LCCs for the three 

heating products, DOE discounted future operating costs to the time of purchase, and 

then summed those costs over the life of the appliances. The PBP is calculated using the 

change in purchase cost (normally higher) that results from an amended efficiency 

standard, divided by the change in annual operating cost (normally lower) that results 

from the standard. 

DOE measures the changes in LCC and PBP associated with a given efficiency 

level relative to an estimate of base-case appliance efficiencies. The base-case estimate 

reflects the market in the absence of amended mandatory energy conservation standards, 

including the market for products that exceed the current standards. 

For each set of heating products, DOE calculated the LCC and PBP for a 

nationally representative set of housing units, which were selected from the 2005 RECS. 

The housing units include five types: single-family (attached), single-family (detached), 

multi-family (2-5 units), multi-family (more than 4 units), and manufactured homes. For 

each sample household, DOE determined the energy consumption for the heating product 

and the energy price faced by the household. By developing a representative sample of 

households, the analysis captured the variability in energy consumption and energy prices 

associated with the use of residential heating products. DOE determined the LCCs and 

PBPs for each sampled household using a heating product’s unique energy consumption 

and the household’s energy price, as well as other variables. DOE calculated the LCC 

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associated with the baseline heating product in each household. To calculate the LCC 

savings and PBP associated with equipment that meets higher efficiency standards, 

DOE’s analysis replaced the baseline unit with a range of more-efficient designs. 

Inputs to the calculation of total installed cost include the cost of the product— 

which includes manufacturer costs, manufacturer markups, retailer or distributor 

markups, and sales taxes—and installation costs. Inputs to the calculation of operating 

expenses include annual energy consumption, energy prices and price projections, repair 

and maintenance costs, product lifetimes, discount rates, and the year that proposed 

standards take effect. For many of the above inputs, DOE created distributions of values 

to account for uncertainty and variability. Within each distribution, probabilities are 

attached to each value. As described above, DOE used samples of households to 

characterize the variability in energy consumption and energy prices for heating products. 

For the inputs to installed cost, DOE used probability distributions to characterize sales 

taxes. DOE also used distributions to characterize the discount rate and product lifetime 

that are inputs to operating cost. 

The computer model DOE uses to calculate LCC and PBP, which incorporates 

Crystal Ball (a commercially-available software program), relies on a Monte Carlo 

simulation to incorporate uncertainty and variability into the analysis. The Monte Carlo 

simulations randomly sampled input values from the probability distributions and 

household samples. The model calculated the LCC and PBP for products at each 

efficiency level for 10,000 housing units per simulation run. 

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Table IV.23 summarizes the approach and data DOE used to derive inputs to the 

LCC and PBP calculations. The table provides the data and approach DOE used for the 

December 2009 NOPR TSD, as well as the changes made for today’s final rule. The 

following subsections discuss the main inputs and the changes DOE made to them. 

Table IV.23 Summary of Inputs and Key Assumptions in the LCC and PBP 

Analyses* 

Inputs NOPR Changes for the Final Rule 

Installed Costs 

Product Price Derived by multiplying 

manufacturer cost by manufacturer, 

retailer, and distributor markups 

and sales tax, as appropriate. 

Updated manufacturer product 

costs (see section IV.C.3.a). 

Installation Cost Water Heaters: Based on data from 

RS Means and other sources. 

Applied additional cost for space 

constraints and other installation 

situations. 

DHE: Based on data from RS 

Means and DOE’s furnace 

installation model. 

No change. 

Pool Heaters: Based on data from 

RS Means. 

Modified fraction of installations 

with pilot light. 

Operating Costs 

Annual Energy Use Water Heaters: Used hot water 

draw model to calculate hot water 

use for each household in the 

sample from RECS 2005. 

Calculated energy use using the 

water heater analysis model 

(WHAM). 

No change. 

DHE: Based on sample and data 

from RECS 2005. 

No change. 

Pool Heaters: Based on sample and 

data from RECS 1993 to 2005. 

Based on sample and data from 

RECS 2001 and 2005. Included spa 

heaters. 

Energy Prices Electricity: Based on EIA’s 2007 

Form 861 data. 

Electricity: Updated using data 

from EIA’s 2008 Form 861 data 

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Natural Gas: Based on EIA’s 2007 

Natural Gas Navigator. 

Variability: Regional energy prices 

determined for 13 geographic 

areas.** 

and EIA’s Form 826. 

Natural Gas: Updated using EIA’s 

2008 Natural Gas Navigator. 

Variability: No change. 

Energy Price Trends Forecasted using EIA’s AEO2009. Forecasts updated using EIA’s 

AEO2010 (Early Release). 

Repair and 

Maintenance Costs 

Water Heaters: Based on RS Means 

and other sources. 

No change. 

DHE: Based on RS Means and 

other sources. 

No change. 

Pool Heaters: Based on RS Means 

and other sources. 

No change. 

Present Value of Operating Cost Savings 

Product Lifetime Water Heaters: Based on data from 

RECS, AHS, and shipments. 

Variability and uncertainty: 

characterized using Weibull 

probability distributions. 

Set lifetime of oil-fired storage 

water heater equal to that of gasfired storage water heater. 

No change. 

DHE: Based on range of lifetimes 

from various sources. 

Variability and uncertainty: 

characterized using Weibull 

probability distributions. 

No change. 

Pool Heaters: Based on range of 

lifetimes from various sources. 

Variability and uncertainty: 

characterized using Weibull 

probability distributions. 

Average lifetime increased from 8 

years to 10 years 

Discount Rates Approach based on the cost to 

finance an appliance purchase. 

Primary data source was the 

Federal Reserve Board’s SCF*** 

for 1989, 1992, 1995, 1998, 2001, 

2004, and 2007. 

No change in approach; added data 

for asset classes. 

Standard 

Compliance Date 

Water heaters: 2015. 

DHE and Pool Heaters: 2013. 

No change. 

* References for the data sources mentioned in this table are provided in the sections following the table or 

in chapter 8 of the December 2009 NOPR TSD. 

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** Consisting of the nine U.S. Census Divisions, with four large States (New York, Florida, Texas, and 


California) treated separately.
 

*** Survey of Consumer Finances.
 

1. Product Price 

To calculate consumer product prices, DOE multiplied the manufacturer selling 

prices developed in the engineering analysis by the supply-chain markups described 

above (along with sales taxes where appropriate). DOE used different markups for 

baseline products and higher-efficiency products, because the markups estimated for 

incremental costs differ from those estimated for baseline models. The estimated product 

prices at the considered efficiency levels are included in Chapter 8 in the TSD. 

2. Installation Cost 

Installation costs include labor, overhead, and any miscellaneous materials and 

parts. The following sections discuss DOE’s treatment of installation costs for each of the 

three heating products for the December 2009 NOPR, describe and address significant 

comments received, and discuss changes that DOE made for today’s final rule. 

a. Water Heaters 

In its preliminary analysis, DOE included several installation costs to address the 

space constraints that water heaters having thicker insulation may face. DOE assumed 

that major modifications for replacement installations of electric storage water heaters 

would occur 40 percent of the time for water heater designs with 3 inches or greater 

insulation. To estimate the fraction of households that would require various 

modifications, DOE used the water heater location determined for each sample 

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household. DOE determined the location using information from the 2005 RECS, which 

reports whether the house has a basement, whether the basement is heated or unheated, 

and the presence or absence of a garage, crawlspace, or attic. 

Generally, DOE maintained the above approach for the December 2009 NOPR. 

However, in response to comments on the space constraints for water heaters with 

increased insulation thickness, for the NOPR analysis, DOE investigated the issue of 

space constraints for electric and gas-fired storage water heaters with an insulation 

thickness of 2 inches or more. Based upon the results of this inquiry, DOE expanded the 

percentage of installations that may have space constraints to also include water heaters 

with 2-3 inches of insulation. DOE assumed that major modifications for replacement 

installations of electric and gas storage water heaters would occur 20 percent of the time 

for water heater designs with 2-3 inches of insulation. DOE also added for all water 

heaters a cost for extra labor needed to install water heaters in attics, and for installing 

larger water heaters. 

Commenting on the December 2009 NOPR analysis, Rheem and Southern stated 

that DOE has not adequately considered the space constraints faced by manufactured 

housing, although no data were provided relevant to this issue. (Rheem, No. 89 at pp. 11­

12; Southern, No. 90 at pp. 3-4) In response, DOE reviewed its assumptions regarding 

space constraints faced by manufactured housing, and based on its assessment of likely 

water heater locations from 2005 RECS, it approximately doubled the fraction of 

installations deemed to have space constraints. These installations would incur costs as 

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described above to address the space constraints faced by water heater designs with more 

insulation. 

Regarding installation of gas-fired storage water heaters, A.O. Smith stated that 

the need (and cost) to add electrical power and condensate disposal to existing 

installations appears to be understated in the December 2009 NOPR. (A.O. Smith, No. 76 

at p. 4) DOE notes that the commenter did not provide any data to support its position. 

DOE reviewed the available sources, which are based on RS Means and consultant 

reports, concluded that they provide a reasonable basis for its estimates, and therefore it 

has maintained the NOPR estimates for the final rule. 

AHRI stated that replacing larger gas-fired storage water heaters with condensing 

water heaters would require the added cost of new venting system, electrical connection, 

and a condensate disposal system, and sometimes an electric supply circuit. (AHRI, No. 

91 at p. 7) Rheem stated that external power would be required to operate max-tech gasfired storage water heaters, that venting would typically change to a positive pressure 

system with plastic venting, and that condensate lines, pumps, and proper disposal 

methods would be required. (Rheem, No. 89 at pp. 3-4) For the final rule analysis, DOE 

included a range of installation costs for the condensing water heater design that include 

all of the items cited by AHRI and Rheem. 

In its preliminary analysis, DOE applied a distribution of costs for heat pump 

water heater installations in indoor locations, including situations where modifications 

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would be required. In response to comments on the assumed costs, for the December 

2009 NOPR analysis, DOE made a number of changes, which are discussed below. 

Additional comments on these issues at the NOPR stage and DOE’s response are 

likewise presented below. 

In 20 percent of replacement installations, DOE assumed that a household facing 

space constraints would install a smaller water heater and use tempering valves. BWC 

stated that adjusting the thermostat higher on a smaller-volume heat pump water heater 

and using a tempering valve cannot be done. It noted that the viable refrigerants available 

limit the water heater to lower temperatures (typically ~130°F maximum), and to achieve 

temperatures above this level, an electric resistance element must be used, which 

decreases the efficiency of the water heater. (BWC, No. 61 at p. 2) Rheem raised similar 

concerns. (Rheem, No. 89 at p. 8) DOE finds some merit in the above comments. 

Therefore, it reduced the fraction of installations that would use a tempering valve to 

include only those cases where the water heater setpoint would not need to exceed 140°F, 

as recommended in manufacturer product literature. DOE assumed that those households 

for which the tempering valve strategy is not viable would incur significant costs to 

modify the space to accommodate the heat pump water heater. 

For the December 2009 NOPR, DOE assumed that some households that would 

experience significant indoor cooling due to operation of the heat pump water heater in 

the heating months would have a venting system installed to exhaust and supply air. DOE 

estimated that 40 percent of households facing a significant cooling effect would incur 

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this cost, which averages $460. A.O. Smith stated that heat pump water heaters will not 

be vented due to the exorbitant costs of such a venting system and the fact that the 

venting will not fit within the existing studs and will need to be installed outside the 

current wall structure, where it will either be exposed, or have to be covered with 

additional material. (A.O. Smith, No.76 at p. 3) DOE agrees that the costs of a venting 

system could be high in some cases, but its analysis assumes that venting will occur in 

some cases, and the associated costs are included in its LCC analysis. DOE also agrees 

that in some cases it would be necessary to install the venting system outside the wall 

structure, where the exposed vents would likely be covered. Therefore, for the final rule 

analysis, DOE has assumed that one-fourth of the venting system installations would 

incur an additional cost (on average $581) for covering the exposed vents. 

For half of indoor replacement installations, DOE added a cost for installing a 

fully-louvered closet door to permit adequate air flow for the operation of the unit. A.O. 

Smith stated that putting a louvered door on a closet will not provide adequate air volume 

for a heat pump water heater to function correctly. (A.O. Smith, No. 76 at p. 3) Southern 

raised similar concerns about closet installations. (Southern, No. 90 at pp. 3-4) AHRI also 

commented that heat pump water heaters installed in replacement situations may require 

costly alterations so that the heat pump water heater can perform efficiently. (AHRI, No. 

91 at p. 6) DOE agrees that there are legitimate concerns about the extent to which 

installing a louvered door will provide adequate air flow for closet installations of heat 

pump water heaters. For the final rule analysis, DOE decreased the fraction of indoor 

replacement installations that add a louvered door. DOE now assumes that all indoor 

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replacement installations where the household would face a significant cooling effect 

would use a venting system (costing on average $469), which would provide adequate air 

flow and also alleviate excessive cooling of the indoor space near the water heater. 

GE stated that DOE overstated the installation costs for heat pump water heaters, 

and claimed that their heat pump water heater has not required more labor, larger drain 

pans, tempering valves, or closet door redesigns. (GE, No. 84 at p. 1) DOE’s estimates of 

installation costs for heat pump water heaters seek to account for the full range of 

installation situations that might be faced in all replacements of conventional electric 

storage water heaters. DOE agrees that in many installations, particularly those not 

located indoors, the additional costs associated with heat pump water heater installation 

may be small, and DOE’s analysis accounts for those installations as well as those where 

higher costs may be incurred. Chapter 8 of the final rule TSD provides further details 

about DOE’s analysis of installation costs for heat pump water heaters. 

For the December 2009 NOPR, DOE’s design for gas-fired storage water heaters 

at efficiency level 2 (0.63 EF for the representative 40-gallon unit) assumed natural draft 

(atmospheric venting) operation. DOE’s analysis assumed that installations with water 

heaters with recovery efficiency (RE) of 80 percent or higher (which accounted for a 

small fraction of models at 0.63 EF) would use stainless steel vent connectors. Without 

such vent connectors, there is a potential for corrosion of the vent due to condensation of 

flue gases, which can lead to safety concerns. 

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AGA expressed concerns about the safety of atmospheric venting at efficiency 

level 2. AGA referred to analysis by the Gas Technology Institute of vent temperatures 

from water heaters with high recovery efficiency, and voiced concern for recovery 

efficiencies of 78 percent and higher regarding condensation and the resulting corrosive 

environment in vent connectors during water heater cycling. AGA insisted that, for 

venting integrity and occupant safety, 100 percent of installations of units with recovery 

efficiency of 78 percent and higher should include the cost of a stainless steel vent 

connector. It added that the combined concerns of vent connector corrosion and venting 

system buoyancy suggest that the proper vent connector should be stainless steel Type B. 

(AGA, No. 78 at p. 9) A.O. Smith also expressed concerns that efficiency level 2 could 

potentially lead to increased vent corrosion and raise issues that may require revisiting 

the venting table in the National Fuel Gas Code.5

 (A.O. Smith, No. 76 at p. 1) 

In response, DOE appreciates the information provided by AGA regarding the 

safety of atmospheric venting at efficiency level 2. Although there are several 40-gallon 

gas-fired water heater models currently available to consumers at 0.63 EF that utilize 

atmospheric venting and do not have any instructions directing installers to use special 

venting for these products, DOE believes that the prudent course is to assume that a 

stainless steel vent connector would be required for all models with RE of 78 percent and 

higher. Applying this assumption resulted in DOE using a cost for a stainless steel vent 

connector for 57 percent of installations at efficiency level 2, for 53 percent of 

5

 National Fire Protection Association, National Fuel Gas Code -2009 Edition. Available at: 

http://www.nfpa.org/AboutTheCodes/AboutTheCodes.asp?DocNum=54. 

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installations at efficiency level 1, and for 24 percent of installations at the baseline level. 

DOE agrees that there remain issues that may require revisiting the venting table in the 

National Fuel Gas Code, and discusses these issues in section VI.D.2 below. 

b. Direct Heating Equipment 

DOE used the approach in the 1993 TSD6

 to calculate installation costs for 

baseline direct heating equipment for its December 2009 NOPR analysis, as it believed 

that the factors affecting DHE installation are largely unchanged, and more recent data 

are not available. For gas wall gravity, floor, and room direct heating equipment, DOE 

included installation costs for designs that require electricity (the average cost is $181). 

DOE made this adjustment for the replacement market only, because wiring is considered 

part of the general electrical work in new construction. 

LTS commented that the proposed standards for the gravity wall furnace category 

(71-percent AFUE for furnaces in the input capacity range over 27,000 and up to 46,000 

Btu/h) would not allow the product to keep the same characteristics, particularly cabinet 

size and combustion chamber sizes. The commenter claims that with a bigger cabinet and 

heat exchanger dimensions, installation would require more carpenter work, possible 

drywall work, and, in some cases, changing or replacing the vent. According to LTS, 

6

 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. Washington, DC. Vol. 1 of 3. Report No. DOE/EE-0009. 

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EE-2006-BT-STD-0129 COMMENT 105
these changes would be in addition to providing an electrical port. (LTS, No. 56.7 at pp. 

1-2) 

In response, DOE found that gravity wall furnaces that have dimensions to fit in 

replacement applications are currently available on the market with efficiencies ranging 

from 64-percent to 69-percent AFUE in the representative capacity range. There are 

currently no 71-percent or 72-percent AFUE models within the representative capacity 

range offered by any of the manufacturers. DOE agrees that models at 71-percent or 72­

percent AFUE are likely to have larger dimensions and/or include electronic ignition, 

either of which would require an additional installation cost. As discussed in section 

IV.C.2.b, for the final rule, DOE decided to remove the 71-percent and 72-percent AFUE 

levels from its analysis. DOE introduced the 70-percent AFUE level, which it believes 

has the necessary dimensions to fit in replacement applications. This level includes 

electronic ignition, and DOE included a cost for installation of electrical wiring. 

Regarding gas wall fan type DHE, AHRI commented that adding to the heat 

exchanger to increase efficiency would make the upright models bigger, such that they 

may not be able to fit in the same space as the unit they are replacing. The result could be 

added installation costs. For the max-tech level for gas wall fan type DHE (80-percent 

AFUE), DOE added carpentry cost for cutting and repairing the wall to increase the 

dimensions of the wall opening for a fraction of installations. That fraction also takes into 

account that some installations are "console units" and do not have this issue, and that 

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some upright installations are not installed inside the wall and, therefore, do not have this 

issue. 

c. Pool Heaters 

DOE developed installation cost data for the baseline pool heater in its December 

2009 NOPR analysis using RS Means and information in a consultant’s report. DOE 

incorporated additional installation costs for designs involving electronic ignition and/or 

condensing technology. 

In the December 2009 NOPR analysis, DOE included a cost for adding electricity 

at efficiencies above 82 percent (which use electronic ignition only) for installations 

where the unit currently uses a pilot light. For the December 2009 NOPR, DOE estimated 

that 26.5 percent of installations would incur this cost. Raypak stated that 8 percent of 

pool heaters are millivolt pool heaters (i.e., use a pilot light), and the cost of adding 

electricity is not insignificant. (Raypak, No. 67 at p. 2) For the final rule, DOE has 

adopted the 8-percent value provided by Raypak to estimate the fraction of installations 

that would require addition of electricity at efficiencies above 82 percent. For further 

details on DOE’s derivation of installation costs for pool heaters, see chapter 8 of the 

TSD. 

3. Annual Energy Use 

DOE determined the annual energy use in the field for the three types of heating 

products as described above in section IV.E. 

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4. Energy Prices 

For the December 2009 NOPR analysis, DOE derived average energy prices for 

13 geographic areas consisting of the nine U.S. Census Divisions, with four large States 

(New York, Florida, Texas, and California) treated separately. For Census Divisions 

containing one of these large States, DOE calculated the regional average excluding the 

data for the large State. 

DOE estimated residential electricity prices for each of the geographic areas 

based on data from EIA Form 861, “Annual Electric Power Industry Database,” and EIA 

Form 826, “Monthly Electric Utility Sales and Revenue Data.” DOE calculated average 

annual regional residential electricity prices as well as average monthly regional 

electricity prices. For the December 2009 NOPR, DOE used data from 2007. For the final 

rule analysis, DOE used more recent 2008 data from the same sources. 

DOE estimated average annual residential natural gas prices in each of the 13 

geographic areas based on data from EIA’s Natural Gas Navigator.

7

 For the December 

2009 NOPR, DOE used EIA data from 2007. For today’s final rule, DOE used more 

recent 2008 data from the same source. 

7

 See Energy Information Administration, Natural Gas Navigator (2009). Available at: 

http://tonto.eia.doe.gov/dnav/ng/ng_pri_sum_dcu_nus_m.htm. 

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DOE estimated average residential prices for liquefied petroleum gas (LPG) in 

each of the 13 geographic areas based on data from EIA’s State Energy Consumption, 

Price, and Expenditures Estimates.8

 For the December 2009 NOPR, DOE used data from 

2006. For today’s final rule, DOE used the more recent 2007 data from the same source. 

DOE estimated average residential prices for oil in each of the 13 geographic 

areas based on data from EIA’s Petroleum Navigator.

9

 For the December 2009 NOPR, 

DOE used data from 2007. For today’s final rule, DOE used more recent 2008 data from 

the same source. 

5. Energy Price Trend 

To estimate the trends in electricity prices for the December 2009 NOPR, DOE 

used the regional price forecasts in the 2009 Annual Energy Outlook (AEO 2009) April 

Release.10 To arrive at prices in future years, DOE multiplied the average prices described 

above by the forecast of annual average price changes in each region. Because the AEO 

2009 forecasts prices only to 2030, DOE followed past guidelines provided to the Federal 

Energy Management Program by EIA and used the average rate of change during 2020– 

2030 to estimate the price trends beyond 2030. For today’s final rule, DOE updated its 

analysis to use the price forecasts in the AEO 2010 Early Release, which includes price 

8

 See Energy Information Administration, 2007 State Energy Consumption, Price, and Expenditure 


Estimates (SEDS). Available at: http://www.eia.doe.gov/emeu/states/_seds.html. 
 9

 See Energy Information Administration, Petroleum Navigator, December (2009). Available at:
 

http://tonto.eia.doe.gov/dnav/pet/pet_cons_821dsta_a_EPD0_VAR_Mgal_a.htm. 
 10 All AEO publications are available online at: http://www.eia.doe.gov/oiaf/aeo/. 


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forecasts until 2035. DOE used the average rate of change from 2025 to 2035 to estimate 

price trends beyond 2035. 

The spreadsheet tools used to conduct the LCC and PBP analysis allow users to 

select either the AEO’s high-price case or low-price case price forecasts to estimate the 

sensitivity of the LCC and PBP to different energy price forecasts. The AEO 2009 April 

Release and AEO 2010 Early Release only provide forecasts for the Reference Case. 

Therefore, for the December 2009 NOPR, DOE used the AEO 2009 March Release highprice or low-price forecasts directly to estimate high-price and low-price trends. For 

today’s final rule, DOE updated the low-price and high-price forecasts to be based on the 

ratio between the AEO 2009 March Release low- or high-price forecasts and the AEO 

2009 March Release reference case. DOE then applied these ratios to the AEO 2010 

Early Release reference case to construct its high-price and low-price forecasts. DOE did 

not receive any substantive comments on its forecast of energy price trends. Thus, DOE 

retained the same approach for the final rule. 

6. Repair and Maintenance Costs 

Repair costs are associated with repairing or replacing components that have 

failed in the appliance, whereas maintenance costs are associated with maintaining the 

operation of the equipment. Determining the repair cost involves determining the cost 

and the service life of the components that are likely to fail. Addressing water heaters, 

A.O. Smith commented that the repair and maintenance costs presented in the December 

2009 NOPR are reasonably accurate. (A.O. Smith, No. 76 at p. 4) For more information 

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on DOE’s development of repair and maintenance cost estimates, see chapter 8 of the 

TSD. 

For the December 2009 NOPR analysis, DOE assumed that there would be some 

instances where professional maintenance would be needed for heat pump water heaters. 

For some locations where the heat pump water heater might be more exposed to the 

outdoor environment, such as garages and crawlspaces, DOE applied a 5-year 

preventative maintenance cost based on experience with heat pump water heater outdoor 

installations in Australia, which has roughly comparable conditions to much of the 

United States. 

Commenting on the December 2009 NOPR, BWC stated that heat pump water 

heaters are installed with an optional component and that the repair and maintenance 

costs of the optional components were not taken into account, although the commenter 

provided no specific information regarding the nature or prevalence of such optional 

components. (BWC, No. 61 at p. 3) Daikin stated that heat pump water heaters generally 

do not require maintenance for the first 10 years of operation. (Daikin, No. 82 at p. 2) GE 

stated that the maintenance cost for heat pump water heaters is overstated. (GE, No. 84 at 

p. 1) In response, DOE acknowledges that many heat pump water heaters may require 

little or no maintenance. However, DOE believes that because the field experience with 

heat pump water heaters is limited, it is reasonable to apply a maintenance cost for some 

installations. DOE assumed that optional components, which are an addition to the water 

heater, are not uniformly applicable, and thus, it did not include them in its analysis. 

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Therefore, for the reasons above, DOE has retained the approach to repair and 

maintenance costs used for the December 2009 NOPR for the final rule. The approach 

also accounts for repair or replacement of common components such as heating elements, 

fans, and compressors. 

7. Product Lifetime 

DOE used a variety of sources to establish minimum, average, and maximum 

values for the lifetime of each of the three types of heating products. For each water 

heater product class and for DHE and pool heaters, DOE characterized the product 

lifetime using a Weibull probability distribution that ranged from minimum to maximum 

lifetime estimates. See chapter 8 of the December 2009 NOPR TSD for further details on 

the sources DOE used to develop product lifetimes. 

a. Water Heaters 

For the December 2009 NOPR analysis, DOE used an average lifetime of 13 

years for gas-fired, electric, and oil-fired storage water heaters. DOE did not receive any 

comments on this value, and it continued to use it for the final rule. 

For the December 2009 NOPR analysis, DOE used an average lifetime of 20 

years for gas-fired instantaneous water heaters. A.O. Smith stated that a 20 year lifetime 

for gas-fired instantaneous water heaters is too long, and is largely based on 

manufacturers’ literature or advertising claims. It referred to its experience with 

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commercial water heating equipment that uses a similar copper-tube type heat exchanger 

as gas-fired instantaneous water heaters and similar input combustion systems of around 

200,000 Btu/h, and the commenter concluded that the same service life (i.e., 13 years) as 

a tank-type heater should be used for gas-fired instantaneous water heaters. (A.O. Smith, 

No. 76 at pp. 4-5) 

DOE acknowledges that, given that long-term field experience with gas-fired 

instantaneous water heaters is relatively limited, there is uncertainty regarding the 

lifetime of these products. Furthermore, the lifetime is influenced by maintenance 

practices. The 20-year mean lifetime used by DOE is primarily based on the value 

reported in the National Association of Home Builders/Bank of America Home Equity 

Study of Life Expectancy of Home Components, which is 20+ years.11 Regarding the 

analogy between gas-fired instantaneous water heaters and commercial water heating 

equipment mentioned by A.O. Smith, DOE notes that the usage patterns in residential 

applications are different (e.g., less hot water use), and these patterns have a significant 

impact on the lifetime. Given the available data, DOE decided to retain the mean lifetime 

of 20 years for the final rule analysis. 

11 National Association of Home Builders (NAHB), "Study of Life Expectancy of Home Components” 

(Feb. 2007). Available at: http://www.nahb.org/fileUpload_details.aspx?contentID=99359. 

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b. Direct Heating Equipment 

For the December 2009 NOPR analysis, DOE used an average lifetime of 15 

years for DHE. DOE did not receive any comments on this value, and it continued to use 

it for the final rule. 

c. Pool Heaters 

For the December 2009 NOPR analysis, DOE used an average lifetime of 8 years 

for pool heaters. In the public meeting, Lochinvar stated that pool heaters live longer than 

6-8 years. (Lochinvar, Public Meeting Transcript, No. 57.4 at p. 224) For the final rule, 

DOE subsequently reviewed information provided by an expert consultant and based 

upon this information, decided to use a mean lifetime of 10 years for pool heaters, with 

the same distribution as in the December 2009 NOPR analysis (3 to 20 years). 

8. Discount Rates 

For the December 2009 NOPR, DOE developed separate distributions of discount 

rates for new construction and replacement applications. Because the cost of heating 

products installed in new homes is part of the home selling price, DOE estimated 

discount rates for appliance purchases in new housing using the effective real mortgage 

rate for homebuyers, which accounts for deducting mortgage interest for income tax 

purposes. DOE developed a distribution of mortgage interest rates using data from the 

Federal Reserve Board’s “Survey of Consumer Finances” (SCF) for 1989, 1992, 1995, 

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1998, 2001, 2004, and 2007.12 Because the mortgage rates carried by households in these 

years were established over a range of time, DOE believes they are representative of rates 

that may apply when amended standards take effect. The effective real interest rates on 

mortgages across the seven surveys averaged 3.0 percent. 

DOE’s approach for deriving discount rates for replacement purchases involved 

identifying all possible debt or asset classes that might be used to purchase replacement 

products, including household assets that might be affected indirectly. DOE used data 

from the surveys mentioned above to estimate the average percentages of the various debt 

and equity classes in the average U.S. household portfolios. DOE used SCF data and 

other sources to develop distributions of interest or return rates associated with each type 

of equity and debt. For the final rule, it added 2009 values for interest or return rates to 

the distributions for some of the asset classes. The resulting average rate across all types 

of household debt and equity, weighted by the shares of each class, is 5.1 percent. 

DOE did not receive any comments on the discount rates it used in the LCC 

analysis, and it continued to apply the approach used in the December 2009 NOPR, with 

the updates discussed above, for the final rule. 

12 The Federal Reserve Board, Survey of Consumer Finances 1989, 1992, 1995, 1998, 2001, 2004, 2007. 

Available at: http://www.federalreserve.gov/pubs/oss/oss2/scfindex.html. 

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9. Compliance Date 

In the context of EPCA, the compliance date is the future date when parties 

subject to the requirements of a new standard must begin to comply. As described in 

DOE’s semi-annual Implementation Report for Energy Conservation Standards Activities 

submitted to Congress pursuant to section 141 of the Energy Policy Act of 2005 and 

section 305 of the Energy Independence and Security Act of 2007,13 a final rule for the 

three types of heating products that are the subject of this rulemaking is scheduled to be 

completed by March 2010. Compliance with amended energy efficiency standards for 

direct heating equipment and pool heaters is required three years after the final rule is 

published in the Federal Register (in 2013); compliance with amended standards for 

water heaters is required five years after the final rule is published (in 2015). Comments 

on the compliance date for the three types of heating products are presented and 

responded to in section V.B of this final rule. DOE calculated the LCC for the three types 

of heating products as if consumers would purchase new products in the year compliance 

with the standard is required. 

10. Product Energy Efficiency in the Base Case 

To accurately estimate the percentage of consumers who would be affected by a 

particular standard level, DOE’s analysis considered the projected distribution of product 

efficiencies that consumers purchase under the base case (i.e., the case without new 

energy efficiency standards). DOE refers to this distribution as a base-case efficiency 

13 Available at: 

http://www1.eere.energy.gov/buildings/appliance_standards/pdfs/2010_feb_report_to_congress.pdf. 

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distribution. Using the projected distribution of product efficiencies for each heating 

product, DOE randomly assigned a specific product efficiency to each sample household. 

If a household was assigned a product efficiency greater than or equal to the efficiency of 

the standard level under consideration, the LCC calculation shows that this household is 

not affected by that standard level. 

To estimate the base-case market shares of various energy efficiency levels for 

water heaters in the compliance year, DOE began with data on shipments for 2002-2006 

from AHRI, supplemented with data on the number of water heater models at different 

energy efficiency levels reported in AHRI Directories. (See chapter 8 of the TSD for 

citations for these data sources.) For the final rule, DOE updated its estimates using the 

February 2010 AHRI Directory. To estimate the base-case market shares of gas-fired and 

electric storage water heaters, DOE considered the market penetration goals set by the 

ENERGY STAR program, in combination with its assessment of constraints on such 

penetration. The projected base-case energy efficiency market shares for water heaters 

that DOE used for the final rule, shown in Table IV.24, are half of the ENERGY STAR 

goal for heat pump water heaters (EF of 2.0 and 2.2), and one-fifth of the ENERGY 

STAR goal for gas-fired condensing water heaters (EF of 0.77). These market shares 

represent the products that households would purchase in 2015 in the absence of revised 

energy conservation standards. 

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Table IV.24 Water Heaters: Base-Case Energy Efficiency Market Shares* 


Gas Storage Electric Storage Oil Storage Gas-Fired 

Instantaneous 

EF Market 

Share (%) EF Market Share (%) EF Market Share (%) EF Market Share (%) 

0.59 63.9 0.90 29.8 0.53 0.0 0.62 1.0 

0.62 23.4 0.91 16.8 0.54 20.0 0.69 2.9 

0.63 1.6 0.92 11.2 0.56 0.0 0.78 1.0 

0.64 4.8 0.93 26.1 0.58 0.0 0.80 4.9 

0.65 0.0 0.94 7.5 0.60 10.0 0.82 52.4 

0.67 5.3 0.95 3.7 0.62 20.0 0.84 1.9 

0.77 1.0 2.0 4.0 0.66 25.0 0.85 3.9 

2.2 1.0 0.68 25.0 0.92 20.4 

0.95 11.7 

100% 100% 100% 100% 

* The base-case market shares of each product class are estimated in the shipment analysis, as described in 

chapter 9 of the final rule TSD. 

For DHE, DOE estimated the market shares of different energy efficiency levels 

within each product class in the base case using data in the AHRI Directory. For the final 

rule, DOE updated its estimates using the February 2010 AHRI Directory, and for hearth 

products, DOE also consulted manufacturers’ websites in addition to the 2010 AHRI 

Directory (see chapter 8 of the TSD for the citation and detailed information). For pool 

heaters, DOE estimated the market shares of different energy efficiency levels in the 

base-case by using 2008 data from the Federal Trade Commission (FTC) on the number 

of gas-fired pool heater models at different energy efficiency levels as a proxy for 

shipments. For the final rule, DOE updated its estimates using 2009 FTC data. 

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DOE did not receive any comments on its estimation of base-case energy 

efficiency market shares for the three types of heating products. For further information 

on DOE’s estimation of base-case market shares, see chapter 8 of the TSD. 

11. Inputs to Payback Period Analysis 

The payback period is the amount of time it takes the consumer to recover the 

additional installed cost of more-efficient products, compared to baseline products, 

through energy cost savings. For these calculations, DOE uses a simple payback period, 

which does not account for changes in operating expense over time or the time value of 

money. Payback periods are expressed in years. Payback periods that exceed the life of 

the product mean that the increased total installed cost is not recovered in reduced 

operating expenses. 

The inputs to the PBP calculation are the total installed cost of the equipment to 

the customer for each efficiency level and the annual (first-year) operating expenditures 

for each efficiency level. The PBP calculation uses the same inputs as the LCC analysis, 

except that energy price trends and discount rates are not needed. DOE did not receive 

any comments on its methodology for the payback period analysis. 

As noted above, EPCA, as amended, establishes a rebuttable presumption that a 

standard is economically justified if the Secretary finds that the additional cost to the 

consumer of purchasing a product complying with an energy conservation standard level 

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will be less than three times the value of the energy (and, as applicable, water) savings 

during the first year that the consumer will receive as a result of the standard, as 

calculated under the test procedure in place for that standard. (42 U.S.C. 

6295(o)(2)(B)(iii)) For each TSL, DOE determined the value of the first year’s energy 

savings by calculating the quantity of those savings in accordance with the applicable 

DOE test procedure, and multiplying that amount by the average energy price forecast for 

the year in which compliance with the amended standard would be required. 

Results of DOE’s payback period analysis, including both the rebuttable 

presumption analysis and the payback period analysis considering all of the relevant 

statutory factors, are discussed in section VI. 

G. National Impact Analysis - National Energy Savings and Net Present Value Analysis 

1. General 

DOE’s National Impact Analysis (NIA) assesses the national energy savings 

(NES) and the national net present value (NPV) of total consumer costs and savings 

expected to result from standards at specific efficiency levels. DOE applied the NIA 

spreadsheet to calculate NES and NPV, using the annual energy consumption and total 

installed cost data from the LCC analysis. DOE forecasted the energy savings, energy 

cost savings, equipment costs, and NPV for each product class from 2013 through 2043 

for DHE and pool heaters, and from 2015 through 2045 for water heaters. The forecasts 

provide annual and cumulative values for all four parameters. In addition, DOE 

incorporated into its NIA spreadsheet the capability to analyze the sensitivity of the 

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results to forecasted energy prices and equipment efficiency trends. Table IV.25 

summarizes the approach and data DOE used to derive the inputs to the NES and NPV 

analyses for the December 2009 NOPR, and also summarizes the changes DOE made for 

today’s final rule. These changes are described in the following sections, and more details 

are available in chapter 10 of the final rule TSD. Comments on the NIA, as presented in 

the December 2009 NOPR, and DOE’s response are presented in the sections that follow. 

Table IV.25 Approach and Data Used for the National Impacts Analysis 

Inputs NOPR Changes for the Final Rule 

Shipments Annual shipments from shipments 

model. 

See table IV.4. 

Compliance Date 

of Standard 

Water Heaters: 2015. 

DHE and Pool Heaters: 2013. 

No change. 

Base-Case 

Forecasted 

Efficiencies 

Efficiency market shares estimated for 

compliance year. Sales-weighted 

energy factor (SWEF) remains 

constant except for gas and electric 

water heaters, for which SWEF 

increases slightly over forecast period. 

No change in approach; updated 

efficiency market shares for water 

heaters and DHE estimated for 

compliance year. 

Standards-Case 

Forecasted 

Efficiencies

 “Roll-up” scenario used for 

determining SWEF in 2013 (or 2015) 

for each standards case. SWEF 

remains constant except for gas and 

electric water heaters, for which SWEF 

increases slightly over forecast period. 

No change in approach. 

Annual Energy 

Consumption per 

Unit 

Annual weighted-average values as a 

function of SWEF. 

No change. 

Rebound Effect Water heaters: 10%. 

DHE: 15%. 

Pool Heaters: 10%. 

No change. 

Total Installed 

Cost per Unit 

Annual weighted-average values as a 

function of SWEF. 

No change. 

Energy Cost per 

Unit 

Annual weighted-average values a 

function of the annual energy 

consumption per unit and energy (and 

No change. 

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water) prices. 

Repair Cost and 

Maintenance Cost 

per Unit 

Annual values are a function of 

efficiency level. 

No change. 

Escalation of 

Energy Prices 

AEO2009 forecasts (to 2030) and 

extrapolation to 2043 (and 2045). 

Updated using AEO2010 (Early 

Release) forecasts. 

Energy Site-toSource Conversion 

Factor 

Varies yearly and is generated by 

DOE/EIA’s NEMS 

No change. 

Discount Rate Three and seven percent real. No change. 

Present Year Future expenses are discounted to 

2010, when the final rule will be 

published. 

No change. 

2. Shipments 

The shipments portion of the NIA spreadsheet is a model that uses historical data 

as a basis for projecting future shipments of the appliance products that are the subject of 

this rulemaking. In projecting shipments for water heaters and pool heaters, DOE 

accounted for two market segments: (1) new construction and (2) replacement of failed 

equipment. Data were unavailable to develop separate forecasts of direct heating 

equipment shipments for replacement and new home installations, so the forecast was 

based on the time series of historical total shipments developed for each product class. 

Table IV.26 summarizes the approach and data DOE used to derive the inputs to 

the shipments analysis for the December 2009 NOPR analysis, and the changes DOE 

made for today’s final rule, based on public comments. A discussion of these inputs and 

changes follows. For details on the shipments analysis, see chapter 9 of the TSD. 

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Table IV.26 Approach and Data Used for the Shipments Analysis 


Inputs NOPR Analysis Changes for the Final Rule 

Historical Shipments 

Water Heaters: Data provided by 

AHRI. 

DHE: Data provided by AHRI and 

DOE estimates, and data from 

manufacturers and the trade 

association for hearth products. 

Pool Heaters: Data from 1993 TSD, 

inputs from manufacturers, and DOE 

estimates. 

Water Heaters: Used new data 

for GIWH for 2008 and 2009. 

DHE: Derived new data based on 

manufacturer input. 

Pool Heaters: Used data 

provided by manufacturers trade 

association. 

New Construction 

Shipments 

For water heaters and pool heaters, 

determined by multiplying housing 

forecasts by forecasted saturation of 

products in new housing. 

Housing forecasts based on AEO2009 

projections. 

New housing product saturations 

based on American Housing Survey 

for water heaters, consultant data for 

pool heaters. 

No change in approach. New 

housing forecast updated with 

AEO2010 projections. 

Replacements 

For water heaters and pool heaters, 

determined by tracking total product 

stock by vintage and establishing the 

failure of the stock using retirement 

functions from the LCC and PBP 

analysis. For pool heaters, included 

estimated non-replacement of some 

pool heaters. 

No change. 

To determine new construction shipments, DOE used forecasts of housing starts 

coupled with estimates of product market saturation in new housing. For the preliminary 

analysis, DOE used actual data for 2008 for new housing completions and mobile home 

placements and adopted the projections from AEO2009 for 2009 to 2030. DOE updated 

its new housing projections for today’s final rule using AEO2010 Early Release, which 

provides projections from 2010 to 2035. DOE kept completions constant after 2035. DOE 

estimated replacements using historical shipments data and product retirement functions 

that it developed from product lifetimes. Table IV.27 provides a summary of total 

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shipments in 2009 for residential water heaters, direct heating equipment, and pool 

heaters. 

Table IV.27 Residential Water Heaters, Direct Heating Equipment and Pool 

Heaters Shipments (2009) 

Residential Water Heaters Total Shipments (million) 

Gas-fired Storage 3.76 

Electric Storage 3.75 

Oil-fired Storage 0.031* 

Gas-fired Instantaneous 0.384* 

Direct Heating Equipment 

Gas Wall Fan 0.030* 

Gas Wall Gravity 0.103* 

Gas Floor 0.003* 

Gas Room 0.020* 

Gas Hearth 0.286* 

Pool Heaters 

Gas-fired 0.118 

* Estimated 

a. Water Heaters 

For the December 2009 NOPR analysis, DOE used information on choice of 

water heater products in recently-built housing to estimate shipments of each product 

class to the new construction market. DOE calculated the average market shares of water 

heaters using a particular fuel in new homes during 2000 to 2008, and assumed that these 

shares would hold throughout the forecast period. AGA stated that DOE should not fix 

market shares, and should realize that increasing disparity between gas and electric 

installed cost will exacerbate a trend away from gas-fired units. (AGA, No. 78 at pp. 7-8) 

In response, DOE notes that its data on water heater choice in new homes does not show 

a clear trend away from gas-fired units during the period from 2000 to 2008 (as 

documented in chapter 9 of the TSD), nor did AGA provide any data to substantiate such 

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a trend. DOE recognizes that future market dynamics may result in changes from the 

average pattern seen in 2000 to 2008, but DOE does not have sufficient information to 

forecast the various factors that affect water heater choice in new homes. Therefore, DOE 

has retained the approach used in the December 2009 NOPR analysis for the final rule. 

The shipments model assumes that when a unit using a particular fuel is retired, it 

generally is replaced with a unit that uses the same fuel. Section IV.G.2.d discusses the 

potential effects of energy conservation standards on choice of water heater product in 

the new construction and replacement markets. 

For its shipments forecast for gas-fired storage water heaters and electric storage 

water heaters, DOE assumed that the current market shares of small-volume products (20 

to 55 gallons rated storage volume) and large-volume products (over 55 gallons rated 

storage volume) would remain the same throughout the forecast period. The shipments 

market shares for large-volume products are 4 percent for gas-fired storage water heaters 

and 9 percent for electric storage water heaters. 

Within the category of gas-fired water heaters, DOE disaggregated the shares of 

gas storage water heaters and gas-fired instantaneous water heaters based on projections 

of total shipments of gas-fired instantaneous water heaters. Because there is much 

uncertainty about the future growth of gas-fired instantaneous water heaters, DOE 

modeled scenarios of their market penetration based on experience with gas-fired 

instantaneous water heaters in Australia, where the proportion of instantaneous water 

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heaters in total gas-fired storage water heater shipments has grown considerably in the 

past decade. (See chapter 9 of the TSD for information on the past and projected market 

penetration in Australia.) 

Commenting on the December 2009 NOPR approach, AHRI stated that the 

experience of gas-fired instantaneous water heaters in Australia is too dissimilar to the 

U.S. market to be used to predict future U.S. shipments. (AHRI, No. 91 at p. 3) Rheem 

stated that the Australian market was primarily based on outdoor installations, and was 

influenced by local government programs. (Rheem, No. 89 at p. 13) A.O. Smith stated 

that in 2009, gas-fired instantaneous water heater shipments will be about 9.4 percent of 

the total gas market, not 20 percent as the DOE forecast suggests. A.O. Smith estimated a 

more moderate growth curve for gas-fired instantaneous water heaters, growing to 13-15 

percent of the gas market, consistent with DOE's low-penetration scenario. Moreover, 

A.O. Smith stated that this level will not be reached for 5-7 years, unlike the DOE 

forecast of 1-2 years. (A.O. Smith, No. 76 at p. 5) 

In response, DOE acknowledges the uncertainty associated with basing its 

forecasted market penetration of gas-fired instantaneous water heaters on the Australian 

experience, but it believes that there is no other market that could provide an approximate 

model for forecasting U.S. market penetration. In making use of the Australian 

experience, DOE’s December 2009 NOPR analysis took into account some of the 

differences between the two markets that would tend to cause shipments growth to be 

lower in the U.S. In response to the comments from A.O. Smith, however, DOE made 

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modifications to its approach for the final rule. First, it incorporated A.O. Smith’s 

estimated market share for 2009 (as well as data it provided on the actual share in 2008). 

Second, based on the new data on shipments, DOE significantly moderated the growth 

curve for gas-fired instantaneous water heater market penetration such that the rise is less 

steep than had been assumed for the December 2009 NOPR. Because of broad 

similarities between the U.S. and Australian water heating markets, DOE continued to 

use scenarios of market penetration that are partly based on the Australian experience for 

the final rule. Differences in retail prices and installation costs for instantaneous water 

heaters, as well as in government incentives, suggest that the growth in the U.S. market 

will be less strong than in Australia. However, DOE believes that the rapid growth seen 

in the U.S. before 2008, together with the reputation of instantaneous gas-fired water 

heaters as an energy-efficient water heating option suggest that the ultimate market 

penetration may be higher than 13 to 15 percent of the gas water heating market. 

Therefore, DOE estimated that the U.S. market share (i.e., 28 percent) approaches a level 

equal to half of the Australian level (i.e., 56 percent) by around 2025. Chapter 9 of the 

TSD presents more details on DOE's projection. 

b. Direct Heating Equipment 

To estimate historical shipments of direct heating equipment for the December 

2009 NOPR analysis, DOE used two sets of data from AHRI and information from the 

1993 TSD. As noted above, data were unavailable to develop separate forecasts of direct 

heating equipment shipments for replacement and new home installations, so DOE based 

the forecast on the time series of historical total shipments developed for each product 

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class, along with assumptions regarding future trends. For gas hearth DHE shipments, the 

forecast used for the December 2009 NOPR related shipments to projected new housing 

completions. 

AHRI stated that the December 2009 NOPR assumption that future shipments of 

traditional DHE (i.e., all of the product classes except gas hearth DHE) will be flat is 

unrealistically optimistic and contrary to the last 30 years of shipment history. The 

commenter stated that this is a declining market not only because these products are sold 

primarily as replacements, but also because in some cases, the failing unit is replaced not 

with a similar model but rather with a vented fireplace heater. AHRI recommended that, 

at a minimum, the shipment forecast for traditional DHE use a 30-percent decrease over 

the next 30 years. (AHRI, No. 91 at p. 11) In response, for the final rule analysis, DOE 

modified its forecast such that total shipments of traditional DHE decrease by 30 percent 

between 2005 and 2042. The modification of the shipments forecast for each of the four 

traditional DHE product classes is described in chapter 9 of the TSD. 

c. Pool Heaters 

To forecast pool heater shipments for new construction for the December 2009 

NOPR analysis, DOE multiplied the annual housing starts forecasted for single-family 

and multi-family housing by the estimated saturation of gas-fired pool heaters in recently 

built new housing. For replacement pool heaters, DOE used a survival function based on 

its distribution of product lifetimes to determine when a unit fails. In addition, DOE 

assumed that some households would not replace their pool heater when it fails due to 

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cost considerations. DOE also introduced a market segment representing purchases by 

existing households that had not owned a pool heater. These first-time owners include 

existing households that have a pool and those that install one. 

The Association of Pool and Spa Professionals (APSP) stated that DOE’s data on 

pool heater shipments are overstated, and they submitted shipments data for 2003-2009. 

(APSP, No. 64 at p. 1) AHRI made similar comments. (AHRI, No. 91 at p. 8) DOE 

appreciates the information provided by APSP. For the final rule, it used the data for 

2003-2009 as a basis for its shipments forecast. 

Raypak stated that the pool heater forecasts are overstated, and that DOE's 

projection of a huge recovery in first-time pool owners is inaccurate, because of the 

significant reduction in property values and more difficult access to credit. (Raypak, 

Public Meeting Transcript, No. 57.4 at pp.258-259) AHRI stated that DOE did not 

recognize the increasing sales of electric heat pump pool heaters, which will reduce the 

shipments of gas-fired pool heaters. (AHRI, No. 91 at p. 9) In response, DOE notes that 

incorporating the new data for 2003-2009 reduces the forecast of future shipments. DOE 

agrees with Raypak regarding first-time pool owners and reduced the number of such 

installations in the early years of its forecast. DOE was not able to consider the impact of 

heat pump pool heaters as well as electric resistance pool heaters on the market because 

shipments data were not available. Furthermore, DOE did not include electric pool 

heaters in the current rulemaking for reasons explained in the NOPR. 74 FR 65852, 

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65866 (Dec. 11, 2009). Finally, DOE notes that the longer pool heater lifetime used for 

the final rule (as described in section IV.F.7.c) results in fewer replacement shipments. 

d. Impact of Standards on Shipments 

i. Water Heaters 

To the extent that energy conservation standards result in an increase in the price 

of a specific type of water heater compared to a competing product, some consumers (or 

home builders in the case of shipments for new construction) may purchase the 

competing product. The consumer or builder decision is not solely based on economic 

factors, as the availability of a natural gas supply plays a key role. Evaluation of this 

decision requires an assessment of the specific factors that influence it in the context of 

the two main markets for water heaters, replacements and new homes. 

In the December 2009 NOPR analysis, DOE determined that the greatest potential 

for product switching would exist in the case of a standard that effectively required an 

electric heat pump water heater. This type of product often has a substantially higher 

installed cost than a typical electric resistance storage water heater and is relatively new 

to consumers and builders. Because the product choice decision partially depends on the 

relative costs of competing products, DOE considered three potential combinations that 

could result from standards: (1) electric heat pump water heater and a gas-fired storage 

water heater using natural draft; (2) electric heat pump water heater and a gas-fired 

storage water heater using power vent; and (3) electric heat pump water heater and a gasfired storage water heater using condensing technology. DOE used data from the 2005 

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RECS to estimate the percentage of households expected to purchase an electric water 

heater in the base case that could switch to a gas-fired water heater because they had the 

necessary infrastructure. To estimate how many of these households would switch to a 

gas-fired water heaters, DOE considered the difference in installed cost between the gasfired storage water heater and an electric heat pump water heater in each of the 

combinations listed above. The estimated fraction of households using an electric storage 

water heater estimated to switch to a gas-fired storage water heater instead of installing a 

heat pump water heater ranges from zero with a standard level for gas-fired storage water 

heaters that requires condensing technology, to 9 percent with a standard level for gasfired storage water heaters that requires power vent technology. 

DOE did not quantify the potential for switching to gas water heating in the case 

of a standard that requires 0.95 EF for some or all electric water heaters, as the installed 

cost is only moderately higher than the baseline electric water heater (0.90 EF). DOE 

judged that this increase would not be sufficient to prompt consumers to consider 

switching to gas water heating, given the higher cost of a gas water heater and the fact 

that such switching would usually require installation of a venting system, which adds 

significant cost. 

Commenting on DOE’s December 2009 NOPR analysis, A.O. Smith stated that 

there will not be appreciable fuel switching in retrofits. (A.O. Smith, No. 76 at p. 4) GE 

stated that fuel switching is impractical for most consumers. (GE, No. 84 at p. 2) The 

American Public Power Association (APPA) stated that TSL 3 and TSL 4 would not 

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likely induce fuel switching, but higher TSLs would. (APPA, No. 92 at p. 4) Rheem 

stated that TSL 6 (i.e., requiring heat pump water heaters) would encourage a shift to 

instantaneous electric water heaters. In response, DOE believes that the high equipment 

and installation cost of instantaneous electric water heaters, which may involve upgrading 

the electrical wiring, along with the high operating cost, will limit the prevalence of a 

shift to these products. Given that the remaining comments are generally supportive of 

the estimates in the December 2009 NOPR, DOE retained its December 2009 NOPR 

analysis of fuel switching for the final rule. However, DOE expanded its analysis to 

consider the potential for product switching within the same fuel type, as discussed 

below. 

In the December 2009 NOPR analysis, for TSL 5, DOE combined an efficiency 

level requiring heat pump technology for large-volume electric storage water heaters with 

an efficiency level requiring condensing technology for large-volume gas storage water 

heaters. Because these technologies have roughly comparable estimated installed costs 

and there are constraints in switching from gas to electric or from electric to gas water 

heaters, DOE did not project that fuel switching would occur under TSL 5. 

DOE received a number of comments on potential reaction of consumers to TSL 

5. Rheem stated that TSL 5 would provide a strong value incentive for the replacement 

consumer to replace one large electric resistance unit with two smaller electric storage 

water heaters to avoid the higher first cost impact associated with a heat pump water 

heater. It also pointed to other approaches consumers might choose, and noted that TSL 5 

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could encourage installation of large commercial tank type models in residential 

applications, where such products often lack an equitable certification status for safe 

operation. (Rheem, No. 89 at p. 6) A.O. Smith stated that the added cost of a heat pump 

water heater would induce consumers to install two smaller-storage-capacity, lower-cost 

heaters in the place of one larger-capacity unit. (A.O. Smith, No. 76 at p. 4) AHRI stated 

that the market may react to TSL 5 by replacing a large electric storage water heater with 

either a 50-gallon model with a tempering valve, a 50-gallon model with higher input 

heating elements, two smaller storage water heaters, or multiple instantaneous water 

heaters. (AHRI, No. 91 at p. 7) NPCC stated that in emergency replacements of electric 

water heaters, switching to two smaller water heaters is unlikely because it would require 

a new 30 amp circuit, which would require a contractor. (NPCC, Public Meeting 

Transcript, No. 57.4 at pp. 106-107) Regarding TSL 5’s requirement of condensing gasfired storage water heaters for large-volume water heaters, Southern stated that 

consumers could instead install a non-condensing unit with a 75,000 Btu burner and 55­

gallon tank. (Southern, No. 90 at pp. 6-7) In contrast to these comments, NRDC opined 

that it is unlikely that TSL 5 would cause product switching. (NRDC, No. 85 at p. 6) 

In response, DOE agrees that the December 2009 NOPR TSL 5 would present 

consumers of large water heaters with a total installed cost that could lead some of them 

to consider alternatives to purchasing a new large water heater. To estimate the likely 

incidence of switching away from large-volume units under TSL 5 and TSL 6 in today’s 

final rule (see section VI.A for description of TSLs), DOE considered several alternatives 

to purchasing a new large water heater, as well as constraints that would likely limit their 

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adoption. 

First, DOE considered factors that would cause some households to choose not to 

install an alternative to a new large-volume unit. Most important is the need for 

emergency replacement, which, according to comments from Bradford White (BWC, No. 

62 at p. 4), accounts for 95 percent of water heater replacements. This may preclude 

consideration of switching in some cases. In addition, based on shipments data from 

AHRI14 and equipment stock information from AEO 201015, DOE determined that at least 

15 percent of furnace shipments go to households that are switching from noncondensing to condensing gas furnace and also have a gas water heater. Some of these 

households may want to also install a condensing gas water heater to avoid complex 

venting system modifications. The details are described in chapter 9 of the TSD. DOE 

judged that the above factors would reduce the fraction of installations estimated to adopt 

an alternative to purchasing a large-volume water heater by 25 percent. 

One alternative applicable to both gas-fired storage water heaters and electric 

storage water heaters involves installing a small-volume water heater, increasing the 

setpoint, and applying a tempering valve. DOE believes that this strategy would only be 

viable for a fraction of 66-gallon units.16 This strategy results in the household having 

roughly the same amount of hot water with a small-volume water heater as they would 

14 AHRI furnace shipment data. Available at http://www.ahrinet.org/Content/Furnaces_609.aspx. 
 15 AEO 2010 (Early Release): Table 31. Residential Sector Equipment Stock and Efficiency. Available at: 


http://www.eia.doe.gov/oiaf/aeo/supplement/supref.html. 
 16 DOE notes that production of large gas-fired water heaters tends to be clustered around models with a 


rated storage volume of 66 gallons or 75 gallons. DOE assumed that the strategies discussed here are 


likewise relevant to water heaters with a rated capacity from 56 gallons to 66 gallons.
 

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have with a large-volume unit; higher-temperature water is stored in a smaller tank, and 

then mixed with cold water using the valve. For units larger than 66 gallons, meeting the 

household’s hot water demand would require increasing the setpoint above the 140°F 

limit, which could result in deposits on the internal surface of the tank. To assess the 

viability of this approach for each of the sample households with 66-gallon water heaters, 

DOE calculated whether the first-hour rating of a small-volume water heater with a 

tempering valve would meet the first-hour rating of the existing 66-gallon water heater 

without exceeding a 140° F setpoint. (The first hour rating is the amount of hot water in 

gallons the heater can supply per hour, starting with a tank full of hot water). If so, DOE 

assumed the household would choose this option. 

For gas-fired storage water heaters, DOE considered the approach of switching to 

a small-volume unit with high input capacity (larger burner). DOE understands that 

designs for units below 56-gallon rated volume that have very high rated input (e.g., 75 

kBtu/h) are not common. There are some 50-gallon models with an input of 65 kBtu/h; 

these designs usually incorporate a 5-inch internal flue tube (instead of 4-inch), and the 

tank is usually taller to accommodate the same water storage volume. These units are 

likely to require venting modifications (upgrade to 4-inch vent). In addition, for many 

installations the input rate for the existing 66-gallon or larger unit is already 55 kBtu/h or 

higher, and a 50-gallon unit with a high-capacity burner may not satisfy the household 

hot water requirements. DOE accounted for the above constraints to estimate the fraction 

of installations that would switch to a small-volume with high input capacity. DOE also 

evaluated a similar strategy for electric storage water heaters that involves switching to a 

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small-volume unit with high input heating elements. 

To consider the alternative of installing two small-volume units, for each sample 

household with a large-volume water heater that, according to DOE’s estimation, would 

not adopt either of the above two strategies, DOE first considered space constraints that 

would limit this approach, depending on the water heater location. For those households 

judged not to have such constraints, DOE compared the total installed cost of either a 

heat pump water heater or a gas-fired condensing water heater with the alternative of 

installing two small-volume units. For the cost of this alternative, DOE used information 

from a consultant report. Because installing two small-volume units is more complicated 

and takes longer, DOE assumed that households would choose to install two smallvolume units only if the total installed cost was at least 10 percent less than the cost for a 

heat pump water heater or a gas-fired condensing water heater. 

The results of DOE’s analysis indicate that switching away from a large-volume 

water heater would occur in 37 percent of large-volume electric storage water heater 

installations and in 22 percent of large-volume gas-fired storage water heater 

installations. The details of DOE’s approach and the estimated degree of switching using 

each of the alternatives described above are provided in chapter 9 of the TSD. 

ii. Direct Heating Equipment and Pool Heaters 

For DHE and pool heaters, in the December 2009 NOPR analysis, DOE did not 

find any data it could use to estimate the extent of switching away from the products 

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subject to this rulemaking if energy conservation standards were to result in a significant 

increase in installed costs. Raypak stated that as pool heaters become more expensive, 

more may be repaired instead of being replaced, so the fraction of non-replacements 

should be higher. (Raypak, Public Meeting Transcript, No. 57.4 at p. 249) It also stated 

that the proposed standard for pool heaters would induce product switching to solar or 

heat pump pool heaters. (Raypak, No. 67 at p. 3) In response, DOE believes that the 

standard adopted for pool heaters in this final rule (82-percent thermal efficiency) does 

not increase the installed cost enough to induce most consumers to not replace the 

product or to switch to a different product. 

3. Base-Case and Standards-Case Efficiency Distributions 

A key input to DOE’s estimates of NES and NPV is the energy efficiencies that 

DOE forecasts over time for the base case (without new standards) and each of the 

standards cases. The forecasted efficiencies represent the annual shipment-weighted 

energy efficiency of the products under consideration over the forecast period. 

For the December 2009 NOPR analysis, DOE used the shipment-weighted 

average energy efficiencies for 2013 (for DHE and pool heaters) or 2015 (for water 

heaters) as a starting point to forecast the base-case energy efficiency distribution for 

each product class. To represent the distribution of product energy efficiencies in those 

years, DOE used the same market shares as in the base case for the LCC analysis. For 

gas-fired storage water heaters and electric storage water heaters, DOE estimated the 

distribution of product energy efficiencies in 2015 by accounting for the estimated market 

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impact of the recently-established ENERGY STAR efficiency levels for water heaters 

(see section IV.F.10). The projected trend to 2015 represents an average annual increase 

in energy efficiency of 0.27 percent for gas-fired storage water heaters and 0.55 percent 

for electric storage water heaters. DOE applied the above values to estimate the increase 

in average energy efficiency until the end of the forecast period. 

DOE found no quantifiable indications of change in energy efficiencies over time 

for oil-fired and gas-fired instantaneous water heaters, direct heating equipment, or pool 

heaters, and it did not receive any comments on this topic. Therefore, for these products, 

DOE estimated that energy efficiencies remain constant at the 2015 or 2013 level until 

the end of the forecast period. 

For its determination of standards-case forecasted efficiencies, DOE used a “rollup” scenario in the preliminary analysis and the December 2009 NOPR to establish the 

SWEF for the year that compliance with the standards would be required and subsequent 

years. In this approach, product energy efficiencies in the base case that do not meet the 

standards level under consideration would roll up to meet the new standard level. The 

market share of energy efficiencies that exceed the standard level under consideration 

would be the same in the standards case as in the base case. Changes over the forecast 

period match those in the base case. DOE did not receive any comments on its forecasts 

of energy efficiency distributions, so for today’s final rule, DOE maintained the approach 

described above. 

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4. National Energy Savings 

DOE calculates NES for each year as the difference between energy consumption 

of the product stock using the average unit energy consumption (UEC) of the stock in the 

base case (without new standards) or in a case given new standards. In addition to annual 

shipments, key inputs for determining NES are annual UEC and the site-to-source 

conversion factor. 

a. Annual Unit Energy Consumption 

For each year in the forecast period, DOE used the shipments-weighted energy 

efficiencies for the base case and standards cases, along with the data on annual energy 

use by efficiency level, to estimate the shipments-weighted average annual per-unit 

energy consumption for each product class under the base case and standards cases. 

When calculating energy consumption at each considered efficiency level above the 

baseline, DOE applied a rebound effect of 10 percent for water heaters, 15 percent for 

DHE, and 10 percent for pool heaters. A rebound effect refers to increased energy 

consumption resulting from actions that increase energy efficiency and reduce consumer 

costs. (For example, if energy efficiency improvements were to reduce the energy 

consumption of a room air conditioner (thereby decreasing its electricity costs), a 

consumer may choose to run the unit more often, thereby increasing comfort but 

returning a portion of the savings arising from DOE’s standards.) When the rebound 

effect is incorporated, calculated energy savings are lower than if no rebound effect were 

considered. 

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DOE’s calculation of UEC accounts for the product switching that DOE 


anticipates will occur under specific TSLs. That is, DOE accounted for the energy use of 

the products to which some fraction of households are assumed to switch. For example, 

in the case of switching from a large-volume water heater to two small-volume units, 

DOE calculated and incorporated the energy use of the two small-volume units. 

b. Site-to-Source Energy Conversion 

To estimate the national energy savings expected from appliance standards, DOE 

uses a multiplicative factor to convert site energy consumption (at the home or 

commercial building) into primary or source energy consumption (the energy required to 

deliver the site energy). These conversion factors account for the energy used at power 

plants to generate electricity and losses in transmission and distribution, as well as for 

natural gas losses from pipeline leakage and energy used for pumping. For electricity, the 

conversion factors vary over time due to projected changes in generation sources (i.e., the 

power plant types projected to provide electricity to the country). The factors that DOE 

developed are marginal values, which represent the response of the system to an 

incremental decrease in consumption associated with appliance standards. 

In the December 2009 NOPR analysis, DOE used annual site-to-source 

conversion factors based on the version of NEMS that corresponds to AEO2009. For 

today’s final rule, DOE updated its conversion factors based on AEO2010 Early Release. 

The AEO does not provide energy forecasts beyond 2035; DOE used conversion factors 

that remain constant at the 2035 values throughout the remainder of the forecast period. 

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In response to a request from the DOE’s Office of Energy Efficiency and 

Renewable Energy (EERE), the National Research Council (NRC) appointed a 

committee on “Point-of-Use and Full-Fuel-Cycle Measurement Approaches to Energy 

Efficiency Standards” to conduct a study called for in section 1802 of EPACT 2005. The 

fundamental task before the committee was to evaluate the methodology used for setting 

energy efficiency standards and to comment on whether site (point-of-use) or source 

(full-fuel-cycle) measures of energy efficiency better support rulemaking to achieve 

energy conservation goals. The NRC committee defined “site (point-of-use) energy 

consumption” as reflecting the use of electricity, natural gas, propane, and/or fuel oil by 

an appliance at the site where the appliance is operated. “Full-fuel-cycle energy 

consumption” was defined as including, in addition to site energy use, the following: 

energy consumed in the extraction, processing, and transport of primary fuels such as 

coal, oil, and natural gas; energy losses in thermal combustion in power generation 

plants; and energy losses in transmission and distribution to homes and commercial 

buildings.17 

In evaluating the merits of using point-of-use and full-fuel-cycle measures, the 

NRC committee noted that DOE uses what the committee referred to as “extended site” 

energy consumption to assess the impact of energy use on the economy, energy security, 

and environmental quality. The extended site measure of energy consumption includes 

17 See The National Academies, Board on Energy and Environmental Systems, Letter to Dr. John Mizroch, 

Acting Assistant Secretary, U.S. DOE, Office of EERE, from James W. Dally, Chair, Committee on Pointof-Use and Full-Fuel-Cycle Measurement Approaches to Energy Efficiency Standards (May 15, 2009). 

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the generation, transmission, and distribution but, unlike the full-fuel-cycle measure, does 

not include the energy consumed in extracting, processing, and transporting primary 

fuels. A majority of members on the NRC committee concluded that extended site energy 

consumption understates the total energy consumed to make an appliance operational at 

the site. As a result, the NRC committee’s primary general recommendation is for DOE 

to consider moving over time to use of a full-fuel-cycle measure of energy consumption 

for assessment of national and environmental impacts, especially levels of greenhouse 

gas emissions, and to providing more comprehensive information to the public through 

labels and other means, such as an enhanced website. For those appliances that use 

multiple fuels (e.g., water heaters), the NRC committee believes that measuring full-fuelcycle energy consumption would provide a more complete picture of energy used, 

thereby allowing comparison across many different appliances as well as an improved 

assessment of impacts. The NRC committee also acknowledged the complexities inherent 

in developing a full-fuel-cycle measure of energy use and stated that a majority of the 

committee recommended a gradual transition to that expanded measure and eventual 

replacement of the currently used extended site measure. 

DOE acknowledges that its site-to-source conversion factors do not capture all of 

the energy consumed in extracting, processing, and transporting primary fuels. DOE also 

agrees with the NRC committee’s conclusion that developing site-to-source conversion 

factors that capture the energy associated with the extraction, processing, and 

transportation of primary fuels is inherently complex and difficult. However, DOE has 

performed some preliminary evaluation of a full-fuel-cycle measure of energy use. 

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Based on two studies completed by the National Renewable Energy Laboratory 

(NREL) in 1999 and 2000, DOE estimated the ratio of the energy used upstream to the 

energy content of the coal or natural gas delivered to power plants. For coal, the NREL 

analysis considered typical mining practices and mine-to-plant transportation distances, 

and used data for the State of Illinois. Based on data in this report, the estimated 

multiplicative factor for coal is 1.08 (i.e., it takes approximately 1.08 units of coal energy 

equivalent to provide 1 unit of coal to a power plant). A similar analysis of the energy 

consumed in upstream processes needed to produce and deliver natural gas to a power 

plant yielded a multiplicative factor of 1.19.18 

While the above factors are indicative of the magnitude of the impacts of using 

full-fuel-cycle measures of energy use, there are two aspects of the problem that warrant 

further study. The first is the refinement of the estimates of the multiplicative factors, 

particularly to incorporate regional variation. The second is development of forecasts of 

the multiplicative factors over the timeframes used in the rulemaking analyses, typically 

ten to fifty years. The second issue, of forecasting how the efficiency factors for various 

fuels may change over time, has the potential to be quite significant. The existing NEMS 

forecast of power plant electricity generation by fuel type can be used to estimate the 

impact of a changing mix of fuels. However, NEMS currently provides no information on 

18 For further information on the NREL studies, please see: Spath, Pamela L., Margaret K. Mann, and 

Dawn Kerr, “Life Cycle Assessment of Coal-fired Power Production, ” NREL/TP-570-25119 (June 1999); 

and Spath, Pamela L. and Margaret K. Mann, “Life Cycle Assessment of a Natural Gas Combined-Cycle 

Power Generation System,” NREL/TP-570-27715 (Sept. 2000). 

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potential changes to the relative ease with which the different fuels can be extracted and 

processed. 

AGA stated that the December 2009 NOPR’s energy consumption estimates for 

specific design options do not reflect a full-fuel-cycle analysis of the energy consumed. 

Referring to the NRC committee’s report, AGA recommended that DOE use “extended 

site energy” analysis in the near term.19 (AGA, No. 78 at pp. 2-3) In response, DOE refers 

to the preceding discussion of why it has not yet adopted a full-fuel-cycle measure of 

energy use. DOE’s calculation of national energy savings does in fact use the extended 

site measure of energy consumption, which includes generation, transmission, and 

distribution but, unlike the full-fuel-cycle measure, does not include the energy consumed 

in extracting, processing, and transporting primary fuels. The calculation of energy 

consumption that DOE uses in the LCC analysis does not use an extended site energy 

measure, because the purpose of the calculation is to estimate the operating costs that 

consumers will face with alternative appliance efficiency levels. The site energy 

calculated in the LCC analysis is converted to extended site energy (i.e., source or 

primary energy) in the NIA. DOE intends to further evaluate the viability of using fullfuel-cycle measures of energy consumption for assessment of national and environmental 

impacts of appliance standards. 

19 AGA cited the “Report” issued by the National Academy of Sciences, but it is evident that AGA was 

referring to the report by the NRC committee cited in footnote 12. 

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5. Consumer Net Present Value 

The consumer NPV is the net value in the present of the costs and savings 

experienced by consumers of the considered products. DOE calculates the NPV using the 

value of increased total installed costs, the value of operating cost savings (including 

energy, repair, and maintenance costs) in each year in which such savings occur, and a 

discount rate. 

a. Increased Total Installed Costs and Operating Cost Savings 

The increase in total annual installed cost is equal to the annual change in the perunit total installed cost (difference between base case and standards cases) multiplied by 

the shipments forecasted for the standards case. Similarly, the total annual savings in 

operating costs are equal to the change in annual operating costs (difference between base 

case and standards case) per unit multiplied by the shipments forecasted for the standards 

case. 

DOE’s calculation of total annual installed cost and total annual savings in 

operating costs accounts for the fuel and product switching that was estimated to occur 

under specific TSLs (see section IV.G.2.d). The accounting of the energy use of the 

products to which a fraction of households are assumed to switch was described above in 

section IV.G.4.a. DOE also accounted for the installed cost of those products. For 

example, in the case of switching from a large-volume water heater to two small-volume 

units, DOE calculated and incorporated the installed cost of the two units. 

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b. Discount Rates 

DOE multiplies monetary values in future years by the discount factor to 

determine the present value. For the December 2009 NOPR analysis and today’s final 

rule, DOE estimated the NPV of appliance consumer benefits using both a 3-percent and 

a 7-percent real discount rate. DOE uses these discount rates in accordance with guidance 

provided by the Office of Management and Budget (OMB) to Federal agencies on the 

development of regulatory analysis (OMB Circular A-4 (Sept. 17, 2003), section E, 

“Identifying and Measuring Benefits and Costs”). DOE did not receive any comments on 

the discount rates used to calculate the NPV of appliance consumer benefits, and 

consequently, DOE has retained those discount rates in this final rule. 

H. Consumer Subgroup Analysis 

In analyzing the potential impact of new or amended energy conservation 

standards on individual and commercial consumers, DOE evaluates the impact on 

identifiable subgroups of consumers that may be disproportionately affected by a national 

standard level. For the December 2009 NOPR and today’s final rule, DOE used 2005 

RECS data to analyze the potential effect of energy conservation standards on the 

considered consumer subgroups for selected heating products. For gas-fired and electric 

storage water heaters, and gas wall fan and gas wall gravity DHE, DOE estimated consumer 

subgroup impacts for low-income households and senior-only households. In addition, 

for gas-fired and electric storage water heaters, DOE estimated consumer subgroup impacts 

for households in multi-family housing and households in manufactured homes as well. 

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DOE did not evaluate consumer subgroup impacts for gas-fired instantaneous 

water heaters and oil-fired storage water heaters. Gas-fired instantaneous water heaters 

were excluded from the consumer subgroup analysis due to insufficient data, and oil-fired 

storage water heaters were excluded due to low product shipments. For direct heating 

equipment, gas floor DHE and gas room DHE were excluded due to the low and decreasing 

levels of product shipments. For gas hearth DHE, DOE examined the senior-only subgroup, 

but did not evaluate the low-income subgroup because the saturation of this product is very 

small among low-income households due to the high product cost. DOE did not evaluate 

consumer subgroup impacts for pool heaters because the sample size of the subgroups is 

too small for meaningful analysis. 

DOE did not receive any comments on its approach for the consumer subgroup 

analysis, and for today’s final rule, DOE has made no change to its method for estimating 

consumer subgroup impacts. Details on the consumer subgroup analysis and results can 

be found in chapter 11 of the TSD. 

I. Manufacturer Impact Analysis 

DOE conducted the MIA to estimate the financial impact of amended energy 

conservation standards on water heater, DHE, and pool heater manufacturers and to 

calculate the impact of such standards on gross domestic manufacturing employment and 

capacity. The MIA has both quantitative and qualitative aspects. The quantitative part of 

the MIA primarily relies on the GRIM-an industry-cash-flow model customized for the 

three products covered by this rulemaking. The GRIM inputs are data characterizing the 

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industry cost structure, investments, shipments, and markups. The key MIA output is the 

INPV. Different sets of assumptions (scenarios) produce different results. DOE presents 

the industry impacts by the major product types. DOE estimated the industry impacts for 

gas-fired and electric storage water heaters together because these product groupings 

represent a market that is served by the same manufacturers and these products are 

typically produced in the same factories. Similarly, DOE presents the other MIA results 

separately for oil-fired storage water heaters, gas-fired instantaneous water heaters, the 

traditional DHE product categories, gas hearth DHE, and gas-fired pool heaters. 

The qualitative part of the MIA addresses factors such as product characteristics, 

market and product trends, as well as an assessment of the impacts of standards on 

subgroups of manufacturers. DOE outlined its methodology for the MIA in the December 

2009 NOPR. 74 FR 65852, 65915-22 (December 11, 2009). The complete MIA for the 

December 2009 NOPR is presented in chapter 12 of the NOPR TSD. 

In overview, for the final rule, DOE updated the MIA to reflect changes in the 

outputs of two other key DOE analyses that feed into the GRIM. Product costs are key 

inputs to the GRIM. For today’s final rule, DOE incorporated the changes made to the 

engineering analysis, including updates to the MPCs (see section IV.C). In the NIA, DOE 

updated its shipment forecasts and efficiency distributions. In turn, DOE updated the 

GRIM to incorporate these revised costs and shipments. 

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For consistency in nominal dollars, for the final rule, DOE inflated the NOPR 

capital and product conversion costs to 2009$ from 2008$ using producer price index 

(PPI) information for the relevant industries. See 

http://data.bls.gov:8080/PDQ/outside.jsp?survey=pc. The PPI industry information is 

related to the North American Industry Classification System (NAICS) code. For gasfired storage, oil-fired storage, and gas-fired instantaneous water heaters, DOE updated 

the conversion costs using PPI information under series id PCU3352283352283 – 

“Household water heaters, except electric.” DOE updated the conversion costs for 

electric storage water heaters using series id PCU3352283352281 – “Household water 

heaters, electric, for permanent installation.” DOE updated the DHE conversion costs 

using series id PCU3334143334147 – “Floor and wall furnaces, unit heaters, infrared 

heaters, and mechanical stokers.” Finally, DOE updated the conversion costs for pool 

heaters using series id PCU3334143334149 – “Other heating equipment, except electric.” 

For the final rule, DOE also updated its traditional DHE product line analysis used to 

calculate industry-wide conversion costs to account for new products that have come on 

to the market and to account for changes to the traditional DHE efficiency levels and 

TSLs, as reflected in the most current information in the AHRI certification database (see 

http://www.ahridirectory.org/ahridirectory/pages/home.aspx.). 

DOE used the GRIM to revise the MIA results from the December 2009 NOPR to 

reflect the updated MPCs, shipments, and conversion costs. For direct employment 

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calculations, DOE revised the GRIM to include the latest U.S. Census information 

available from the 2007 Economic Census.20 

The following sections discuss interested parties’ comments on the December 

2009 NOPR MIA methodology. In general, DOE provides background on an issue that 

was raised by interested parties, summarizes the interested parties’ comment, and 

discusses DOE’s response to the comments. 

1. Water Heater Conversion Costs 

For the MIA, DOE classified one-time conversion costs into two major 

categories: (1) product conversion costs and (2) capital conversion costs. Product 

conversion costs are one-time investments in research, development, testing, marketing, 

and other costs focused on making product designs comply with the amended energy 

conservation standard. Capital conversion costs are one-time investments in property, 

plant, and equipment to adapt or change existing production facilities so that new product 

designs can be fabricated and assembled. 

In response to the December 2009 NOPR, AHRI stated that TSL 4 would require 

more than 75 percent of gas 40-gallon water heater models and more than 90 percent of 

electric 50-gallon water heater models from the AHRI Directory to be either redesigned 

or dropped from production. AHRI added that the severity of this change is even greater 

20 Annual Economic Census: 2007, American FactFinder, Bureau of the Census (Available at: 

http://www.census.gov/econ/census07/) (Last accessed Feb. 2010). 

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than this example suggests because shipments are more skewed towards current Federal 

minimum efficiency standards than the proportion of models suggests. (AHRI, No. 91 at 

pp. 1-2) 

DOE acknowledges that a significant effort may be necessary for manufacturers 

to reach the efficiencies required by TSL 4. In the December 2009 NOPR, DOE noted 

that over 80 percent of the gas-fired water heaters currently sold do not meet the 

efficiency requirements at TSL 2 through TSL 4 and that only a small portion of the 

electric storage water heaters currently on the market meet the required efficiencies at 

TSL 4. This current product distribution drives the estimate of capital conversion costs at 

TSL 4 and, consequently, contributes to the overall results. These conversion costs reflect 

the need for manufacturers to add foaming stations and additional production lines to 

maintain current production levels with water heaters that require much thicker 

insulation. 74 FR 65852, 65936-37 (Dec. 11, 2009). 

BWC commented that the significant increase in insulation thickness necessary to 

achieve the proposed level for water heaters would require additional assembly time to 

manufacture the same production quantity. In order to achieve the same manufacturing 

capacity, BWC stated that it would require a combination of more labor, a 

reconfiguration of production lines, more foaming equipment on production lines, and/or 

additional production lines. BWC stated that any of these options result in expensive 

capital conversion costs, which BWC does not believe were fully taken into 

consideration. (BWC, No. 61 at pp. 1-2) 

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DOE’s initial estimates for the capital conversion costs for water heaters at each 

TSL can be found in the December 2009 NOPR. 74 FR 65852, 65936-41 (Dec. 11, 

2009). During interviews with manufacturers prior to the publication of the December 

2009 NOPR, DOE solicited confidential information about the required capital 

conversion costs at each efficiency level. In the December 2009 NOPR, DOE stated that 

it based its capital conversion costs for gas-fired and electric storage water heaters on 

information learned during these interviews. 74 FR 65852, 65917-18 (Dec. 11, 2009). 

DOE verified its industry-wide estimates for the gas-fired and electric storage water 

heaters by comparing the NOPR estimates to a separate bottoms-up estimate of the subassembly lines, assembly lines, and tooling changes required by each manufacturer and 

the level of investments that that would be required to maintain a historic value for net 

plant, property, and equipment as a ratio of total revenue. For oil-fired storage and gasfired instantaneous water heaters, DOE estimated its capital conversion costs using a 

bottoms-up approach to estimate the cost of additional production equipment and changes 

to existing production lines that the industry would require at each TSL. DOE used 

feedback from manufacturer interviews about the tooling requirements at each efficiency 

level and product catalogs to estimate the total capital conversion costs for both oil-fired 

storage and gas-fired instantaneous water heaters at each TSL. Id. Pages 12-35 to 12-39 

of the December 2009 NOPR TSD also contained DOE’s estimated capital conversion 

costs as well as additional information about the assumptions behind the required changes 

at each efficiency level. 

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For the gas-fired and electric storage water heater capital conversion costs at TSL 

4 and TSL 5 in the December 2009 NOPR, DOE noted and agrees with BWC’s comment 

that the increased insulation thickness would require manufacturers to lengthen existing 

assembly lines or add additional assembly lines because the much thicker insulation 

requirements lower the throughput of existing assembly lines. However, DOE continues 

to believe it has adequately addressed BWC’s concerns about the capital conversion cost 

estimates for two reasons. First, DOE’s capital conversion cost estimates are drawn from 

industry-wide aggregated data gathered during manufacturer interviews. Second, DOE’s 

assumptions regarding the required plant changes at the proposed TSL in the December 

2009 NOPR are consistent with the plant changes noted in BWC’s comment. Finally, 

BWC did not provide any additional data supporting its comment that DOE’s capital 

conversion cost estimates did not fully capture the potential costs. 

For today’s final rule, DOE continues to use the same methodology to calculate 

the water heater conversion costs. Additional details of DOE’s estimates can be found in 

chapter 12 of the TSD. 

DOE also received several comments from manufacturers regarding issues that 

would arise under a potential amended standard for electric storage water heaters that 

would effectively require heat pump water heaters (i.e., TSL 5 through TSL 8). Broadly, 

the comments addressed three issues: (1) potential changes to current facilities; (2) the 

cost to manufacture heat pump water heaters; and (3) the unique challenges presented by 

the December 2009 NOPR TSL 5. 

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At the public meeting, A.O. Smith stated that it is in the final stages of 

implementing production for heat pump water heaters on a small scale relative to what 

would be required if the entire market moved to heat pump water heaters. (A.O. Smith, 

Public Meeting Transcript, No. 57.4 at pp. 91-92) In written comments, A.O. Smith 

extrapolated the cost of setting up this limited production line to estimate the cost of 

shifting the entirety of its electric storage market share to heat pump water heaters. AO 

Smith stated that a new facility capable of producing two million heat pump water heaters 

annually would cost $90 million to build—before accounting for investment in land and 

other fees—and would take 2-3 years to complete. A.O. Smith stated that it would likely 

build a new facility because line speed and assembly operations would not allow for the 

product to be integrated into current production lines at high shipment volumes. A.O. 

Smith also stated that it would probably be cheaper to set up a new line than to rework 

the production lines in existing facilities. (A.O. Smith, Public Meeting Transcript, No. 

57.4 at p. 92) 

AHRI stated that an amended standard effectively requiring heat pump water 

heaters would force all manufacturers to continue to provide electric storage water 

heaters utilizing resistance technologies until the compliance date of the amended 

standard due to competitive pressures. A competitor that did not have to continue 

manufacturing resistance water heaters until the compliance date (because, presumably, it 

did not serve this market in the base case) could have an advantage. (AHRI, Public 

Meeting Transcript, No. 57.4 at pp. 100-103) BWC added that a standard that required 

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heat pump water heaters would disrupt its manufacturing facility since existing 

manufacturing lines are optimized for specific products. Heat pump water heaters would 

require production lines to be redesigned to handle all new components and their 

assembly. Finally, a combination of additional production lines and/or a new 

manufacturing facility would be required to manufacture heat pump water heaters 

without interrupting current production. (BWC, No. 61 at pp. 2-3) 

DOE agrees that modifying existing production facilities to exclusively heat pump 

water heaters could be very disruptive to ongoing operations there. During on-site 

manufacturing impact interviews, most manufacturers were still developing their heat 

pump water heaters. At that time, manufacturers responded to questions about how they 

would approach the manufacture of heat pump water heaters by describing the necessary 

changes to existing facilities. For example, manufacturers anticipated that they would 

purchase the heat pump modules from outside vendors if heat pump water heaters were 

required for all electric storage water heaters for three reasons: (1) they lacked experience 

manufacturing high-volume sealed refrigeration systems; (2) they had limited 

refrigeration engineering expertise; and (3) they lacked space in their facilities to produce 

heat pump module subassemblies. DOE incorporated these comments into its NOPR 

capital cost conversion analysis in the following manner: (1) manufacturers would 

initially source the heat pump modules; (2) electric storage water heater assembly and 

subassembly lines would have to be modified to accommodate the assembly of heat 

pump water heaters; (3) assembly lines would need to be lengthened to merge new tank 

assemblies with the heat pump modules; and (4) heat pump water heater integration 

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would require manufacturers to install advanced testing equipment to verify performance, 

operation, etc. In sum, DOE estimated in the NOPR that manufacturers would incur 

almost $70 million in capital conversion costs to modify their production facilities to 

exclusively manufacture heat pump electric storage water heaters. DOE estimated these 

investments take place between 2010, the announcement date of the standard, and 2015, 

the year manufacturers must comply with the standard. However, the capital conversion 

cost estimates did not include the cost of building manufacturing capacity to produce the 

heat pump modules in house because DOE believed manufacturers would likely purchase 

these as subassemblies. 74 FR 65852, 65921, 65938 (Dec. 11, 2009). 

Manufacturers can choose among multiple design paths and production options 

for heat pump water heaters, so capital, manufacturing, and product development 

expenses will vary accordingly. DOE agrees with A.O. Smith that one possible reaction 

by manufacturers at the NOPR TSL 6 or TSL 7 (equivalently, TSL 7 and TSL 8 in the 

final rule) could be to build a new facility to exclusively manufacture heat pump water 

heaters. In the December 2009 NOPR, DOE stated that manufacturers could consider 

moving all or part of their existing production capacity abroad if NOPR TSL 6 were 

selected, as the benefit to the manufacturer of a new facility abroad could be greater than 

modifying an existing facility. In the NOPR, DOE noted that building a new facility 

could entail less business disruption risk than attempting to completely redesign and 

upgrade existing facilities. Combined with lower labor rates overseas, this prospect could 

compel manufacturers to move their production facilities outside of the U.S. 74 FR 

65852, 65938, 65952 (Dec. 11, 2009). 

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While acknowledging there are multiple strategic paths to manufacturer heat 

pump water heaters, DOE believes it has used a consistent approach to characterize the 

costs facing the industry. DOE also believes its approach captures manufacturers’ 

concerns about the technology changes required at the NOPR TSL 6 and TSL 7. While 

DOE did not include the conversion costs to manufacture the heat pump module or to 

build new facilities, DOE did include the substantial costs to modify all existing 

production lines. Furthermore, DOE believes that existing facilities could be modified to 

produce heat pump water heaters at the final rule TSL 7 and TSL 8, although at a 

substantial capital conversion cost. Supporting this notion, DOE notes that most existing 

heat pump water heater designs from major manufacturers incorporate parts of standard 

electric resistance water heaters. For example, the tank portion of existing heat pump 

water heaters designs are very similar to electric resistance water heater designs, thereby 

limiting most changes to the assembly line area of a plant. The designs of heat pump 

water heaters at TSL 7 or TSL 8 would likely be similar to recently-released heat pump 

water heaters and would maintain these similarities with electric resistance water heaters. 

Current manufacturing operations are highly optimized to manufacture water 

heaters that utilize resistive elements and relatively few additional components (e.g., 

thermostats), whereas heat pump water heater modules require additional assembly steps 

even if they are purchased as completed sub-assemblies. While a new manufacturing 

facility would make the integration of heat pump modules simpler, the $90 million 

estimate for such a facility projected by A.O. Smith indicates that this approach could 

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also be more costly. Alternatively, manufacturers could choose to build an annex for 

assembling heat pump water heater modules and then deliver them to the final assembly 

area in a manner similar to completed tank assemblies. When queried in manufacturer 

impact interviews, no manufacturer of electric water heater with traditional resistive 

elements had yet decided on a specific path towards high-volume heat pump water heater 

production. However, DOE believes that the capital conversion costs that assume 

manufacturers modify existing facilities to accommodate integrating a sourced heat pump 

module would be the most likely scenario on account of lower capital expenditures than a 

“green field” facility, established supplier bases, trained work force, etc. Hence, DOE 

believes that this scenario captures the significant impacts on electric storage water heater 

manufacturers. 

Finally, both the preservation of return on invested capital scenario and the 

preservation of operating profit scenario incorporate the financial burdens to substantially 

modify facilities to manufacture heat pump water heaters and the significant expenses 

that would be required to carry inventory that is many times more expensive than in the 

base case (because the MPCs of heat pump water heaters are multiple times the MPCs of 

resistance water heaters). In addition, the preservation of operating profit scenario models 

the impacts on manufacturers that would occur after the compliance date of the standard 

if they cannot fully markup the substantial cost of a sourced heat pump module. 

Therefore, the costs and market disruption to manufacture heat pump water heaters are 

modeled in the MIA scenarios. 

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In response to DOE’s request for comment at the public meeting on the required 

conversion costs for all considered NOPR TSLs, Rheem did not comment specifically 

because it deemed conversion costs confidential and proprietary. However, Rheem 

wished to advise DOE that this information was submitted confidentially to DOE’s 

contractor during MIA interviews. (Rheem, No. 89 at p. 9) During the public meeting, 

Rheem did state that converting all of its electric water heater model to heat pump water 

heaters (as the December 2009 NOPR TSL 6 or TSL 7 would require) would be a very 

significant undertaking requiring capital and new manufacturing capabilities. As evidence 

to that point, Rheem noted that it has to date released only one heat pump water heater 

model. (Rheem, Public Meeting Transcript No. 57.4 at p. 93-94) 

DOE agrees that migrating electric storage production entirely to heat pump water 

heater production would require a significant investment in time and resources. DOE 

asked each participant during manufacturer interviews to quantify the costs to 

manufacture exclusively heat pump water heaters. DOE’s own analysis of these 

conversion costs proved consistent with the estimates submitted by the industry at large. 

Therefore, DOE believes that its capital conversion costs for the industry are reasonable 

and that it has adequately modeled the impacts of the significant plant changes that would 

be required to exclusively manufacture heat pump water heaters in the electric storage 

water heaters product class. The significant product and capital conversion costs 

associated with the technology and the required production changes contribute to large, 

negative impacts on INPV at the December 2009 NOPR TSL 6 and TSL 7. 

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As discussed earlier, the December 2009 NOPR TSL 5 would effectively require 

heat pump water heaters for tanks with rated storage volumes greater than 55 gallons. 

BWC commented that this proposed level would likely result in a smaller percentage of 

the market above the 55-gallon breakpoint, which would make it more difficult to finance 

the high conversion costs for moving large tank production to heat pump water heaters. 

BWC also stated it would have to cut down on its product offerings due to the high 

development and capital conversion costs. (BWC, No. 61 at p. 2) A.O. Smith stated it has 

two dedicated factories that build commercial condensing products, and the commenter 

stated, after studying the production volumes at the December 2009 NOPR TSL 5, that it 

would likely have to add production lines. Water heater manufacturers would have to 

invest a significant amount to learn how to manufacture a device with a refrigerant circuit 

for a small number of units per year. (A.O. Smith, Public Meeting Transcript, 122-123, 

126) In its written comments, Rheem added that the December 2009 NOPR TSL 5 

introduces added burden and risk because it requires manufacturers to continue to 

produce conventional storage products in large quantities while incrementally preparing 

for production of maximum technology products which could involve additional 

production lines and new facilities. (Rheem, No. 89 at p. 10) AHRI stated that separate 

minimum efficiency levels for larger size water heaters would require separate 

production lines for these models. Given the significant differences in the process of 

manufacturing either heat pump water heaters or condensing gas-fired water heaters, 

these models could not be interspersed into the high-speed production lines currently 

operating in water heater manufacturing plants. (AHRI, No. 91 at p. 6) Finally, BWC, 

A.O. Smith, and Rheem all commented that the lower volume of water heaters above 55­

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gallons made the business case for the investments in the advanced technology harder to 

justify. (BWC, No. 61 at p. 2; A.O. Smith, Public Meeting Transcript, No. 57.4 at pp. 98­

99; Rheem, Public Meeting Transcript No. 57.4 at pp. 99-100) 

DOE agrees with BWC, A.O. Smith, Rheem, and AHRI that the December 2009 

NOPR TSL 5 (i.e., TSL 6 for this final rule) would likely require additional production 

lines for manufacturers to produce heat pump water heaters and condensing products for 

high-volume products. While DOE believes that existing facilities could be modified to 

manufacture exclusively heat pump water heaters, DOE does not believe individual 

manufacturers could integrate heat pump water heaters or condensing gas-fired water 

heaters above 55-gallons into existing production lines. Rather, DOE calculated the cost 

for each manufacturer to build a separate production line as an annex to an existing 

facility to maintain their current market share of the gas-fired and electric storage water 

heater markets above 55-gallons. DOE also assumed that the capital conversion costs for 

rated storage volumes less than 55-gallons at the NOPR TSL 5 would not decline if the 

efficiency requirements were higher for rated storage volumes greater than 55-gallons 

(see pages 12-36 to 12-37 of the December 2009 NOPR TSD). 74 FR 65852, 65918 

(Dec. 11, 2009). In addition, DOE calculated the product conversion costs for large rated 

storage volumes at the December 2009 NOPR TSL 5 by multiplying its estimate for the 

industry to offer heat pump products at TSL 6 and condensing gas-fired products at TSL 

7 for all rated storage volumes by the percentage of total electric storage and gas-fired 

storage water heater models that exceed a 55-gallon rated volume. 74 FR 65852, 65917 

(Dec. 11, 2009). DOE did not modify its approach to calculate the conversion costs at 

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TSL 5 and TSL 6 for the final rule because its approach is consistent with manufacturers’ 

comments. Finally, DOE notes that there are a disproportionately large number of models 

above 55-gallons relative to the shipment volumes of those products. Thus, the economic 

impacts to convert those products to a new technology are proportionately more 

burdensome for those manufacturers. Therefore, DOE agrees that the business case is 

harder to justify for the larger storage volumes and that this is captured by the MIA, but 

notes that the impacts are still less severe than requiring manufacturers to exclusively 

offer either advanced technology. 

DOE also received a number of comments about the impacts of the oil-fired 

storage water heater conversion costs on manufacturers. BWC stated that the business 

case to make the investments at the December 2009 NOPR TSL 4 is difficult because the 

industry is small and declining and could lead them to exit the oil-fired market. (BWC, 

No. 61 at p. 2; Public Meeting Transcript, No. 57.4 at p. 289) AHRI stated that the cost to 

redesign, develop, and retool production for oil-fired models is high at the proposed 

December 2009 NOPR TSL 4 compared to the very small market, which offers limited 

opportunity for a return. AHRI added that this TSL is not currently met by all current 50­

gallon residential oil-fired water heaters and all 30-gallon and 32-gallon models except 

those offered by one manufacturer. Consequently, some manufacturers could drop out of 

the oil water heater market. (AHRI, No. 91 at p. 2) 

DOE agrees that there are no existing 50-gallon oil-fired water heaters on the 

market that meet the efficiencies required at the December 2009 NOPR TSL 4. However, 

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DOE notes that there are three existing 30-gallon products from two manufacturers that 

meet these efficiencies using conventional technology. Therefore, DOE continues to 

believe that models that do not meet the required efficiencies could be made to do so by 

manufacturers using insulation changes. While not insignificant, the conversion costs to 

make insulation changes to existing products would not be as substantial as a higher 

efficiency requirement, which could require manufacturers to use significantly different 

technology. DOE noted in the December 2009 NOPR that if any manufacturer had to 

meet the standard using a more complex technology, these costs could force them to exit 

the oil-fired storage water heater market. 74 FR 65852, 65940 (Dec. 11, 2009). Whether a 

given manufacturer chooses to exit the market will depend on a variety of internal and 

external factors, but based upon the available information, DOE believes it has 

appropriately captured the magnitude of investments that the various TSLs require. 

2. Manufacturer Markups and Markup Scenarios 

The MPCs from the engineering analysis are key inputs to the GRIMs used in this 

rule. For water heaters, the MSP is comprised of production costs (the direct 

manufacturing costs or MPCs), non-production costs (indirect costs like selling, general, 

and administrative expenses (SG&A)), and profit. For gas-fired, electric, and oil-fired 

storage water heaters in the MIA, MSP is calculated by multiplying the MPC by the 

manufacturer markup and adding the shipping cost. For all other products, MSP is 

calculated by multiplying the MPC by the appropriate manufacturer markup. DOE used 

several standards-case markup scenarios to bound the range of uncertainty about the 

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potential impacts on prices and profitability following the implementation of amended 

energy conservation standards. 

In both its written submission and comments at the public meeting, BWC stated 

that profit margins for water heater manufacturers are falling due to the decline of new 

construction and the industry having excess capacity. BWC argued that because the 

profitability estimates in DOE’s analysis are incorrect, it would be difficult to sustain the 

costs associated with the December 2009 NOPR TSL 4. Detailed profit data were 

supplied by BWC in previous communication with DOE’s contractor. (BWC, No. 61 at 

p. 2; Public Meeting Transcript, No. 57.4 at p. 40) 

As background, DOE used publicly-available information to calculate its initial 

markup estimates. Because not all manufacturers in the industry are public and because 

those that are public often compete in different businesses, DOE calibrated its initial 

estimates based on information received during manufacturer interviews. During the 

NOPR phase, DOE refined the manufacturer markup based on feedback from 

manufacturers to better reflect the residential heating products market. 74 FR 65852, 

65892 (Dec. 11, 2009). Given this process, DOE believes the manufacturer markups used 

in the engineering analysis and manufacturer impact analysis are representative of the 

industry as a whole. In addition, DOE used estimated market shares to weight feedback it 

received on the financial parameters (including the industry capital structure) to 

determine an aggregate number representative of the entire industry. While individual 

manufacturers have different gross margins depending on a variety of factors, DOE’s use 

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of weighted average financial parameters yields cash flow from operations that are 

consistent with the overall industry. For example, in the base case, earnings before 

interest and taxes (EBIT) for gas-fired and electric storage water heating manufacturing is 

approximately 5 percent. Finally, with respect to BWC’s concern that margins have 

compressed due to the housing downturn, DOE acknowledges that the current economic 

environment, particularly in new construction, has adversely impacted the industry. DOE 

notes that the two markup scenarios it models are used to bound the potential impacts on 

manufacturers due to amended energy conservation standards, in light of the inherent 

uncertainty in how pricing will adjust in the marketplace. The preservation of operating 

profit scenario models a case in which margins and profitability decline in response to 

amended energy conservation standards. DOE believes that the impacts captured by the 

preservation of operating profit scenario would be a better indicator of the likely impacts 

on manufacturers than specifically attempting to model a short-term effect that also 

impacts margins in the base case. A short-term effect that would be impacted in the base 

case and standards case would not model long-term financial impacts caused by standards 

and would not consider the impacts on INPV over the entire analysis period. 

Consequently, DOE has decided to continue to use the markup scenarios modeled in the 

December 2009 NOPR. 

DOE also received comments from traditional DHE manufacturers about the 

markup scenarios in the MIA. As opposed to the preservation of return on invested 

capital scenario, LTS stated that it expects profitability to decrease, possibly to zero or 

below in the event of standards. LTS argued this outcome is likely because manufacturers 

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will either have to abandon some product categories or face lower consumer demand 

following standards because features the consumer wants would no longer be available, 

such as the ability to retrofit replacement products and operate without line power. (LTS, 

No. 56.7 at p. 2; Public Meeting Transcript, No. 57.4 at p. 21) LTS further argued that the 

preservation of operating profit scenario is too optimistic in the event product offerings 

are reduced. (LTS, No. 56.7 at p. 2) Finally, LTS stated that the large negative impacts on 

industry net present values suggest that manufacturers would be substantially harmed if 

profitability were impacted. (LTS, Public Meeting Transcript, No. 57.4 at pp. 21-22) 

In response, DOE created two markup scenarios to bound the potential impacts on 

DHE manufacturers, as discussed in TSD chapter 12. DOE believes the less optimistic 

scenario—in which manufacturers do not earn any additional profit from any of the 

changes required by standards despite increased investment—captures LTS’s concerns. 

DOE agrees with LTS that profitability could decrease if consumer demand was lower or 

product lines were dropped. At the same time, if manufacturers dropped selected product 

lines, they would not incur the capital investments included in DOE’s estimates because 

DOE assumes manufacturers convert all product lines. While DOE acknowledges that 

manufacturers could chose to eliminate certain product lines, DOE believes that its 

markup scenarios would still reflect the negative impact on industry value. DOE also 

agrees that lower consumer demand would impact profitability. All of the concerns raised 

by manufacturers indicate that the range of impacts would be towards the higher end 

calculated by DOE. While DOE’s results changed slightly from the NOPR to account for 

the latest available data on the industry’s product lines, as discussed in chapter 12 of the 

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TSD, DOE believes that the analytical tools correctly capture the impacts on traditional 

DHE manufacturers. DOE is not adopting the same TSL for traditional DHE as was 

proposed in the NOPR, in part because of these impacts. DOE further discusses how it 

weighs the benefits and burden of the amended energy conservation standards, including 

the impact on traditional DHE manufacturers, in section VI.D.3. 

3. Pool Heater Conversion Costs 

Raypak agreed with DOE’s statement that TSL 5 and TSL 6 would require 

manufacturers to incur significant product and capital conversion costs. Raypak 

commented that this statement is also true for TSL 3 and TSL 4. While most 

manufacturers have some products at these efficiency levels, Raypak argued that 

manufacturing all products at the levels proposed in the December 2009 NOPR would 

require substantial tooling and product conversion costs. (Raypak, No. 67 at p. 2; Public 

Meeting Transcript, No. 57.4 at p. 308) In addition, Zodiac stated that even small 

efficiency improvements often require significant efforts and burden manufacturers. 

(Zodiac, No. 68 at p. 1) 

DOE agrees that the conversion costs at TSL 3 and TSL 4 are also significant. 

However, DOE notes that the plant changes at TSL 5 and TSL 6 increase substantially 

over those necessary at TSL 4, because manufacturers would have to make changes to 

both component parts (including heating exchanger fabrication) and their main assembly 

lines. DOE calculated the conversion costs for manufacturers to convert all existing 

products that did not meet the standard. Therefore, the conversion costs for each 

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manufacturer would vary depending on their experience with high-efficiency products 

and the range of their current product offerings. DOE believes it has adequately captured 

the impacts of the conversion costs in the MIA. 

4. Employment 

Bock stated that the employment impacts discussion in the December 2009 NOPR 

for oil-fired water heaters did not take into consideration manufacturers shutting down or 

moving production outside of the United States. (Bock, No. 101 at p. 2) 

In the December 2009 NOPR, DOE calculated the potential impacts of amended 

energy conservation standards on direct employment by bounding the range of potential 

impacts. 74 FR 65852, 65947-49 (Dec. 11, 2009). For the upper end of the range, the 

direct employment analysis estimated the number of U.S. production workers who are 

impacted by this rulemaking, assuming that manufacturers continue to produce the same 

scope of covered products after the compliance date and that the existing domestic 

production is not shifted to other countries. In this best case scenario, the direct 

employment impact analysis shows approximately no change in the number of U.S. 

production workers in the residential oil-fired storage water heater market. To calculate 

the lower bound of the range of potential impacts, DOE calculated the total number of 

domestic production workers that would lose their jobs if all production were no longer 

made domestically. Id. In this scenario, manufacturers respond to the higher labor 

requirements by shifting production to lower-labor-cost countries or exit the oil-fired 

market. Since a major US manufacturer has oil-fired storage water heaters that exceed the 

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standard proposed in the December 2009 NOPR, a complete exit from the market or a 

complete shift to lower-labor-cost countries by industry is unlikely. In the December 

2009 NOPR, DOE did not expect substantial changes to U.S. production workers in the 

residential oil-fired market if manufacturers were able to implement the insulation design 

options presented in the engineering analysis. 74 FR 65852, 65949 (Dec. 11, 2009). 

A.O. Smith stated that the December 2009 NOPR TSL 6 or TSL 7 would require 

manufacturers to keep their electric resistance water heater lines running while 

implementing new heat pump water heater production lines. This assumption implies 

manufacturers would be building new factories or production lines, which could be 

outside of the United States. (A.O. Smith, Public Meeting Transcript, No. 57.4 at pp. 316­

317) A.O. Smith also noted that it would expect to utilize low-cost-labor countries to 

produce the heat pump portion of the assembly, similar to the trend in the room air 

conditioning industry. (A.O. Smith, No. 76 at p. 4) BWC added that a disruptive heat 

pump water heater standard could cause a new manufacturing facility to be located 

abroad to not disrupt manufacturing in their existing U.S. facility. (BWC, No. 61 at pp. 2­

3) 

As stated in section IV.I.1, DOE believes that an electric storage water heater 

standard that effectively mandated heat pump water heaters would not require 

manufacturers to build new production facilities, because those products would mimic 

current heat pump water heater designs that simplify manufacturing by maintaining 

similarities with electric resistance water heaters. However, DOE does recognize that 

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heat pump water heaters have higher labor content than water heaters that only use a 

resistance element, which could put additional pressure on U.S. manufacturing 

employment. DOE also believes that these pressures exist at a standard level that would 

only effectively require heat pump water heaters for products with rated storage volumes 

greater than 55-gallons. In particular, DOE believes TSL 5 or TSL 6 could cause a 

change in direct employment if manufacturers with multiple facilities in the U.S. build a 

dedicated heat pump water heater line at a factory abroad or relocate domestic production 

for large rated storage volumes. 

Also in response to the December 2009 NOPR, ACEEE stated that focusing on 

manufacturing jobs within the heating products industry is too narrow, because energy 

savings creates more jobs, including direct employment impacts as noted by DOE’s 

statement that significant technology changes (such as heat pump water heaters) could 

increase other manufacturing employment. Finally, ACEEE expressed its belief that 

compared to the total number of jobs in the US economy and given the uncertainties of 

projections five years into the future, the small employment numbers estimated are not 

significant and should not be a determining factor in DOE’s decision. (ACEEE, No. 79 at 

pp. 3-4) 

DOE agrees with ACEEE that the energy savings from more-efficient standards 

would likely result in increased net employment. DOE analyzes how consumer savings 

increase employment in other sectors of the economy in the indirect employment analysis 

(see section IV.J). Furthermore, DOE agrees that more-efficient technologies such as heat 

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pump water heaters could increase direct employment in the United States. DOE noted 

that even at the December 2009 NOPR TSL 5, if manufacturers build a dedicated heat 

pump water heater line in the United States, additional labor would be required. DOE 

also noted that even sourcing heat pump modules could increase U.S. employment 

because existing assembly lines would need to be lengthened and the manufacturing 

process would take additional time to assemble and test. 74 FR 65852, 65948-49 (Dec. 

11, 2009). However, DOE continues to believe that the higher labor content for 

assembling heat pump water heaters could also put additional pressure on manufacturers 

to relocate existing manufacturing facilities in lower-labor-cost countries. Therefore, in 

light of the multiple strategic options manufacturers could pursue, DOE believes that 

presentation and consideration of the range of direct employment impacts is appropriate, 

in that it represents these possibilities. Lastly, while not the only determining factor, a 

potential reduction in industry employment is a consideration in terms of the impacts on 

manufacturers for the MIA. 

DOE received a number of comments about the direct employment impacts for 

traditional DHE at the standard levels proposed in the December 2009 NOPR. 

Specifically, LTS expressed its agreement with DOE’s statement that TSL 3 would likely 

lead to the discontinuation of product lines and could cause small businesses to exit the 

market completely. LTS believes that both of these outcomes could be possible and that 

either would have a significant impact on future employment in their industry. (LTS, No. 

56.7 at p. 2; Public Meeting Transcript, No. 57.4 at p. 22) LTS also stated that reduced 

demand, if product features like retrofitability were eliminated, would also harm 

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employment. (LTS, Public Meeting Transcript, No. 57.4 at p. 317) Empire stated that 

jobs would be lost due to poor prospects for a sufficient return on investment needed in 

the traditional DHE categories. (Empire, No. 100 at p. 1; Public Meeting Transcript, No. 

57.4 at p. 299) Finally, Williams added that increased efficiency standards would force 

them to eliminate jobs as a result of current products not meeting the new standards. 

(Williams, No. 96 at p. 1) 

In response, DOE notes that it calculated the potential impacts of amended energy 

conservation standards on domestic production employment for traditional DHE by 

bounding the range of potential impacts. The upper end of the range assumes that 

domestic production is not shifted to lower-labor-cost countries and that production 

volume does not decrease. In this best-case scenario, where shipments do not decrease 

and higher-efficiency products require more labor, the direct employment impact analysis 

shows a net increase in the number of domestic jobs for traditional direct heating 

equipment. To calculate the upper end of the range of direct employment impacts, DOE 

believes it is reasonable to assume that production volume could be sustained by 

selectively upgrading certain product lines and increasing shipments of products that 

meet the amended energy conservation standard. Under this set of assumptions, 

customers would likely continue to demand these products for the replacement market, 

and manufacturers would likely selectively upgrade their most popular products to 

maintain as many sales as possible with their limited resources. 

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However, at some standard levels, including the December 2009 NOPR TSL 3, 

the capital conversion and product development costs could be prohibitive for the small 

domestic manufacturers of traditional DHE. Because DOE agrees that the December 

2009 NOPR TSL 3 could lead to the risk of manufacturers exiting the market or reducing 

the scope of their product lines, the lower end of the range illustrates the industry 

dynamic in which not all product lines continue to be produced in the U.S. In this 

scenario, small domestic manufacturers could exit the market rather than invest in new 

designs, which would result in a loss of domestic employment at these firms. In 

summary, DOE agrees that all the possibilities raised by manufacturers could result in a 

loss of direct employment in the traditional DHE market. DOE acknowledged this 

possibility in the December 2009 NOPR. 74 FR 65852, 65949-50 (Dec. 11, 2009). 

However, DOE believes it has appropriately bounded the range of employment impacts. 

DOE continues to believe that amended energy conservation standards could impact 

DHE direct employment, but believes it has taken the potential into consideration in 

examining the economic impact on manufacturers in the industry. DOE also notes that it 

has reviewed its analysis on the potential impacts on small business manufacturers in 

light of the changes made since the December 2009 NOPR publication and believes it has 

taken the necessary steps to limit the possibility of manufacturers exiting the market. 

AHRI stated that the negative direct employment impacts for traditional direct 

heating equipment could be larger than the indirect employment gains. (AHRI, Public 

Meeting Transcript, No. 57.4 at pp. 324-325) 

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In response, DOE notes that direct and indirect employment impacts are assessed 

in different analyses for this rulemaking. The MIA assesses the direct employment 

impacts on manufacturers that make the covered products. The indirect employment 

impacts are jobs that are created from the consumer savings on energy as a result of the 

amended energy conservation standards. In light of the results of these analyses, DOE 

agrees with AHRI that the positive, indirect employment impacts due to the traditional 

DHE energy conservation standards could be offset by possible direct industry 

employment losses. Specifically, DOE calculated that the indirect net employment 

benefits would be fewer than 250 jobs gained in any year, whereas DOE calculated that 

there are approximately 300 production workers currently in the traditional DHE market. 

See chapter 14 of the TSD for a more complete discussion of the indirect employment 

impacts related to the traditional DHE industry. 

BWC stated that while it does not meet the SBA definition of a small business, 

BWC is a small company, especially compared to its closest competitors. BWC stated 

that the December 2009 NOPR TSL 4, and the large cost increases and capital 

investments it would entail, could threaten the company’s survival, because it would 

place a disproportionate burden on their small company. (BWC, No. 61 at p. 1) 

While BWC is not a small business, DOE recognizes that the impacts on all 

manufacturers are not uniform. However, DOE believes that as a full-line competitor in 

the residential water heater market, BWC’s concerns about the capital investments are 

most appropriately captured in the industry-wide impacts which are considered when 

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determining what TSL is economically justifiable. DOE also notes that DOJ was 

primarily concerned about the potential impacts on competition in the traditional DHE 

market which is discussed in section VI.C.5. 

5. Access to Capital 

BWC stated that financing the costs associated with the December 2009 NOPR 

TSL 4 for water heaters would be difficult, because banks are more hesitant to lend in the 

current economic environment. (BWC, No. 61 at p. 2) 

In response, DOE acknowledges that it may be difficult for a given manufacturer 

to access the capital necessary to finance the investments required by this final rule, 

particularly given the recent state of capital markets. In response to a similar comment in 

the December 2009 NOPR, DOE noted that the compliance date for the residential water 

heater standard is 2015. In the GRIM, DOE assumes the product conversion and capital 

conversion costs are allocated in between the announcement of the final rule adopting 

amended energy conservation standards (estimated to be March 2010) and the 

compliance date of the standard, with more of conversion costs occurring closer to the 

compliance date than the announcement date. Because most of the product conversion 

and capital conversion costs are allocated several years in the future, the economic 

conditions at that time will likely be different than they are currently. 74 FR 65852, 

65919 (Dec. 11, 2009). With that said, DOE’s current analytical tools do not have the 

capability to model the state of financial markets in future years, nor how those changes 

will impact the industry’s financing capabilities. DOE acknowledges that the impacts on 

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individual manufacturers are not uniform, particularly in terms of access to capital. 

However, during the course of manufacturer interviews, DOE received feedback from 

manufacturers on their capital structure, and DOE adjusted the discount rate for each of 

the water heater product types to be reflective of the manufacturers in the industry. While 

it could be difficult to obtain the necessary funding for TSL 4 and higher TSLs, DOE 

believes it has accurately captured the requisite level of expenditures to meet the 

amended energy conservation standards. 

LTS stated it does not have the required capital estimated by DOE to make the 

necessary conversions at TSL 3 and, with the current credit markets, LTS does not think 

it can borrow it. (LTS, No. 56.7 at pp. 2-3; Public Meeting Transcript, No. 57.4 at p. 23) 

Again, DOE acknowledges that it may be difficult for a given manufacturer to 

access the capital necessary to finance the investments required by this final rule, 

particularly given the recent state of capital markets. This is particularly true for small 

business manufacturers who cannot rely on a parent company’s other operations to help 

finance the necessary investments. At the same time, DOE believes it would be 

inappropriate to extrapolate the health of the financial markets at any one particular time 

to future periods of time. As discussed above, there is a real possibility that small 

manufacturers may choose not to improve all product lines, whether due to limited access 

to capital or insufficient expected return on capital. To that point, DOE believes it has 

captured the level of expenditures necessary to meet the amended energy conservation 

standards and included the cost for manufacturers to convert all existing product lines to 

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model the impacts these changes would have on the industry. These considerations are 

included in the assessment of the economic justification of the standard. Finally, DOE 

notes that the impact of amended energy conservation standards specifically considered 

the potential impacts on small business manufacturers. 

J. Employment Impact Analysis 

DOE considers employment impacts in the domestic economy as one factor in 

selecting an energy conservation standard. Employment impacts include direct and 

indirect impacts. Direct employment impacts are changes in the number of employees for 

manufacturers of equipment subject to standards, their suppliers, and related service 

firms. The MIA addresses these impacts. 

Indirect employment impacts from standards consist of the net jobs created or 

eliminated in the national economy, other than in the manufacturing sector being 

regulated, due to: (1) reduced spending by end users on energy (electricity, gas (including 

liquefied petroleum gas), and oil); (2) reduced spending on new energy supply by the 

utility industry; (3) increased spending on the purchase price of new equipment; and (4) 

the effects of those three factors throughout the economy. DOE expects the net monetary 

savings from standards to be redirected to other forms of economic activity. DOE also 

expects these shifts in spending and economic activity to affect the demand for labor in 

the short term, as explained below. 

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One method for assessing the possible effects on the demand for labor of such 

shifts in economic activity is to compare employment statistics in different economic 

sectors, which are compiled and published by the Bureau of Labor Statistics (BLS). The 

BLS regularly publishes its estimates of the number of jobs per million dollars of 

economic activity in different sectors of the economy, as well as the jobs created 

elsewhere in the economy by this same economic activity. Data from BLS indicate that 

expenditures in the utility sector generally create fewer jobs (both directly and indirectly) 

than expenditures in other sectors of the economy. There are many reasons for these 

differences, including wage differences and the fact that the utility sector is more capitalintensive and less labor-intensive than other sectors.21 Energy conservation standards 

have the effect of reducing consumer utility bills. Because reduced consumer 

expenditures for energy likely lead to increased expenditures in other sectors of the 

economy, the general effect of efficiency standards is to shift economic activity from a 

less labor-intensive sector (i.e., the utility sector) to more labor-intensive sectors (e.g., the 

retail and manufacturing sectors). Thus, based on the BLS data alone, DOE believes net 

national employment will increase due to shifts in economic activity resulting from 

standards. 

In developing the December 2009 NOPR, DOE estimated indirect national 

employment impacts using an input/output model of the U.S. economy called Impact of 

21 See U.S. Department of Commerce, Bureau of Economic Analysis, “Regional Multipliers: A User 

Handbook for the Regional Input-Output Modeling System (RIMS II)” (1992). 

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Sector Energy Technologies (ImSET).22 ImSET is a special-purpose version of the “U.S. 

Benchmark National Input-Output” (I-O) model designed to estimate the national 

employment and income effects of energy-saving technologies. The ImSET software 

includes a computer-based I-O model with structural coefficients to characterize 

economic flows among 188 sectors most relevant to industrial, commercial, and 

residential building energy use. 

DOE did not receive any comments on its employment impacts analysis, and 

DOE has made no change to its method for estimating employment impacts for today’s 

final rule. For further details, see chapter 14 of the final rule TSD. 

K. Utility Impact Analysis 

The utility impact analysis estimates the change in the forecasted power 

generation capacity for the Nation that would be expected to result from adoption of new 

energy conservation standards. For the December 2009 NOPR and today’s final rule, 

DOE calculated this change using the NEMS-BT computer model. NEMS-BT models 

certain policy scenarios such as the effect of reduced energy consumption by fuel type. 

The output of the analysis provides a forecast for the needed generation capacities at each 

TSL. While DOE was able to use the forecasts from the AEO 2010 Early Release for the 

national impacts analysis, the NEMS-BT model corresponding to this case was not yet 

available. Thus, for the utility impact analysis, the estimated net benefit of the standards 

22 More information regarding ImSET is available online at: 

http://www.pnl.gov/main/publications/external/technical_reports/PNNL-15273.pdf. 

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in today’s final rule is the difference between the forecasted generation capacities by 

NEMS-BT and the AEO 2009 April Release Reference Case. DOE expects that the 

results would be only minimally different if it had been able to use the NEMS-BT model 

corresponding to the AEO 2010 Early Release. DOE obtained the energy savings inputs 

associated with efficiency improvements to considered products from the NIA. These 

inputs reflect the effects of both fuel (natural gas) and electricity consumption savings. 

Chapter 13 of the final rule TSD presents more information on the utility impact analysis. 

1. Effects of Standards on Energy Prices and Associated Benefits 

To evaluate potentially important indirect effects of energy conservation 

standards on energy users in general, in its December 2009 NOPR analysis, DOE 

analyzed the potential impact on natural gas prices resulting from amended standards on 

water heaters and the associated benefits for all natural gas users in all sectors of the 

economy. 74 FR 65852, 65914-15 (Dec. 11, 2009). (DOE did not include natural gas 

savings from amended standards on DHE and pool heaters in its analysis because they are 

not large enough to have a noticeable impact.) DOE used NEMS-BT to model the impact 

of the natural gas savings associated with possible standards on natural gas prices. Like 

other widely-used energy-economic 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 observed in the NEMS output changes over the forecast 

period based on the model’s dynamics of natural gas supply and demand. For each year, 

DOE calculated the nominal savings in total natural gas expenditures by multiplying the 

estimated annual change in the average end-user natural gas price by the annual total U.S. 

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natural gas consumption, adjusted for the estimated natural gas savings associated with 

each TSL. DOE then calculated the NPV of the savings in natural gas expenditures for 

2015 to 2045 using 3- and 7-percent discount rates for each scenario. However, because 

there is uncertainty about the extent to which the calculated impacts from reduced natural 

gas prices are a benefits transfer, DOE tentatively concluded that it should not give a 

heavy weight to this factor in its consideration of the economic justification of standards 

on heating products. 

NRDC stated that DOE should give full weight to the aggregate benefit of 

reduced natural gas prices that result from the standards. NRDC stated that this consumer 

benefit needs to be quantified and included in the national impact analysis. NRDC 

disagreed with DOE that this factor not be given heavy weight because lower natural gas 

prices may be a benefits transfer from producers to consumers, and stated that there is no 

logical or statutory basis for failing to give the reduction in natural gas prices from 

efficiency standards their full weight (NRDC, No. 85 at p. 4) In response, DOE notes that 

the benefits to all consumers associated with reductions in energy prices resulting from 

standards is not listed among the seven factors that EPCA directs DOE to evaluate in 

determining whether an energy conservation standard for covered products is 

economically justified. (42 U.S.C. 6295(o)(2)(B)(i)(I)-(VII)) Indeed, EPCA specifically 

directs DOE to consider the economic impact of the standard on manufacturers and 

consumers of the products subject to the standard. While it is true that EPCA directs DOE 

to consider other factors the Secretary of Energy considers relevant, in so doing, DOE 

takes under advisement the guidance provided by OMB on the development of regulatory 

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analysis. Specifically, at page 38, Circular A-4 states, “You should not include transfers 

in the estimates of the benefits and costs of a regulation.” 

As discussed in the December 2009 NOPR, when gas prices drop in response to 

lower demand and a lower output of existing natural gas production capacity, consumers 

benefit but producers suffer. In economic terms, the situation represents a benefits 

transfer to consumers (whose expenditures fall) from producers (whose revenue falls 

equally). When prices decrease because extraction costs decline, however, consumers and 

producers both benefit, and the change in natural gas prices represents a net gain to 

society. Consumers benefit from the lower prices, and producers, whose revenues and 

costs both fall, are no worse off. DOE is continuing to investigate the extent to which a 

change in natural gas prices projected to result from standards represents a net gain to 

society. At this time, however, DOE retains the position that it should not give a heavy 

weight to this factor in its consideration of the economic justification of standards on 

heating products. 

In its December 2009 NOPR analysis, DOE also considered the possibility of 

estimating the impact of specific standard levels on electricity prices. Investigation 

conducted for the rulemaking for general service fluorescent lamps and incandescent 

reflector lamps23 found that whereas natural gas markets exhibit a fairly simple chain of 

agents from producers to consumers, the electric power industry is a complex mix of fuel 

23 See U.S. Department of Energy, Office of Energy Efficiency and Renewable Energy, “Energy 

Conservation Standards for General Service Fluorescent Lamps and Incandescent Reflector Lamps; 

Proposed Rule,” 74 FR 16920, 16978-79 (April 13, 2009). 

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suppliers, producers, and distributors. While the distribution of electricity is regulated 

everywhere, its institutional structure varies, and upstream actors are more diverse. For 

these and other reasons, DOE decided not to estimate the value of potentially reduced 

electricity costs for all consumers associated with amended standards for heating 

products. 

NPCC stated that DOE should estimate the economic benefits of the reduced need 

for new electric power plants and infrastructure and include such estimation in the utility 

impacts analysis. It stated that since a primary goal of the Federal appliance standards 

program is to avoid construction and operation of unnecessary generating facilities and 

their associated environmental impacts, failure to quantify the economic value of doing 

so appears to be a fundamental oversight. (NPPC, No. 87 at p. 6) In a similar vein, NRDC 

criticized DOE for not analyzing the benefits associated with reduced electricity prices 

resulting from standards. NDRC stated that the use of NEMS-BT should be explored as a 

way to quantify the benefit of avoided generation and the corresponding rate impact, and 

that DOE should give full weight to the aggregate benefit of reduced electricity prices 

that result from the standards. (NRDC, No. 85 at p. 4-5) 

In response to the above comments, DOE used NEMS-BT to assess the impacts of 

the reduced need for new electric power plants and infrastructure projected to result from 

standards. In NEMS-BT, changes in power generation infrastructure affect utility revenue 

requirements, which in turn affect electricity prices. As described in chapter 13 of the 

TSD, DOE found that the impact on electricity prices from a change in electricity 

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demand is smaller than the impact seen for natural gas prices. Although the aggregate 

benefits for all electricity users are potentially large, DOE believes that there is 

uncertainty about the extent to which the calculated impacts from reduced electricity 

prices are a benefits transfer from the actors involved in electricity supply. Because of the 

aforementioned complexity and diversity of the electric power sector in the U.S., DOE 

has concluded that, at present, it should not give a heavy weight to this factor in its 

consideration of the economic justification of standards on heating products. DOE is 

continuing to investigate the extent to which change in electricity prices projected to 

result from standards represents a net gain to society. 

L. Environmental Assessment 

Pursuant to the National Environmental Policy Act of 1969 (NEPA) (42 U.S.C. 

4321 et seq.) 42 U.S.C. 6295(o)(2)(B)(i)(VI), DOE prepared a draft environmental 

assessment (EA) of the potential impacts of the standards for heating products in today’s 

final rule, which it has included as chapter 16 of the TSD. DOE found that the 

environmental effects associated with the standards for heating products were not 

significant. Therefore, DOE is issuing a Finding of No Significant Impact (FONSI), 

pursuant to NEPA, the regulations of the Council on Environmental Quality (40 CFR 

parts 1500–1508), and DOE’s regulations for compliance with NEPA (10 CFR part 

1021). The FONSI is available in the docket for this rulemaking. 

In the EA, DOE estimated the reduction in power sector emissions of CO2, NOX, 

and Hg using the NEMS-BT computer model. In the EA, NEMS-BT is run similarly to 

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the AEO NEMS, except that energy use of the heating products is reduced by the amount 

of energy saved (by fuel type) due to the TSLs. The inputs of national energy savings 

come from the NIA analysis; the output is the forecasted physical emissions. The 

estimated net benefit of the standards in today’s final rule is the difference between the 

forecasted emissions by NEMS-BT at each TSL and the AEO 2009 April Early Release 

Reference Case. NEMS-BT tracks CO2 emissions using a detailed module that provides 

results with broad coverage of all sectors and inclusion of interactive effects. Because the 

on-site operation of non-electric heating products requires use of fossil fuels and results 

in emissions of CO2, NOX, and sulfur dioxide (SO2), DOE also accounted for the 

reduction in these emissions due to standards at the sites where these appliances are used. 

DOE has determined that SO2 emissions from affected Electric Generating Units 

(EGUs) are subject to nationwide and regional emissions cap and trading programs that 

create uncertainty about the impact of energy conservation standards on SO2 emissions. 

Because of the cap, energy reductions due to energy conservation standards result in no 

reduction in SO2 emissions, although the costs of meeting such emission cap 

requirements are reflected in the electricity prices and forecasts used in DOE’s analysis 

of the standards. Title IV of the Clean Air Act sets an annual emissions cap on SO2 for all 

affected EGUs. SO2 emissions from 28 eastern States and the District of Columbia (D.C.) 

are also limited under the Clean Air Interstate Rule (CAIR, published in the Federal 

Register on May 12, 2005; 70 FR 25162 (May 12, 2005), which creates an allowancebased trading program that will gradually replace the Title IV program in those States and 

D.C. (The recent legal history surrounding CAIR is discussed below.) The attainment of 

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the emissions caps is flexible among EGUs and is enforced through the use of emissions 

allowances and tradable permits. Under existing EPA regulations, any excess SO2 

emission allowances resulting from the lower electricity demand caused by the 

imposition of an efficiency standard could be used to permit offsetting increases in SO2 

emissions by any regulated EGU. However, if the standard resulted in a permanent 

increase in the quantity of unused emission allowances, there would be an overall 

reduction in SO2 emissions from the standards. While there remains some uncertainty 

about the ultimate effects of efficiency standards on SO2 emissions covered by the 

existing cap-and-trade system, the NEMS-BT modeling system that DOE uses to forecast 

emissions reductions currently indicates that no physical reductions in power sector 

emissions would occur for SO2. 

Much like SO2 emissions, NOX emissions from 28 eastern States and D.C. are 

limited under the CAIR. Although CAIR has been remanded to EPA by the U.S. Court of 

Appeals for the District of Columbia Circuit (D.C. Circuit), it will remain in effect until it 

is replaced by a rule consistent with the Court’s July 11, 2008, opinion in North Carolina 

v. EPA, 531 F.3d 896 (D.C. Cir. 2008); see also North Carolina v. EPA, 550 F.3d 1176 

(D.C. Cir. 2008). These court positions were taken into account in the analysis conducted 

for the December 2009 NOPR and in today’s final rule. Because all States covered by 

CAIR opted to reduce NOX emissions through participation in cap-and-trade programs 

for electric generating units, emissions from these sources are capped across the CAIR 

region. 

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In the 28 eastern States and D.C. where CAIR is in effect, DOE’s forecasts 

indicate that no NOX emissions reductions will occur due to energy conservation 

standards because of the permanent cap. Energy conservation standards have the potential 

to produce an economic impact in the form of lower prices for NOX emissions 

allowances, if their impact on electricity demand is large enough. However, DOE has 

concluded that the standards in today’s final rule will not have such an effect because the 

estimated reduction in electricity demand in States covered by the CAIR cap would be 

too small to affect allowance prices for NOX under the CAIR. 

New or amended energy conservation standards would reduce NOX emissions in 

those 22 States that are not affected by the CAIR. DOE used the NEMS-BT to forecast 

emission reductions from the standards in today’s final rule. 

Similar to emissions of SO2 and NOX, future emissions of Hg would have been 

subject to emissions caps. The Clean Air Mercury Rule (CAMR) would have 

permanently capped emissions of mercury from new and existing coal-fired plants in all 

States beginning in 2010 (70 FR 28606). However, the CAMR was vacated by the D.C. 

Circuit in its decision in New Jersey v. Environmental Protection Agency, 517 F 3d 574 

(D.C. Cir. 2008). Thus, DOE was able to use the NEMS-BT model, which reflects 

CAMR being vacated and does not incorporate CAMR emission caps, to estimate the 

changes in Hg emissions resulting from today’s final rule. However, DOE continues to 

review the impact of rules that reduce energy consumption on Hg emissions, and may 

revise its assessment of Hg emission reductions in future rulemakings. 

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The operation of non-electric heating products requires use of fossil fuels and 

results in emissions of CO2, NOX and SO2 at the sites where these appliances are used. 

NEMS–BT provides no means for estimating such emissions. DOE calculated the effect 

of the standards in today’s final rule on the above site emissions based on emissions 

factors derived from the literature. See Chapter 16 of the final rule TSD for additional 

details. 

EEI stated that if DOE examines changes in power plant emissions, then it should 

also examine changes in the emissions associated with oil extraction (domestic and 

overseas), crude oil transportation (sea-based and land-based), natural gas flaring, oil 

refining, refined oil delivery, natural gas production, natural gas delivery, natural gas 

delivery system methane leaks, propane production and delivery, and emissions 

associated with the extraction and importation of liquefied natural gas. (EEI, No. 95 at p. 

5) 

As noted in chapter 16 of the TSD, DOE developed only qualitative estimates of 

effects on upstream fuel-cycle emissions because NEMS-BT does a thorough accounting 

only of emissions at the power plant due to downstream energy consumption. In other 

words, NEMS-BT does not account for upstream emissions. Therefore, the 

environmental assessment for today’s final rule reports only power plant emissions. 

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EEI stated that DOE should consider the production process in the EA, especially 

if higher efficiency standards result in more water heaters being manufactured in other 

countries. (EEI, No. 95 at p. 5) In response, DOE believes that the standards in today’s 

final rule are unlikely to result in significant change in the location of water heater 

manufacturing. The dimensions and weight of water heaters, and the resulting shipping 

expense, mitigate against overseas production of the entire unit. 

M. Monetizing Carbon Dioxide and Other Emissions Impacts 

As part the development of this final rule, DOE considered the estimated 

monetary benefits likely to result from the reduced emissions of CO2 and other pollutants 

that are expected to result from each of the TSLs considered. This section summarizes the 

basis for the estimated monetary values used for each of these emissions and presents the 

benefits estimates considered. 

For today’s final rule, DOE is relying on a new set of values for the social cost of 

carbon (SCC) that were recently developed by an interagency process. A summary of the 

basis for these new values is provided below, and a more detailed description of the 

methodologies used is provided as an Annex to Chapter 16 of the TSD. 

1. Social Cost of Carbon 

Under Executive Order 12866, agencies are required, to the extent permitted by 

law, “to assess both the costs and the benefits of the intended regulation and, recognizing 

that some costs and benefits are difficult to quantify, propose or adopt a regulation only 

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upon a reasoned determination that the benefits of the intended regulation justify its 

costs.” The purpose of the SCC estimates presented here is to allow agencies to 

incorporate the social benefits of reducing CO2 emissions into cost-benefit analyses of 

regulatory actions that have small, or “marginal,” impacts on cumulative global 

emissions. The estimates are presented with an acknowledgement of the many 

uncertainties involved and with a clear understanding that they should be updated over 

time to reflect increasing knowledge of the science and economics of climate impacts. 

The SCC is an estimate of the monetized damages associated with an incremental 

increase in carbon emissions in a given year. It is intended to include (but is not limited 

to) changes in net agricultural productivity, human health, property damages from 

increased flood risk, and the value of ecosystem services due to climate change. 

As part of the interagency process that developed these SCC estimates, technical 

experts from numerous agencies met on a regular basis to consider public comments, 

explore the technical literature in relevant fields, and discuss key model inputs and 

assumptions. The main objective of this process was to develop a range of SCC values 

using a defensible set of input assumptions grounded in the existing scientific and 

economic literatures. In this way, key uncertainties and model differences transparently 

and consistently inform the range of SCC estimates used in the rulemaking process. 

The interagency group selected four SCC values for use in regulatory analyses. 

Three values are based on the average SCC from three integrated assessment models, at 

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discount rates of 2.5, 3, and 5 percent. The fourth value, which represents the 95th 

percentile SCC estimate across all three models at a 3-percent discount rate, is included 

to represent higher-than-expected impacts from temperature change further out in the 

tails of the SCC distribution. 

Table IV.28 Social Cost of CO2, 2010 – 2050 (in 2007 dollars) 

Discount 5% 3% 2.5% 3% 

Year Avg Avg Avg 95th 

2010 4.7 21.4 35.1 64.9 

2015 5.7 23.8 38.4 72.8 

2020 6.8 26.3 41.7 80.7 

2025 8.2 29.6 45.9 90.4 

2030 9.7 32.8 50.0 100.0 

2035 11.2 36.0 54.2 109.7 

2040 12.7 39.2 58.4 119.3 

2045 14.2 42.1 61.7 127.8 

2050 15.7 44.9 65.0 136.2 

a. Monetizing Carbon Dioxide Emissions 

The “social cost of carbon” (SCC) is an estimate of the monetized damages 

associated with an incremental increase in carbon emissions in a given year. It is intended 

to include (but is not limited to) changes in net agricultural productivity, human health, 

property damages from increased flood risk, and the value of ecosystem services. 

Estimates of the social cost of carbon are provided in dollars per metric ton of carbon 

dioxide. 24 

24 In this document, DOE presents all values of the SCC as the cost per metric ton of CO2 emissions. 

Alternatively, one could report the SCC as the cost per metric ton of carbon emissions. The multiplier for 

translating between mass of CO2 and the mass of carbon is 3.67 (the molecular weight of CO2 divided by 

the molecular weight of carbon = 44/12 = 3.67). 

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When attempting to assess the incremental economic impacts of carbon dioxide 

emissions, the analyst faces a number of serious challenges. A recent report from the 

National Academies of Science (Hidden Costs of Energy: Unpriced Consequences of 

Energy Production and Use. National Academies Press. 2009) points out that any 

assessment will suffer from uncertainty, speculation, and lack of information about (1) 

future emissions of greenhouse gases, (2) the effects of past and future emissions on the 

climate system, (3) the impact of changes in climate on the physical and biological 

environment, and (4) the translation of these environmental impacts into economic 

damages. As a result, any effort to quantify and monetize the harms associated with 

climate change will raise serious questions of science, economics, and ethics and should 

be viewed as provisional. 

Despite the serious limits of both quantification and monetization, SCC estimates 

can be useful in estimating the social benefits of reducing carbon dioxide emissions. 

Under Executive Order 12866, agencies are required, to the extent permitted by law, “to 

assess both the costs and the benefits of the intended regulation and, recognizing that 

some costs and benefits are difficult to quantify, propose or adopt a regulation only upon 

a reasoned determination that the benefits of the intended regulation justify its costs.” 

The purpose of the SCC estimates presented here is to make it possible for agencies to 

incorporate the social benefits from reducing carbon dioxide emissions into cost-benefit 

analyses of regulatory actions that have small, or “marginal,” impacts on cumulative 

global emissions. Most Federal regulatory actions can be expected to have marginal 

impacts on global emissions. 

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For such policies, the benefits from reduced (or costs from increased) emissions 

in any future year can be estimated by multiplying the change in emissions in that year by 

the SCC value appropriate for that year. The net present value of the benefits can then be 

calculated by multiplying each of these future benefits by an appropriate discount factor 

and summing across all affected years. This approach assumes that the marginal damages 

from increased emissions are constant for small departures from the baseline emissions 

path, an approximation that is reasonable for policies that have effects on emissions that 

are small relative to cumulative global carbon dioxide emissions. For policies that have a 

large (non-marginal) impact on global cumulative emissions, there is a separate question 

of whether the SCC is an appropriate tool for calculating the benefits of reduced 

emissions; we do not attempt to answer that question here. 

An interagency group convened on a regular basis to consider public comments, 

explore the technical literature in relevant fields, and discuss key inputs and assumptions 

in order to generate SCC estimates. Agencies that actively participated in the interagency 

process include the Environmental Protection Agency, and the Departments of 

Agriculture, Commerce, Energy, Transportation, and Treasury. This process was 

convened by the Council of Economic Advisers and the Office of Management and 

Budget, with active participation and regular input from the Council on Environmental 

Quality, National Economic Council, Office of Energy and Climate Change, and Office 

of Science and Technology Policy. The main objective of this process was to develop a 

range of SCC values using a defensible set of input assumptions that are grounded in the 

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existing literature. In this way, key uncertainties and model differences can more 

transparently and consistently inform the range of SCC estimates used in the rulemaking 

process. 

The interagency group selected four SCC estimates for use in regulatory analyses. 

For 2010, these estimates are $4.7, $21.4, $35.1, and $64.9 (in 2007 dollars). The first 

three estimates are based on the average SCC across models and socio-economic and 

emissions scenarios at the 5, 3, and 2.5-percent discount rates, respectively. The fourth 

value is included to represent the higher-than-expected impacts from temperature change 

further out in the tails of the SCC distribution. For this purpose, we use the SCC value for 

the 95th percentile at a 3-percent discount rate. The central value is the average SCC 

across models at the 3-percent discount rate. For purposes of capturing the uncertainties 

involved in regulatory impact analysis, we emphasize the importance and value of 

considering the full range. These SCC estimates also grow over time. For instance, the 

central value increases to $24 per ton of CO2 in 2015 and $26 per ton of CO2 in 2020. 

See Appendix A of the Annex to Chapter 16 of the TSD for the full range of annual SCC 

estimates from 2010 to 2050. 

It is important to emphasize that the interagency process is committed to updating 

these estimates as the science and economic understanding of climate change and its 

impacts on society improves over time. Specifically, the interagency group set a 

preliminary goal of revisiting the SCC values within two years or at such time as 

substantially updated models become available, and to continue to support research in 

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this area. In the meantime, we will continue to explore the issues raised by this analysis 

and consider public comments as part of the ongoing interagency process. 

b. Social Cost of Carbon Values Used in Past Regulatory Analyses 

To date, economic analyses for Federal regulations have used a wide range of 

values to estimate the benefits associated with reducing carbon dioxide emissions. In the 

final model year 2011 CAFE rule, the Department of Transportation (DOT) used both a 

“domestic” SCC value of $2 per ton of CO2 and a “global” SCC value of $33 per ton of 

CO2 for 2007 emission reductions (in 2007 dollars), increasing both values at 2.4 percent 

per year. It also included a sensitivity analysis at $80 per ton of CO2. A domestic SCC 

value is meant to reflect the value of damages in the United States resulting from a unit 

change in carbon dioxide emissions, while a global SCC value is meant to reflect the 

value of damages worldwide. 

A 2008 regulation proposed by DOT assumed a domestic SCC value of $7 per ton 

CO2 (in 2006 dollars) for 2011 emission reductions (with a range of $0-$14 for sensitivity 

analysis), also increasing at 2.4 percent per year. A regulation finalized by DOE in 

October of 2008 used a domestic SCC range of $0 to $20 per ton CO2 for 2007 emission 

reductions (in 2007 dollars). In addition, EPA’s 2008 Advance Notice of Proposed 

Rulemaking for Greenhouse Gases identified what it described as “very preliminary” 

SCC estimates subject to revision. EPA’s global mean values were $68 and $40 per ton 

CO2 for discount rates of approximately 2 percent and 3 percent, respectively (in 2006 

dollars for 2007 emissions). 

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In 2009, an interagency process was initiated to offer a preliminary assessment of 

how best to quantify the benefits from reducing carbon dioxide emissions. To ensure 

consistency in how benefits are evaluated across agencies, the Administration sought to 

develop a transparent and defensible method, specifically designed for the rulemaking 

process, to quantify avoided climate change damages from reduced CO2 emissions. The 

interagency group did not undertake any original analysis. Instead, it combined SCC 

estimates from the existing literature to use as interim values until a more comprehensive 

analysis could be conducted. 

The outcome of the preliminary assessment by the interagency group was a set of 

five interim values: global SCC estimates for 2007 (in 2006 dollars) of $55, $33, $19, 

$10, and $5 per ton of CO2. The $33 and $5 values represented model-weighted means of 

the published estimates produced from the most recently available versions of three 

integrated assessment models—DICE, PAGE, and FUND—at approximately 3 and 5 

percent discount rates. The $55 and $10 values were derived by adjusting the published 

estimates for uncertainty in the discount rate (using factors developed by Newell and 

Pizer (2003)) at 3 and 5 percent discount rates, respectively. The $19 value was chosen as 

a central value between the $5 and $33 per ton estimates. All of these values were 

assumed to increase at 3 percent annually to represent growth in incremental damages 

over time as the magnitude of climate change increases. 

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These interim values represent the first sustained interagency effort within the 

U.S. government to develop an SCC for use in regulatory analysis. The results of this 

preliminary effort were presented in several proposed and final rules and were offered for 

public comment in connection with proposed rules, including the joint EPA-DOT fuel 

economy and CO2 tailpipe emission proposed rules. 

c. Approach and Key Assumptions 

Since the release of the interim values, interagency group reconvened on a regular 

basis to generate improved SCC estimates considered for this final rule. Specifically, the 

group considered public comments and further explored the technical literature in 

relevant fields. 

It is important to recognize that a number of key uncertainties remain, and that 

current SCC estimates should be treated as provisional and revisable since they will 

evolve with improved scientific and economic understanding. The interagency group also 

recognizes that the existing models are imperfect and incomplete. The National Academy 

of Science (2009) points out that there is tension between the goal of producing 

quantified estimates of the economic damages from an incremental ton of carbon and the 

limits of existing efforts to model these effects. There are a number of concerns and 

problems that should be addressed by the research community, including research 

programs housed in many of the agencies participating in the interagency process to 

estimate the SCC. 

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The U.S. Government will periodically review and reconsider estimates of the 

SCC used for cost-benefit analyses to reflect increasing knowledge of the science and 

economics of climate impacts, as well as improvements in modeling. In this context, 

statements recognizing the limitations of the analysis and calling for further research take 

on exceptional significance. The interagency group offers the new SCC values with all 

due humility about the uncertainties embedded in them and with a sincere promise to 

continue work to improve them. 

In summary, in considering the potential global benefits resulting from reduced 

CO2 emissions, DOE used the most recent values identified by the interagency process, 

adjusted to 2009$ using the standard GDP deflator values for 2008 and 2009. For each of 

the four cases specified, the values for emissions in 2010 used were approximately $5, 

$22, $36, and $67 per metric ton avoided (values expressed in 2009$). To monetize the 

CO2 emissions reductions expected to result from amended standards for residential 

water heaters in 2015–2045 and for direct heating equipment and pool heaters in 2013­

2043, DOE used the values identified in Table A1 of the “Social Cost of Carbon for 

Regulatory Impact Analysis Under Executive Order 12866,” which is reprinted as an 

Annex to Chapter 16 of the TSD, appropriately escalated to 2009$. To calculate a present 

value of the stream of monetary values, DOE discounted the values in each of the four 

cases using the discount rates that had been used to obtain the SCC values in each case. 

NRDC stated that the economic impacts of avoided CO2 emissions should be 

aggregated into the NIA. (NRDC, No. 85 at p. 3) As discussed in section IV.G.1, the NIA 

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assesses the national energy savings and the national net present value of total consumer 

costs and savings expected to result from standards at specific efficiency levels. The NPV 

is not intended as a measure of all national economic benefits associated with standards. 

Although DOE does not aggregate the estimated economic benefits of avoided CO2 

emissions (and other emissions) into the NIA, it does believe that the NPV of the 

monetized benefits associated with emissions reductions can be viewed as a complement 

to the NPV of the consumer savings calculated for each TSL considered in this 

rulemaking. Therefore, in section VI of this final rule, DOE presents the NPV values that 

would result if DOE were to add the estimates of the potential economic benefits 

resulting from reduced CO2 and NOX emissions in each of four valuation scenarios to the 

NPV of consumer savings calculated for each TSL considered in this rulemaking 

2. Monetary Values of Non-Carbon Emissions 

As previously stated, DOE’s analysis assumed the presence of nationwide 

emission caps on SO2 and caps on NOX emissions in the 28 States covered by CAIR. In 

the presence of these caps, the NEMS-BT modeling system that DOE used to forecast 

emissions reduction indicated that no physical reductions in power sector emissions 

would occur (although there remains uncertainty about whether physical reduction of SO2 

will occur), but that the standards could put slight downward pressure on the prices of 

emissions allowances in cap-and-trade markets. Estimating this effect is very difficult 

because of factors such as credit banking that can change the trajectory of prices. From its 

modeling to date, DOE is unable to estimate a benefit from energy conservation standards 

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on the prices of emissions allowances at this time. See the environmental assessment in 

the final rule TSD for further details. 

DOE also investigated the potential monetary benefit of reduced NOX emissions 

from the TSLs it considered. As noted above, new or amended energy conservation 

standards would reduce NOX emissions in those 22 States that are not affected by CAIR, 

in addition to the reduction in site NOX emissions nationwide. DOE estimated the 

monetized value of NOX emissions reductions resulting from each of the TSLs 

considered for today’s final rule based on environmental damage estimates from the 

literature. Available estimates suggest a very wide range of monetary values for NOX 

emissions, ranging from $370 per ton to $3,800 per ton of NOX from stationary sources, 

measured in 2001$ (equivalent to a range of $447 to $4,591 per ton in 2009$).25 

EEI stated that the costs of remediating emissions are included in the electricity 

rates that consumers pay, and care should be taken not to double count the benefits of 

reduced emissions. (EEI, No. 95 at p. 5) DOE understands the comment as referring to 

actions power plant operators take to meet environmental regulations, the costs of which 

are reflected in electricity rates. With regulations currently in place, revised standards for 

heating products would result in a reduction in CO2 and NOX emissions by avoiding 

25 Refer to the OMB, Office of Information and Regulatory Affairs, “2006 Report to Congress on the Costs 

and Benefits of Federal Regulations and Unfunded Mandates on State, Local, and Tribal Entities,” 

Washington, DC, for additional information. 

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electricity generation. Because these emissions impose societal costs, their reduction has 

an economic value that can be estimated. 

DOE is not including monetization estimates of Hg in today’s final rule. DOE is 

aware of multiple agency efforts to determine the appropriate range of values used in 

evaluating the potential economic benefits of reduced Hg emissions. DOE has decided to 

await further guidance regarding consistent valuation and reporting of Hg emissions 

before further monetizing Hg in its rulemakings. As explained earlier, DOE was able to 

use the NEMS-BT model to estimate the changes in Hg emissions resulting from today’s 

final rule, and it has considered these physical emissions reductions as part of the 

standard-setting process. DOE notes that the amounts of Hg under consideration in 

today’s final rule are not large, so the monetized results would be unlikely to be 

significant as compared to the total costs and benefits of the rule. 

V. Discussion of Other Comments 

A. Trial Standard Levels and Proposed Standards 

Since DOE opened the docket for this rulemaking, it has received more than one 

hundred unique written comments, with hundreds of signatories, from a diverse set of 

parties, including manufacturers and their representatives, State Attorneys General, 

members of Congress, energy conservation advocates, consumer advocacy groups, 

electric and gas utilities, and private citizens. DOE also received more than 17,000 form 

letter submissions recommending that DOE strengthen the proposed energy conservation 

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standards. All substantive comments on the analytical methodologies DOE used are 

discussed above. DOE also received many comments related to the relative merits of 

various TSLs. Generally, these comments either stated that a certain TSL was 

economically justified, technologically feasible, and maximized energy, or they argued 

how DOE should weigh the various factors that go into making that determination. See 

section VI.D for a discussion of DOE’s analytical results and how it weighed those 

factors in establishing today’s final rule. 

For today’s final rule, DOE has revised the NOPR TSLs for water heaters and 

direct heating equipment and continued to analyze the same TSLs for pool heaters. A 

detailed description of these TSL revisions for water heaters and direct heating equipment 

is provided in section VI.A. A brief summary is provided in the sections that follow. 

1. Water Heaters 

In the NOPR, DOE proposed TSL 4 for water heaters. 74 FR 65852, 65854 (Dec. 

11, 2009). As discussed in that document, DOE strongly considered NOPR TSL 5, which 

would provide additional energy and carbon savings, while mitigating some of the issues 

associated with a national heat pump water heater standard, but it identified a number of 

potential issues for which DOE did not have adequate information to address before the 

publication of the NOPR. (See 74 FR 65852, 65965-67 (Dec. 11, 2009)). DOE is adding 

a new TSL 5 for the final rule, which is a slight modification of the NOPR TSL 5. The 

NOPR TSL 5 is now referred to as TSL 6 for the final rule. DOE tentatively concluded 

that at NOPR TSL 5 (now final rule TSL 6), the benefits would be outweighed by several 

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burdens, but it stated that it will revisit this decision and strongly consider adoption of 

TSL 6 in the final rule in light of any comments and data submitted by interested parties. 

Many of those comments were discussed in section IV. Below DOE presents further 

comments on NOPR TSL 5 (now final rule TSL 6), as well as on the proposed NOPR 

TSL 4. 

Support for setting a standard at NOPR TSL 5 (TSL 6 for this final rule) was 

expressed by several interested parties. As noted above, DOE received over 17,000 form 

letters from private citizens advocating stronger standards for water heaters. (Private 

Citizens, No. 63 and 74) The Joint Advocacy comment (submitted by ASAP) stated that 

its signatories are very pleased with the DOE’s proposed new efficiency standards for 

most storage-type residential water heaters but urged DOE to adopt stronger efficiency 

levels (NOPR TSL 5) for the largest units, which would help assure a market for these 

new emerging products where they are most cost-effective. It stated that NOPR TSL 5 

offers a middle ground that increases savings relative to NOPR TSL 4 while also 

fostering the development of precisely the knowledge base and market infrastructure 

needed for a longer term, market-wide transition to high-efficiency technologies. It 

strongly urged DOE to choose NOPR TSL 5 (now TSL 6), for the final rule. (ASAP, No. 

102 at p. 2) NRDC stated that NOPR TSL 5 should be adopted for water heaters as it is 

technically feasible, economically justified, and provides significant additional energy, 

economic, and environmental savings. (NRDC, No. 85 at p. 2) A comment provided by 

eight utilities stated support for NOPR TSL 5 because stronger standards for the biggest 

units would boost total energy and economic savings by more than 40 percent compared 

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to the proposed rule, and DOE would be helping advanced technologies become 

mainstream products, thereby speeding transition to next-generation water heaters. (Eight 

utilities, No. 72 at p. 1) ASE stated that at NOPR TSL 5 the advanced technology 

requirements are limited to a modest share of total water heater shipments, which is a 

sensible means of addressing the issue of manufacturers being able to scale up the 

production of these products to meet the needs of the market. (ASE, No. 77 at p. 2) Other 

parties expressing support for choosing NOPR TSL 5 included Alabama Consumer 

Advocate, Avista, Energy Consumers Alliance of New England, KCP&L, Energy Trust 

of Oregon, Alliance to Save Energy, and NEEA. (ACA, No. 60 at p. 1; Avista, No. 66 at 

pp.1-2; Energy Consumers Alliance of New England, No. 59 at p. 1; KCP&L, No. 97 at 

p. 1; Energy Trust of Oregon, No. 69 at p. 1; Alliance to Save Energy, No. 56.4 at p.1; 

NEEA, No. 88 at p. 1) 

Opposition to setting a standard at NOPR TSL 5 (now TSL 6 for the final rule) 

was also expressed by several interested parties. AHRI stated that NOPR TSL 5 would 

cause installation issues for large-volume, advanced-technology models and that 

consumers may opt for less-efficient alternative options. It stated that DOE’s analysis has 

undervalued these factors, and as a result, AHRI expects that the actual energy savings 

will fall well short of the savings projected in the TSD. (AHRI, No. 91 at p. 6) A.O. 

Smith stated that it does not support NOPR TSL 5. It believes that the energy savings are 

overstated because many consumers, when faced with the increased cost of large-storagecapacity water heaters that are required to use either condensing gas or electric heat pump 

technology, would elect to install two smaller-storage-capacity water heaters instead of 

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one larger capacity unit. (A.O. Smith, No. 76 at p. 4) Rheem commented that the energy 

savings from TSL 6 are significantly overstated, and it pointed to several options for 

consumers to work around the standards on large-volume units. (Rheem, No. 89 at pp. 6­

7) BWC stated that the efficiency levels under consideration for larger-capacity water 

heaters would be difficult and expensive to obtain. (BWC, No. 61 at p. 1) Referring to 

NOPR TSL 5 and NOPR TSL 6, APPA stated that they do not support a standard that 

eliminates high efficiency electric resistance water heaters as a consumer option. It 

believes that these TSLs would cause an adverse economic impact for consumers and 

lessen the utility of the product. (APPA, No. 92 at p. 2) Southern Company stated that it 

does not agree with NOPR TSL 6 because performance of heat pump water heaters 

depends on climate and installation location. (Southern, No. 90 at pp. 3-4) 

Support for NOPR TSL 4 (unchanged in the final rule), was expressed by APPA 

and A.O. Smith. (APPA, No. 92 at p. 2; A.O. Smith, No. 76 at p. 1) AHRI recommended 

that DOE should adopt minimum efficiency requirements for gas-fired and electric 

storage water heaters that have their basis in TSL 4 but have been modified to address 

issues related to the needs of the replacement market and unique attributes of some 

models. For electric storage water heaters 65 gallons and larger, AHRI recommended that 

DOE select TSL 3 (also unchanged for the final rule), as TSL 4 for this size presents a 

disproportionately large increase in efficiency. For oil-fired storage water heaters it 

recommended that DOE adopt TSL 3. For gas-fired instantaneous water heaters, AHRI 

recommended that the standard be changed to a minimum EF of 0.80 for models using an 

external electric supply and a minimum EF of 0.78 for models that do not use an external 

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electric supply. (AHRI, No. 91 at p. 1) Rheem also supported a 0.80 EF level for gasfired instantaneous water heaters and noted that the 0.82 EF level has a high payback 

period. (Rheem, No. 89 at p. 13) Bock supported TSL 3 because all storage water heater 

manufacturers are capable of meeting the standard, and it would allow consumers to have 

abundant hot water at a reasonable cost. (Bock, No. 101 at p. 3) 

DOE acknowledges the positions expressed regarding adoption of either the 

proposed standards (TSL 4) or NOPR TSL 5 for water heaters. It addresses the arguments 

raised by the commenters, as well as other factors, in its discussion of the merits of the 

various considered TSLs in section VI.D. 

2. Direct Heating Equipment 

In the NOPR, DOE proposed TSL 3 for direct heating equipment. 74 FR 65852, 

65854 (Dec. 11, 2009). The only modifications made to the TSLs analyzed for the final 

rule compared to those analyzed for the NOPR were to the efficiency levels in TSLs 3, 4, 

5, and 6 for gas wall gravity DHE. DOE revised the efficiency levels analyzed for gas 

wall gravity DHE in the final rule to more accurately reflect the current market for 

products within the representative rated capacity. A detailed description of these changes 

is provided in section IV.C.2.b. 

AHRI stated that no amended energy conservation standards should be set for 

traditional DHE because of the significant impact on manufacturers and the small energy 

savings. (AHRI, No. 91 at p. 10) AGA stated that standards should not be set for DHE 

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because the low and declining shipments represent a minimal opportunity for energy 

savings, and the increased installed cost of DHE may lead to greater use of central 

heating, thereby increasing overall energy consumption (AGA, No. 78 at p. 11) Williams 

recommended that DOE not adopt standards for DHE because of the significant impact 

on manufacturers, the unique utility of DHE to heat homes without ductwork, design 

constraints, and safety concerns. Williams stated that manufacturers, as well as 

consumers, would be negatively impacted by the proposed rule. (Williams, No. 96 at p.1­

2) 

AHRI stated its belief that the proposed standards for traditional DHE (NOPR 

TSL 3) are too high and that the impact on manufacturers needs to be reconsidered. 

According to the commenter, the proposed levels would have very significant and costly 

effects on manufacturers. The DHE results show negative impact on the profitability of 

the manufacturers, all of which are small manufacturers, and there is a real concern about 

whether they could stay in business and make a profit at these levels. (AHRI, Public 

Meeting Transcript, No. 57.4 at pp. 28-29) AHRI reiterated DOE’s estimates for the 

INPV decreasing between 6 and 33.5 percent at the proposed level, industry cash flow 

dropping from $1.4 million to -$0.9 million (a 162-percent decrease), and the conversion 

costs reaching $2.31 million per manufacturer (about 350 percent of estimated earnings 

before interest and taxation). AHRI also stated that the number of product lines per 

manufacturer would drop from 5 to 3 and that all of AHRI’s members indicated a loss of 

employment would result. Finally, AHRI stated all these negative impacts would be 

compounded by a decline in sales. Because of all these negative impacts and insignificant 

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energy savings, AHRI stated that DOE should not consider TSL 3 for the final rule 

(AHRI, No. 91 at p. 13) 

LTS stated that DOE estimated that the conversion costs for a typical small DHE 

manufacturer at the proposed level would be $2.3 million or 347 percent of each 

company's earnings before interest and taxes. LTS questioned having to spend three or 

four years' profit to meet a standard they are certain will make them less profitable 

overall. (LTS, No. 56.7 at pp. 2-3; Public Meeting Transcript, No. 57.4 at p. 23) LTS 

reiterated the NOPR’s estimate that industry cash flow could decrease up to 161.8 

percent. Finally, LTS reiterated DOE’s statement that the large estimated impact on 

INPV suggests that manufacturers would be substantially harmed if profitability were 

impacted. (LTS, No. 56.7 at p. 2) 

Congressman Costello and Congressman Shimkus urged DOE to consider 

Empire's testimony and related concerns. Congressman Costello and Congressman 

Shimkus stated that Empire strongly believes the technology necessary to meet these 

proposed efficiency standards is not in place and that the cost of retrofitting these product 

lines does not justify the small energy savings for the small traditional DHE market. 

(Costello, No. 62 at p. 1) 

DOE acknowledges the positions expressed regarding adoption of the proposed 

standards (TSL 3) for direct heating equipment. It addresses the arguments raised by the 

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commenters, as well as other factors, in its discussion of the merits of the various 

considered TSLs in section VI.D. 

3. Pool Heaters 

In the NOPR, DOE proposed NOPR TSL 3 for pool heaters. 74 FR 65852, 65854 

(Dec. 11, 2009). The TSLs analyzed in the final rule are identical to those analyzed in the 

NOPR. AHRI stated that the proposed standard for pool heaters is not economically 

justified because its payback period well exceeds product lifetime. It recommended the 

proposed standard for pool heaters be lowered to 81 percent. (AHRI, No. 91 at p. 9) 

Raypak stated that the proposed standard for pool heaters has a very high payback period 

which is outside the lifetime of the appliance, so the commenter argued that such level 

should not be considered economically justified. Raypak supported adoption of amended 

energy conservation standards at TSL 1 for pool heaters because it would raise the 

efficiency level by 3 percentage points, while preventing the elimination of the millivolt 

design option. (Raypak, No. 67 at pp. 3-4) APSP stated that the proposed level could 

result in a significantly negative impact on the pool heater industry in these already 

turbulent economic times. (APSP, No. 64 at p. 1) 

DOE acknowledges the positions expressed regarding adoption of the proposed 

standards (TSL 3) for pool heaters. It addresses the arguments raised by the commenters, 

as well as other factors, in its discussion of the merits of the various considered TSLs in 

section VI.D. 

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B. Compliance Date of Amended Standards 

As discussed in section IV.F.9, compliance with amended energy conservation 

standards for direct heating equipment and pool heaters is required three years after the 

final rule is published in the Federal Register (i.e., in 2013); compliance with amended 

energy conservation standards for water heaters is required five years after the final rule 

is published (i.e., in 2015). 

Raypak stated that the date of when the standard goes into effect should be 

changed to five years for pool heaters. (Raypak, No. 67 at p. 3) In response, DOE notes 

that the language in 42 U.S.C. 6295(e)(4) specifies compliance dates for amended 

standards (if any) for the heating products that are the subject of this rulemaking. These 

statutory dates were set such that they were to apply to products manufactured on or after 

the 36-month period beginning on the date such final rule was to be published for the first 

iteration of rulemaking and on or after the 60-month period beginning on the date such 

final rule was to be published for the second iteration of rulemaking. (42 U.S.C. 

6295(e)(4)(A)-(B)) The language of 42 U.S.C. 6295(e)(4)(B) anticipates that a standard 

will be in place for covered pool heaters that are manufactured precisely three years after 

publication of the final rule and prospectively thereafter. Although DOE did not meet the 

rulemaking dates set by the statute, DOE continues to believe that the time differential, as 

specified in EPCA, between the publication of the final rule and the compliance deadline 

reflects Congress’s judgment as to what constitutes adequate lead time. Consequently, for 

the final rule, DOE has maintained a compliance date corresponding to three years after 

final rule publication in the Federal Register for direct heating equipment and pool 

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heaters, and five years after the date of publication in the Federal Register for water 

heaters. 

VI. Analytical Results and Conclusions 

A. Trial Standard Levels 

DOE analyzed the benefits and burdens of a number of TSLs for each of the three 

types of heating products separately. For a given product consisting of several product 

classes, DOE developed some of the TSLs so that each TSL is comprised of energy 

efficiency levels from each product class that exhibit similar characteristics. For example, 

in the case of water heaters, one of the TSLs consists of the max-tech efficiency levels 

from each product class being considered for this rulemaking. DOE attempted to limit the 

number of TSLs considered for the December 2009 NOPR by eliminating efficiency 

levels that do not exhibit significantly different economic and/or engineering 

characteristics from the efficiency levels already selected as a TSL. For the December 

2009 NOPR, DOE analyzed seven TSLs for water heaters, six TSLs for direct heating 

equipment, and six TSLs for pool heaters. 74 FR 65852, 65929-32 (Dec. 11, 2009). 

For today’s final rule, DOE has revised the TSLs for water heaters and direct 

heating equipment and continued to analyze the same TSLs for pool heaters. A 

description of each TSL DOE analyzed for each of the three types of heating products is 

provided below. While DOE only presents the results for those efficiency levels used in 

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TSL combinations in today’s final rule, DOE presents the results for all efficiency levels 

analyzed in the final rule TSD. 

1. Water Heaters 

Table VI.1 shows the eight TSLs DOE analyzed for water heaters for the final 

rule. Since amended water heater standards would apply to the full range of storage 

volumes, DOE is presenting the TSLs for water heaters in terms of the energy efficiency 

equations, rather than only showing the required efficiency level at the representative 

capacities. As further discussed in the December 2009 NOPR (74 FR 65852, 65929 (Dec. 

11, 2009)), DOE is grouping the energy efficiency equations for each of the four water 

heater product classes to show the benefits and burdens of amended energy conservation 

standards. 

For TSLs 1, 2, 3, and 4, DOE is using the rated storage volume divisions 

developed in the engineering analysis and the energy efficiency equations as shown in 

section IV.C.6, which specify a two-slope approach. TSLs 1, 2, 3, and 4 are identical to 

those presented in the December 2009 NOPR. TSL 1 consists of the efficiency levels for 

each product class that are approximately equal to the current shipment-weighted average 

efficiency. TSL 2 and TSL 3 consist of efficiency levels with slightly higher efficiencies 

compared to TSL 1 for most of the product classes. TSL 4 represents the maximum 

electric resistance water heater efficiency across the entire range of storage volumes that 

DOE analyzed for electric storage water heaters, and the maximum atmospherically272
 

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vented efficiency across the entire range of storage volumes that DOE analyzed for gasfired storage water heaters. 

DOE is adding a new TSL 5 for the final rule, which is a slight modification of 

the December 2009 NOPR TSL 5 (currently referred to as TSL 6 for the final rule). For 

both TSL 5 and TSL 6, DOE considered a pairing of efficiency levels that would promote 

the penetration of advanced technologies into the electric and gas-fired storage water 

heater markets and potentially save additional energy by using a two-slope approach with 

different requirements for each category. Consequently, DOE pairs an efficiency level 

effectively requiring heat pump technology for large-volume electric storage water 

heaters with an efficiency level achievable using electric resistance technology for smallvolume electric storage water heaters. In addition, DOE pairs an efficiency level 

effectively requiring condensing technology for large-volume gas storage water heaters 

with an efficiency level that can be achieved in atmospherically-vented gas-fired storage 

water heaters with increased insulation thickness for small storage volumes. The only 

difference between TSL 5 and TSL 6 for the final rule is the requirements for gas-fired 

storage water heaters. DOE reanalyzed these levels due to potential safety concerns, 

which were discussed above and are further discussed below. For gas-fired water heaters 

at TSL 5, DOE analyzed energy efficiency level 1 for small volumes paired with 

efficiency level 6 for large volumes. For gas-fired water heaters at TSL 6, DOE analyzed 

energy efficiency level 2 for small volumes paired with efficiency level 6 for large 

volumes. 

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Although it paired different technologies for small-volume and large-volume 

products for TSL 5 and TSL 6, DOE maintained the same division point between smallvolume and large-volume gas-fired and electric storage water heaters just as was done in 

the December 2009 NOPR. As further explained in the December 2009 NOPR, DOE is 

concerned that increased standards for large-volume water heaters may drive production 

and sales of water heaters at volumes just below the division points. 74 FR 65852, 65929 

(Dec. 11, 2009). As a result, in analyzing TSL 5 and 6 for the final rule, DOE is using the 

same division points as it used for the December 2009 NOPR TSL 5, which is 55 gallons 

for gas-fired and electric storage water heaters, to attempt to mitigate the potential 

migration to small-volume units described above. TSL 5 and 6 include efficiency levels 

that effectively require heat pump technology for electric storage water heater with rated 

storage volumes above 55 gallons, and efficiency levels that effectively require 

condensing technology for gas-fired storage water heaters with rated storage volumes 

above 55 gallons. Using DOE’s shipments model and market assessment, DOE estimated 

approximately 4 percent of gas-fired storage water heater shipments and 11 percent of 

models would be subject to the large-volume water heater requirements using the TSL 5 

and TSL 6 division. Similarly, DOE estimated approximately 9 percent of electric storage 

water heater shipments and 27 percent of models would be subject to the large-volume 

water heater requirements using the TSL 5 and TSL 6 division. 

TSL 7 uses the same divisions as TSLs 1, 2, 3, and 4 for gas-fired water heaters 

(i.e., does not includes the distinction at TSL 5 and TSL 6 for units above and below a 

55-gallon storage capacity). TSL 7 is identical to TSL 4 except DOE is considering what 

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is effectively a heat pump water heater level for electric storage water heaters across the 

entire range of storage volumes that is compatible with ENERGY STAR criteria for 

electric storage water heaters at the representative rated storage volume. 

TSL 8 consists of the max-tech efficiency levels for each of the water heater 

product classes at the time the analysis was developed. The max-tech efficiency levels 

were revised for the final rule as described in the engineering analysis. TSL 7 and 8 both 

set efficiency levels that effectively require use of heat pump technology for electric 

storage water heaters. TSL 8, however, requires a higher efficiency level than TSL 7, 

which corresponds to the max-tech efficiency level for the representative rated storage 

capacity (i.e., 2.35 EF at 50 gallons). TSL 8 also sets efficiency levels that effectively 

require use of condensing technology for gas-fired storage and instantaneous water 

heaters. 

Table VI.1 presents the energy efficiency equations and associated two-slope 

divisions for TSL 1 through TSL 8. 

Table VI.1 Trial Standard Levels for Residential Water Heaters (Energy Factor) 

Trial Standard Level Energy Efficiency Equation 

TSL 1 For GSWHs with a Rated Storage 

Volume at or below 60 gallons: 

EF = 0.675 – (0.0015 x Rated 

Storage Volume in gallons) 

For GSWHs with a Rated Storage 

Volume above 60 gallons: 

EF = 0.699 – (0.0019 x Rated Storage 

Volume in gallons) 

For ESWHs with a Rated Storage 

Volume at or below 80 gallons: 

EF = 0.967 – (0.00095 x Rated 

Storage Volume in gallons) 

For ESWHs with a Rated Storage 

Volume above 80 gallons: 

EF = 1.013 – (0.00153 x Rated 

Storage Volume in gallons) 

For OSWHs (over the Entire Rated Storage Volume range): 

EF = 0.64 – (0.0019 x Rated Storage Volume in gallons) 

For GIWHs (over the Entire Rated Storage Volume range): 

EF = 0.82 – (0.0019 x Rated Storage Volume in gallons) 

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TSL 2 For GSWHs with a Rated Storage 

Volume at or below 60 gallons: 

EF = 0.675 – (0.0012 x Rated 

Storage Volume in gallons) 

For GSWHs with a Rated Storage 

Volume above 60 gallons: 

EF = 0.717 – (0.0019 x Rated Storage 

Volume in gallons) 

For ESWHs with a Rated Storage 

Volume at or below 80 gallons: 

EF = 0.966 – (0.0008 x Rated 

Storage Volume in gallons) 

For ESWHs with a Rated Storage 

Volume above 80 gallons: 

EF = 1.026 – (0.00155 x Rated 

Storage Volume in gallons) 

For OSWHs (over the Entire Rated Storage Volume range): 

EF = 0.66 – (0.0019 x Rated Storage Volume in gallons) 

For GIWHs (over the Entire Rated Storage Volume range): 

EF = 0.82 – (0.0019 x Rated Storage Volume in gallons) 

TSL 3 For GSWHs with a Rated Storage 

Volume at or below 60 gallons: 

EF = 0.675 – (0.0012 x Rated Storage 

Volume in gallons) 

For GSWHs with a Rated Storage 

Volume above 60 gallons: 

EF = 0.717 – (0.0019 x Rated Storage 

Volume in gallons) 

For ESWHs with a Rated Storage 

Volume at or below 80 gallons: 

EF = 0.965 – (0.0006 x Rated Storage 

Volume in gallons) 

For ESWHs with a Rated Storage 

Volume above 80 gallons: 

EF = 1.051 – (0.00168 x Rated 

Storage Volume in gallons) 

For OSWHs (over the Entire Rated Storage Volume range): 

EF = 0.68 – (0.0019 x Rated Storage Volume in gallons) 

For GIWHs (over the Entire Rated Storage Volume range): 

EF = 0.82 – (0.0019 x Rated Storage Volume in gallons) 

TSL 4 For GSWHs with a Rated Storage 

Volume at or below 60 gallons: 

EF = 0.675 – (0.0012 x Rated Storage 

Volume in gallons) 

For GSWHs with a Rated Storage 

Volume above 60 gallons: 

EF = 0.717 – (0.0019 x Rated Storage 

Volume in gallons) 

For ESWHs with a Rated Storage 

Volume at or below 80 gallons: 

EF = 0.960 – (0.0003 x Rated Storage 

Volume in gallons) 

For ESWHs with a Rated Storage 

Volume above 80 gallons: 

EF = 1.088 – (0.0019 x Rated Storage 

Volume in gallons) 

For OSWHs (over the Entire Rated Storage Volume range): 

EF = 0.68 – (0.0019 x Rated Storage Volume in gallons) 

For GIWHs (over the Entire Rated Storage Volume range): 

EF = 0.82 – (0.0019 x Rated Storage Volume in gallons) 

TSL 5 For GSWHs with a Rated Storage 

Volume at or below 55 gallons: 

EF = 0.675 – (0.0015 x Rated Storage 

Volume in gallons) 

For GSWHs with a Rated Storage 

Volume above 55 gallons: 

EF = 0.8012 – (0.00078 x Rated 

Storage Volume in gallons) 

For ESWHs with a Rated Storage 

Volume at or below 55 gallons: 

EF = 0.960 – (0.0003 x Rated Storage 

Volume in gallons) 

For ESWHs with a Rated Storage 

Volume above 55 gallons: 

EF = 2.057 – (0.00113 x Rated 

Storage Volume in gallons) 

For OSWHs (over the Entire Rated Storage Volume range): 

EF = 0.68 – (0.0019 x Rated Storage Volume in gallons) 

For GIWHs (over the Entire Rated Storage Volume range): 

EF = 0.82 – (0.0019 x Rated Storage Volume in gallons) 

TSL 6 For GSWHs with a Rated Storage 

Volume at or below 55 gallons: 

EF = 0.675 – (0.0012 x Rated Storage 

Volume in gallons) 

For GSWHs with a Rated Storage 

Volume above 55 gallons: 

EF = 0.8012 – (0.00078 x Rated 

Storage Volume in gallons) 

For ESWHs with a Rated Storage 

Volume at or below 55 gallons: 

EF = 0.960 – (0.0003 x Rated Storage 

For ESWHs with a Rated Storage 

Volume above 55 gallons: 

EF = 2.057 – (0.00113 x Rated 

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Volume in gallons) Storage Volume in gallons) 

For OSWHs (over the Entire Rated Storage Volume range): 

EF = 0.68 – (0.0019 x Rated Storage Volume in gallons) 

For GIWHs (over the Entire Rated Storage Volume range): 

EF = 0.82 – (0.0019 x Rated Storage Volume in gallons) 

TSL 7 For GSWHs with a Rated Storage 

Volume at or below 60 gallons: 

EF = 0.675 – (0.0012 x Rated Storage 

Volume in gallons) 

For GSWHs with a Rated Storage 

Volume above 60 gallons: 

EF = 0.717 – (0.0019 x Rated Storage 

Volume in gallons) 

For ESWHs (over the Entire Rated Storage Volume range): 

EF = 2.057 – (0.00113 x Rated Storage Volume in gallons) 

For OSWHs (over the Entire Rated Storage Volume range): 

EF = 0.68 – (0.0019 x Rated Storage Volume in gallons) 

For GIWHs (over the Entire Rated Storage Volume range): 

EF = 0.82 – (0.0019 x Rated Storage Volume in gallons) 

TSL 8 For GSWHs (over the Entire Rated Storage Volume range): 

EF = 0.8012 – (0.00078 x Rated Storage Volume in gallons) 

For ESWHs (over the Entire Rated Storage Volume range): 

EF = 2.406 – (0.00113 x Rated Storage Volume in gallons) 

For OSWHs (over the Entire Rated Storage Volume range): 

EF = 0.74 – (0.0019 x Rated Storage Volume in gallons) 

For GIWHs (over the Entire Rated Storage Volume range): 

EF = 0.95 – (0.0019 x Rated Storage Volume in gallons) 

2. Direct Heating Equipment 

Table VI.2 presents the six TSLs DOE analyzed for DHE in the final rule. The 

only modifications made to the TSLs analyzed for the final rule compared to those 

analyzed for the December 2009 NOPR were to the efficiency levels in TSLs 3, 4, 5, and 

6 for gas wall gravity DHE. These changes were made due to a review of the gas wall 

gravity units currently offered for sale and the adjustment of the max-tech efficiency 

level in response to commenters. 

In general, TSL 1 consists of the efficiency levels that are close to the current 

shipment-weighted average efficiency. TSL 2, TSL 3, and TSL 4 consist of efficiency 

levels that have gradually higher efficiency than TSL 1. TSL 5 consists of the efficiency 

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levels that include electronic ignition and fan assist (where applicable), and TSL 6 

consists of the max-tech efficiency levels for all of the DHE product classes. 

Table VI.2 Trial Standard Levels for Direct Heating Equipment (AFUE) 

Product Class TSL 

1 

TSL 

2 

TSL 

3 

TSL 

4 

TSL 

5 

TSL 

6 

Gas Wall Fan (over 42,000 Btu/h) 75% 76% 77% 80% 75% 80% 

Gas Wall Gravity (over 27,000 and up to 

46,000 Btu/h) 66% 66% 69% 69% 70% 70% 

Gas Floor (over 37,000 Btu/h) 58% 58% 58% 58% 58% 58% 

Gas Room (over 27,000 and up to 46,000 

Btu/h) 66% 67% 68% 68% 83% 83% 

Gas Hearth (over 27,000 and up to 46,000 

Btu/h) 67% 67% 67% 72% 72% 93% 

3. Gas-Fired Pool Heaters 

Table VI.3 shows the six TSLs DOE analyzed for pool heaters, which are 

identical to the TSLs analyzed in the December 2009 NOPR. TSL 1 consists of the 

efficiency level that is close to the current shipment-weighted average efficiency. TSL 2 

and TSL 3 consist of efficiency levels that have gradually higher efficiency than TSL 1. 

TSL 4 is the highest efficiency level with positive NPV. TSL 5 is the highest analyzed 

non-condensing efficiency level, and TSL 6 consists of the max-tech efficiency level. 

Table VI.3 Trial Standard Levels for Pool Heaters (Thermal Efficiency) 

Product Class TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 TSL 6 

Gas-fired 81% 82% 83% 84% 86% 95% 

B. Significance of Energy Savings 

To estimate the energy savings due to potential standards, from 2013 to 2043 for 

DHE and pool heaters and from 2015 to 2045 for water heaters, DOE compared the 

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energy consumption attributable to the three types of heating products under the base 

case (no standards) to energy consumption attributable to these products under each 

standards case (each TSL that DOE has considered). Table VI.4, Table VI.5, and Table 

VI.6 present DOE’s national energy savings (NES) estimates (undiscounted) for each of 

the three types of heating products, by product class at each TSL. Chapter 10 of the TSD 

describes these estimates in more detail. 

Table VI.4 Water Heaters: Cumulative National Energy Savings in Quads 

Product Class TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 TSL 6 TSL 7 TSL 

8 

Gas-Fired Storage 0.69 1.17 1.17 1.17 0.81 1.29 1.17 4.91 

Electric Storage 0.29 0.41 0.79 1.09 1.67 1.67 8.90 11.22 

Oil-Fired Storage 0.00 0.01 0.01 0.01 0.01 0.01 0.01 0.02 

Gas-Fired 

Instantaneous 

0.08 0.08 0.08 0.08 0.08 0.08 0.08 0.58 

TOTAL 1.07 1.66 2.05 2.35 2.58 3.06 10.16 16.73 

Table VI.5 Direct Heating Equipment: Cumulative National Energy Savings in 

Quads 

Product Class TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 TSL 6 

Gas Wall Fan 0.01 0.01 0.01 0.03 0.01 0.03 

Gas Wall Gravity 0.01 0.01 0.03 0.03 0.06 0.06 

Gas Floor 0.0001 0.0001 0.0001 0.0001 0.0001 0.0001 

Gas Room 0.001 0.002 0.004 0.004 0.04 0.04 

Gas Hearth 0.19 0.19 0.19 0.37 0.37 1.13 

TOTAL 0.20 0.21 0.23 0.43 0.48 1.26 

Table VI.6 Pool Heaters: Cumulative National Energy Savings in Quads 


TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 TSL 6 

Gas-Fired 0.01 0.02 0.04 0.06 0.09 0.22 

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C. Economic Justification 

1. Economic Impact on Consumers 

a. Life-Cycle Costs and Payback Period 

Consumers affected by amended standards usually experience higher product 

purchase prices and lower operating costs. Generally, these impacts are captured by 

changes in life-cycle costs and by the payback period. Therefore, DOE calculated the 

LCC and PBP for the standard levels considered in this rulemaking. 

DOE’s LCC and PBP analyses provide seven key outputs for each TSL, which are 

reported in Table VI.7 through Table VI.16 below. The first two of these outputs is the 

average LCC and average LCC savings. (A negative “LCC savings” for a standard level 

indicates that the life-cycle cost of a standards-compliant product would be higher than 

the life-cycle cost of a baseline product.) The next three outputs are the proportion of 

purchases of the product that already comply with the TSL and that would create a net 

life-cycle cost, no impact, or a net life-cycle savings for the purchaser. 

The sixth and seventh outputs are the median and average PBPs, respectively, for 

the consumer purchasing a design that complies with the TSL compared with purchasing 

a baseline product. The PBP is the number of years it would take for the purchaser to 

recover, as a result of energy savings, the increased cost of a higher-efficiency product 

based on operating cost savings from the first year of ownership. The PBP is an economic 

benefit-cost measure that uses benefits and costs without discounting. DOE’s analysis 

includes both the analysis contemplated under the rebuttable presumption test, which is 

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based on energy use as determined under conditions prescribed by the DOE test 

procedure, and analysis of the payback period based on conditions of actual use of the 

product by purchasers. DOE derived the median and average PBPs in Table VI.7 through 

Table VI.16 by using the latter method. While DOE examined the rebuttable presumption 

criterion (see chapter 8 of the TSD), it also evaluated the standard levels adopted in 

today’s rule through a more detailed analysis of the economic impacts of these levels 

pursuant to section 325(o)(2)(B)(i) of EPCA. (42 U.S.C. 6295(o)(2)(B)(i)) 

TSD chapter 8 provides detailed information on the LCC and PBP analyses. 

Table VI.7 Gas-Fired Storage Water Heaters: LCC and PBP Results 

TSL 

Energy 

Factor 

LCC Payback Period 

Average LCC 

2009$ 

Average 

LCC Savings 

2009$ 

Households with 

Median 

years 

Average 

years 

Net 

Cost| 

% 

No 

Impact 

% 

Net 

Benefit 

% 

1 0.62 3,528 $16 25% 36% 39% 2.0 17.0 

2, 3, 4 0.63 3,537 $7 32% 22% 45% 4.5 18.6 

5* 0.62 3,528 $18 27% 33% 40% 2.3 16.9 

6* 0.63 3,537 $9 34% 21% 46% 4.7 18.3 

7 0.67 3,793 -$218 70% 6% 23% 21.5 27.1 

8 0.77 3,771 -$195 70% 1% 28% 15.6 16.8 

* For TSL 5 and 6, the EF and the results represent shipments-weighted averages of the EFs and results that 

apply to small- and large-volume water heaters, respectively. For the other TSLs, the EF and the results 

refer to the representative rated volume (40 gal). 

Table VI.8 Electric Storage Water Heaters: LCC and PBP Results 

TSL Energy LCC Payback Period 

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Factor 

Average 

LCC 2009$ 

Average LCC 

Savings 2009$ 

Median 

years 

Average 

years 

Net 

Cost 

% 

No 

Impact 

% 

Net 

Benefit 

% 

1 0.92 $3,255 $5 11% 44% 45% 4.0 10.2 

2 0.93 $3,245 $11 12% 39% 48% 4.0 10.0 

3 0.94 $3,236 $18 21% 17% 62% 5.0 9.3 

4 0.95 $3,236 $18 32% 10% 59% 6.7 9.9 

5,6 1.04* $3,188 $64 33% 9% 58% 6.8 10.2 

7 2.00 $3,136 $112 50% 5% 45% 9.4 26.2 

8 2.35 $3,076 $171 50% 1% 49% 9.0 20.0 

* For TSL 5 and 6, the EF and the results represent shipments-weighted averages of the EFs and results that 

apply to small- and large-volume water heaters, respectively. For the other TSLs, the EF and the results 

refer to the representative rated volume (50 gal). 

Table VI.9 Oil-Fired Storage Water Heaters: LCC and PBP Results 

TSL 

Energy 

Factor 

LCC Payback Period 

Average LCC 

2009$ 

Average 

LCC Savings 

2009$ 

Households with 

Median 

years 

Average 

years 

Net 

Cost| 

% 

No 

Impact 

% 

Net 

Benefit 

% 

1 0.58 $8,102 $101 0% 76% 24% 0.9 0.9 

2 0.60 $7,885 $203 0% 54% 46% 0.3 0.2 

3, 4, 5, 6,7 0.62 $7,721 $295 0% 47% 53% 0.5 0.7 

8 0.68 $7,463 $495 0% 17% 83% 1.9 2.1 

Table VI.10 Gas-Fired Instantaneous Water Heaters: LCC and PBP Results
 

TSL Energy LCC Payback Period 

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Factor 

Average LCC 

2009$ 

Average 

LCC Savings 

2009$ 

Households with 

Median 

years 

Average 

years 

Net 

Cost| 

% 

No 

Impact 

% 

Net 

Benefit 

% 

1 through 7 0.82 $5,505 $9 5% 91% 4% 14.8 24.3 

8 0.95 $5,913 -$259 77% 12% 11% 38.7 55.0 

Table VI.11 Gas Wall Fan DHE: LCC and PBP Results
 

TSL 

AFUE 

% 

LCC Payback Period 

Average LCC 

2009$ 

Average 

LCC Savings 

2009$ 

Households with 

Median 

years 

Average 

years 

Net 

Cost| 

% 

No 

Impact 

% 

Net 

Benefit 

% 

1, 5 75 7,170 83 0 60 40 2.7 2.7 

2 76 7,131 102 3 53 44 3.2 3.9 

3 77 7,114 114 19 26 55 5.0 9.9 

4, 6 80 7,189 43 53 7 40 12.2 33.7 

Table VI.12 Gas Wall Gravity DHE: LCC and PBP Results
 

TSL 

AFUE 

% 

LCC Payback Period 

Average LCC 

2009$ 

Average 

LCC Savings 

2009$ 

Households with 

Median 

years 

Average 

years 

Net 

Cost 

% 

No 

Impact 

% 

Net 

Benefit 

% 

1, 2 66 6,848 21 10 75 15 7.5 13.8 

3, 4 69 6,760 64 33 37 30 11.0 22.5 

5, 6 70 6,880 -56 70 0 30 16.5 18.6 

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Table VI.13 Gas Floor DHE: LCC and PBP Results
 

TSL 

AFUE 

% 

LCC Payback Period 

Average LCC 

2009$ 

Average 

LCC Savings 

2009$ 

Households with 

Median 

years 

Average 

years 

Net 

Cost 

% 

No 

Impact 

% 

Net 

Benefit 

% 

1, 2, 3, 4, 

5, 6 58 7,755 13 23 58 19 10.7 16.5 

Table VI.14 Gas Room DHE: LCC and PBP Results
 

TSL 

AFUE 

% 

LCC Payback Period 

Average LCC 

2009$ 

Average 

LCC Savings 

2009$ 

Households with 

Median 

years 

Average 

years 

Net 

Cost 

% 

No 

Impact 

% 

Net 

Benefit 

% 

1 66 7,349 26 9 74 16 6.7 11.8 

2 67 7,284 60 12 50 38 4.5 8.3 

3, 4 68 7,226 104 19 25 57 4.8 8.2 

5, 6 83 6,628 702 32 0 68 6.9 8.7 

Table VI.15 Gas Hearth DHE: LCC and PBP Results
 

TSL 

AFUE 

% 

LCC Payback Period 

Average LCC 

2009$ 

Average 

LCC Savings 

2009$ 

Households with 

Median 

years 

Average 

years 

Net 

Cost| 

% 

No 

Impact 

% 

Net 

Benefit 

% 

1, 2, 3 67 5,146 112 3 61 37 0.0 3.1 

4, 5 72 5,324 -28 55 23 21 17.1 47 

6 93 5,475 -179 77 1 22 26.8 60.2 

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Table VI.16 Gas-Fired Pool Heaters: LCC and PBP Results
 

TSL 

Thermal 

Efficiency 

% 

LCC Payback Period 

Average LCC 

2009$ 

Average 

LCC Savings 

2009$ 

Households with 

Median 

years 

Average 

years 

Net 

Cost| 

% 

No 

Impact 

% 

Net 

Benefit 

% 

1 81 8,212 25 5 72 23 2.7 5.4 

2 82 8,217 22 27 51 22 8.6 15.2 

3 83 8,264 -6 60 23 17 18.2 32.3 

4 84 8,322 -52 64 21 15 19.2 39.0 

5 86 8,959 -632 88 9 3 38.1 85.8 

6 95 9,698 -1,361 95 1 4 33.2 74.1 

b. Consumer Subgroup Analysis 

For water heaters, DOE estimated consumer subgroup impacts for low-income 

households and senior-only households by determining the LCC impacts of the TSLs 

considered for gas-fired and electric storage water heaters. In addition, DOE estimated 

consumer subgroup impacts on households in multi-family housing and households in 

manufactured homes for the TSLs considered for gas-fired and electric storage water 

heaters. DOE also estimated the consumer subgroup impacts for low-income households 

and senior-only households for gas wall fan and gas wall gravity DHE. 

For gas-fired storage water heaters, the impacts of the standard in today’s final 

rule are roughly the same for the senior-only subgroup and the low-income subgroup as 

they are for the full household sample for this product class (see Table VI.17 and Table 

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VI.18). For the multi-family subgroup, the results report an average LCC increase (i.e., 

negative savings) of $13, and they also show a 36-percent share of households with a net 

LCC benefit, and a 31-percent share of households with a net LCC cost (see Table 

VI.19). For the manufactured home subgroup, the results report an average LCC increase 

(i.e., negative savings) of $17, and they also show a 35-percent share of households with 

a net LCC benefit, and a 36-percent share of households with a net LCC cost (see Table 

VI.20). 

Table VI.17 Gas-Fired Storage Water Heaters: LCC and PBP Results for SeniorOnly Households 

TSL 

Energy 

Factor 

LCC Payback Period 

Average LCC 

2009$ 

Average 

LCC Savings 

2009$ 

Households with 

Median 

years 

Average 

years 

Net 

Cost| 

% 

No 

Impact 

% 

Net 

Benefit 

% 

1 0.62 $3,072 $14 27% 32% 41% 1.9 19.4 

2, 3, 4 0.63 $3,081 $7 34% 19% 47% 4.1 19.5 

5* 0.62 $3,071 $16 27% 31% 41% 2.0 19.4 

6* 0.63 $3,079 $9 34% 19% 47% 4.2 19.3 

7 0.67 $3,355 -$235 71% 6% 22% 22.5 27.8 

8 0.77 $3,377 -$257 75% 1% 24% 17.4 18.2 

* For TSL 5 and TSL 6, the EF and the results represent shipments-weighted averages of the EFs and 

results that apply to small- and large-volume water heaters, respectively. For the other TSLs, the EF and the 

results refer to the representative rated volume (40 gal). 

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Table VI.18 Gas-Fired Storage Water Heaters: LCC and PBP Results for LowIncome Households 

TSL 

Energy 

Factor 

LCC Payback Period 

Average LCC 

2009$ 

Average 

LCC Savings 

2009$ 

Households with 

Median 

years 

Average 

years 

Net 

Cost| 

% 

No 

Impact 

% 

Net 

Benefit 

% 

1 0.62 $3,591 $9 29% 31% 40% 2.1 18.7 

2, 3, 4 0.63 $3,610 -$8 36% 19% 45% 6.1 21.2 

5* 0.62 $3,586 $15 29% 31% 41% 2.1 18.7 

6* 0.63 $3,605 -$2 36% 19% 45% 6.2 21.2 

7 0.67 $3,877 -$243 71% 6% 23% 22.9 28.5 

8 0.77 $3,847 -$213 70% 2% 28% 16.4 17.6 

* For TSL 5 and TSL 6, the EF and the results represent shipments-weighted averages of the EFs and 

results that apply to small- and large-volume water heaters, respectively. For the other TSLs, the EF and the 

results refer to the representative rated volume (40 gal). 

Table VI.19 Gas-Fired Storage Water Heaters: LCC and PBP Results for MultiFamily Households 

TSL 

Energy 

Factor 

LCC Payback Period 

Average LCC 

2009$ 

Average 

LCC Savings 

2009$ 

Households with 

Median 

years 

Average 

years 

Net 

Cost| 

% 

No 

Impact 

% 

Net 

Benefit 

% 

1 0.62 $2,825 -$11 31% 33% 36% 2.4 26.5 

2, 3, 4 0.63 $2,868 -$45 41% 21% 38% 11.0 27.2 

5* 0.62 $2,827 -$13 31% 32% 36% 2.5 26.5 

6* 0.63 $2,870 -$46 41% 21% 37% 11.0 27.2 

7 0.67 $3,182 -$324 74% 6% 19% 27.2 35.2 

8 0.77 $3,239 -$380 79% 2% 19% 21.2 23.2 

* For TSL 5 and TSL 6, the EF and the results represent shipments-weighted averages of the EFs and 

results that apply to small- and large-volume water heaters, respectively. For the other TSLs, the EF and the 

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results refer to the representative rated volume (40 gal). 

Table VI.20 Gas-Fired Storage Water Heaters: LCC and PBP Results for 

Manufactured Home Households 

TSL 

Energy 

Factor 

LCC Payback Period 

Average LCC 

2009$ 

Average 

LCC Savings 

2009$ 

Households with 

Median 

years 

Average 

years 

Net 

Cost| 

% 

No 

Impact 

% 

Net 

Benefit 

% 

1 0.62 $4,035 -$17 36% 29% 35% 9.9 25.1 

2, 3, 4 0.63 $4,082 -$59 48% 17% 34% 13.1 26.7 

5* 0.62 $4,035 -$17 36% 29% 35% 9.9 25.1 

6* 0.63 $4,082 -$59 48% 17% 34% 13.1 26.7 

7 0.67 $4,275 -$232 69% 6% 25% 21.1 27.3 

8 0.77 $4,207 -$164 64% 2% 34% 14.7 17.0 

* For TSL 5 and TSL 6, the EF and the results represent shipments-weighted averages of the EFs and 

results that apply to small- and large-volume water heaters, respectively. For the other TSLs, the EF and the 

results refer to the representative rated volume (40 gal). 

For electric storage water heaters, the impacts of the standard in today’s final rule 

are approximately the same for the senior-only subgroup as they are for the full 

household sample for this product class (see Table VI.21). For the low-income subgroup, 

the results show an average LCC savings of $18, a 53-percent share of households with a 

net LCC benefit, and a 39-percent share of households with a net LCC cost (see Table 

VI.22). For the multi-family subgroup, the results report an average LCC increase (i.e., 

negative savings) of $8, and they also show a 53-percent share of households with a net 

LCC benefit, and a 38-percent share of households with a net LCC cost (see Table 

VI.23). For the manufactured home subgroup, the results report an average LCC increase 

(i.e., negative savings) of $20, and they also show a 38-percent share of households with 

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a net LCC benefit, and a 54-percent share of households with a net LCC cost (see Table 

VI.24). 

Table VI.21 Electric Storage Water Heaters: LCC and PBP Results for Senior-Only 

Households 

TSL 

Energy 

Factor 

LCC Payback Period 

Average 

LCC 2009$ 

Average LCC 

Savings 2009$ 

Households with 

Median 

years 

Average 

years 

Net 

Cost 

% 

No 

Impact 

% 

Net 

Benefit 

% 

1 0.92 $2,859 $6 11% 42% 47% 3.8 10.1 

2 0.93 $2,849 $11 12% 38% 50% 3.8 9.9 

3 0.94 $2,839 $19 21% 16% 63% 5.0 9.2 

4 0.95 $2,837 $20 30% 10% 60% 6.3 9.6 

5,6 1.04* $2,826 $31 32% 9% 59% 6.6 10.1 

7 2.00 $2,937 -$76 59% 5% 36% 11.0 21.6 

8 2.35 $2,895 -$34 58% 1% 41% 10.5 17.5 

* For TSL 5 and TSL 6, the EF and the results represent shipments-weighted averages of the EFs and 

results that apply to small- and large-volume water heaters, respectively. For the other TSLs, the EF and the 

results refer to the representative rated volume (50 gal). 

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Table VI.22 Electric Storage Water Heaters: LCC and PBP Results for Low-Income 

Households 

TSL 

Energy 

Factor 

LCC Payback Period 

Average 

LCC 2009$ 

Average LCC 

Savings 2009$ 

Households with 

Median 

years 

Average 

years 

Net 

Cost 

% 

No 

Impact 

% 

Net 

Benefit 

% 

1 0.92 $3,203 -$3 15% 39% 46% 4.2 12.4 

2 0.93 $3,196 $1 16% 36% 48% 4.2 12.2 

3 0.94 $3,196 $0 29% 14% 57% 5.5 11.1 

4 0.95 $3,197 -$1 38% 9% 53% 7.1 11.3 

5,6 1.04* $3,178 $18 39% 9% 53% 7.3 11.5 

7 2.00 $3,132 $61 54% 5% 41% 10.1 28.4 

8 2.35 $3,078 $114 54% 1% 45% 9.9 23.0 

* For TSL 5 and TSL 6, the EF and the results represent shipments-weighted averages of the EFs and 

results that apply to small- and large-volume water heaters, respectively. For the other TSLs, the EF and the 

results refer to the representative rated volume (50 gal). 

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Table VI.23 Electric Storage Water Heaters: LCC and PBP Results for MultiFamily Households 

TSL 

Energy 

Factor 

LCC Payback Period 

Average 

LCC 2009$ 

Average LCC 

Savings 2009$ 

Households with 

Median 

years 

Average 

years 

Net 

Cost 

% 

No 

Impact 

% 

Net 

Benefit 

% 

1 0.92 $2,015 -$2 14% 35% 50% 4.0 11.6 

2 0.93 $2,009 $1 15% 32% 52% 4.0 11.3 

3 0.94 $2,017 -$6 31% 13% 56% 5.6 11.7 

4 0.95 $2,018 -$7 37% 9% 54% 6.9 11.6 

5,6 1.04* $2,019 -$8 38% 9% 53% 7.0 11.9 

7 2.00 $2,468 -$436 79% 5% 16% 25.5 67.9 

8 2.35 $2,479 -$447 81% 1% 18% 24.4 50.8 

* For TSL 5 and TSL 6, the EF and the results represent shipments-weighted averages of the EFs and 

results that apply to small- and large-volume water heaters, respectively. For the other TSLs, the EF and the 

results refer to the representative rated volume (50 gal). 

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Table VI.24 Electric Storage Water Heaters: LCC and PBP Results for 

Manufactured Home Households 

TSL 

Energy 

Factor 

LCC Payback Period 

Average 

LCC 2009$ 

Average LCC 

Savings 2009$ 

Households with 

Median 

years 

Average 

years 

Net 

Cost 

% 

No 

Impact 

% 

Net 

Benefit 

% 

1 0.92 $3,152 -$32 31% 35% 33% 7.0 21.8 

2 0.93 $3,151 -$31 33% 33% 35% 7.7 21.4 

3 0.94 $3,153 -$33 47% 14% 40% 13.0 15.4 

4 0.95 $3,154 -$35 54% 9% 38% 12.9 14.8 

5,6 1.04* $3,140 -$20 54% 9% 38% 13.4 15.0 

7 2.00 $3,103 $14 56% 5% 39% 10.5 25.0 

8 2.35 $3,055 $61 55% 1% 44% 10.1 21.4 

* For TSL 5 and TSL 6, the EF and the results represent shipments-weighted averages of the EFs and 

results that apply to small- and large-volume water heaters, respectively. For the other TSLs, the EF and the 

results refer to the representative rated volume (50 gal). 

For gas wall fan and gas wall gravity DHE, DOE estimated that the impacts of the 

standards in today’s final rule are roughly the same for the senior-only sample and the 

low-income sample as they are for the full household sample for these product classes. 

For gas hearth DHE, DOE performed the senior-only analysis but did not perform the 

low-income analysis due to the extremely small sample size and relatively high product 

cost. The results for the gas hearth DHE senior-only sample were about the same as for 

the full household sample. (See tables in chapter 11 of the TSD). 

DOE did not estimate the impacts of consumer subgroups for oil-fired storage 

water heaters, gas floor DHE, and gas room DHE due to low product shipments, and for 

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gas-fired instantaneous water heaters due to insufficient data. For pool heaters, DOE did 

not perform consumer subgroup analyses since this product is typically not owned by 

these subgroups. 

Chapter 11 of the TSD explains DOE’s methodology for conducting the consumer 

subgroup analysis and presents the detailed results of that analysis for each considered 

efficiency level. 

c. Rebuttable Presumption Payback 

As discussed in section III.D.2, EPCA provides a rebuttable presumption that an 

energy conservation standard is economically justified if the increase in purchase cost for 

a product that meets the standard is less than three times the value of the first-year energy 

(and, as applicable, water) savings resulting from the standard. DOE’s LCC and PBP 

analyses generate values that calculate the payback period for consumers of potential 

energy conservation standards, which include, but are not limited to, the payback period 

contemplated under the rebuttable presumption test discussed above. However, DOE 

routinely conducts a full economic analysis that considers the full range of impacts, 

including those to the consumer, manufacturer, Nation, and environment, as required 

under 42 U.S.C. 6295(o)(2)(B)(i). The results of this analysis serve as the basis for DOE 

to evaluate definitively the economic justification for a potential standard level (thereby 

supporting or rebutting the results of any preliminary determination of economic 

justification). 

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As required by EPCA, DOE based the calculation of rebuttable presumption 

payback period on the assumptions in the DOE test procedures for each of the three types 

of heating products. For water heaters and DHE, respectively, Table VI.24 and Table 

VI.25 show the rebuttable presumption PBPs for those TSLs that have a rebuttable 

presumption payback period of less than 3 years. For pool heaters, only one of the 

considered efficiency levels has a rebuttable presumption payback period of less than 3 

years-81 percent thermal efficiency has a rebuttable presumption payback period of 2.7 

years. 

Table VI.24 Water Heaters: Rebuttable Presumption Payback Periods 

TSL Payback Period, years 

Gas-Fired 

Storage 

Electric Storage Oil-Fired 

Storage 

Gas-Fired 

Instantaneous 

1 >3 >3 0.8 >3 

2 >3 >3 0.4 >3 

3 >3 >3 0.6 >3 

4 >3 >3 0.6 >3 

5 >3 >3 0.6 >3 

6 >3 >3 0.6 >3 

7 >3 >3 0.6 >3 

8 >3 >3 0.9 >3 

Table VI.25 Direct Heating Equipment: Rebuttable Presumption Payback Periods 


TSL Payback Period, years 

Gas Wall 

Fan DHE 

Gas Wall 

Gravity 

DHE 

Gas Furnace 

DHE 

Gas Wall 

Room DHE 

Gas Hearth 

DHE 

1 >3 >3 >3 >3 2.5 

2 >3 >3 >3 >3 2.5 

3 >3 >3 >3 >3 2.5 

4 >3 >3 >3 >3 >3 

5 >3 >3 >3 >3 >3 

6 >3 >3 >3 >3 >3 

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2. Economic Impact on Manufacturers 

For the MIA in the December 2009 NOPR, DOE used the INPV to compare the 

financial impacts of different TSLs on water heater, DHE, and pool heater manufacturers. 

74 FR 65852, 65935-47 (Dec. 11, 2009). DOE presented the results by grouping product 

classes made by the same manufacturers and uses the scenarios that show the likely 

changes in industry value following amended energy conservation standards. DOE used 

the GRIM to compare the INPV of the base case (no new energy conservation standards) 

to that of each TSL for each covered product. The INPV is the sum of all net cash flows 

discounted by the industry’s cost of capital (discount rate). The difference in INPV 

between the base case and the standards case is an estimate of the economic impacts that 

implementing that standard level would have on the entire industry. 

For today’s final rule, DOE continues to use the methodology presented in the 

December 2009 NOPR (74 FR 65852, 65915-22 (Dec. 11, 2009)) and in section IV.I. 

DOE modeled two different markup scenarios to estimate the potential impacts of 

amended energy conservation standards on manufacturers. To assess the lower end of the 

range of potential impacts on manufacturers, DOE modeled the preservation of return on 

invested capital scenario. In addition to the impact of the main NIA shipment scenario 

and the required capital and product conversion costs on INPV, this case models a 

situation in which manufacturers would maintain the base-case return on invested capital 

in the standards case. This scenario represents the lower (more favorable) end of the 

range of potential impacts on manufacturers because the industry generates a historical 

rate of operating profit on the physical and financial investments required by energy 

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conservation standards. To assess the higher end of the range of potential impacts on the 

manufacturers of the three types of heating products, DOE modeled the preservation of 

operating profit markup scenario in which higher energy conservation standards result in 

lower manufacturer markups. This scenario models a scenario in which the higher 

production costs of more-efficient technology and required investments are not fully 

passed on to customers, consequently lowering operating profit margins. This scenario 

represents the upper end of the range of potential impacts on manufacturers only because 

no additional operating profit is earned on the investments required to meet the amended 

energy conservation standards. 

In overview, DOE notes that for water heaters, the main NIA scenario used the 

Reference Case gas-fired instantaneous water heater market share scenario, the AEO 

Reference Case economic growth scenario, and the moderate rate of efficiency growth 

scenarios. The main NIA scenario for water heaters also accounts for fuel switching at a 

level that effectively requires HPWHs for all rated storage volumes (final rule TSL 7 and 

TSL 8) and capacity switching at a level that required advanced technology for water 

heaters with rated storage volumes above 55 gallons (final rule TSL 5 and TSL 6). In all 

standards-case shipment scenarios for all three types of heating products, DOE assumed 

that shipments at efficiencies below the projected minimum standard levels would roll up 

to the new standard levels in response to amended energy conservation standards. 

The sections below outline comments on the economic impacts on manufacturers 

presented in the December 2009 NOPR and provide DOE’s response. The complete MIA 

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results section can be found in the December 2009 NOPR (74 FR 65852, 65935-54 (Dec. 

11, 2009)) and chapter 12 of the TSD. 

a. Cash-Flow Analysis Results for Water Heaters 

i. Cash-Flow Analysis Results for Gas-Fired and Electric Storage Water Heaters 

Table VI.26 Manufacturer Impact Analysis for Gas-Fired and Electric Storage 

Water Heaters – Preservation of Return on Invested Capital Markup Scenario 

Units Base 

Case 

Trial Standard Level 

1 2 3 4 5 6 7 8 

INPV (2009$ 

millions) 

$880. 

4 $875.5 $876.0 $875.1 $875.5 $854.4 $856.8 $869.9 $959.6 

Change in 

INPV 

(2009$ 

millions) - -$4.9 -$4.3 -$5.2 -$4.8 -$25.9 -$23.6 -$10.5 $79.2 

(%) - -0.56% -0.49% -0.59% -0.55% -2.94% -2.68% -1.19% 9.00% 

Product 

Conversion 

Costs 

(2009$ 

millions) - 12.1 14.5 14.5 14.5 31.8 31.8 61.1 79.7 

Capital 

Conversion 

Costs 

(2009$ 

millions) - 0.0 4.3 4.3 40.7 63.7 63.7 76.0 208.0 

Total 

Conversion 

Costs 

(2009$ 

millions) - 12.1 18.7 18.7 55.1 95.4 95.4 137.1 287.8 

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Table VI.27 Manufacturer Impact Analysis for Gas-Fired and Electric Storage 

Water Heaters – Preservation of Operating Profit Markup Scenario 

Units Base 

Case 

Trial Standard Level 

1 2 3 4 5 6 7 8 

INPV (2009$ 

millions) 

$880. 

4 $866.1 $849.0 $842.1 $790.9 $757.8 $745.7 $530.2 $233.4 

Change in 

INPV 

(2009$ 

millions) - -$14.2 -$31.4 -$38.3 -$89.4 -$122.6 -$134.6 -$350.2 -$647.0 

(%) - -1.62% -3.56% -4.35% -10.16% -13.93% -15.29% -39.78% -73.49% 

Product 

Conversion 

Costs 

(2009$ 

millions) - 12.1 14.5 14.5 14.5 31.8 31.8 61.1 79.7 

Capital 

Conversion 

Costs 

(2009$ 

millions) - 0.0 4.3 4.3 40.7 63.7 63.7 76.0 208.0 

Total 

Conversion 

Costs 

(2009$ 

millions) - 12.1 18.7 18.7 55.1 95.4 95.4 137.1 287.8 

The December 2009 NOPR discusses the estimated impact of amended energy 

conservation standards on INPV for gas-fired and electric storage water heater 

manufacturers in further detail. 74 FR 65852, 65936-39 (Dec. 11, 2009). DOE did not 

receive any comments on the gas-fired and electric storage water heaters INPV results. 

Those comments related to conversion costs and methodology are discussed in section 

IV.I.1. 

ii. Cash-Flow Analysis Results for Oil-Fired Storage Water Heaters 

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Table VI.28 Manufacturer Impact Analysis for Oil-Fired Storage Water Heaters – 

Preservation of Return on Invested Capital Markup Scenario 

Units Base 

Case 

Trial Standard Level 

1 2 3 4 5 6 7 8 

INPV (2009$ 

millions) 

$9.1 8.9 8.9 8.9 8.9 8.9 8.9 8.9 7.7 

Change in 

INPV 

(2009$ 

millions) - (0.2) (0.2) (0.2) (0.2) (0.2) (0.2) (0.2) (1.4) 

(%) - -1.98% -1.85% -2.01% -2.01% -2.01% -2.01% -2.01% -15.37% 

Product 

Conversion 

Costs 

(2009$ 

millions) - 0.3 0.3 0.3 0.3 0.3 0.3 0.3 1.1 

Capital 

Conversion 

Costs 

(2009$ 

millions) - 0.2 0.2 0.2 0.2 0.2 0.2 0.2 4.0 

Total 

Conversion 

Costs 

(2009$ 

millions) - 0.5 0.5 0.5 0.5 0.5 0.5 0.5 5.1 

Table VI.29 Manufacturer Impact Analysis for Oil-Fired Storage Water Heaters – 

Preservation of Operating Profit Markup Scenario 

Units Base 

Case 

Trial Standard Level 

1 2 3 4 5 6 7 8 

INPV (2009$ 

millions) 

$9.1 8.8 8.8 8.7 8.7 8.7 8.7 8.7 5.3 

Change in 

INPV 

(2009$ 

millions) - (0.4) (0.3) (0.4) (0.4) (0.4) (0.4) (0.4) (3.8) 

(%) - -3.85% -3.56% -4.23% -4.23% -4.23% -4.23% -4.23% -41.44% 

Product 

Conversion 

Costs 

(2009$ 

millions) - 0.3 0.3 0.3 0.3 0.3 0.3 0.3 1.1 

Capital 

Conversion 

Costs 

(2009$ 

millions) - 0.2 0.2 0.2 0.2 0.2 0.2 0.2 4.0 

Total 

Conversion 

Costs 

(2009$ 

millions) - 0.5 0.5 0.5 0.5 0.5 0.5 0.5 5.1 

The December 2009 NOPR discusses the estimated impact of amended energy 

conservation standards on INPV for oil-fired storage water heater manufacturers in 

299 

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further detail. 74 FR 65852, 65939-40 (Dec. 11, 2009). DOE did not receive any 

comments on the oil-fired water heaters INPV results. Those comments related to 

conversion costs and methodology are discussed in section IV.I.1. 

iii. Cash-Flow Analysis Results for Gas-Fired Instantaneous Water Heaters 

Table VI.30 Manufacturer Impact Analysis for Gas-Fired Instantaneous Water 

Heaters –Preservation of Return on Invested Capital Markup Scenario 

Units Base 

Case 

Trial Standard Level 

1 2 3 4 5 6 7 8 

INPV (2009$ 

millions) 

$648. 

2 $650.6 $650.6 $650.6 $650.6 $650.6 $650.6 $650.6 $739.7 

Change in 

INPV 

(2009$ 

millions) - 2.3 2.3 2.3 2.3 2.3 2.3 2.3 91.4 

(%) - 0.36% 0.36% 0.36% 0.36% 0.36% 0.36% 0.36% 14.10% 

Product 

Conversion 

Costs 

(2009$ 

millions) - 0.0 0.0 0.0 0.0 0.0 0.0 0.0 8.8 

Capital 

Conversion 

Costs 

(2009$ 

millions) - 0.0 0.00 0.00 0.0 0.0 0.0 0.0 10.6 

Total 

Conversion 

Costs 

(2009$ 

millions) - 0.0 0.0 0.0 0.0 0.0 0.0 0.0 19.4 

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Table VI.31 Manufacturer Impact Analysis for Gas-Fired Instantaneous Storage 

Water Heaters – Preservation of Operating Profit Markup Scenario 

Units Base 

Case 

Trial Standard Level 

1 2 3 4 5 6 7 8 

INPV (2009$ 

millions) 

$648. 

2 $647.0 $647.0 $647.0 $647.0 $647.0 $647.0 $647.0 $590.6 

Change in 

INPV 

(2009$ 

millions) - (1.2) (1.2) (1.2) (1.2) (1.2) (1.2) (1.2) (57.6) 

(%) - -0.19% -0.19% -0.19% -0.19% -0.19% -0.19% -0.19% -8.89% 

Product 

Conversion 

Costs 

(2009$ 

millions) - 0.0 0.0 0.0 0.0 0.0 0.0 0.0 8.8 

Capital 

Conversion 

Costs 

(2009$ 

millions) - 0.0 0.00 0.00 0.0 0.0 0.0 0.0 10.6 

Total 

Conversion 

Costs 

(2009$ 

millions) - 0.0 0.0 0.0 0.0 0.0 0.0 0.0 19.4 

The December 2009 NOPR discusses the estimated impact of amended energy 

conservation standards on INPV for gas-fired instantaneous water heater manufacturers 

in further detail. 74 FR 65852, 65940-41 (Dec. 11, 2009). DOE did not receive any 

comments on the gas-fired instantaneous water heater INPV results. 

b. Cash-Flow Analysis Results for Direct Heating Equipment 

i. Cash-Flow Analysis Results for Traditional Direct Heating Equipment (Gas 

Wall Fan, Gas Wall Gravity, Gas Floor, and Gas Room Direct Heating Equipment) 

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Table VI.32 Manufacturer Impact Analysis for Traditional Direct Heating 


Equipment – Preservation of Return on Invested Capital Markup Scenario 


Units Base 

Case 

Trial Standard Level 

1 2 3 4 5 6 

INPV (2009$ 

millions) 

16.6 15.7 15.4 14.7 14.7 12.8 12.7 

Change in 

INPV 

(2009$ 

millions) - (0.9) (1.2) (1.9) (1.9) (3.8) (3.9) 

(%) - -5.24% -7.17% -11.31% -11.62% -22.74% -23.65% 

Product 

Conversion 

Costs 

(2009$ 

millions) - 0.95 1.38 2.41 2.95 5.02 5.91 

Capital 

Conversion 

Costs 

(2009$ 

millions) - 1.96 3.24 5.60 6.95 6.75 9.11 

Total 

Conversion 

Costs 

(2009$ 

millions) - 2.91 4.62 8.00 9.90 11.77 15.02 

Table VI.33 Manufacturer Impact Analysis for Traditional Direct Heating 

Equipment – Preservation of Operating Profit Markup Scenario 

Units Base 

Case 

Trial Standard Level 

1 2 3 4 5 6 

INPV (2009$ 

millions) 

16.6 14.1 12.7 9.6 7.8 6.2 3.2 

Change in 

INPV 

(2009$ 

millions) - (2.5) (3.9) (7.0) (8.8) (10.4) (13.4) 

(%) - -14.88% -23.61% -42.38% -53.12% -62.40% -80.85% 

Product 

Conversion 

Costs 

(2009$ 

millions) - 0.95 1.38 2.41 2.95 5.02 5.91 

Capital 

Conversion 

Costs 

(2009$ 

millions) - 1.96 3.24 5.60 6.95 6.75 9.11 

Total 

Conversion 

Costs 

(2009$ 

millions) - 2.91 4.62 8.00 9.90 11.77 15.02 

The December 2009 NOPR discusses the estimated impact of amended energy 

conservation standards on INPV for traditional DHE manufacturers in further detail. 74 

302 

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FR 65852, 65942-44 (Dec. 11, 2009). DOE addresses all the comments about the impacts 

on traditional DHE manufacturers in sections IV.I.4 and VII.B of today’s final rule. 

ii. Cash-Flow Analysis Results for Gas Hearth Direct Heating Equipment 

Table VI.34 Manufacturer Impact Analysis for Gas Hearth Direct Heating 

Equipment – Preservation of Return on Invested Capital Markup Scenario 

Units Base 

Case 

Trial Standard Level 

1 2 3 4 5 6 

INPV (2009$ 

millions) 

77.1 76.2 76.2 76.2 78.7 78.7 85.7 

Change in 

INPV 

(2009$ 

millions) - (0.9) (0.9) (0.9) 1.6 1.6 8.6 

(%) - -1.22% -1.22% -1.22% 2.04% 2.04% 11.09% 

Product 

Conversion 

Costs 

(2009$ 

millions) - 0.56 0.56 0.56 1.46 1.46 8.42 

Capital 

Conversion 

Costs 

(2009$ 

millions) - 0.21 0.21 0.21 0.55 0.55 4.20 

Total 

Conversion 

Costs 

(2009$ 

millions) - 0.77 0.77 0.77 2.01 2.01 12.62 

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Table VI.35 Manufacturer Impact Analysis for Gas Hearth Direct Heating 

Equipment – Preservation of Operating Profit Markup Scenario 

Units Base 

Case 

Trial Standard Level 

1 2 3 4 5 6 

INPV (2009$ 

millions) 

77.1 76.9 76.9 76.9 63.9 63.9 23.5 

Change in 

INPV 

(2009$ 

millions) - (0.2) (0.2) (0.2) (13.2) (13.2) (53.6) 

(%) - -0.30% -0.30% -0.30% -17.13% -17.13% -69.49% 

Product 

Conversion 

Costs 

(2009$ 

millions) - 0.56 0.56 0.56 1.46 1.46 8.42 

Capital 

Conversion 

Costs 

(2009$ 

millions) - 0.21 0.21 0.21 0.55 0.55 4.20 

Total 

Conversion 

Costs 

(2009$ 

millions) - 0.77 0.77 0.77 2.01 2.01 12.62 

The December 2009 NOPR discusses the estimated impact of amended energy 

conservation standards on INPV for gas hearth DHE manufacturers in further detail. 74 

FR 65852, 65944-45 (Dec. 11, 2009). DOE did not receive any comments on the gas 

hearth DHE INPV results. 

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c. Cash-Flow Analysis Results for Pool Heaters 

Table VI.36 Manufacturer Impact Analysis for Gas-Fired Pool Heaters – 

Preservation of Return on Invested Capital Markup Scenario 

Units Base 

Case 

Trial Standard Level 

1 2 3 4 5 6 

INPV (2009$ 

millions) 

49.0 49.1 49.3 48.2 48.7 49.8 56.4 

Change in 

INPV 

(2009$ 

millions) - 0.0 0.3 (0.8) (0.3) 0.8 7.3 

(%) - 0.10% 0.54% -1.72% -0.63% 1.61% 14.93% 

Product 

Conversion 

Costs 

(2009$ 

millions) - 0.0 0.0 2.7 2.7 4.8 5.7 

Capital 

Conversion 

Costs 

(2009$ 

millions) - 0.0 0.3 1.3 1.5 4.6 7.4 

Total 

Conversion 

Costs 

(2009$ 

millions) - 0.0 0.3 4.0 4.2 9.4 13.1 

Table VI.37 Manufacturer Impact Analysis for Gas-Fired Pool Heaters – 

Preservation of Operating Profit Markup Scenario 

Units Base 

Case 

Trial Standard Level 

1 2 3 4 5 6 

INPV (2009$ 

millions) 

49.0 48.9 48.2 44.0 42.4 31.9 10.8 

Change in 

INPV 

(2009$ 

millions) - (0.1) (0.8) (5.0) (6.6) (17.2) (38.3) 

(%) - -0.25% -1.72% -10.22% -13.48% -35.05% -78.00% 

Product 

Conversion 

Costs 

(2009$ 

millions) - 0.0 0.0 2.7 2.7 4.8 5.7 

Capital 

Conversion 

Costs 

(2009$ 

millions) - 0.0 0.3 1.3 1.5 4.6 7.4 

Total 

Conversion 

Costs 

(2009$ 

millions) - 0.0 0.3 4.0 4.2 9.4 13.1 

The December 2009 NOPR discusses the estimated impact of amended energy 

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EE-2006-BT-STD-0129 COMMENT 105
conservation standards on INPV for gas-fired pool heater in further detail. 74 FR 65852, 

65945-47 (Dec. 11, 2009). DOE did not receive any comments on the pool heaters INPV 

results. Those comments related to conversion costs and methodology are discussed in 

section IV.I.3. 

d. Impacts on Employment 

As discussed in detail in the December 2009 NOPR and in today’s final rule, 

DOE quantitatively assessed the impacts of potential amended energy conservation 

standards on gross employment for each of the three types of heating products that are the 

subject of this rulemaking. DOE presented a range of the potential production 

employment levels that could result following the implementation of amended energy 

conservation standards. The upper end of the results represented the maximum potential 

increase in production workers after amended energy conservation standards if 

manufacturers continue to produce the same scope of covered products in the same 

production facilities. The lower end of the range of employment results included the 

estimate of the total number of U.S. production workers in the industry that could lose 

their jobs if all existing production were to no longer be made domestically. For example, 

DOE calculates that the impacts on gas-fired and electric storage water heaters could 

range from an increase of 439 employees to a decrease of 3,610. For oil-fired water 

heaters, DOE expects an increase of one employee to a decrease of 37 employees. 

Similarly, at the upper end of modeled impacts, the traditional DHE, gas hearth DHE, and 

pool heater industries could experience an increase of six, six, and 19 employees, 

respectively. At the low end, these three industries could sustain decreases in direct 

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employment of 275, 1280, and 512 employees, respectively. 74 FR 65852, 65947-51 

(Dec. 11, 2009). Further details are also found in chapter 12 of the TSD. DOE discusses 

and responds to public comments received regarding the impacts on the direct 

employment in section IV.I.4. 

e. Impacts on Manufacturing Capacity 

In the December 2009 NOPR, DOE provided a complete discussion of the 

potential impacts on manufacturing capacity for the three types of heating products as a 

result of amended energy conservation standards. 74 FR 65852, 65951-53 (Dec. 11, 

2009). 

In response to that discussion, Raypak stated that it does not believe three years 

would allow sufficient time for the proper development, testing, and tooling necessary to 

achieve reliable pool heater products, because pool heaters are installed outdoors and face 

harsher operating conditions than the other products covered by this rulemaking. 

(Raypak, No. 67 at p. 3) The commenter agreed with DOE’s statement that setting an 

amended energy conservation standard for pool heaters at or above TSL 5, which would 

require condensing or near-condensing technology, could lead to short-term capacity 

problems if manufacturers cannot make the substantially higher tooling, equipment, and 

assembly changes required at these levels in time to meet the standard. Moreover, 

Raypak argued that these same issues exist at TSL 3 and TSL 4, because at TSL 3 and 

above manufacturers would have difficulty changing their production lines and tooling to 

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a new construction while still producing product to meet current market demands. 

(Raypak, No. 67 at p. 2; Public Meeting Transcript, No. 57.4 at pp. 308-310) 

In response, DOE agrees that the proposed standard in the December 2009 NOPR 

would require substantial changes for pool heater manufacturers. At an 84-percent 

thermal efficiency level, manufacturers would be required to make multiple 

improvements over the most common atmospheric models on the market today. 

However, DOE did not receive any comments that suggested the conversion costs for the 

industry presented in the NOPR were not representative at any TSL. Also, multiple 

manufacturers have products that meet and/or exceed the proposed standard in the 

December 2009 NOPR. While manufacturers would be required to spend resources to 

increase the production of those products or to modify existing products, DOE believes 

that manufacturers have the experience necessary to achieve the requisite operating 

conditions at the level proposed in the December 2009 NOPR (TSL 4) and, in general, to 

offer durable products by the compliance date for the amended standards being adopted 

in this final rule. 

f. Cumulative Regulatory Burden 

While any one regulation may not impose a significant burden on manufacturers, 

the combined effects of several impending regulations may have serious consequences 

for some manufacturers, groups of manufacturers, or an entire industry. Assessing the 

impact of a single regulation may overlook this cumulative regulatory burden. In addition 

to energy conservation standards, other regulations can significantly affect 

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manufacturers’ financial operations. The cumulative regulatory burden focuses on the 

impacts on manufacturers of other Federal requirements with a compliance date three 

years prior to and three years after the anticipated compliance dates of the amended 

energy conservation standards of this rulemaking. The cumulative burden was outlined in 

the December 2009 NOPR, which included a discussion of the impact of low and ultralow NOX regulations and other environmental and safety regulations. 74 FR 65852, 

65953 (Dec. 11, 2009). For further detail, see the cumulative regulatory burden 

discussion in Chapter 12 of the TSD. 

Regarding the cumulative regulatory burden discussed in the NOPR, BWC stated 

that refrigerant regulations are constantly changing and could force manufacturers to 

redesign heat pump water heaters that have been recently commercialized. To this point, 

BWC noted that R-134a is being phased out in Europe, but the prospect of a similar 

phase-out in the U.S. was not considered in the NOPR analysis. (BWC, No. 61 at p. 2) 

Rheem also stated that proposed legislation that phases out hydrofluorocarbons (HFCs) 

would require double the amount of refrigerant, because the alternative is not as efficient. 

Rheem also added that a cap-and-trade program would have a significant effect on the 

heat pump water heater business. (Rheem, Public Meeting Transcript No. 57.4 at pp. 294­

295) 

DOE acknowledges that an HFC phase-out or alternative legislation requiring a 

refrigerant change could necessitate substantial design changes for heat pump water 

heaters. However, for this heating products energy conservation standards rulemaking, 

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DOE did not consider proposed legislation that would require a reduction in consumption 

of HFCs including refrigerants (i.e., phase-down) or a cap and trade program. It would be 

highly speculative to try to predict the passage of such legislation, much less the details 

of its provisions, all of which are highly uncertain. 

BWC stated that DOE should consider that additional Air Quality Management 

Districts have enacted standards since the rulemaking began. (BWC, No. 61 at pp. 3-4) In 

response, DOE has monitored the Air Quality Management Districts’ regulations. In the 

analysis, DOE assumed that the Air Quality Managements Districts with ultra-low NOX 

requirements would represent 50 percent of shipments to California, or 8.7 percent of 

shipments nationally, by the compliance date of today’s final rule in 2015. Thus, DOE’s 

analysis of the ultra-low NOX water heater shipments is up to date. DOE accounted for 

the higher costs of these ultra-low NOX gas-fired water heaters in both the LCC and the 

MIA. 

AHRI stated lower NOX requirements will affect future designs of gas-fired 

instantaneous water heaters and may cause design changes that reduce the efficiency of 

the product. (AHRI, No. 91 at p. 3) 

DOE accounted for the added production costs for manufacturers of gas-fired 

storage water heaters to comply with regional ultra-low NOX requirements (see section 

IV.C.2). DOE agrees with AHRI that the California Air Quality Management Districts 

will begin to regulate the emissions of gas-fired instantaneous water heaters beginning in 

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2012. However, DOE is not aware of any ultra-low NOX instantaneous gas-fired water 

heaters currently on the market and could not create a separate cost curve to account for 

the additional cost of instantaneous water heaters. 

Raypak stated that pool heaters are not exempt from ultra-low NOX requirements, 

but have only been exempted from any revisions to the existing requirements. Raypak 

stated that pool heaters are required to meet a maximum of 55 ppm of NOX in the South 

Coast Air Quality Management District. In addition, the Bay Area Air Quality 

Management District has implemented new NOX requirements for pool heaters starting 

on January 1, 2012. (Raypak, No. 67 at p. 2; Public Meeting Transcript, No. 57.4 at pp. 

336-37) 

DOE agrees with Raypak that it should have indicated that gas-fired pool heaters 

were only exempted from revisions to existing low-NOX requirements that would have 

required more-stringent emission standards. Furthermore, DOE agrees with Raypak that 

gas-fired pool heaters must meet the local low-NOX requirements in the Air Quality 

Management Districts shown in Table 12.7.9 of the TSD. In the engineering analysis, 

DOE examined several low-NOX pool heaters and believes its analysis is representative 

of both types of pool heaters. Chapter 12 of the TSD also addresses in greater detail the 

issue of cumulative regulatory burden. 

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g. Impacts on Manufacturers That Are Small Businesses 

As discussed in the December 2009 NOPR, DOE identified small business 

manufacturers of all three types of heating products. 74 FR 65852, 65953-54 (Dec. 11, 

2009). Due to the large number of comments about the impacts on traditional DHE 

manufacturers, DOE has moved and addressed all these comments in sections IV.I and 

VII.B. Section VII.B also contains DOE’s discussion about the impacts of amended 

energy conservation standards on small business manufacturers. 

3. National Net Present Value of Consumer Costs and Benefits and National Employment 

Impacts 

The NPV analysis estimates the cumulative benefits or costs to the Nation of total 

heating product consumer costs and savings that would result from particular standard 

levels. The NPV analysis estimates the national economic impacts of each such level 

relative to the base case. In accordance with the OMB Circular A-4, DOE calculated the 

NPV using both a 7-percent and a 3-percent real discount rate. Table VI.38 through 

Table VI.40 show the consumer NPV results for each TSL DOE considered for the three 

types of heating products. See chapter 10 of the December 2009 NOPR TSD for more 

detailed NPV results. 

Table VI.38 Cumulative Net Present Value of Consumer Benefits for Water Heaters 

(Impacts for Units Sold from 2015 to 2045) 

Product Class TSL 1 TSL 2 TSL 3 TSL 4 TSL 

5 

TSL 6 TSL 7 TSL 8 

billion 2009 dollars 

Discounted 

at 3% 

Gas-Fired 

Storage 

2.72 3.13 3.13 3.13 2.38 2.78 3.13 -7.47 

Electric 1.35 2.10 3.46 3.96 5.84 5.84 19.80 32.24 

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Storage 

Oil-Fired 

Storage 

0.08 0.15 0.22 0.22 0.22 0.22 0.22 0.38 

Gas-Fired 

Instantaneous 

0.24 0.24 0.24 0.24 0.24 0.24 0.24 -8.27 

TOTAL 4.39 5.62 7.05 7.55 8.67 9.08 23.39 16.87 

Discounted 

at 7% 

Gas-Fired 

Storage 

0.59 0.22 0.22 0.22 0.27 -0.10 0.22 -9.95 

Electric 

Storage 

0.35 0.61 0.85 0.73 1.03 1.03 -0.52 3.25 

Oil-Fired 

Storage 

0.03 0.06 0.09 0.09 0.09 0.09 0.09 0.15 

Gas-Fired 

Instantaneous 

-0.004 -0.004 -0.004 -0.004 -0.004 -0.004 -0.004 -5.02 

TOTAL 0.96 0.88 1.55 1.03 1.39 1.01 -0.22 -11.57 

Table VI.39 Cumulative Net Present Value of Consumer Benefits for Direct Heating 

Equipment (Impacts for Units Sold from 2013 to 2043) 

Product Class TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 TSL 6 

billion 2009 dollars 

Discounted 

at 3% 

Gas Wall Fan 0.06 0.07 0.07 -0.01 0.06 -0.01 

Gas Wall 

Gravity 0.04 0.04 0.07 0.07 -0.12 -0.12 

Gas Floor 0.0002 0.0002 0.0002 0.0002 0.0002 0.0002 

Gas Room 0.01 0.02 0.03 0.03 0.20 0.20 

Gas Hearth 1.21 1.21 1.21 -1.35 -1.35 -5.04 

TOTAL 1.32 1.34 1.39 -1.26 -1.22 -4.97 

Discounted 

at 7% 

Gas Wall Fan 0.02 0.03 0.03 -0.03 0.02 -0.03 

Gas Wall 

Gravity 0.01 0.01 0.02 0.02 -0.14 -0.14 

Gas Floor 0.0001 0.0001 0.0001 0.0001 0.0001 0.0001 

Gas Room 0.003 0.01 0.01 0.01 0.07 0.07 

Gas Hearth 0.50 0.50 0.50 -1.19 -1.19 -4.28 

TOTAL 0.54 0.55 0.56 -1.19 -1.24 -4.38 

Table VI.40 Cumulative Net Present Value of Consumer Benefits for Pool Heaters 

(Impacts for Units Sold from 2013 to 2043) 

TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 TSL 6 

billion 2009 dollars 

Discounted at 3% 0.10 0.10 -0.01 -0.15 -2.33 -4.57 

Discounted at 7% 0.04 0.04 -0.06 -0.16 -1.39 -2.87 

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DOE also estimated for each TSL the indirect employment impact of standards – 

the impact on the economy in general – in addition to considering the direct employment 

impacts on manufacturers of products covered in this rulemaking as discussed in section 

IV.I.4. DOE expects that consumers will redirect the net monetary savings from 

standards to other forms of economic activity, and that these shifts in spending and 

economic activity will affect the demand for labor. As shown in Table VI.41, DOE 

estimates that net indirect employment impacts from energy conservation standards for 

water heaters would be positive, though very small relative to total national employment. 

These increases would likely be sufficient to offset fully any adverse impacts on 

employment that might occur in the water heater industry. The estimated impacts from 

the amended standards for DHE and pool heaters are much smaller. For details on the 

employment impact analysis methods and results, see TSD Chapter 14. 

Table VI.41 Increase in National Indirect Employment Under Water Heater TSLs 

Trial Standard 

Level 

2015 

thousands 

2020 

thousands 

2030 

thousands 

2044 

thousands 

1 -0.40 0.44 1.56 2.06 

2 -0.72 0.48 2.08 2.80 

3 -0.83 1.04 3.54 4.60 

4 -0.97 1.43 4.63 5.96 

5 -0.85 3.07 8.34 10.41 

6 -1.20 2.89 8.37 10.56 

7 -3.89 12.70 34.97 43.46 

8 -8.21 13.82 43.69 56.26 

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4. Impact on Utility or Performance of Products 

As indicated in section III.D.1.d, DOE has concluded that the TSLs it considered 

for the three types of heating products would not lessen the utility or performance of 

those products. Manufacturers of these products currently offer heating products that 

meet or exceed the efficiency levels being considered and would not necessitate changes 

in product design that would reduce the overall utility or performance of the three types 

of heating products that are the subject of this rulemaking. Therefore, DOE has 

concluded that none of the TSLs presented in today’s final rule would reduce the utility 

or performance of the products under consideration. 

5. Impact of Any Lessening of Competition 

As discussed in the December 2009 NOPR (74 FR 65852, 65863, 65956 (Dec. 11, 

2009)) and in section III.D.1.e of this preamble, DOE considers any lessening of 

competition likely to result from standards; the Attorney General determines, in writing, 

the impact, if any, of any such lessening of competition. (42 U.S.C. 6295(o)(2)(B)(i)(V) 

and (ii)) The Attorney General’s determination (DOJ determination) is summarized 

below, along with DOE’s response, and it is also reprinted in its entirety at the end of this 

final rule. 

After considering the NOPR, DOJ determined that DOE’s proposed standards for 

water heaters, pool heaters, and gas hearth DHE are not likely to lead to a lessening of 

competition; however, DOJ expressed concern that the proposed standards could 

adversely affect competition in the traditional DHE product categories. DOJ noted that 

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only three manufacturers currently market products for each of the four traditional DHE 

categories. DOJ stated that the proposed standards could require manufacturers, even 

those currently producing models that meet the proposed standards, to make a substantial 

capital investment to convert or expand their production facilities. DOJ also stated that it 

also appeared that each manufacturer would have to commit significant resources for 

research and development. DOJ believed these costs create a significant risk that no more 

than one or two DHE manufacturers would choose to continue to produce products in any 

one DHE category. DOJ asked DOE to consider the possible impact on competition in 

determining its final energy efficiency standards for DHE. (DOJ, No. 99 at p. 2) 

DOE is also concerned about the impacts on competition in the traditional DHE 

market. For any new or amended energy conservation standard, DOE must consider the 

impacts on manufacturers and consumers of the products in addition to the impacts of any 

lessening of competition. (42 U.S.C. 6295(o)(2)(B)(i)) DOE notes that the potential 

impacts on small business manufacturers factored heavily in DOE’s proposed standard. 

74 FR 65852, 65972-73 (Dec. 11, 2009). 

DOE has carefully considered the potential adverse impacts on traditional DHE 

manufacturers in setting the amended energy conservation standards (see section VI.D.3). 

In total, DOE estimates that it will take approximately $4.6 million for the traditional 

DHE industry to upgrade all of it products to meet the amended energy conservation 

standards. Despite including the conversion costs for the additional product lines that 

were released since the December 2009 NOPR analysis was completed, the total 

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conversion costs estimated by the industry to upgrade all products that do not meet the 

amended energy conservation standards is down $1.8 million from the $6.4 million total 

estimated for the proposed standards in the December 2009 NOPR. The conversion costs 

have been revised downward for gas wall gravity DHE due to the changes in the 

engineering analysis and a new TSL structure for gas wall gravity DHE that resulted in 

AFUE requirements that were 5 percentage points less stringent than the level proposed 

in the December 2009 NOPR. Finally, for other product categories, setting a lower TSL 

than proposed in the December 2009 NOPR also resulted in fewer product lines across 

the industry that need to be upgraded to meet the level established by today’s final rule. 

 For the amended energy conservation standards for traditional DHE, one major 

manufacturer has a total of 3 product lines (7 models) that do not meet the amended 

energy conservation standards in the two smallest categories (gas floor and gas room 

DHE) but has a majority of product lines and models that meet the amended standards in 

the two largest product categories (gas wall fan and gas wall gravity). The other two 

major manufacturers have existing product lines that meet the amended energy 

conservation standards in all 4 product categories. Therefore, without incurring any 

conversion costs, at least two manufacturers already have existing products in all four 

product categories. In the most important gas wall gravity category, 57 percent of the 

existing models and 71 percent of the existing product lines identified by DOE already 

meet the amended energy conservation standards. One manufacturer indicated in written 

comments that the important gas wall gravity products that meet the amended energy 

conversation standard represent a small portion of total sales. However, DOE believes it 

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has addressed the concerns of this manufacturer by setting an amended energy 

conservation standard that would require much less substantial changes than those 

proposed in the December 2009 NOPR (a two percentage point improvement in AFUE 

versus the six percentage point improvement in AFUE proposed in the December 2009 

NOPR). While the $4.6 million in total conversion costs to upgrade all product lines that 

do not meet the amended energy conservation standards is substantial, DOE believes that 

a combination of products that meet the amended energy conservation standards and 

selectively upgrading popular product lines that fall below the standards will allow all 

three traditional DHE manufacturers to maintain a viable production volume. Because 

DOE has fully addressed the comments raised about the impacts on traditional DHE 

manufacturers, has considered the potential impacts on small business manufacturers of 

traditional DHE, and has adopted a less stringent standard than originally proposed for 

these products, DOE believes it has taken the potential impacts on competition in the 

traditional DHE market into consideration for today’s final rule. 

DOE also prepared a final regulatory flexibility analysis (FRFA) for direct 

heating equipment pursuant to the Regulatory Flexibility Act (5 U.S.C. 601 et seq.). In 

particular, the FRFA carefully considers the impacts of the rule on the two manufacturers 

in the traditional DHE market that are small businesses. DOE’s FRFA is found in section 

VII.B of today’s final rule. 

Several comments on the December 2009 NOPR raised issues related to 

competitive impacts. These comments and DOE’s response are discussed below. In both 

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its written submission and comments at the NOPR public meeting, Empire expressed 

concern about the potential for amended standards to create monopolies in certain DHE 

product categories. (Empire, Public Meeting Transcript, No. 57.4 at p. 300; Empire, No. 

100 at p. 1) In addition, Empire stated that in order to increase efficiency, the industry 

would need to spend millions of dollars. With the small number of shipments and the 

shrinking market for traditional DHE, Empire opined that manufacturers would likely 

eliminate product categories. For those few categories where only one manufacturer 

meets the minimums (e.g., floor furnaces), a monopoly would be created. (Empire, No. 

100 at p. 2) 

In response and as noted above, DOE is concerned about the impacts on 

competition in the traditional DHE market and has considered these impacts for today’s 

final rule. In response to the concern that the amended energy conservation standards 

could create a monopoly in the floor furnace category, DOE notes that two of the major 

manufacturers currently offer products in the AHRI certification database that meet the 

required efficiencies, which implies that the creation of a monopoly is unlikely to result 

due to amended energy conservation standards. Additionally, DOE also recognizes that 

the traditional DHE market is mostly a replacement market. Even if only one 

manufacturer offered floor furnaces, for example, in response to the energy conservation 

standards, all other DHE categories are also potential substitutes. Finally, DOE has 

included the conversion costs for manufacturers to convert all existing products that do 

not meet the required efficiencies. While manufacturers currently in the industry would 

likely upgrade their most popular products that did not meet the standards, DOE notes 

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that these conversion costs could also be made by manufacturers that are not currently in 

the market (i.e., new entrants to the market). 

Rheem stated that the U.S. residential water heater market currently has little or 

no presence of max-tech systems. Rheem commented that as a current manufacturer of 

conventional storage water heater products, it would be competitively disadvantaged by a 

standard at TSL 5 or higher in the December 2009 NOPR, as compared to companies that 

do not manufacture conventional technology. (Rheem, No. 89 at p. 9) 

In response, DOE does not believe offering conventional technology would place 

a manufacturer at a disadvantage if DOE selected a TSL that used advanced technology. 

While TSL 5 or higher would drive a market for the advanced technology, full-line 

manufacturers that offer commercial condensing products, for example, could actually be 

in a better position because of their experience with the condensing technology. Most 

water heaters sales are made on a replacement basis. The large installed base of existing 

manufacturers could make it more difficult for new entrants to gain market share if 

customers look for a similar replacement. Also, the major manufacturers have very 

established brands. In short, there are too many factors to conclude that manufacturers 

who produce conventional storage water heaters would be placed at a competitive 

disadvantage. 

Bock claimed that the proposed amended energy conservation standards for oilfired water heaters would lessen competition. Bock stated that many manufacturers have 

exited the market since the last water heater rulemaking in the 1990s (Bock, No. 101 at p. 

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EE-2006-BT-STD-0129 COMMENT 105
 

 

 

 

3) 

In response, DOE notes that whether a given manufacturer chooses to exit the 

residential oil-fired water heater market will depend on a variety of internal and external 

factors, and DOE also believes that the decision of any manufacturer to exit the market 

would not necessarily result in a lessening of competition. Consumers today have a 

number of fuel sources that could be substituted for oil-fired products if any decrease in 

competition resulted in higher prices for consumers. Furthermore, any increase in prices 

could also attract new entrants to the market. While there are only two manufacturers that 

have a significant market share in the residential oil-fired water heater market, there are a 

number of manufacturers that offer lower volumes of residential oil-fired water heaters, 

commercial oil-fired water heaters, and oil-fired boilers. Any of these manufacturers 

could find it attractive to enter this market or expand production, if other manufacturers 

exited the residential oil-fired water heater market. Finally, as noted above, DOJ did not 

express concern about the potential lessening of competition in the oil-fired water heater 

market at the proposed standard level. (DOJ, No. 99 at pp. 1-2) 

6. Need of the Nation to Conserve Energy 

Improving the energy efficiency of heating products, where economically 

justified, would likely improve the security of the Nation’s energy system by reducing 

overall demand for energy, thereby reducing the Nation’s reliance on foreign sources of 

energy. Reduced electricity demand may also improve the reliability of the electricity 

system, particularly during peak-load periods. As a measure of this reduced demand, 

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DOE expects the energy savings from today’s standards for the three types of heating 

products to eliminate the need for approximately 0.857 gigawatts (GW) of generating 

capacity by 2045. 

As discussed in section IV.K.1, DOE analyzed the potential impact on natural gas 

prices resulting from amended standards on water heaters and the associated benefits for 

all natural gas users in all sectors of the economy. DOE also analyzed the potential 

impact on electricity prices resulting from amended standards on water heaters and the 

associated benefits for all electricity users in all sectors of the economy. The estimated 

present value of the benefits to consumers are presented in chapter 13 of the TSD. 

As discussed in section IV.K.1, DOE believes that there is uncertainty about the 

extent to which the calculated impacts from reduced energy prices are a benefits transfer 

from energy producers to energy consumers. Therefore, DOE has concluded that, at 

present, it should not give a heavy weight to this factor in its consideration of the 

economic justification of standards on heating products. DOE is continuing to investigate 

the extent to which benefits associated with change in energy prices projected to result 

from standards represents a net gain to society. 

Enhanced energy efficiency also produces environmental benefits in the form of 

reduced emissions of air pollutants and greenhouse gases associated with energy 

production. Table VI.42 and Table VI.43 provide DOE’s estimate of cumulative CO2, 

NOX, and Hg emissions reductions expected to result from the TSLs considered in this 

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rulemaking. The estimated cumulative CO2, NOX, and Hg emissions reductions for the 

standards in today’s rule are 164 Mt for CO2, 125 kt for NOX, and 0.54 tons for Hg. The 

expected energy savings from these standards may also reduce the cost of maintaining 

nationwide emissions standards and constraints. In the environmental assessment (chapter 

16 of the TSD), DOE reports estimated annual changes in CO2, NOX, and Hg emissions 

attributable to each TSL. 

Table VI.42 Summary of Emissions Reductions Under Water Heater TSLs 

(cumulative for products sold from 2015 to 2045) 

Emission 

Type 

TSL 

1 2 3 4 5 6 7 8 

CO2 (Mt) 74.3 122 131 137 154 209 609 1,001 

NOX (kt) 57.5 94.3 101 106 116 159 456 755 

Hg (t) 0.056 0.090 0.103 0.113 0.553 0.704 2.32 3.59 

Table VI.43 Summary of Emissions Reductions Under Direct Heating Equipment 

and Pool Heater TSLs (cumulative for products sold from 2013 to 2043) 

Emission 

Type 

TSL 

1 2 3 4 5 6 

Direct Heating Equipment 

CO2 (Mt) 8.3 8.8 9.3 17.9 20.2 49.9 

NOX (kt) 7.5 8.1 8.5 16.4 18.6 46.0 

Hg (t) (0.01) (0.01) (0.01) 0.03 0.03 0.08 

Pool Heaters 

CO2 (Mt) 0.41 0.75 1.72 2.38 3.61 8.89 

NOX (kt) 0.37 0.67 1.53 2.10 3.18 7.84 

Hg (t) 0.00 0.00 0.00 0.00 0.00 0.00 

As noted in section IV.L of this final rule, DOE does not report SO2 emissions 

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EE-2006-BT-STD-0129 COMMENT 105
reductions from power plants because DOE is uncertain that an energy conservation 

standard would affect the overall level of U.S. SO2 emissions due to emissions caps. 

DOE also did not include NOX emissions reduction from power plants in States subject to 

CAIR because an energy conservation standard would likely not affect the overall level 

of NOX emissions in those States due to the emissions caps mandated by CAIR. 

It should be noted that, for DHE, DOE estimates a very small increase in Hg 

emissions under the adopted standard. The reason for this result is that the more-efficient 

products save natural gas, but they also use more electricity due to electronic ignition 

and, for some DHE TSLs, use of a fan. This results in higher electricity generation than 

in the AEO Reference Case, which leads to higher emissions. For CO2 and NOX, the 

higher emissions from the power sector are more than canceled out by lower household 

emissions from gas combustion, such that total emissions decrease under the considered 

TSLs. For Hg, this is not the case because there are no offsetting household emissions. 

In the December 2009 NOPR, DOE investigated and considered the potential 

monetary benefit of reduced CO2 emissions that could result from the TSLs it considered. 

74 FR 65852, 65924-28 (Dec. 11, 2009). DOE valued the potential global benefits 

resulting from such reductions at the interim values of $5, $10, $20, $34, and $57 per 

metric ton in 2007 (in 2008$), and also valued the domestic benefits at approximately $1 

per metric ton. For today’s final rule, DOE has updated its analysis to reflect the outcome 

of the most recent interagency process regarding the social cost of carbon dioxide 

emissions (SCC). See section IV.M for a full discussion. The four values of CO2 

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EE-2006-BT-STD-0129 COMMENT 105
emissions reductions resulting from that process (expressed in 2007$) are $4.70/ton (the 

average value from a distribution that uses a 5-percent discount rate), $21.40/ton (the 

average value from a distribution that uses a 3-percent discount rate), $35.10/ton (the 

average value from a distribution that uses a 2.5-percent discount rate), and $64.90/ton 

(the 95th-percentile value from a distribution that uses a 3-percent discount rate). These 

values correspond to the value of emission reductions in 2010; the values for later years 

are higher due to increasing damages as the magnitude of climate change increases. Table 

VI.44, Table VI.45, and Table VI.46 present the global values of emissions reductions at 

each TSL. For each of the four cases, DOE calculated a present value of the stream of 

annual values using the same discount rate as was used in the studies upon which the 

dollar-per-ton values are based. DOE calculated domestic values as a range from 7 

percent to 23 percent of the global values, and these results are presented in Table VI.47, 

Table VI.48, and Table VI.49. 

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Table VI.44 Estimates of Global Present Value of CO2 Emissions Reductions for the 

Period 2015-2045 Under Water Heater Trial Standard Levels 

TSL 

Cumulative 

CO2 

Emission 

Reductions, 

Mt 

Global Value of CO2 Emission Reductions, Million 2009$ 

5% discount 

rate, 

average* 

3% discount 

rate, 

average* 

2.5% discount 

rate, average* 

3% discount 

rate, 95th 

percentile* 

1 74.3 266 1,351 2,285 4,122 

2 122 436 2,213 3,742 6,750 

3 131 468 2,374 4,014 7,242 

4 137 492 2,496 4,220 7,614 

5 154 524 2,682 4,545 8,179 

6 209 714 3,653 6,190 11,142 

7 609 2,060 10,560 17,898 32,204 

8 1,001 3,399 17,411 29,505 53,098 

* Columns are labeled by the discount rate used to calculate the SCC and whether it is an average value or 

drawn from a different part of the distribution. Values presented in the table are based on escalating 2007$ 

to 2009$ for consistency with other values presented in this notice, and incorporate the escalation of the 

SCC with each year. 

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Table VI.45 Estimates of Global Present Value of CO2 Emissions Reductions for the 

Period 2013-2043 Under Direct Heating Equipment Trial Standard Levels 

TSL 

Cumulative 

CO2 

Emission 

Reductions, 

Mt 

Global Value of CO2 Emission Reductions, Million 2009$ 

5% discount 

rate, average* 

3% discount 

rate, average* 

2.5% discount 

rate, average* 

3% discount 

rate, 95th 

percentile* 

1 8.2 31 154 259 470 

2 8.8 33 165 278 503 

3 9.3 35 174 293 530 

4 17.9 67 335 565 1,023 

5 20.2 76 378 637 1,154 

6 49.9 187 933 1,572 2,849 

* Columns are labeled by the discount rate used to calculate the SCC and whether it is an average value or 

drawn from a different part of the distribution. Values presented in the table are based on escalating 2007$ 

to 2009$ for consistency with other values presented in this notice, and incorporate the escalation of the 

SCC with each year. 

Table VI.46 Estimates of Global Present Value of CO2 Emissions Reductions for the 

Period 2013-2043 Under Pool Heater Trial Standard Levels 

TSL 

Cumulative 

CO2 

Emission 

Reductions, 

Mt 

Global Value of CO2 Emission Reductions, Million 2009$ 

5% discount 

rate, 

average* 

3% discount 

rate, 

average* 

2.5% discount 

rate, average* 

3% discount 

rate, 95th 

percentile* 

1 0.4 2 8 13 24 

2 0.8 3 14 24 43 

3 1.7 6 32 54 99 

4 2.4 9 45 75 136 

5 3.6 14 68 114 206 

6 8.9 33 167 281 509 

* Columns are labeled by the discount rate used to calculate the SCC and whether it is an average value or 

drawn from a different part of the distribution. Values presented in the table are based on escalating 2007$ 

to 2009$ for consistency with other values presented in this notice, and incorporate the escalation of the 

SCC with each year. 

Table VI.47 Estimates of Domestic Present Value of CO2 Emissions Reductions for 

the Period 2015-2045 Under Water Heater Trial Standard Levels 

TSL Domestic Value of CO2 Emission Reductions, Million 2009$ * 

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EE-2006-BT-STD-0129 COMMENT 105
 

 

 

5% discount 

rate, average** 

3% discount 

rate, average** 

2.5% discount 

rate, average** 

3% discount rate, 

95th percentile** 

1 18.6 to 61.3 94.6 to 311 160 to 526 289 to 948 

2 30.5 to 100 155 to 509 262 to 861 473 to 1,553 

3 32.8 to 108 166 to 546 281 to 923 507 to 1,666 

4 34.4 to 113 175 to 574 295 to 971 533 to 1,751 

5 36.7 to 120 188 to 617 318 to 1,045 573 to 1,881 

6 50.0 to 164 256 to 840 433 to 1,424 780 to 2,563 

7 144 to 474 739 to 2,429 1,253 to 4,117 2,254 to 7,407 

8 248 to 782 1,219 to 4,005 2,065 to 6,786 3,717 to 12,212 

* Domestic values are presented as a range between 7% and 23% of the global values.
 

** Columns are labeled by the discount rate used to calculate the SCC and whether it is an average value or 


drawn from a different part of the distribution. Values presented in the table are based on escalating 2007$ 


to 2009$ for consistency with other values presented in this notice, and incorporate the escalation of the 


SCC with each year.
 

Table VI.48 Estimates of Domestic Present Value of CO2 Emissions Reductions for 

the Period 2013-2043 Under Direct Heating Equipment Trial Standard Levels 

TSL 

Domestic Value of CO2 Emission Reductions, Million 2009$ * 

5% discount 

rate, average** 

3% discount rate, 

average** 

2.5% discount 

rate, average** 

3% discount 

rate, 95th 

percentile** 

1 2.2 to 7.1 10.8 to 35.4 18.2 to 59.6 32.9 to 108.0 

2 2.3 to 7.6 11.5 to 37.9 19.5 to 63.9 35.2 to 115.8 

3 2.4 to 8.0 12.2 to 39.9 20.5 to 67.3 37.1 to 121.9 

4 4.7 to 15.4 23.5 to 77.1 39.5 to 129.9 71.6 to 235.4 

5 5.3 to 17.4 26.5 to 87.0 44.6 to 146.6 80.8 to 265.5 

6 13.1 to 43.0 65.3 to 214.7 110.1 to 361.7 199.4 to 655.2 

* Domestic values are presented as a range between 7% and 23% of the global values.
 

** Columns are labeled by the discount rate used to calculate SCC and whether it is an average value or 


drawn from a different part of the distribution. Values presented in the table are based on escalating 2007$ 


to 2009$ for consistency with other values presented in this notice, and incorporate the escalation of the 


SCC with each year.
 

Table VI.49 Estimates of Domestic Present Value of CO2 Emissions Reductions for 

the Period 2013-2043 Under Pool Heaters Trial Standard Levels 

TSL Domestic Value of CO2 Emission Reductions, Million 2009$ * 

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5% discount 

rate, average** 

3% discount 

rate, average** 

2.5% discount 

rate, average** 

3% discount 

rate, 95th 

percentile** 

1 0.1 to 0.4 0.5 to 1.8 0.9 to 3.0 1.7 to 5.5 

2 0.2 to 0.7 1.0 to 3.2 1.7 to 5.4 3.0 to 9.9 

3 0.5 to 1.5 2.3 to 7.4 3.8 to 12.5 6.9 to 22.7 

4 0.6 to 2.1 3.1 to 10.3 5.3 to 17.3 9.5 to 31.4 

5 1.0 to 3.1 4.7 to 15.5 8.0 to 26.2 14.4 to 47.5 

6 2.3 to 7.7 11.7 to 38.3 19.6 to 64.6 35.6 to 117.0 

* Domestic values are presented as a range between 7% and 23% of the global values.
 

** Columns are labeled by the discount rate used to calculate the SCC and whether it is an average value or 


drawn from a different part of the distribution. Values presented in the table are based on escalating 2007$ 


to 2009$ for consistency with other values presented in this notice, and incorporate the escalation of the 


SCC with each year.
 

DOE is well aware that scientific and economic knowledge about the contribution 

of CO2 and other GHG emissions to changes in the future global climate and the potential 

resulting damages to the world economy continues to evolve rapidly. Thus, any value 

placed in this rulemaking on reducing CO2 emissions is subject to change. DOE, together 

with other Federal agencies, will continue to review various methodologies for estimating 

the monetary value of reductions in CO2 and other GHG emissions. This ongoing review 

will consider the comments on this subject that are part of the public record for this and 

other rulemakings, as well as other methodological assumptions and issues. However, 

consistent with DOE’s legal obligations, and taking into account the uncertainty involved 

with this particular issue, DOE has included in this rule the most recent values and 

analyses resulting from the ongoing interagency review process. 

DOE also estimated a range for the cumulative monetary value of the economic 

benefits associated with NOX emissions reductions anticipated to result from amended 

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standards for heating products. The dollar-per-ton values that DOE used are discussed in 

section IV.M of this final rule. Table VI.50 through Table VI.55 present the estimates 

calculated using seven-percent and three-percent discount rates, respectively. 

Table VI.50 Estimates of Value of Reductions of NOX Emissions Under Water 

Heater Trial Standard Levels at a Seven-Percent Discount Rate 

TSL Cumulative 

NOX Emission 

Reductions, kt 

Value of NOX 

Emission 

Reductions, 

million 2009$ 

1 57.5 6.6 to 67.8 

2 94.3 10.8 to 111 

3 101 11.6 to 119 

4 106 12.1 to 125 

5 116 11.0 to 113 

6 159 15.2 to 157 

7 456 42.6 to 438 

8 755 71.4 to 734 

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EE-2006-BT-STD-0129 COMMENT 105
Table VI.51 Estimates of Value of Reductions of NOX Emissions Under Water 

Heater Trial Standard Levels at a Three-Percent Discount Rate 

TSL 

Cumulative 

NOX Emission 

Reductions, kt 

Value of NOX 

Emission 

Reductions, 

million 2009$ 

1 57.5 13.7 to 141 

2 94.3 22.5 to 231 

3 101 24.0 to 247 

4 106 25.2 to 259 

5 116 25.4 to 261 

6 159 34.9 to 358 

7 456 99.1 to 1,018 

8 755 165 to 1,694 

Table VI.52 Estimates of Value of Reductions of NOX Emissions Under Direct 


Heating Equipment Trial Standard Levels at a Seven-Percent Discount Rate
 

TSL 

Cumulative 

NOX Emission 

Reductions, kt 

Value of NOX 

Emission 

Reductions, 

million 2009$ 

1 7.5 1.0 to 10.2 

2 8.1 1.1 to 10.9 

3 8.5 1.1 to 11.4 

4 16.4 2.2 to 22.3 

5 18.6 2.5 to 25.3 

6 46.0 6.1 to 62.5 

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Table VI.53 Estimates of Value of Reductions of NOX Emissions Under Direct 


Heating Equipment Trial Standard Levels at a Three-Percent Discount Rate
 

TSL 

Cumulative 

NOX Emission 

Reductions (kt) 

Value of NOX 

Emission 

Reductions 

(million 2009$) 

1 7.5 1.9 to 19.6 

2 8.1 2.0 to 21.0 

3 8.5 2.1 to 22.1 

4 16.4 4.2 to 42.9 

5 18.6 4.7 to 48.7 

6 46.0 11.7 to 120.2 

Table VI.54 Estimates of Value of Reductions of NOX Emissions Under Pool Heater 

Trial Standard Levels at a Seven-Percent Discount Rate 

TSL 

Cumulative 

NOX Emission 

Reductions, kt 

Value of NOX 

Emission 

Reductions, 

million 2009$ 

1 0.4 0.1 to 0.5 

2 0.7 0.1 to 0.9 

3 1.5 0.2 to 2.2 

4 2.1 0.3 to 2.9 

5 3.2 0.4 to 4.5 

6 7.8 1.1 to 11.0 

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Table VI.55 Estimates of Value of Reductions of NOX Emissions Under Pool Heater 

Trial Standard Levels at a Three-Percent Discount Rate 

TSL 

Cumulative 

NOX Emission 

Reductions, kt 

Value of NOX 

Emission 

Reductions, 

million 2009$ 

1 0.4 0.1 to 1.0 

2 0.7 0.2 to 1.8 

3 1.5 0.4 to 4.1 

4 2.1 0.5 to 5.6 

5 3.2 0.8 to 8.4 

6 7.8 2.0 to 20.8 

The NPV of the monetized benefits associated with emissions reductions can be 

viewed as a complement to the NPV of the consumer savings calculated for each TSL 

considered in this rulemaking. Table VI.57 through Table VI.62 present the NPV values 

for heating products that would result if DOE were to add the estimates of the potential 

economic benefits resulting from reduced CO2 and NOX emissions in each of four 

valuation scenarios to the NPV of consumer savings calculated for each TSL considered 

in this rulemaking, at both a seven-percent and three-percent discount rate. The CO2 

values used in the columns of each table correspond to the four scenarios for the 

valuation of CO2 emission reductions presented in section IV.M. Table VI.56 shows an 

example of the calculation of the NPV including benefits from emissions reductions for 

the case of TSL 5 for water heaters. 

Although adding the value of consumer savings to the values of emission 

reductions provides a valuable perspective, the following should be considered: (1) The 

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national consumer savings are domestic U.S. consumer monetary savings found in 

market transactions, while the values of emissions reductions are based on estimates of 

marginal social costs, which, in the case of CO2, are based on a global value; (2) The 

assessments of consumer savings and emission-related benefits are performed with 

different computer models, leading to different timeframes for analysis. For heating 

products, the present value of national consumer savings is measured for the period in 

which units shipped (2015 to 2045 for water heaters, and 2013 to 2043 for DHE and pool 

heaters) continue to operate. However, the time frames of the benefits associated with the 

emission reductions differ. For example, the value of CO2 emissions reductions reflects 

the present value of all future climate-related impacts due to emitting a ton of carbon 

dioxide in that year, out to 2300. 

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Table VI.56 Estimate of Adding Net Present Value of Consumer Savings to Present 

Value of Monetized Benefits from CO2 and NOX Emissions Reductions at TSL 5 for 

Water Heaters 

Category Present Value 

billion 2009$ Discount Rate 

Benefits 

Operating Cost Savings 12.4 7% 

29.2 3% 

CO2 Monetized Value 

(at $4.7/Metric Ton)* 0.5 5% 

CO2 Monetized Value 

(at $21.4/Metric Ton)* 2.7 3% 

CO2 Monetized Value 

(at $35.1/Metric Ton)* 4.5 2.5% 

CO2 Monetized Value 

(at $64.9/Metric Ton)* 8.2 3% 

NOX Monetized Value 

(at $2,437/Metric Ton) 

0.1 7% 

0.1 3% 

Total Monetary Benefits ** 15.2 7% 

32.1 3% 

Costs 

Total Monetary Costs -11.1 7% 

-20.6 3% 

Net Benefits/Costs 

Including CO2 and NOX ** 4.1 7% 

11.5 3% 

* These values represent global values (in 2007$) of the social cost of CO2 emissions in 2010 under several 

scenarios. The values of $4.7, $21.4, and $35.1 per ton are the averages of SCC distributions calculated 

using 5%, 3%, and 2.5% discount rates, respectively. The value of $64.9 per ton represents the 95th 

percentile of the SCC distribution calculated using a 3% discount rate. See section IV.M for details. 

** Total Monetary Benefits for both the 3% and 7% cases utilize the central estimate of social cost of CO2 

emissions calculated at a 3% discount rate (averaged across three IAMs), which is equal to $21.4/ton in 

2010 (in 2007$). 

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Table VI.57 Estimates of Adding Net Present Value of Consumer Savings (at 7% 

Discount Rate) to Net Present Value of Low, Central, and High-End Monetized 

Benefits from CO2 and NOX Emissions Reductions at Trial Standard Levels for 

Water Heaters 

TSL 

Consumer NPV at 7% Discount Rate added with: 

CO2 Value of 

$4.7/metric ton 

CO2* and Low 

Value for 

NOX** 

billion 2009$ 

CO2 Value of 

$21.4/metric ton 

CO2* and Medium 

Value for NOX*** 

billion 2009$ 

CO2 Value of 

$35.1/metric ton 

CO2* and Medium 

Value for NOX*** 

billion 2009$ 

CO2 Value of 

$64.9/metric ton 

CO2* and High 

Value for 

NOX**** 

billion 2009$ 

1 1.24 2.35 3.29 5.15 

2 1.33 3.16 4.69 7.74 

3 1.63 3.59 5.23 8.52 

4 1.54 3.60 5.32 8.77 

5 1.92 4.13 5.99 9.68 

6 1.74 4.75 7.29 12.31 

7 1.89 10.59 17.92 32.43 

8 (8.10) 6.24 18.34 42.26 

* These label values per ton represent the global SCC of CO2 in 2010, in 2007$. Their present values have
 

been calculated with scenario-consistent discount rates. See section IV.M for a full discussion of the 


derivation of these values.
 

** Low Values correspond to $447 per ton of NOX emissions. 


*** Medium Values correspond to $2,519 per ton of NOX emissions. 


**** High Values correspond to $4,591 per ton of NOX emissions.
 

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Table VI.58 Estimates of Adding Net Present Value of Consumer Savings (at 3% 

Discount Rate) to Net Present Value of Low, Central, and High-End Monetized 

Benefits from CO2 and NOX Emissions Reductions at Trial Standard Levels for 

Water Heaters 

TSL 

Consumer NPV at 3% Discount Rate added with: 

CO2 Value of 

$4.7/metric ton 

CO2* and Low 

Value for 

NOX** 

billion 2009$ 

CO2 Value of 

$21.4/metric ton 

CO2* and Medium 

Value for NOX*** 

billion 2009$ 

CO2 Value of 

$35.1/metric ton 

CO2* and Medium 

Value for NOX*** 

billion 2009$ 

CO2 Value of 

$64.9/metric ton 

CO2* and High 

Value for 

NOX**** 

billion 2009$ 

1 4.67 5.82 6.75 8.65 

2 6.08 7.96 9.49 12.60 

3 7.54 9.56 11.20 14.54 

4 8.07 10.19 11.91 15.42 

5 9.22 11.50 13.36 17.11 

6 9.83 12.93 15.47 20.58 

7 25.55 34.51 41.84 56.61 

8 20.44 35.21 47.31 71.67 

* These label values per ton represent the global SCC of CO2 in 2010, in 2007$. Their present values have
 

been calculated with scenario-consistent discount rates. See section IV.M for a full discussion of the 


derivation of these values.
 

** Low Value corresponds to $447 per ton of NOX emissions. 


*** Medium Value corresponds to $2,519 per ton of NOX emissions. 


**** High Value corresponds to $4,591 per ton of NOX emissions.
 

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Table VI.59 Estimates of Adding Net Present Value of Consumer Savings (at 7% 

Discount Rate) to Net Present Value of Low, Central, and High-End Monetized 

Benefits from CO2 and NOX Emissions Reductions at Trial Standard Levels for 

Direct Heating Equipment 

TSL 

Consumer NPV at 7% Discount Rate added with: 

CO2 Value of 

$4.7/metric ton 

CO2* and Low 

Value for 

NOX** 

billion 2009$ 

CO2 Value of 

$21.4/metric ton 

CO2* and Medium 

Value for NOX*** 

billion 2009$ 

CO2 Value of 

$35.1/metric ton 

CO2* and Medium 

Value for NOX*** 

billion 2009$ 

CO2 Value of 

$64.9/metric ton 

CO2* and High 

Value for 

NOX**** 

billion 2009$ 

1 0.58 0.70 0.81 1.02 

2 0.61 0.74 0.86 1.09 

3 0.60 0.74 0.86 1.10 

4 (1.12) (0.84) (0.61) (0.14) 

5 (1.16) (0.85) (0.59) (0.06) 

6 (4.18) (3.41) (2.77) (1.47) 

* These label values per ton represent the global SCC of CO2 in 2010, in 2007$. Their present values have
 

been calculated with scenario-consistent discount rates. See section IV.M for a full discussion of the 


derivation of these values.
 

** Low Value corresponds to $447 per ton of NOX emissions.
 

*** Medium Value corresponds to $2,519 per ton of NOX emissions. 


**** High Value corresponds to $4,591 per ton of NOX emissions.
 

Parentheses indicate negative (-) values.
 

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Table VI.60 Estimates of Adding Net Present Value of Consumer Savings (at 3% 

Discount Rate) to Net Present Value of Low, Central, and High-End Monetized 

Benefits from CO2 and NOX Emissions Reductions at Trial Standard Levels for 

Direct Heating Equipment 

TSL 

Consumer NPV at 3% Discount Rate added with: 

CO2 Value of 

$4.7/metric ton 

CO2* and Low 

Value for 

NOX** 

billion 2009$ 

CO2 Value of 

$21.4/metric ton 

CO2* and Medium 

Value for NOX*** 

billion 2009$ 

CO2 Value of 

$35.1/metric ton 

CO2* and Medium 

Value for NOX*** 

billion 2009$ 

CO2 Value of 

$64.9/metric ton 

CO2* and High 

Value for 

NOX**** 

billion 2009$ 

1 1.35 1.48 1.59 1.80 

2 1.42 1.56 1.68 1.91 

3 1.43 1.58 1.70 1.94 

4 (1.18) (0.90) (0.67) (0.19) 

5 (1.14) (0.81) (0.55) (0.02) 

6 (4.77) (3.97) (3.33) (2.00) 

* These label values per ton represent the global SCC of CO2 in 2010, in 2007$. Their present values have
 

been calculated with scenario-consistent discount rates. See section IV.M for a full discussion of the 


derivation of these values.
 

** Low Value corresponds to $447 per ton of NOX emissions.
 

*** Medium Value corresponds to $2,519 per ton of NOX emissions. 


**** High Value corresponds to $4,591 per ton of NOX emissions.
 

Parentheses indicate negative (-) values.
 

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Table VI.61 Estimates of Adding Net Present Value of Consumer Savings (at 7% 

Discount Rate) to Net Present Value of Low, Central, and High-End Monetized 

Benefits from CO2 and NOX Emissions Reductions at Trial Standard Levels for Pool 

Heaters 

TSL 

Consumer NPV at 7% Discount Rate added with: 

CO2 Value of 

$4.7/metric ton 

CO2* and Low 

Value for 

NOX** 

billion 2009$ 

CO2 Value of 

$21.4/metric ton 

CO2* and Medium 

Value for NOX*** 

billion 2009$ 

CO2 Value of 

$35.1/metric ton 

CO2* and Medium 

Value for NOX*** 

billion 2009$ 

CO2 Value of 

$64.9/metric ton 

CO2* and High 

Value for 

NOX**** 

billion 2009$ 

1 0.05 0.05 0.06 0.07 

2 0.04 0.05 0.06 0.08 

3 (0.05) (0.03) (0.00) 0.04 

4 (0.15) (0.11) (0.08) (0.02) 

5 (1.38) (1.32) (1.28) (1.18) 

6 (2.84) (2.70) (2.59) (2.35) 

* These label values per ton represent the global SCC of CO2 in 2010, in 2007$. Their present values have
 

been calculated with scenario-consistent discount rates. See section IV.M for a full discussion of the 


derivation of these values.
 

** Low Value corresponds to $447 per ton of NOX emissions.
 

*** Medium Value corresponds to $2,519 per ton of NOX emissions. 


**** High Value corresponds to $4,591 per ton of NOX emissions.
 

Parentheses indicate negative (-) values.
 

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EE-2006-BT-STD-0129 COMMENT 105
 

 

 

 

 

 

Table VI.62 Estimates of Adding Net Present Value of Consumer Savings (at 3% 

Discount Rate) to Net Present Value of Low, Central, and High-End Monetized 

Benefits from CO2 and NOX Emissions Reductions at Trial Standard Levels for Pool 

Heaters 

TSL 

Consumer NPV at 3% Discount Rate added with: 

CO2 Value of 

$4.7/metric ton 

CO2* and Low 

Value for 

NOX** 

billion 2009$ 

CO2 Value of 

$21.4/metric ton 

CO2* and Medium 

Value for NOX*** 

billion 2009$ 

CO2 Value of 

$35.1/metric ton 

CO2* and Medium 

Value for NOX*** 

billion 2009$ 

CO2 Value of 

$64.9/metric ton 

CO2* and High 

Value for 

NOX**** 

billion 2009$ 

1 0.10 0.11 0.11 0.12 

2 0.11 0.12 0.13 0.15 

3 (0.01) 0.02 0.04 0.09 

4 (0.14) (0.10) (0.07) (0.01) 

5 (2.31) (2.26) (2.21) (2.11) 

6 (4.53) (4.39) (4.28) (4.04) 

* These label values per ton represent the SCC of CO2 in 2010, in 2007$. Their present values have been
 

calculated with scenario-consistent discount rates. See section IV.M for a full discussion of the derivation
 

of these values.
 

** Low Value corresponds to $447 per ton of NOX emissions.
 

*** Medium Value corresponds to $2,519 per ton of NOX emissions. 


**** High Value corresponds to $4,591 per ton of NOX emissions.
 

Parentheses indicate negative (-) values.
 

7. Other Factors 

In determining whether a standard is economically justified, the Secretary of 

Energy may consider any other factors that the Secretary deems to be relevant. (42 U.S.C. 

6295(o)(2)(B)(i)(VII)) The Secretary has decided that the LCC impacts on identifiable 

groups of consumers, such as senior citizens and residents of multi-family housing who 

may be disproportionately affected by any national energy conservation standard level, is 

a relevant factor. The impacts on the identified consumer subgroups are described in 

section VI.C.1.b above. DOE also believes that uncertainties associated with the heat 

pump water heater market (e.g., product availability, servicing, and manufacturability) 

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are relevant to consider as described in section VI.D.2 below. Lastly, DOE believes that 

another relevant consideration is the potential safety concerns surrounding gas-fired 

storage water heaters that are atmospherically vented with high recovery efficiencies that 

potentially may be installed with improper venting in certain installations, which are also 

discussed in section VI.D.2 below. 

D. Conclusion 

1. Overview 

As discussed above, EPCA contains a number of criteria and other provisions 

which must be followed when prescribing new or amended energy conservation 

standards. Specifically, the statute provides that any such standard for any type (or class) 

of covered product must be designed to achieve the maximum improvement in energy 

efficiency that the Secretary determines is technologically feasible and economically 

justified. (42 U.S.C. 6295(o)(2)(A)) In determining whether a standard is economically 

justified, the Secretary must determine whether the benefits of the standard exceed its 

burdens. (42 U.S.C. 6295(o)(2)(B)(i)) DOE must do so after receiving public comments 

on the proposed standard and by considering, to the greatest extent practicable, the 

following seven factors: 

1. The economic impact of the standard on the manufacturers and consumers of 

the products subject to such standard; 

2. The savings in operating costs throughout the estimated average life of the 

covered product in the type (or class) compared to any increase in the price of, initial 

charges for, or maintenance expenses of the covered products likely to result from 

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imposition of the standard; 

3. The total projected amount of energy (or, as applicable, water) savings likely to 

result directly from imposition of the standard; 

4. Any lessening of the utility or performance of the covered products likely to 

result from imposition of the standard; 

5. The impact of any lessening of competition, as determined in writing by the 

Attorney General, likely to result from imposition of the standard; 

6.The need for national energy and water conservation; and 

7. Other factors the Secretary considers relevant. 

(42 U.S.C. 6295(o)(2)(B)(i)(I)-(VII)) 

A determination of whether a standard level is economically justified is not based 

on any one factor in isolation. The Secretary must weigh each of these seven factors in 

total. In addition, the Secretary may not establish any standard if such standard would not 

result in “significant conservation of energy” or “is not technologically feasible or 

economically justified.” (42 U.S.C. 6295(o)(3)(B)) Furthermore, EPCA’s “antibacksliding” provision prohibits the Secretary from prescribing any amended standard 

that either increases the maximum allowable energy use or decreases the minimum 

required energy efficiency of a covered product. (42 U.S.C. 6295(o)(1)) 

In selecting today’s energy conservation standards for the three heating products, 

DOE started by examining whether the maximum technologically feasible levels were 

economically justified. Upon finding that the maximum technologically feasible levels 

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were not economically justified, DOE analyzed the next lower TSL to determine whether 

that level was economically justified. DOE follows this procedure until it: (1) identifies a 

TSL that is both technologically feasible and economically justified, and saves a 

significant amount of energy; or (2) determines that no TSL is economically justified. 

Tables in each section below for each of the three types of heating products 

summarize DOE’s quantitative analytical results for each TSL it considered for this final 

rule. These tables will aid the reader in understanding the costs and benefits of each TSL 

that DOE considered in adopting standards in this final rule. 

2. Water Heaters 

Table VI.63 summarizes the results of DOE’s quantitative analysis for each TSL 

it considered for this final rule for water heaters. 

Table VI.63 Summary of Analytical Results for Water Heaters 

Category TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 TSL 6 TSL 7 TSL 8 

National Energy Savings (quads) 1.07 1.66 2.05 2.35 2.58 3.06 10.16 16.73 

NPV of Consumer Benefits (2009$ billion) 

3% discount rate 4.39 5.62 7.05 7.55 8.67 9.08 23.39 16.87 

7% discount rate 0.96 0.88 1.15 1.03 1.39 1.01 (0.22) (11.57) 

Industry Impacts 

Gas-Fired and Electric Storage 

Industry NPV (2009$ 

million) 

(4.9) - 

(14.2) 

(4.3) - 

(31.4) 

(5.2) - 

(38.3) 

(4.8) - 

(89.4) 

(25.9) ­

(122.6) 

(23.6) ­

(134.6) 

(10.5) ­

(350.2) 

79.2 – 

(647.0) 

Industry NPV (% change) (0.6) ­

(1.6) 

(0.5) - 

(3.6) 

(0.6) - 

(4.3) 

(0.5) - 

(10.2) 

(2.9) - 

(13.9) 

(2.7) - 

(15.3) 

(1.2) ­

(39.8) 

9.0 ­

(73.5) 

Oil-Fired Storage 

Industry NPV (2009$ 

million) 

(0.2) - 

(0.4) 

(0.2) - 

(0.3) 

(0.2) - 

(0.4) 

(0.2) - 

(0.4) 

(0.2) - 

(0.4) 

(0.2) - 

(0.4) 

(0.2) - 

(0.4) 

(1.4) - 

(3.8) 

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Industry NPV (% change) (2.0) - 

(3.9) 

(1.8) - 

(3.6) 

(2.0) - 

(4.2) 

(2.0) - 

(4.2) 

(2.0) - 

(4.2) 

(2.0) - 

(4.2) 

(2.0) - 

(4.2) 

(15.4) ­

(41.4) 

Gas-Fired Instantaneous 

Industry NPV (2009$ 

million) 

2.3 ­

(1.2) 

2.3 ­

(1.2) 

2.3 ­

(1.2) 

2.3 ­

(1.2) 

2.3 - (1.2) 2.3 ­

(1.2) 

2.3 ­

(1.2) 

91.4 ­

(57.6) 

Industry NPV (% change) 0.4 - 

(0.2) 

0.4 ­

(0.2) 

0.4 ­

(0.2) 

0.4 ­

(0.2) 

0.4 - (0.2) 0.4 ­

(0.2) 

0.4 ­

(0.2) 

14.1 ­

(8.9) 

Cumulative Emissions Reduction 

CO2 (Mt) 74.3 122 131 137 154 209 609 1,001 

NOX (kt) 57.5 94.3 101 106 116 159 456 755 

Hg (t) 0.056 0.090 0.103 0.113 0.553 0.704 2.32 3.59 

Value of Cumulative Emissions Reduction (2009$ million) ††

 CO2 266 to 

4,122 

436 to 

6,750 

468 to 

7,242 

492 to 

7,614 

524 to 

8,179 

714 to 

11,142 

2,060 

to 

32,204 

3,399 to 

53,098

 NOX – 3% discount rate 13.7 to 

141 

22.5 to 

231 

24 to 

247 

25 to 

259 25 to 261 

35 to 

358 

99 to 

1,019 

165 to 

1,694 

 NOX – 7% discount rate 6.6 to 

67.9 

10.8 to 

111 

11.6 to 

119 

12.2 to 

125 

11.0 to 

113 

15.2 to 

157 

42.6 to 

438 

71.5 to 

734 

Mean LCC Savings* (2009$) 

Gas-Fired Storage 16 7 7 7 18 9 (218) (195) 

Electric Storage 5 11 18 18 64 64 112 171 

Oil-Fired Storage 101 203 295 295 295 295 295 495 

Gas-Fired Instantaneous 9 9 9 9 9 9 9 (259) 

Median PBP (years) 

Gas-Fired Storage 2.0 4.5 4.5 4.5 2.3 4.7 21.5 15.6 

Electric Storage 4.0 4.0 5.0 6.7 6.8 6.8 9.4 9.0 

Oil-Fired Storage 0.9 0.3 0.5 0.5 0.5 0.5 0.5 1.9 

Gas-Fired Instantaneous 14.8 14.8 14.8 14.8 14.8 14.8 14.8 38.7 

Distribution of Consumer LCC Impacts 

Gas-Fired Storage 

Net Cost (%) 25 32 32 32 27 34 70 70 

No Impact (%) 36 22 22 22 33 21 6 1 

Net Benefit (%) 39 45 45 45 40 46 23 28 

Electric Storage 

Net Cost (%) 11 12 21 32 33 33 50 50 

No Impact (%) 44 39 17 10 9 9 5 1 

Net Benefit (%) 45 48 62 59 58 58 45 49 

Oil-Fired Storage 

Net Cost (%) 0 0 0 0 0 0 0 0 

No Impact (%) 76 54 47 47 47 47 47 17 

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Net Benefit (%) 24 46 53 53 53 53 53 83 

Gas-Fired Instantaneous 

Net Cost (%) 5 5 5 5 5 5 5 77 

No Impact (%) 91 91 91 91 91 91 91 12 

Net Benefit (%) 4 4 4 4 4 4 4 11 

Generation Capacity Change 

(GW in 2045) 

(0.168) (0.270) (0.309) (0.339) (0.829) (1.05) (3.49) (5.39) 

Employment Impacts 

Total Potential Changes in Domestic Production Workers in 2015 

Gas-Fired and Electric Storage (3,610) - 

55 

(3,610) - 

128 

(3,610) - 

168 

(3,610) - 

256 

(3,610) - 

439 

(3,610) 

- 500 

(3,610) 

- 3,253 

(3,610) 

- 6,313 

Oil-Fired storage (37) - 0 (37) - 0 (37) - 1 (37) - 1 (37) - 1 (37) - 1 (37) - 1 (37) ­

18 

Gas-Fired Instantaneous Not Applicable††† 

Net Change in National Indirect 

Employment in 2044 thousands) †††† 

2.1 2.8 4.6 6.0 10.4 10.6 43.5 56.3 

* Parentheses indicate negative (-) values. 

** For LCCs, a negative value means an increase in LCC by the amount indicated.

†† Range of the economic value of CO2 reductions is based on estimates of the global benefit of reduced CO2 emissions. 

††† The industry for gas-fired instantaneous water heaters is international.

†††† National Indirect Employment Impacts exclude direct impacts. 

DOE first considered TSL 8, which represents the max-tech efficiency levels for 

all four product classes. TSL 8 includes a national standard effectively requiring the use 

of condensing technology for gas-fired storage and instantaneous water heaters, a 

national standard effectively requiring the use of heat pump water heater technology for 

electric storage water heaters, and a national standard effectively requiring the use of a 

multi-flue design for oil-fired water heaters. TSL 8 would save 16.7 quads of energy, an 

amount DOE considers significant. TSL 8 would result in a NPV of consumer cost of 

$11.6 billion, using a discount rate of 7 percent, and consumer benefit of $16.9 billion, 

using a discount rate of 3 percent. 

The cumulative emissions reductions at TSL 8 are 1,001 Mt of CO2, 755 kt of 

NOX, and 3.6 t of Hg. The estimated monetary value of the cumulative CO2 emissions 

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reductions at TSL 8 is $3,399 million to $53,098 million. Total electricity generating 

capacity in 2045 is estimated to decrease by 5.39 gigawatts (GW) under TSL 8. 

At TSL 8, DOE projects that the average LCC impact for consumers is a loss of 

$195 for gas-fired storage water heaters, a gain of $171 for electric storage water heaters, 

a gain of $495 for oil-fired storage water heaters, and a loss of $259 for gas-fired 

instantaneous water heaters. The median payback period is 15.6 years for gas-fired 

storage water heaters, 9.0 years for electric storage water heaters, 1.9 years for oil-fired 

storage water heaters, and 38.7 years for gas-fired instantaneous water heaters (which is 

substantially longer than the mean lifetime of the product). At TSL 8, the fraction of 

consumers experiencing an LCC benefit is 28 percent for gas-fired storage water heaters, 

49 percent for electric storage water heaters, 83 percent for oil-fired storage water 

heaters, and 11percent for gas-fired instantaneous water heaters. The fraction of 

consumers experiencing an LCC cost is 70 percent for gas-fired storage water heaters, 50 

percent for electric storage water heaters, 0 percent for oil-fired storage water heaters, 

and 77 percent for gas-fired instantaneous water heaters. 

At TSL 8, the average LCC savings are negative for all of the considered 

consumer subgroups for gas-fired storage water heaters, and a majority of the households 

in each subgroup experience a net cost. In the case of electric storage water heaters, the 

average LCC savings are negative for senior-only and multi-family households, but 

positive for low-income and manufactured home households. In all cases, however, a 

majority of the households in each subgroup experience a net cost. 

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At TSL 8, the projected change in the INPV is estimated to decrease up to $647 

million for gas-fired and electric storage water heaters, a decrease of up to $3.8 million 

for residential oil-fired storage water heaters, and a decrease of up to $58 million for gasfired instantaneous water waters, in 2009$. For gas-fired and electric storage water 

heaters, the impacts are driven primarily by the assumptions regarding the ability for 

manufacturers to produce products at these efficiency levels in the volumes necessary to 

serve the entire market. Manufacturers would need to redesign almost all of their 

products at TSL 8, which would force manufacturers to incur significant product and 

capital conversion costs. Some loss in product utility may also occur for units that are 

presently installed in space-constrained applications because condensing and heat pump 

technologies would typically cause water heaters to have a larger footprint. At TSL 8, 

DOE recognizes the risk of very large negative impacts if manufacturers’ expectations 

about reduced profit margins are realized. In particular, if the high end of the range of 

impacts is reached as DOE expects, TSL 8 could result in a net loss of 73.5 percent in 

INPV for gas-fired and electric storage water heaters, a net loss of 41.4 percent in INPV 

for oil-fired storage water heaters, and a net loss of 8.9 percent in INPV for gas-fired 

instantaneous water heaters. 

For gas-fired storage and instantaneous water heaters at TSL 8, condensing 

operation would be required. As further described in the December 2009 NOPR, DOE 

outlined several concerns related to the condensing gas-fired storage water heater market. 

74 FR 65852, 65963-64 (Dec. 11, 2009). The main concerns included the ability for the 

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industry to produce condensing gas-fired storage water heaters and provide installation 

and servicing on a scale necessary to serve the entire volume of the market (i.e., 

approximately, 4.6 million units annually). TSL 8 also includes an efficiency level for 

electric storage water heaters that would require the use of heat pump technology. The 

substantial average savings for customers estimated by DOE’s analysis for TSL 8 are 

primarily driven by the results for heat pump water heaters. However, DOE outlined a 

handful of concerns in the December 2009 NOPR with the current heat pump water 

heater market that may prevent heat pump technology from being ready for full-scale 

implementation for all consumers. 74 FR 65852, 65965 (Dec. 11, 2009). These included 

manufacturability, serviceability, the ability to retrofit existing installations, and potential 

impacts on the space conditioning loads in the house. All four major storage water heater 

manufacturers within the industry echoed these concerns regarding the max-tech 

efficiency level products. 

Therefore, the Secretary has concluded that at TSL 8, the benefits of energy 

savings, positive NPV of consumer benefits (at 3-percent discount rate), generating 

capacity reductions, and emission reductions are outweighed by the economic burden on 

a significant fraction of consumers due to the large increases in first costs associated with 

electric heat pump water heaters and gas-fired condensing water heaters, the 

disproportionate impacts to consumers in multi-family housing, the large capital 

conversion costs that could result in a large reduction in INPV for the manufacturers, as 

well as the uncertainty associated with providing products at the max-tech level on a 

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scale necessary to serve the entire market. Consequently, the Secretary has concluded that 

TSL 8 is not economically justified. 

Next, DOE considered TSL 7. The efficiency levels in TSL 7 include the 

ENERGY STAR program level for electric storage water heaters, which effectively 

requires the use of heat pump water heating technologies. However, TSL 7 allows the use 

of atmospherically-vented gas-fired storage water heaters. TSL 7 would save 10.16 quads 

of energy, an amount DOE considers significant. TSL 7 would result in a negative 

consumer NPV of $0.22 billion, using a discount rate of 7 percent, and a consumer NPV 

benefit of $23.4 billion, using a discount rate of 3 percent. 

The cumulative emissions reductions at TSL 7 are 609 Mt of CO2, 456 kt of NOX, 

and 2.32 t of Hg. The estimated monetary value of the cumulative CO2 emissions 

reductions at TSL 7 is $2,060 million to $32,204 million. Total generating capacity in 

2045 is estimated to decrease by 3.49 GW under TSL 7. 

At TSL 7, DOE projects that the average LCC impact is a loss of $218 for gasfired storage water heaters, a gain of $112 for electric storage water heaters, a gain of 

$295 for oil-fired storage water heaters, and a gain of $9 for gas-fired instantaneous water 

heaters. The median payback period is 21.5 years for gas-fired storage water heaters, 9.4 

years for electric storage water heaters, 0.5 years for oil-fired storage water heaters, and 

14.8 years for gas-fired instantaneous water heaters. At TSL 7, the fraction of consumers 

experiencing an LCC benefit is 23 percent for gas-fired storage water heaters, 45 percent 

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for electric storage water heaters, 53 percent for oil-fired storage water heaters, and 4 

percent for gas-fired instantaneous water heaters. The fraction of consumers experiencing 

an LCC cost is 70 percent for gas-fired storage water heaters, 50 percent for electric 

storage water heaters, 0 percent for oil-fired storage water heaters, and 5 percent for gasfired instantaneous water heaters. 

At TSL 7, the estimated average LCC savings are negative for all of the 

considered consumer subgroups for gas-fired storage water heaters, and a majority of the 

households in each subgroup experience a net cost. In the case of electric storage water 

heaters, the average LCC savings are negative for senior-only and multi-family 

households, but positive for low-income and manufactured home households. In all cases, 

however, a majority of the households in each subgroup experience a net cost. 

At TSL 7, the projected change in INPV ranges from a decrease of up to $350.2 

million for gas-fired and electric storage water heaters, a decrease of up to $0.4 million 

for oil-fired storage water heaters, and a decrease of up to $1.2 million for gas-fired 

instantaneous water heaters, in 2009$. The negative impacts on INPV are driven largely 

by the required efficiencies for electric storage water heaters which effectively require 

heat pump technology. The oil-fired storage water heater and gas-fired instantaneous 

water heater efficiencies do not require substantial changes to the existing operations for 

some manufacturers. The significant changes for electric storage water heaters help to 

drive the INPVs negative, especially if profitability is impacted after the compliance date 

of the amended energy conservation standard. In particular, if the high end of the range of 

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impacts is reached as DOE expects, TSL 7 could result in a net loss of 39.8 percent in 

INPV for gas-fired and electric storage water heaters, a net loss of 4.2 percent in INPV 

for oil-fired storage water heaters, and a net loss of 0.2 percent in INPV for gas-fired 

instantaneous water heaters. 

TSL 7 includes efficiency levels for the entire market of electric storage water 

heaters that are currently only achievable through the use of advanced heat pump 

technologies. DOE’s analysis indicates that dramatic reductions in energy use and 

substantial economic savings are possible for electric water heaters with the use of these 

technologies. As with TSL 8, the average savings for electric water heater customers 

estimated by DOE’s analysis for TSL 7 are primarily driven by the results for heat pump 

water heaters. While DOE finds the potential energy savings resulting from a national 

heat pump water heater standard very favorable, DOE outlined a number of concerns 

regarding the manufacturability and the market for heat pump water heaters in the 

December 2009 NOPR. 74 FR 65852, 65965 (Dec. 11, 2009). These included 

manufacturability, serviceability, the ability to retrofit existing installations, and potential 

impacts on the space conditioning loads in the house. 

DOE further researched the heat pump water heater market for the final rule. 

Since the analysis was conducted for the December 2009 NOPR, several heat pump water 

heater models have been introduced into the market by major manufacturers. DOE’s 

engineering analysis for the final rule confirmed that the use of heat pump water heaters 

adds dramatically to the MSP estimates, increasing the MSP more than $588 over the 

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baseline electric storage water heater. In part due to this change, the total installed cost to 

the consumer increases by an average of $915 for heat pump water heaters compared to 

traditional electric storage water heaters that use electric resistance heating elements. 

In the December 2009 NOPR, DOE posed a series of questions for interested 

parties regarding the manufacturability of heat pump water heaters to meet the demands 

of the entire market (i.e., approximately 5.8 million units). Even though DOE 

acknowledged in the December 2009 NOPR that most manufacturers are in the process 

of developing a heat pump water heater to offer to consumers in response to the 

ENERGY STAR program or have recently begun to offer a heat pump water heater 

model for sale, DOE questioned whether it was possible for manufacturers to convert all 

of their existing product lines over to produce heat pump water heaters within 5 years. 74 

FR 65852, 65965 (Dec. 11, 2009). In response to DOE’s question in the December 2009 

NOPR, A.O. Smith, Rheem, and Bradford White all agreed that producing heat pump 

water heaters in the volumes necessary to service the market would be quite a 

transformation and investment for manufacturers. DOE estimates that it would take a 

total of $76 million in capital conversion costs and an additional $55 million in product 

conversion costs for the industry to offer exclusively HPWHs. In addition, the 

significantly higher production costs would require an additional $273 million in working 

capital to purchase more expensive components, carry more-costly inventory, and handle 

higher accounts receivable. DOE estimates that the working capital requirement and 

conversion costs would cause electric storage water heater manufacturers to incur a total 

one-time investment of at least $404 million in an electric storage market valued at 

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approximately $301 million. Furthermore, manufacturers would find it extremely 

difficult to create a service structure for over five million electric storage water heaters 

that use a relatively new technology by the compliance date of the final rule. Finally, 

DOE believes it is unlikely that manufacturers could earn the same return on these 

extremely large investments, so profitability would be expected to decrease after the 

compliance date of the amended energy conservation standards. Even with the ENERGY 

STAR incentive program, DOE’s only projects the market penetration of heat pump 

water heaters will be 5 percent in 2015. 

In the December 2009 NOPR, DOE questioned whether the service industry 

would be capable of providing the same level of service for heat pump water heaters that 

consumers are accustomed to receiving from a typical installer or repair person. 74 FR 

65852, 65965 (Dec. 11, 2009). DOE sought input from commenters about whether 

reliable installation and servicing could be achieved on the scale needed by the 

compliance date of the amended standard. Id. As further detailed in section IV.B.2.b, 

DOE received comments supporting both sides of the arguments. Some manufacturers 

believe the training of service technicians and infrastructure needed to provide service to 

the heat pump water heating industry is not adequate and would not be available by the 

compliance date of the standard to serve the needs of the entire market. Others, including 

a manufacturer of heat pump water heaters, asserted that a nationwide network for heat 

pump water heater product service currently exists to service the limited heat pump water 

heater market today. Also, this manufacturer is currently developing a nationwide 

installation base to ensure that its consumers can readily purchase, install, and repair their 

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heat pump water heaters. Other commenters pointed out that the skills needed to service 

heat pump water heaters are similar to the skill set of technicians in the residential 

refrigerator industry, which has an extensive servicing base. 

While DOE believes that heat pump water heaters could require different 

servicing needs compared to traditional electric resistance storage water heaters, DOE 

also believes that the service industry will adapt to provide reliable installation, repair, 

and maintenance for heat pump water heaters by the compliance date of amended energy 

conservation standards for a subset of the entire market. Heat pump water heaters will 

require additional servicing needs for the sealed system portion of the unit. This includes 

handling a working refrigerant in addition to the typical plumbing type issues associated 

with residential water heaters. Even though DOE believes this additional servicing 

requirement can be adequately handled by a national servicing network of appliance 

technicians, DOE questions whether this can be done in the near-term at a level necessary 

to service the entire market. 

In the December 2009 NOPR, DOE also questioned whether heat pump water 

heaters were capable of being installed in all types of installations currently serviced by 

the residential electric storage water heating market. 74 FR 65852, 65965 (Dec. 11, 

2009). DOE found that in certain situations (especially indoor locations), installations 

could be very costly for consumers, requiring them to alter their existing space to 

accommodate a heat pump water heater. In some indoor installations, the consumer needs 

to address space constraints issues, a requirement for sufficient air volume to maintain 

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adequate operation of the water heater, and the impact of the water heater cooling off the 

space during the heating season. Id. DOE stated in the December 2009 NOPR that 

according to DOE’s estimates, 12 percent of electric storage water heater consumers 

would experience an increase of more than $500 in their LCC compared to the base case. 

74 FR 65852, 65965 (Dec. 11, 2009). 

DOE strongly considered TSL 7 as the standard level for residential water heaters. 

Even though the commenters provided useful insight regarding the potential 

manufacturability, serviceability, and capabilities of these units to be installed in similar 

types of installations where current electric storage water heaters are located, DOE is still 

concerned about some of the issues identified in the December 2009 NOPR and outlined 

above regarding a national heat pump water heater standard. Specifically, DOE is still 

concerned about the ability for manufacturers to ramp up production in time to meet the 

demand by the compliance date of amended standards, the potentially large increases in 

total installed cost to certain consumers, the potential impacts on multi-family 

households, and the potential impacts on the heating and cooling load of the residence. 

Consequently, for today’s final rule, the Secretary has concluded that at TSL 7, the 

benefits of energy savings, positive consumer NPV (at 3-percent discount rate), 

generating capacity reductions, and emission reductions would be outweighed by the 

negative economic impacts on those consumers that would have to make structural 

changes to accommodate the larger footprint of the heat pump water heaters, the 

economic burden on a significant fraction of consumers due to the large increases in total 

installed costs associated with heat pump water heaters, the disproportionate impacts to 

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consumers in multi-family housing and others with comparatively low usage rates, the 

large capital conversion costs that could result in a large reduction in INPV for the 

manufacturers, and the uncertainties associated with the heat pump water heater market. 

Next, DOE considered TSL 6, in which DOE paired efficiency levels that would 

effectively require different technologies for large-volume and small-volume gas-fired 

and electric storage water heaters in an effort to promote advance technology penetration 

into the market and to potentially save additional energy. Specifically, TSL 6 would 

effectively require heat pump technology for electric storage water heaters with a rated 

storage volume greater than 55 gallons and condensing technology for gas-fired storage 

water heaters with a rated storage volume greater than 55 gallons. For electric storage 

water heaters at TSL 6, DOE considered efficiency level 6 (i.e., the lowest efficiency 

level DOE analyzed effectively requiring heat pump technology), instead of the max-tech 

efficiency level 7 for large water heaters, because at the time of the analysis, only one 

manufacturer had demonstrated the capability of reaching the efficiencies required by the 

max-tech energy efficiency equation for electric storage water heaters. Under this slightly 

lower efficiency level, manufacturers can better maintain design flexibility, and it 

encourages competition in the heat pump water heater market. DOE believes this level 

represents an efficiency level that is likely to result in efficient heat pump technologies, 

yet also maintains maximum flexibility regarding specific heat pump water heater 

designs. For electric storage water heaters with a rated storage volume of 55 gallons or 

less, TSL 6 also includes requirements which continue to allow the use of electric 

resistance elements. TSL 6 also includes requirements allowing atmospherically-vented 

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gas-fired storage water heaters with a rated storage volume at or below 55 gallons. As an 

example, a gas-fired water heater with a rated storage volume of 40 gallons would be 

required to meet a 0.63 EF under TSL 6. As described above and further detailed below, 

this efficiency level, which is pushing the limits of atmospherically-vented gas-fired 

storage water heaters is where DOE has concerns over consumer safety for units with 

high recovery efficiencies in certain installations. These concerns are further described 

below. 

TSL 6 would save 3.06 quads of energy, an amount DOE considers significant. 

Under TSL 6, the NPV of consumer benefit would be $1.01 billion, using a discount rate 

of 7 percent, and $9.08 billion, using a discount rate of 3 percent. 

The cumulative emissions reductions at TSL 6 are 209 Mt of CO2, 159 kt of NOX, 

and 0.704 t of Hg. The estimated monetary value of the cumulative CO2 emissions 

reductions at TSL 6 is $714 million to $11,142 million. Total generating capacity in 2045 

is estimated to decrease by 1.05 GW under TSL 6. 

At TSL 6, DOE projects that the average LCC impact is a gain (consumer cost 

savings) of $9 for gas-fired storage water heaters, a gain of $64 for electric storage water 

heaters, a gain of $295 for oil-fired storage water heaters, and a gain of $9 for gas-fired 

instantaneous water heaters. The median payback period is 4.7 years for gas-fired storage 

water heaters, 6.8 years for electric storage water heaters, 0.5 years for oil-fired storage 

water heaters, and 14.8 years for gas-fired instantaneous water heaters. At TSL 6, the 

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fraction of consumers experiencing an LCC benefit is 46 percent for gas-fired storage 

water heaters, 58 percent for electric storage water heaters, 53 percent for oil-fired 

storage water heaters, and 4 percent for gas-fired instantaneous water heaters. The 

fraction of consumers experiencing an LCC cost is 34 percent for gas-fired storage water 

heaters, 33 percent for electric storage water heaters, 0 percent for oil-fired storage water 

heaters, and 5 percent for gas-fired instantaneous water heaters. 

At TSL 6, the estimated average LCC savings for gas-fired storage water heaters 

are negative for multi-family households and manufactured home households, slightly 

negative for low-income households, and slightly positive for senior-only households. In 

the case of electric storage water heaters, the average LCC savings are positive for 

senior-only and low-income households, slightly negative for multi-family households, 

and negative for manufactured home households. In all cases except manufactured home 

households, a majority of the households in each subgroup experience a net benefit. 

At TSL 6, the projected change in INPV ranges from a decrease of up to $134.6 

million for gas-fired and electric storage water heaters, a decrease of up to $0.4 million 

for oil-fired storage water heaters, and a decrease of up to $1.2 million for gas-fired 

instantaneous water heaters, in 2009$. The negative impacts on INPV are driven largely 

by the required efficiencies for gas-fired and electric storage water heaters with rated 

storage volumes above 55 gallons. TSL 6 would effectively require heat pump 

technology and condensing technology for the electric and gas-fired storage water heaters 

at these volume sizes. The efficiency requirements at TSL 6 for electric storage water 

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heater with a rated volume less than 55 also result in negative impacts because such large 

increases in insulation also require manufacturers to implement changes to their existing 

equipment. The oil-fired storage water heater and gas-fired instantaneous water heater 

efficiencies at TSL 6 do not require substantial changes to the existing operations for 

some manufacturers. The significant changes to gas-fired and electric storage water 

heaters with rated storage volumes greater than 55 gallons help to drive the INPVs 

negative, especially if profitability is impacted after the compliance date of the amended 

energy conservation standard. In particular, if the high end of the range of impacts is 

reached as DOE expects, TSL 6 could result in a net loss of 15.3 percent in INPV for gasfired and electric storage water heaters, a net loss of 4.2 percent in INPV for oil-fired 

storage water heaters, and a net loss of 0.2 percent in INPV for gas-fired instantaneous 

water heaters. 

DOE believes TSL 6 would provide an effective mechanism for increasing the 

market penetration for advanced-technology water heaters. Given DOE’s concerns with 

TSL 7 (which includes a national heat pump water heater standard for electric storage 

water heaters across the entire range of rated storage volumes) as described above, DOE 

also strongly considered adopting TSL 6. TSL 6 results in positive NPV of consumer 

benefit for both electric and gas-fired storage water heaters, while also providing 

considerable energy and carbon savings. 

Using DOE’s shipments model and market assessment, DOE estimated 

approximately 4 percent of gas-fired storage water heater shipments and 11 percent of 

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models would fall into the large-volume water heater category using the TSL 6 division 

(i.e., large water heaters with storage volumes above 55 gallons). Similarly, DOE 

estimated approximately 9 percent of electric storage water heater shipments and 27 

percent of models would fall into the large-volume water heater category using the TSL 6 

division. Compared to TSL 7, TSL 6 effectively requires heat pump technology for a 

relatively small fraction of the electric storage water heater market, reduces the number 

of installations that would necessitate significant structural modifications due to the size 

of heat pump water heaters, reduces the number of installations that have space 

conditioning impacts from cool air produced by the heat pump water heater operation, 

results in higher average LCC savings and shorter median payback periods, and reduces 

the negative impacts on consumer subgroups. For gas-fired storage water heaters, 

compared to a national condensing standard level (TSL 8), TSL 6 requires condensing 

technology for a relatively small fraction of the gas-fired storage water heater market, 

reduces the number of installations that require significant building modifications due to 

the size of condensing gas-fired water heaters, and results in higher average LCC savings 

and shorter median payback period. 

Although DOE has identified a number of benefits associated with TSL 6, DOE is 

aware that there are multiple issues associated with promulgating an amended energy 

conservation standard at this level. Potential issues with TSL 6 affecting both heat pump 

water heaters and condensing gas-fired water heaters include: (1) consumer acceptance; 

(2) training; (3) product substitution; (4) engineering resource constraints; (5) product 

discontinuation; and (6) manufacturing issues. DOE fully discusses each of these in great 

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detail in the December 2009 NOPR. 74 FR 65852, 65966-67 (Dec. 11, 2009). The lack of 

clarity on many of these issues contributed to DOE’s tentative conclusion at the NOPR 

stage that a determination could not be made that NOPR TSL 5 (which contained 

different standards based upon the 55-gallon capacity division) is economically justified. 

However, comments and other information on these issues in response to the NOPR 

allowed DOE to make a more informed decision for the final rule. 

As far as consumer acceptance, DOE questioned whether consumers may elect 

not to buy the larger-volume water heaters for a number of reasons (e.g., including 

increases in first costs, unfamiliarity with the product, or space-constraint issues) and 

instead buy multiple water heaters that are under the capacity limit in the December 2009 

NOPR. 74 FR 65852, 65967 (Dec. 11, 2009). In the final rule, DOE has now accounted 

for the equipment switching to lower rated storage volume water heaters in its analysis. 

DOE believes it has captured any potential impacts from that fraction of consumers who 

might elect to install one or two smaller water heaters. DOE derived the fraction of 

households which could switch from a large water heater to two smaller water heaters by 

comparing the total installed costs. DOE also considered the feasibility of switching a 

large water heater to a smaller water heater based on hot water needs of the household. 

DOE also took into consideration other factors such as whether some households would 

account for the operating cost advantages, need for emergency replacement, and avoiding 

costly venting system modifications when also installing a condensing gas furnace. See 

section IV.G.2.d for additional details. 

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As far as the reliable installation, servicing, and repair network that would be 

needed to service the market, DOE believes TSL 6 mitigates these problems for the 

reasons that follow. Because TSL 6 only impacts at most 9 percent of the electric storage 

water heater market, DOE believes the service industry will be able to provide adequate 

service to this subset of consumers. In addition, DOE believes that with the ENERGY 

STAR program and major water heater manufacturers continuing to introduce products 

into the market, the service industry will also continue to evolve. Given that this standard 

level does not impact the entire market and with the 5-year lead time, DOE believes the 

service industry will be able to properly train technicians and provide a nationwide 

network, which includes plumbers and refrigeration technicians to properly service heat 

pump water heaters by 2015. 

As far as manufacturability, DOE estimates that it would take a total of $14.2 

million and $26.1 million in capital conversion costs and product conversion costs for the 

industry to offer condensing products and heat pump water heaters for units with rated 

storage volumes above 55-gallons, respectively. While the total required investments 

(including working capital) to manufacture exclusively HPWHs greatly exceed the total 

industry value, the total conversion costs for converting only products with rated storage 

volumes above 55-gallons represent just 2.4 percent and 8.7 percent of the total value of 

the gas-fired and electric storage markets, respectively. Additionally, TSL 6 requires far 

less investment in working capital than TSL 7. Specifically, as compared to the $273 

million required by TSL 7 for electric storage water heaters, TSL 6 would necessitate an 

investment of $45 million. Similarly, for gas-fired storage water heaters, TSL 8 requires 

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an increase of $177 million in working capital needs, while TSL 6 requires an increase of 

$20 million. These much higher investments at TSL 7 and TSL 8, relative to TSL 6, are 

reflected in the mitigated INPV impacts shown in the MIA results.

 DOE also believes that manufacturers would be better able to make the 

technological changes required at TSL 6 than TSL 7 before the compliance date, due, in 

part, to the experience of all three major manufacturers in producing large-volume 

condensing products for the commercial sector. DOE believes manufacturers can rely on 

this experience to adapt to TSL 6 to an extent they could not at TSL 8, at which smallervolume products would also have to be converted. Furthermore, two of the three major 

manufacturers have some experience in manufacturing heat pump water heaters for the 

residential sector. The efficiency requirements for products only above 55-gallons rated 

storage volume would not require manufacturers to greatly alter most of their existing 

production lines. DOE believes that manufactures would create separate production lines 

for these products, which would be less disruptive to current facilities. In addition, five 

years should offer enough lead time for the product development and capital changes for 

these larger-rated-volume products. Lastly, DOE believes that manufacturers would be 

more likely to maintain an historic level of return on investment on large-volume 

products, relative to small-volume products, because that market contains a greater mix 

of high-end consumers. 

DOE strongly considered TSL 6 and believes it would provide additional energy 

and carbon savings, while mitigating some of the issues associated with a national heat 

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pump water heater standard. However, TSL 6 also includes a level for gas-fired storage 

water heaters with rated storage volumes at or below 55 gallons that has caused DOE 

some reservations related to consumer safety. These concerns came to light during the 

course of DOE’s consideration of public comments on the NOPR. Specifically, TSL 6 for 

smaller-volume gas-fired storage water heaters effectively continues to allow the use of 

atmospherically-vented technology. DOE reviewed the current market at 40 gallons rated 

storage volume and two current designs offered at a 0.63 EF: (1) an atmosphericallyvented unit and (2) a fan-assisted unit. Over 50 percent of these models have 

corresponding recovery efficiencies at or above 78 percent. 

The efficiency of a gas-fired water heater is characterized by a number of factors, 

including the energy factor, the first hour rating, and the recovery efficiency. For 

atmospherically-vented gas-fired storage water heaters, manufacturers primarily modify 

either the insulation thickness to increase the energy factor or the baffling to increase the 

recovery efficiency. The recovery efficiency characterizes how efficiently the heat from 

the energy source is transferred to the water. For each design and energy factor analyzed 

by DOE, manufacturers offer units in a range of recovery efficiencies. As the recovery 

efficiency increases, the risk for condensation to occur in the vent increases. Recovery 

efficiencies at or above 78 percent present a potential safety risk if condensation occurs in 

certain installations and the proper venting has not been installed in the residence, thereby 

potentially allowing carbon monoxide to enter and build up in the living space. 

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As explained in section IV.F.2.a above, DOE’s analysis assumed that installations 

with water heaters with recovery efficiency of 78 percent or higher (which accounted for 

57 percent of installations at TSL 6) would use stainless steel vent connectors. Without 

such vent connectors, there is a potential for corrosion of the vent due to condensation of 

flue gases. At present, however, the National Fuel Gas Code venting tables that are used 

as guidelines for installation are based on assumed recovery efficiencies of 76 percent, 

and they do not mention use of stainless steel vent connectors. Therefore, there is a 

possibility that some installations could occur without use of stainless steel vent 

connectors. 

DOE found that there are several 40-gallon gas-fired water heater models 

corresponding to TSL 6 efficiency levels that are currently available to consumers and 

that do not utilize power venting. These models do not have any venting or installation 

instructions directing installers to use special venting (other than what is already required 

by the National Fuel Gas Code and/or local codes) for these products, and it is unclear 

why the concerns raised have not been an issue for these products currently available on 

the market. 

However, in considering the adoption of a minimum standard for gas-fired water 

heaters at TSL 6 with rated storage volumes at or below 55 gallons, DOE believes there 

may be an increased risk of potential safety concerns due to improper installation of units 

with high recovery efficiencies. While DOE realizes there are units with recovery 

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efficiencies offered in a range of energy factors, DOE also believes this risks increases as 

the limits of atmospherically-vented technology are reached. 

Ideally, DOE believes the National Fuel Gas Code venting tables should be 

modified to properly address condensation-related issues for the units on the market with 

recovery efficiencies at or above 76 percent. This would include a recommendation to use 

stainless steel vent connectors at these recovery efficiencies regardless of energy factor 

and in order to mitigate most of the safety concerns for atmospherically-vented units. 

However, DOE cannot be certain whether such changes would occur before the 

compliance date of amended energy conservation standards for water heaters. Thus, in 

practice, there remains the possibility that some installations of TSL 6 gas-fired water 

heaters with recovery efficiencies at or above 78 percent would not use stainless steel 

vent connectors, which could result in safety problems in a likely small, but uncertain, 

number of cases. 

Therefore, for today’s final rule, the Secretary tentatively concludes that at TSL 6, 

the benefits of energy savings, positive consumer NPV, generating capacity reductions, 

economic savings for most consumers, and emission reductions would be outweighed the 

large capital conversion costs that could result in a large reduction in INPV for the 

manufacturers, the negative impacts on some consumer groups, and the safety concerns 

due to the corrosive condensate forming in the venting system of specific installations. 

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Next, DOE considered TSL 5, which is very similar to TSL 6 except that it 

considers a lower efficiency level for gas-fired storage water heaters with rated storage 

volumes less than or equal to 55 gallons. TSL 5 still pairs efficiency levels that would 

effectively require different technologies for large-volume and small-volume gas-fired 

and electric storage water heaters in an effort to promote advance technology penetration 

into the market and to potentially save additional energy. Specifically, TSL 5 would 

effectively require heat pump technology for electric storage water heaters with rated 

storage volumes greater than 55 gallons and condensing technology for gas-fired storage 

water heaters with rated storage volumes greater than 55 gallons. For gas-fired water 

heaters at TSL 5, DOE analyzed energy efficiency level 1 for small-volume units due to 

the potential safety concerns with corrosive condensate formation. 

TSL 5 would save 2.58 quads of energy, an amount DOE considers significant. 

Under TSL 5, the NPV of consumer benefit would be $1.39 billion, using a discount rate 

of 7 percent, and $8.67 billion, using a discount rate of 3 percent. 

The cumulative emissions reductions at TSL 5 are 154 Mt of CO2, 116 kt of NOX, 

and 0.553 t of Hg. The estimated monetary value of the cumulative CO2 emissions 

reductions at TSL 5 is $524 million to $8,179 million. Total generating capacity in 2045 

is estimated to decrease by 0.83 GW under TSL 5. 

At TSL 5, DOE projects that the average LCC impact is a gain (consumer cost 

savings) of $18 for gas-fired storage water heaters, a gain of $64 for electric storage 

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water heaters, a gain of $295 for oil-fired storage water heaters, and a gain of $9 for gasfired instantaneous water heaters. The median payback period is 2.3 years for gas-fired 

storage water heaters, 6.8 years for electric storage water heaters, 0.5 years for oil-fired 

storage water heaters, and 14.8 years for gas-fired instantaneous water heaters. At TSL 5, 

the fraction of consumers experiencing an LCC benefit is 40 percent for gas-fired storage 

water heaters, 58 percent for electric storage water heaters, 53 percent for oil-fired 

storage water heaters, and 4 percent for gas-fired instantaneous water heaters. The 

fraction of consumers experiencing an LCC cost is 27 percent for gas-fired storage water 

heaters, 33 percent for electric storage water heaters, 0 percent for oil-fired storage water 

heaters, and 5 percent for gas-fired instantaneous water heaters. 

At TSL 5, the estimated average LCC savings for gas-fired storage water heaters 

are slightly negative for multi-family households and manufactured home households, 

and slightly positive for senior-only households and low-income households. For all of 

the subgroups, a higher share of households have a net benefit than have a net cost. In the 

case of electric storage water heaters, the average LCC savings are positive for senioronly and low-income households, slightly negative for multi-family households, and 

negative for manufactured home households. In all cases except manufactured home 

households, a majority of the households in each subgroup experience a net benefit. 

At TSL 5, the projected change in INPV ranges from a decrease of up to $122.6 

million for gas-fired and electric storage water heaters, a decrease of up to $0.4 million 

for oil-fired storage water heaters, and a decrease of up to $1.2 million for gas-fired 

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instantaneous water heaters, in 2009$. The negative impacts on INPV are driven largely 

by the required efficiencies for gas-fired and electric storage water heaters with rated 

storage volumes above 55 gallons. TSL 5 would effectively require heat pump 

technology and condensing technology for the electric and gas-fired storage water heaters 

at these volume sizes. The efficiency requirements at TSL 5 for electric storage water 

heater with a rated volume less than 55 gallons also result in negative impacts because 

such large increases in insulation also require manufacturers to implement changes to 

their existing equipment. The oil-fired storage water heater and gas-fired instantaneous 

water heater efficiencies at TSL 5 do not require substantial changes to the existing 

operations for some manufacturers. The significant changes to gas-fired and electric 

storage water heaters with rated storage volumes greater than 55 gallons help to drive the 

INPVs negative, especially if profitability is impacted after the compliance date of the 

amended energy conservation standard. In particular, if the high end of the range of 

impacts is reached as DOE expects, TSL 5 could result in a net loss of 13.9 percent in 

INPV for gas-fired and electric storage water heaters, a net loss of 4.2 percent in INPV 

for oil-fired storage water heaters, and a net loss of 0.2 percent in INPV for gas-fired 

instantaneous water heaters. 

DOE believes TSL 5 would provide an effective mechanism for increasing the 

market penetration for advanced-technology water heaters. Given DOE’s concerns with 

TSL 7 (which includes a national heat pump water heater standard for electric storage 

water heaters across the entire range of rated storage volumes) as described above, DOE 

also strongly considered adopting TSL 5. TSL 5 results in positive NPV of consumer 

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benefit for both electric and gas-fired storage water heaters, and provides substantial 

energy and carbon savings, while mitigating some of the issues associated with a national 

heat pump water heater standard (TSL 7). Moreover, TSL 5 also reduces the risk of 

safety concerns for small-volume gas-fired storage water heaters by providing 

manufacturers with additional flexibility in reaching TSL 5 efficiency levels. 

Therefore, for today’s final rule, the Secretary has concluded that at TSL 5, the 

benefits of energy savings, positive consumer NPV, generating capacity reductions, 

economic savings for most consumers, and emission reductions (both in physical 

quantities and the monetized value of those emissions) outweigh the large capital 

conversion costs that could result in a large reduction in INPV for the manufacturers and 

the negative impacts on some consumer subgroups. Further, global benefits from carbon 

dioxide reductions (at a central value of $21.4 per ton for emissions in 2010) would have 

a present value of $2.7 billion. These benefits from carbon dioxide emission reductions, 

when considered in conjunction with the consumer savings NPV and other factors 

described above, support DOE's conclusion that TSL 5 is economically justified. 

Consequently, DOE is adopting TSL 5 for residential water heaters. Table VI.64 shows 

the standard levels DOE is adopting today for residential water heaters. 

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Table VI.64 Amended Energy Conservation Standards for Residential Water 

Heaters 

Residential Water Heaters 

Product Class Standard Level 

Gas-fired Storage For tanks with a Rated Storage 

Volume at or below 55 gallons: 

EF = 0.675 – (0.0015 x Rated 

Storage Volume in gallons) 

For tanks with a Rated Storage 

Volume above 55 gallons: 

EF = 0.8012 – (0.00078 x 

Rated Storage Volume in 

gallons) 

Electric Storage For tanks with a Rated Storage 

Volume at or below 55 gallons: 

EF = 0.960 – (0.0003 x Rated 

Storage Volume in gallons) 

For tanks with a Rated Storage 

Volume above 55 gallons: 

EF = 2.057 – (0.00113 x Rated 

Storage Volume in gallons) 

Oil-fired Storage EF = 0.68 – (0.0019 x Rated Storage Volume in gallons) 

Gas-fired Instantaneous EF = 0.82 – (0.0019 x Rated Storage Volume in gallons) 

3. Direct Heating Equipment 

Table VI.65 summarizes the results of DOE’s quantitative analysis for each TSL 

it considered for this final rule for direct heating equipment. 

Table VI.65 Summary of Analytical Results for Direct Heating Equipment 

Category TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 TSL 6 

National Energy Savings (quads) 0.20 0.21 0.23 0.43 0.48 1.26 

NPV of Consumer Benefits (2009$ billion) 

3% discount rate 1.32 1.34 1.39 (1.26) (1.22) (4.97) 

7% discount rate 0.54 0.55 0.56 (1.19) (1.24) (4.38) 

Industry Impacts 

Traditional Direct Heating Equipment 

Industry NPV (2009$ 

million) 

(0.9) ­

(2.5) 

(1.2) ­

(3.9) 

(1.9) ­

(7.0) 

(1.9) ­

(8.8) 

(3.8) ­

(10.4) 

(3.9) ­

(13.4) 

Industry NPV (% change) (5.2) ­

(14.9) 

(7.2) ­

(23.6) 

(11.3) ­

(42.4) 

(11.6) ­

(53.1) 

(22.7) ­

(64.2) 

(23.6) ­

(80.8) 

Gas Hearth Direct Heating Equipment 

Industry NPV (2009$ 

million) 

(0.2) ­

(0.9) 

(0.2) ­

(0.9) 

(0.2) ­

(0.9) 

1.6 ­

(13.2) 

1.6 ­

(13.2) 

8.6 ­

(53.6) 

Industry NPV (% change) (0.3) ­

(1.2) 

(0.3) ­

(1.2) 

(0.3) ­

(1.2) 

2.0 ­

(17.1) 

2.0 ­

(17.1) 

11.1 -

(69.5) 

Cumulative Emissions Reduction* 

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CO2 (Mt) 8.2 8.8 9.3 17.9 20.2 49.9 

NOX (kt) 7.5 8.1 8.5 16.4 18.6 46.0 

Value of Cumulative Emissions Reduction (2009$ million) ††

 CO2 31 to 

470 

33 to 503 35 to 530 67 to 

1,023 

76 to 

1,154 

187 to 

2,849

 NOX – 3% discount rate 1.9 to 

19.6 

2.0 to 

21.0 

2.1 to 

22.1 

4.2 to 

42.9 

4.7 to 

48.7 

11.7 to 

120

 NOX – 7% discount rate 0.99 to 

10.2 

1.06 to 

10.9 

1.1 to 

11.4 

2.2 to 

22.3 

2.5 to 

25.3 

6.1 to 

62.5 

Mean LCC Savings** (2009$) 

Gas Wall Fan 83 102 114 43 83 43 

Gas Wall Gravity 21 21 64 64 (56) (56) 

Gas Floor 13 13 13 13 13 13 

Gas Room 42 96 143 143 646 646 

Gas Hearth 96 96 96 (70) (70) (253) 

Median PBP (years) 

Gas Wall Fan 2.7 3.2 5.0 12.2 2.7 12.2 

Gas Wall Gravity 7.5 7.5 11.0 11.0 16.5 16.5 

Gas Floor 10.7 10.7 10.7 10.7 10.7 10.7 

Gas Room 6.7 4.5 4.8 4.8 6.9 6.9 

Gas Hearth 0 0 0 17.1 17.1 26.8 

Distribution of Consumer LCC Impacts 

Gas Wall Fan 

Net Cost (%) 0 3 19 53 0 53 

No Impact (%) 60 53 26 7 60 7 

Net Benefit (%) 40 44 55 40 40 40 

Gas Wall Gravity 

Net Cost (%) 10 10 33 33 70 70 

No Impact (%) 75 75 37 37 0 0 

Net Benefit (%) 15 15 30 30 30 30 

Gas Floor 

Net Cost (%) 25 25 25 25 25 25 

No Impact (%) 18 18 18 18 18 18 

Net Benefit (%) 57 57 57 57 57 57 

Gas Room 

Net Cost (%) 19 19 20 20 26 26 

No Impact (%) 31 56 55 55 49 49 

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Net Benefit (%) 50 25 25 25 25 25 

Gas Hearth 

Net Cost (%) 9 9 9 69 69 81 

No Impact (%) 40 40 40 17 17 19 

Net Benefit (%) 51 51 51 13 13 0 

Generation Capacity Change (GW 

in 2042) 

0.024 0.026 0.028 0.036 0.041 0.103 

Employment Impacts 

Total Potential Changes in Domestic Production Workers in 2013 

Traditional Direct Heating 

Equipment (275) - 4 (275) - 6 (275) - 33 (275) - 37 (275) - 35 (275) ­

44 

Gas Hearth Direct Heating 

Equipment 

(1,280) ­

6 (1,280) - 6 (1,280) - 6 (1,280) – 

448 

(1,280) – 

448 

(1,280) ­

770 

Net Change in National Indirect 

Employment in 2042 (thousands) ††† 

0.21 0.22 0.23 0.16 0.19 0.51 

Parentheses indicate negative (-) values. 

* The impacts for Hg emissions are negligible (less than 0.01 ton). 


** For LCCs, a negative value means an increase in LCC by the amount indicated.


†† Range of the economic value of CO2 reductions is based on estimates of the global benefit of reduced CO2
 

emissions.
 

††† National Indirect Employment Impacts exclude direct impacts. 

DOE first considered TSL 6, the max-tech level. TSL 6 would save 1.26 quads of 

energy, an amount DOE considers significant. TSL 6 would decrease consumer NPV by 

$4.38 billion, using a discount rate of 7 percent, and by $4.97 billion, using a discount 

rate of 3 percent. 

The emissions reductions at TSL 6 are 49.9 Mt of CO2 and 46.0 kt of NOX. The 

estimated monetary value of the cumulative CO2 emissions reductions at TSL 6 is $187 

million to $2,849 million. Total generating capacity in 2042 is estimated to increase 

slightly under TSL 6. 

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At TSL 6, DOE projects that the average LCC impact for consumers is a gain of 

$43 for gas wall fan DHE, a loss of $56 for gas wall gravity DHE, a gain of $13 for gas 

floor DHE, a gain of $646 for gas room DHE, and a loss of $253 for gas hearth DHE. 

The median payback period is 12.2 years for gas wall fan DHE, 16.5 years for gas wall 

gravity DHE, 10.7 years for gas floor DHE, 6.9 years for gas room DHE, and 26.8 years 

for gas hearth DHE (which is significantly longer than the mean lifetime of the product). 

At TSL 6, the fraction of consumers experiencing an LCC benefit is 40 percent for gas 

wall fan DHE, 30 percent for gas wall gravity DHE, 57 percent for gas floor DHE, 25 

percent for gas room DHE, and 0 percent for gas hearth DHE. The fraction of consumers 

experiencing an LCC cost is 53 percent for gas wall fan DHE, 70 percent for gas wall 

gravity DHE, 25 percent for gas floor DHE, 26 percent for gas room DHE, and 81 

percent for gas hearth DHE. 

With respect to consumer subgroups, DOE estimated that the impacts of TSL 6 

would be approximately the same for the senior-only and low-income subgroups as they 

are for the full household sample. 

At TSL 6, the projected change in INPV ranges from a decrease of up to $13.4 

million for traditional DHE and a decrease of up to $53.6 million for gas hearth DHE, in 

2009$. Very few manufacturers offer products at the max-tech level for both traditional 

and gas hearth DHE. At TSL 6, almost every manufacturer would face substantial 

product and capital conversion costs to completely redesign most of their current 

products and existing production facilities. In addition, higher component costs could 

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significantly harm profitability. If the high end of the range of impacts is reached as DOE 

expects, TSL 6 could result in a net loss of 80.8 percent in INPV for traditional DHE and 

a net loss of 69.5 percent in INPV for gas hearth DHE. In addition to the large, negative 

impacts on INPV at TSL 6, the required capital and product conversion costs could cause 

material harm to a significant number of small business manufacturers in both the 

traditional and gas hearth DHE market. The conversion costs could cause many of these 

small business manufacturers to exit the market. 

Therefore, the Secretary concludes that at TSL 6, the benefits of energy savings 

and emission reductions would be outweighed by the negative impacts on consumer 

NPV, the economic burden on some consumers, the large capital conversion costs that 

could result in a large reduction in INPV for the manufacturers, and the potential impacts 

on a significant number of small business manufacturers. Consequently, the Secretary has 

concluded that TSL 6 is not economically justified. 

Next, DOE considered TSL 5. TSL 5 would save 0.48 quads of energy, an amount 

DOE considers significant. TSL 5 would decrease consumer NPV by $1.24 billion, using 

a discount rate of 7 percent, and by $1.22 billion, using a discount rate of 3 percent. 

The emissions reductions at TSL 5 are 20.2 Mt of CO2 and 18.6 kt of NOX. The 

estimated monetary value of the cumulative CO2 emissions reductions at TSL 5 is $76 

million to $1,154 million. Total generating capacity in 2042 is estimated to increase 

slightly under TSL 5. 

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At TSL 5, DOE projects that the average LCC impact for consumers is a gain of 

$83 for gas wall fan DHE, a loss of $56 for gas wall gravity DHE, a gain of $13 for gas 

floor DHE, a gain of $646 for gas room DHE, and a loss of $70 for gas hearth DHE. The 

median payback period is 2.7 years for gas wall fan DHE, 16.5 years for gas wall gravity 

DHE, 10.7 years for gas floor DHE, 6.9 years for gas room DHE, and 17.1 years for gas 

hearth DHE. At TSL 5, the fraction of consumers experiencing an LCC benefit is 40 

percent for gas wall fan DHE, 30 percent for gas wall gravity DHE, 57 percent for gas 

floor DHE, 25 percent for gas room DHE, and 13 percent for gas hearth DHE. The 

fraction of consumers experiencing an LCC cost is 0 percent for gas wall fan DHE, 70 

percent for gas wall gravity DHE, 25 percent for gas floor DHE, 26 percent for gas room 

DHE, and 69 percent for gas hearth DHE. 

With respect to consumer subgroups, DOE estimated that the impacts of TSL 5 

would be approximately the same for the senior-only and low-income subgroups as they 

are for the full household sample. 

At TSL 5, the projected change in INPV ranges from a decrease of up to $10.4 

million for traditional DHE and a decrease of up to $13.2 million for gas hearth DHE, in 

2009$. While some manufacturers offer a limited number of products at TSL 5, most of 

the current products would have to be redesigned to meet the required efficiencies at TSL 

5. In addition, higher component costs for both traditional and gas hearth DHE could 

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significantly harm profitability. If the high end of the range of impacts is reached as DOE 

expects, TSL 5 could result in a net loss of 62.4 percent in INPV for traditional DHE and 

a net loss of 17.1 percent in INPV for gas hearth DHE. In addition to the large, negative 

impacts on INPV at TSL 5, the required capital and product conversion costs could cause 

material harm to a significant number of small business manufacturers in both the 

traditional and gas hearth DHE market. These manufacturers could be forced to 

discontinue many of their existing product lines and, possibly, exit the market altogether. 

Therefore, the Secretary concludes that at trial standard level 5, the benefits of 

energy savings and emission reductions would be outweighed by the negative impacts on 

consumer NPV, the economic burden on some consumers, the large capital conversion 

costs that could result in a large reduction in INPV for the manufacturers, and the 

potential for small business manufacturers to have to reduce or discontinue a significant 

number of their product lines. Consequently, the Secretary has concluded that trial 

standard level 5 is not economically justified. 

Next, DOE considered TSL 4. TSL 4 would save 0.43 quads of energy, an amount 

DOE considers significant. TSL 4 would decrease consumer NPV by $1.19 billion, using 

a discount rate of 7 percent, and $1.26 billion, using a discount rate of 3 percent. 

The emissions reductions at TSL 4 are 17.9 Mt of CO2 and 16.4 kt of NOX. The 

estimated monetary value of the cumulative CO2 emissions reductions at TSL 4 is $67 

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million to $1,023 million. Total generating capacity in 2042 is estimated to increase 

slightly under TSL 4. 

At TSL 4, DOE projects that the average LCC impact for consumers is a gain of 

$43 for gas wall fan DHE, a gain of $64 for gas wall gravity DHE, a gain of $13 for gas 

floor DHE, a gain of $143 for gas room DHE, and a loss of $70 for gas hearth DHE. The 

median payback period is 12.2 years for gas wall fan DHE, 11.0 years for gas wall 

gravity DHE, 10.7 years for gas floor DHE, 4.8 years for gas room DHE, and 17.1 years 

for gas hearth DHE. At TSL 4, the fraction of consumers experiencing an LCC benefit is 

40 percent for gas wall fan DHE, 30 percent for gas wall gravity DHE, 57 percent for gas 

floor DHE, 57 percent for gas room DHE, and 13 percent for gas hearth DHE. The 

fraction of consumers experiencing an LCC cost is 53 percent for gas wall fan DHE, 33 

percent for gas wall gravity DHE, 25 percent for gas floor DHE, 20 percent for gas room 

DHE, and 69 percent for gas hearth DHE. 

With respect to consumer subgroups, DOE estimated that the impacts of TSL 4 

would be approximately the same for the senior-only and low-income subgroups as they 

are for the full household sample. 

At TSL 4, the projected change in INPV ranges from a decrease of up to $8.8 

million for traditional DHE and decrease of up to $13.2 million for gas hearth DHE. 

While some manufacturers offer a limited number of products at TSL 4, most of the 

current products would have to be redesigned to meet the required efficiencies at TSL 4. 

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In addition, higher component costs for both traditional and gas hearth DHE could 

significantly harm profitability. If the high end of the range of impacts is reached as DOE 

expects, TSL 4 could result in a net loss of 53.1 percent in INPV for traditional DHE and 

a net loss of 17.1 percent in INPV for gas hearth DHE. In addition to the large, negative 

impacts on INPV at TSL 4, the required capital and product conversion costs could cause 

material harm to a significant number of small business manufacturers in both the 

traditional and gas hearth DHE market. These manufacturers could be forced to reduce 

their product offerings to remain competitive. 

Therefore, the Secretary concludes that at trial standard level 4, the benefits of 

energy savings and emission reductions would be outweighed by the negative impacts on 

consumer NPV, the economic burden on some consumers, the large capital conversion 

costs that could result in a large reduction in INPV for the manufacturers, and the 

potential for small business manufacturers of DHE to have to reduce their product 

offerings. Consequently, the Secretary has concluded that trial standard level 4 is not 

economically justified. 

Next, DOE considered TSL 3. TSL 3 would save 0.23 quads of energy, an amount 

DOE considers significant. TSL 3 would provide an NPV of consumer benefit of $0.56 

billion, using a discount rate of 7 percent, and $1.39 billion, using a discount rate of 3 

percent. 

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The emissions reductions at TSL 3 are 9.3 Mt of CO2 and 8.5 kt of NOX. The 

estimated monetary value of the cumulative CO2 emissions reductions at TSL 3 is $35 

million to $530 million. Total electric generating capacity in 2042 is estimated to increase 

slightly under TSL 3. 

At TSL 3, DOE projects that the average LCC impact for consumers is a gain of 

$114 for gas wall fan DHE, a gain of $64 for gas wall gravity DHE, a gain of $13 for gas 

floor DHE, a gain of $143 for gas room DHE, and a gain of $96 for gas hearth DHE. The 

median payback period is 5.0 years for gas wall fan DHE, 11.0 years for gas wall gravity 

DHE, 10.7 years for gas floor DHE, 4.8 years for gas room DHE, and 0.0 years for gas 

hearth DHE. At TSL 3, the fraction of consumers experiencing an LCC benefit is 55 

percent for gas wall fan DHE, 30 percent for gas wall gravity DHE, 57 percent for gas 

floor DHE, 25 percent for gas room DHE, and 51 percent for gas hearth DHE. The 

fraction of consumers experiencing an LCC cost is 19 percent for gas wall fan DHE, 33 

percent for gas wall gravity DHE, 25 percent for gas floor DHE, 20 percent for gas room 

DHE, and 9 percent for gas hearth DHE. 

With respect to consumer subgroups, DOE estimated that the impacts of TSL 3 

would be approximately the same for the senior-only and low-income subgroups as they 

are for the full household sample. 

At TSL 3, the projected change in INPV ranges from a decrease of up to $7 

million for traditional DHE and decrease of up to $0.9 million for gas hearth DHE. If the 

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high end of the range of impacts is reached, TSL 3 could result in a net loss of 42.4 

percent in INPV for traditional DHE and a net loss of 1.2 percent in INPV for gas hearth 

DHE. The impacts on gas hearth DHE manufacturers are less significant at TSL 3 

because manufacturers offer a wide range of product lines that meet the required 

efficiencies at TSL 3 and most products that do not meet TSL 3 could be upgraded with 

inexpensive purchased parts and fairly small conversion costs. 

For traditional direct heating equipment, however, not all manufacturers have a 

substantial number of existing products that meet the efficiencies required at TSL 3. The 

industry has consolidated significantly over the last decade due to a steady decline in 

shipments. The three competitors that account for nearly 100 percent of the market have 

survived by consolidating a variety of legacy brands and products and providing them in 

replacement situations. Thus, each of the three competitors, two of which are small 

business manufacturers, would face the prospect of significantly upgrading several lowvolume product lines. For the most part, manufacturers do not have significant volume 

over which to spread the capital conversion costs required by TSL 3, meaning that 

margins will likely be pressured unless consumers accept large increases in product price. 

As a whole, DOE expects the industry would be required to invest $8.0 million to convert 

its product lines to meet TSL 3, or roughly half of the industry value. Because shipments 

are expected to remain flat or continue to decline, there may be limited opportunity for all 

manufacturers to recoup the investment necessary at TSL 3 to upgrade their product lines. 

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At TSL 3, the impacts on small business manufacturers are even more harmful 

than to the industry as a whole. For example, the typical small business manufacturer in 

the industry would require investment equal to 426 percent of its annual earnings before 

interest and taxes. With these prospects, it is likely manufacturers would drop a number 

of product lines or exit the market entirely. The small business manufacturers would 

likely be disproportionately affected by TSL 3 because they would need to spread the 

product development costs, including R&D, over lower volumes. Finally, in the 

important gas wall gravity category, small business manufacturers have a limited number 

of products that meet the required efficiencies. The two small business manufacturers 

with significant market shares have a total of 6 models that meet the required efficiencies 

out of a total of 29 models for gas wall gravity DHE. Based on the public comments of 

these small manufacturers, these products also represent a small percentage of total sales. 

To offer a full range of the most popular replacements, a typical small manufacturer 

would have to convert over 70 percent of its gas wall gravity product lines, including 

multiple modifications to their most popular products. 

Therefore, the Secretary concludes that at TSL 3, the benefits of energy savings, 

emission reductions, and consumer NPV benefits would be outweighed by the economic 

burden on some consumers, the large capital conversion costs that could result in a large 

reduction in INPV for the manufacturers of traditional DHE, and the potential for small 

business manufacturers of DHE to reduce their product offerings or to be forced to exit 

the market completely, thereby reducing competition in the traditional DHE market. 

Consequently, the Secretary has concluded that TSL 3 is not economically justified. 

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Next, DOE considered TSL 2. TSL 2 would save 0.21 quads of energy, an amount 

DOE considers significant. TSL 2 would provide a NPV of consumer benefit of $0.55 

billion, using a discount rate of 7 percent, and $1.34 billion, using a discount rate of 3 

percent. 

The emissions reductions at TSL 2 are 8.8 Mt of CO2 and 8.1 kt of NOX. The 

estimated monetary value of the cumulative CO2 emissions reductions at TSL 2 is $33 

million to $503 million. Total electric generating capacity in 2042 is estimated to increase 

slightly under TSL 2. 

At TSL 2, DOE projects that the average LCC impact for consumers is a gain of 

$102 for gas wall fan DHE, a gain of $21 for gas wall gravity DHE, a gain of $13 for gas 

floor DHE, a gain of $96 for gas room DHE, and a gain of $96 for gas hearth DHE. The 

median payback period is 3.2 years for gas wall fan DHE, 7.5 years for gas wall gravity 

DHE, 10.7 years for gas floor DHE, 4.5 years for gas room DHE, and 0.0 years for gas 

hearth DHE. At TSL 2, the fraction of consumers experiencing an LCC benefit is 44 

percent for gas wall fan DHE, 15 percent for gas wall gravity DHE, 57 percent for gas 

floor DHE, 25 percent for gas room DHE, and 51 percent for gas hearth DHE. The 

fraction of consumers experiencing an LCC cost is 3 percent for gas wall fan DHE, 10 

percent for gas wall gravity DHE, 25 percent for gas floor DHE, 19 percent for gas room 

DHE, and 9 percent for gas hearth DHE. 

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With respect to consumer subgroups, DOE estimated that the impacts of TSL 2 

would be approximately the same for the senior-only and low-income subgroups as they 

are for the full household sample. 

At TSL 2, the projected change in INPV ranges from a decrease of up to $3.9 

million for traditional DHE and decrease of up to $0.9 million for gas hearth DHE. The 

impacts on gas hearth DHE manufacturers are less significant at TSL 2 because 

manufacturers offer a wide range of product lines that meet the required efficiencies at 

TSL 2, and most products that do not meet TSL 2 could be upgraded with inexpensive 

purchased parts at fairly small conversion costs. If the high end of the range of impacts is 

reached, TSL 2 could result in a net loss of 23.6 percent in INPV for traditional DHE and 

a net loss of 1.2 percent in INPV for gas hearth DHE. In addition, the required capital and 

product conversion costs faced by small business manufacturers at this level decrease 

substantially, thereby mitigating the potential harm to a significant number of small 

business manufacturers. 

In total, DOE estimates that it will take approximately $4.6 million for the 

industry to upgrade all of it products to meet the amended energy conservation standards. 

Despite including the conversion costs for the additional product lines that were released 

since the NOPR analysis was completed, the total conversion costs estimated by the 

industry to upgrade all products that do not meet the amended energy conservation 

standards is down $1.8 million from the $6.4 million total estimated for the proposed 

standards in the December 2009 NOPR, given the change in the standard level DOE has 

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ultimately decided to adopt. For the amended energy conservation standards, one major 

manufacturer has a total of 3 product lines (7 models) that do not meet the amended 

energy conservation standards in the two smallest categories (gas floor and gas room 

DHE) but has a majority of product lines and models that meet the amended standards in 

the two largest product categories (gas wall fan and gas wall gravity). The other two 

major manufacturers have existing product lines that meet the amended energy 

conservation standards in all 4 product categories. Therefore, without spending any 

conversion costs, at least two manufacturers already have existing products in all four 

product categories. In the most important gas wall gravity category, 57 percent of the 

existing models and 71 percent of the existing product lines identified by DOE meet the 

amended energy conservation standards. One manufacturer indicated in written 

comments that the important gas wall gravity products that meet the amended energy 

conversation standard represent a small portion of total sales. However, DOE believes it 

has addressed the concerns of this manufacturer by setting an amended energy 

conservation standard that would require much less substantial changes than those 

proposed in the NOPR (a two percentage point improvement in AFUE versus the six 

percentage point improvement proposed in the NOPR). While the $4.6 million in total 

conversion costs to upgrade all product lines that do not meet the amended energy 

conservation standards is substantial, DOE believes that a combination of products that 

meet the amended energy conservation standards and selectively upgrading popular 

product lines that fall below the standards will allow all three traditional DHE 

manufacturers to maintain a viable production volume. 

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After considering the analysis, comments on the December 2009 NOPR, and the 

benefits and burdens of TSL 2, the Secretary concludes that this trial standard level will 

offer the maximum improvement in efficiency that is technologically feasible and 

economically justified, and will result in significant conservation of energy. Further, 

global benefits from carbon dioxide reductions (at a central value of $21.4 for emissions 

in 2010) would have a present value of $165 million. These benefits from carbon dioxide 

emission reductions (both in physical reductions and the monetized value of those 

reductions), when considered in conjunction with the consumer savings NPV and other 

factors described above, outweigh the potential reduction in INPV for manufacturers and 

support DOE's conclusion that trial standard level 2 is economically justified. Therefore, 

the Department today adopts the energy conservation standards for direct heating 

equipment at TSL 2, as shown in Table VI.66. 

Table VI.66 Amended Energy Conservation Standards for Direct Heating 

Equipment 

Direct Heating Equipment 

Product Class Standard Level 

Gas wall fan type up to 42,000 Btu/h AFUE = 75% 

Gas wall fan type over 42,000 Btu/h AFUE = 76% 

Gas wall gravity type up to 27,000 Btu/h AFUE = 65% 

Gas wall gravity type over 27,000 Btu/h up to 46, 000 Btu/h AFUE = 66% 

Gas wall gravity type over 46,000 Btu/h AFUE = 67% 

Gas floor up to 37,000 Btu/h AFUE = 57% 

Gas floor over 37,000 Btu/h AFUE = 58% 

Gas room up to 20,000 Btu/h AFUE = 61% 

Gas room over 20,000 Btu/h up to 27,000 Btu/h AFUE = 66% 

Gas room over 27,000 Btu/h up to 46,000 Btu/h AFUE = 67% 

Gas room over 46,000 Btu/h AFUE = 68% 

Gas hearth up to 20,000 Btu/h AFUE = 61% 

Gas hearth over 20,000 Btu/h and up to 27,000 Btu/h AFUE = 66% 

Gas hearth over 27,000 Btu/h and up to 46,000 Btu/h AFUE = 67% 

Gas hearth over 46,000 Btu/h AFUE = 68% 

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4. Pool Heaters 

Table VI.67 summarizes the results of DOE’s quantitative analysis for each TSL 

it considered for this final rule for pool heaters. 

Table VI.67 Summary of Analytical Results for Pool Heaters 

Category TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 TSL 6 

National Energy Savings (quads) 0.01 0.02 0.04 0.06 0.09 0.22 

NPV of Consumer Benefits (2009$ billion) 

3% discount rate 0.10 0.10 (0.01) (0.15) (2.32) (4.56) 

7% discount rate 0.04 0.04 (0.06) (0.16) (1.39) (2.87) 

Industry Impacts 

Industry NPV (2009$ million) 0.0 ­

(0.1) 

0.3 - (0.8) (0.8) ­

(5.0) 

(0.3) ­

(6.6) 

0.8 ­

(17.2) 

7.3 ­

(38.3) 

Industry NPV (% change) 0.1 ­

(0.2) 

0.5 - (1.7) (1.7) ­

(10.2) 

(0.6) ­

(13.5) 

1.6 ­

(35.0) 

14.9 ­

(78.0) 

Cumulative Emissions Reduction* 

CO2 (Mt) 0.41 0.75 1.72 2.38 3.61 8.89 

NOX (kt) 0.37 0.67 1.53 2.10 3.18 7.84 

Value of Cumulative Emissions Reduction (2009$ million) ††

 CO2 2 to 24 3 to 43 6 to 99 9 to 136 14 to 206 33 to 509

 NOX – 3% discount rate 0.1 to 

1.0 0. 2 to 1.8 0.4 to 4.1 0.5 to 5.6 0.8 to 8.4 2.0 to 

20.77

 NOX – 7% discount rate 0.1 to 

0.5 0.1 to 0.9 0.2 to 2.2 0.29 to 2.9 0.4 to 4. 5 1.1 to 

11.0 

Mean LCC Savings** (2009$) 25 22 (6) (52) (632) (1,361) 

Median PBP (years) 2.7 8.6 18.2 19.2 38.1 33.2 

Distribution of Consumer LCC Impacts 

Net Cost (%) 5 27 60 64 88 95 

No Impact (%) 72 51 23 21 9 1 

Net Benefit (%) 23 22 17 15 3 4 

Generation Capacity Change (GW 

in2042) 

0.00 0.00 0.00 +0.01 +0.01 +0.03 

Employment Impacts 

Total Potential Changes in 

Domestic Production Workers in 

2013 

(512) ­

7 (512) - 19 (512) - 58 (512) - 81 (512) ­

135 

(512) ­

268 

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Net Change in National Indirect 

Employment in 2042 (thousands)††† 

0.01 0.02 0.02 0.02 0.04 (0.07) 

Parentheses indicate negative (-) values. 

* The impacts for Hg emissions are negligible.
 

** For LCCs, a negative value means an increase in LCC by the amount indicated.


†† Range of the economic value of CO2 reductions is based on estimates of the global benefit of reduced CO2
 

emissions.
 

††† National Indirect Employment Impacts exclude direct impacts. 

DOE first considered TSL 6, the max-tech level. TSL 6 would save 0.22 quads of 

energy, an amount DOE considers significant. TSL 6 would decrease consumer NPV by 

$2.87 billion, using a discount rate of 7 percent, and by $4.56 billion, using a discount 

rate of 3 percent. 

The emissions reductions at TSL 6 are 8.89 Mt of CO2 and 7.84 kt of NOX. The 

estimated monetary value of the cumulative CO2 emissions reductions at TSL 6 is $33 

million to $509 million, using a discount rate of 7 percent. Total generating capacity in 

2042 is estimated to increase slightly under TSL 6. 

At TSL 6, DOE projects that the average LCC impact for consumers is a loss of 

$1,361. The median payback period is 33.2 years (which is substantially longer than the 

mean lifetime of the product). At TSL 6, the fraction of consumers experiencing an LCC 

benefit is 4 percent. The fraction of consumers experiencing an LCC cost is 95 percent. 

At TSL 6, the INPV is projected to decrease by up to $38.3 million for gas-fired 

pool heaters. Currently, gas-fired pool heaters that meet the efficiencies required by TSL 

6 are manufactured in extremely low volumes by a limited number of manufacturers. The 

significant impacts on manufacturers arise from the large costs to develop or increase the 

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production of fully-condensing products. In addition, manufacturers are significantly 

harmed if profitability is negatively impacted to keep consumers in the market for a 

luxury item that is significantly more expensive than most products currently sold. If the 

high end of the range of impacts is reached as DOE expects, TSL 6 could result in a net 

loss of 78 percent in INPV for gas-fired pool heaters. 

 Therefore, the Secretary has concluded that at TSL 6, the benefits of energy 

savings and emission reductions would be outweighed by the negative impacts on 

consumer NPV, the economic burden on some consumers (as indicated by the large 

increase in total installed cost), and the large capital conversion costs that could result in 

a large reduction in INPV for the manufacturers. Consequently, the Secretary has 

concluded that TSL 6 is not economically justified. 

Next, DOE considered TSL 5. TSL 5 would save 0.09 quads of energy, an amount 

DOE considers significant. TSL 5 would decrease consumer NPV by $1.39 billion, using 

a discount rate of 7 percent, and by $2.32 billion, using a discount rate of 3 percent. 

The emissions reductions at TSL 5 are 3.6 Mt of CO2 and 3.2 kt of NOX. The 

estimated monetary value of the cumulative CO2 emissions reductions at TSL 5 is $14 

million to $206 million. Total generating capacity in 2042 is estimated to increase 

slightly under TSL 5. 

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At TSL 5, DOE projects that the average LCC impact for consumers is a loss of 

$632. The median payback period is 38.1 years (which is substantially longer than the 

mean lifetime of the product). At TSL 5, the fraction of consumers experiencing an LCC 

benefit is 3 percent. The fraction of consumers experiencing an LCC cost is 88 percent. 

At TSL 5, the projected change in INPV is a decrease of up to $17.2 million for 

gas-fired pool heaters. Currently, gas-fired pool heaters that meet the efficiencies 

required by TSL 5 are manufactured in extremely low volumes by a limited number of 

manufacturers, as with TSL 6. The significant adverse impacts on manufacturers arise 

from the large costs to develop or increase the production of products with multiple 

efficiency improvements. In addition, the potential for manufacturers to be significantly 

harmed increases if consumers’ purchasing decisions are impacted and shipments decline 

due to the large increases in first cost for a luxury item. If the high end of the range of 

impacts is reached as DOE expects, TSL 5 could result in a net loss of 35 percent in 

INPV for gas-fired pool heaters. 

Therefore, the Secretary has concluded that at TSL 5, the benefits of energy 

savings and emission reductions would be outweighed by the negative impacts on 

consumer NPV, the economic burden on some consumers, and the large capital 

conversion costs that could result in a large reduction in INPV for the manufacturers. 

Consequently, the Secretary has concluded that TSL 5 is not economically justified. 

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Next, DOE considered TSL 4. TSL 4 would save 0.06 quads of energy, an amount 

DOE considers significant. TSL 4 would decrease consumer NPV by $0.16 billion, using 

a discount rate of 7 percent, and by $0.15 billion, using a discount rate of 3 percent. 

The cumulative emissions reductions at TSL 4 are 2.38 Mt of CO2 and 2.10 kt of 

NOX. The estimated monetary value of the cumulative CO2 emissions reductions at TSL 

4 is $9 million to $136 million. Total generating capacity in 2042 is estimated to increase 

slightly under TSL 4. 

At TSL 4, DOE projects that the average LCC impact for consumers is a loss of 

$52. The median payback period is 19.2 years (which is substantially longer than the 

mean lifetime of the product). At TSL 4, the fraction of consumers experiencing an LCC 

benefit is 15 percent. The fraction of consumers experiencing an LCC cost is 64 percent. 

At TSL 4, DOE projects that INPV decreases by up to $6.6 million for gas-fired 

pool heaters. At TSL 4, manufacturers believe that profitability could be harmed in order 

to keep consumers in the market for a luxury item that is more expensive than the most 

common products currently sold. If the high end of the range of impacts is reached as 

DOE expects, TSL 4 could result in a net loss of 13.5 percent in INPV for gas-fired pool 

heaters. 

Therefore, the Secretary has concluded that at TSL 4, the benefits of energy 

savings and emission reductions would be outweighed by the negative impacts on 

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consumer NPV, the economic burden on some consumers, and the large capital 

conversion costs that could result in a large reduction in INPV for the manufacturers. 

Consequently, the Secretary has concluded that TSL 4 is not economically justified. 

Next, DOE considered TSL 3. TSL 3 would save 0.04 quads of energy, an amount 

DOE considers significant. TSL 3 would decrease consumer NPV by $0.06 billion, using 

a discount rate of 7 percent, and by $0.01 billion, using a discount rate of 3 percent. 

The cumulative emissions reductions at TSL 3 are 1.72 Mt of CO2 and 1.53 kt of 

NOX. The estimated monetary value of the cumulative CO2 emissions reductions at TSL 

3 is $6 million to $99 million. Total generating capacity in 2042 is estimated to stay the 

same under TSL 3. 

At TSL 3, DOE projects that the average LCC impact for consumers is a loss of 

$6. The median payback period is 18.2 years (which is substantially longer than the mean 

lifetime of the product). At TSL 3, the fraction of consumers experiencing an LCC 

benefit is 17 percent. The fraction of consumers experiencing an LCC cost is 60 percent. 

At TSL 3, DOE projects that INPV decreases by up to $5 million for gas-fired 

pool heaters. At TSL 3, manufacturers believe that profitability could be harmed in order 

to keep consumers in the market for a luxury item that is more expensive than the most 

common products currently sold, as with TSL 4. If the high end of the range of impacts is 

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reached as DOE expects, TSL 3 could result in a net loss of 10 percent in INPV for gasfired pool heaters. 

Therefore, the Secretary has concluded that at TSL 3, the benefits of energy 

savings and emission reductions would be outweighed by the negative impacts on 

consumer NPV, the economic burden on some consumers, and the large capital 

conversion costs that could result in a large reduction in INPV for the manufacturers. 

Consequently, the Secretary has concluded that TSL 3 is not economically justified. 

Next, DOE considered TSL 2. TSL 2 would save 0.02 quads of energy, an amount 

DOE considers significant. TSL 2 would increase consumer NPV by $0.04 billion, using 

a discount rate of 7 percent, and by $0.10 billion, using a discount rate of 3 percent. 

The cumulative emissions reductions at TSL 2 are 0.75 Mt of CO2 and 0.67 kt of 

NOX. The estimated monetary value of the cumulative CO2 emissions reductions at TSL 

2 is $3 million to $43 million. Total generating capacity in 2042 is estimated to stay the 

same under TSL 2. 

At TSL 2, DOE projects that the average LCC impact for consumers is a savings 

of $22. The median payback period is 8.6 years. At TSL 2, the fraction of consumers 

experiencing an LCC benefit is 22 percent. The fraction of consumers experiencing an 

LCC cost is 27 percent. 

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At TSL 2, DOE projects that INPV decreases by up to $0.8 million for gas-fired 

pool heaters. At TSL 2, manufacturers believe that profitability could be harmed in order 

to keep consumers in the market for a luxury item that is more expensive than the most 

common products currently sold, as with TSL 3 and 4. If the high end of the range of 

impacts is reached as DOE expects, TSL 2 could result in a net loss of 2 percent in INPV 

for gas-fired pool heaters. 

 After considering the analysis and the benefits and burdens of TSL 2, the 

Secretary has concluded that this trial standard level will offer the maximum 

improvement in efficiency that is technologically feasible and economically justified, and 

will result in significant conservation of energy. Further, global benefits from carbon 

dioxide reductions (at a central value of $21.4 for emissions in 2010) have a present value 

of $14 million. These benefits from carbon dioxide emission reductions (in both physical 

reductions and the monetized value of those reductions), when considered in conjunction 

with the consumer savings NPV and other factors described above, outweigh the 

potential reduction in INPV for manufacturers and support DOE's conclusion that trial 

standard level 2 is economically justified. Therefore, the Department today adopts the 

energy conservation standards for pool heaters at TSL 2, which requires a thermal 

efficiency of 82 percent for gas-fired pool heaters as shown in Table VI.68. 

Table VI.68 Amended Energy Conservation Standard for Pool Heaters 

Product Class Minimum Thermal 

Efficiency 

% 

Gas-fired Pool Heaters 82 

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VII. Procedural Issues and Regulatory Review 

A. Review Under Executive Order 12866 

Section 1(b)(1) of Executive Order 12866, “Regulatory Planning and Review,” 58 

FR 51735 (Oct. 4, 1993), requires each agency to identify in writing the market failure or 

other problem that it intends to address, and that warrants agency action (including where 

applicable, the failure of private markets or public institutions), as well as assess the 

significance of that problem, to enable assessment of whether any new regulation is 

warranted. The problems that today’s standards address are as follows: 

(1) There is a lack of consumer information and/or information processing capability 

about energy efficiency opportunities in the home appliance market. 

(2) There is asymmetric information (one party to a transaction has more and better 

information than the other) and/or high transactions costs (costs of gathering 

information and effecting exchanges of goods and services). 

(3) There are external benefits resulting from improved energy efficiency of heating 

products that are not captured by the users of such equipment. These benefits 

include externalities related to environmental protection and energy security that 

are not reflected in energy prices, such as reduced emissions of greenhouse gases. 

In addition, DOE has determined that today’s regulatory action is a “significant 

regulatory action” under section 3(f)(1) of Executive Order 12866. Accordingly, section 

6(a)(3) of the Executive Order requires that DOE prepare a regulatory impact analysis 

(RIA) on today’s rule and that the Office of Information and Regulatory Affairs (OIRA) 

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in the Office of Management and Budget (OMB) review this rule. DOE presented to 

OIRA for review the draft rule and other documents prepared for this rulemaking, 

including the RIA, and has included these documents in the rulemaking record. They are 

available for public review in the Resource Room of DOE’s Building Technologies 

Program, 950 L’Enfant Plaza, SW., Suite 600, Washington, DC 20024, (202) 586-2945, 

between 9:00 a.m. and 4:00 p.m., Monday through Friday, except Federal holidays. 

The RIA is contained in the TSD prepared for the rulemaking. The RIA consists 

of: (1) a statement of the problem addressed by this regulation, and the mandate for 

government action; (2) a description and analysis of the feasible policy alternatives to this 

regulation; (3) a quantitative comparison of the impacts of the alternatives; and (4) 

specific national impacts of the standards. 

The RIA calculates the effects of feasible policy alternatives to mandatory 

standards for heating products, and provides a quantitative comparison of the impacts of 

the alternatives. DOE evaluated each alternative in terms of its ability to achieve 

significant energy savings at reasonable costs, and compared it to the effectiveness of the 

standards in today’s rule. DOE analyzed these alternatives using a series of regulatory 

scenarios for the three types of heating products. It modified the heating product NIA 

models to allow inputs for these policy alternatives. Of the four product classes of 

residential water heaters subject to standards, this RIA concerns only gas-fired storage 

and electric storage water heaters, which together represent the majority of shipments. Of 

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the five product classes of DHE, this RIA concerns only gas wall fan DHE and gas hearth 

DHE, which together represent the majority of DHE shipments. 

DOE identified the following major policy alternatives for achieving increased 

energy efficiency in the three types of heating products: 

• No new regulatory action; 

• Consumer rebates; 

• Consumer tax credits; 

• Manufacturer tax credits; 

• Voluntary energy efficiency targets; 

• Bulk government purchases; 

• Early replacement programs; and 

• The regulatory action (energy conservation standards). 

DOE evaluated each alternative in terms of its ability to achieve significant 

energy savings at reasonable costs and compared it to the effectiveness of today’s rule. 

Table VII.1 through Table VII.5 show the results for energy savings and consumer NPV. 

Table VII.1 Impacts of Non-Regulatory Alternatives for Gas-Fired Storage Water 

Heaters that Meet the Standard (TSL 5) 

Policy Alternative 

Primary Energy 

Savings 

quads 

Net Present Value* 

billion 2009$ 

7% discount 

rate 

3% discount 

rate 

No New Regulatory Action 0.00 0.00 0.00 

Consumer Rebates 0.21 0.05 0.55 

Consumer Tax Credits 0.12 0.03 0.33 

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Manufacturer Tax Credits 0.06 0.01 0.17 

Voluntary Energy Efficiency Targets 0.12 0.05 0.38 

Early Replacement 0.001 -0.03 -0.05 

Bulk Government Purchases 0.003 0.004 0.01 

Energy Conservation Standard 0.81 0.27 2.37 

* DOE determined the NPV of consumer benefit for product shipments from 2015 to 2045. 

Table VII.2 Impacts of Non-Regulatory Alternatives for Electric Storage Water 

Heaters that Meet the Standard (TSL 5) 

Policy Alternative 

Primary Energy 

Savings 

Net Present Value* 

billion 2009$ 

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7% discount 

rate 

3% discount 

rate 

No New Regulatory Action 0.00 0.00 0.00 

Consumer Rebates 0.53 0.19 1.50 

Consumer Tax Credits 0.32 0.12 0.90 

Manufacturer Tax Credits 0.16 0.06 0.45 

Voluntary Energy Efficiency Targets 0.17 0.29 0.99 

Early Replacement 0.003 -0.05 -0.08 

Bulk Government Purchases 0.003 0.004 0.01 

Energy Conservation Standard 1.67 1.03 5.84 

* DOE determined the NPV of consumer benefit for product shipments from 2015 to 2045. 

Table VII.3 Impacts of Non-Regulatory Alternatives for Gas Wall Fan DHE that 

Meet the Standard (TSL 2) 

Policy Alternative 

Primary 

Energy Savings 

quads 

Net Present Value* 

billion 2009$ 

7% discount 

rate 

3% discount 

rate 

No New Regulatory Action 0.00 0.00 0.00 

Consumer Rebates 0.004 0.007 0.018 

Consumer Tax Credits 0.002 0.004 0.011 

Manufacturer Tax Credits 0.001 0.002 0.005 

Voluntary Energy Efficiency Targets 0.001 0.003 0.007 

Early Replacement <0.0001 0.000 0.000 

Bulk Government Purchases† NA NA NA 

Energy Conservation Standard 0.01 0.03 0.07 

* DOE determined the NPV of consumer benefit for product shipments from 2013 to 2043.

† DOE did not evaluate the bulk government purchase alternative for gas wall fan DHE because the market 

share associated with publicly-owned housing is minimal. 

Table VII.4 Impacts of Non-Regulatory Alternatives for Gas Hearth DHE that Meet 

the Standard (TSL 2) 

Policy Alternative 

Primary 

Energy 

Savings 

quads 

Net Present Value* 

billion 2009$ 

7% discount 

rate 

3% discount 

rate 

No New Regulatory Action 0.00 0.00 0.00 

Consumer Rebates 0.04 0.10 0.23 

Consumer Tax Credits 0.02 0.06 0.14 

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Manufacturer Tax Credits 0.01 0.03 0.07 

Voluntary Energy Efficiency Targets 0.02 0.05 0.14 

Early Replacement <0.001 0.000 0.000 

Bulk Government Purchases† NA NA NA 

Energy Conservation Standard 0.19 0.50 1.21 

* DOE determined the NPV of consumer benefit for product shipments from 2013 to 2043.

† DOE did not evaluate the bulk government purchase alternative for gas hearth DHE because the market 

share associated with publicly-owned housing is minimal. 

Table VII.5 Impacts of Non-Regulatory Alternatives for Pool Heaters that Meet the 

Standard (TSL 2) 

Policy Alternative 

Primary 

Energy 

Savings 

quads 

Net Present Value* 

billion 2009$ 

7% discount 

rate 3% discount rate 

No New Regulatory Action 0.00 0.00 0.00 

Consumer Rebates 0.006 0.01 0.03 

Consumer Tax Credits 0.003 0.006 0.02 

Manufacturer Tax Credits 0.002 0.003 0.01 

Voluntary Energy Efficiency Targets 0.002 0.004 0.01 

Early Replacement <0.001 0.000 0.000 

Bulk Government Purchases† NA NA NA 

Energy Conservation Standard 0.02 0.04 0.11 

* DOE determined the NPV of consumer benefit for product shipments from 2013 to 2043.

† DOE did not evaluate the bulk government purchase alternative for pool heaters because there is no 

market share associated with publicly-owned housing. 

The NPV amounts shown in Table VII.1 through Table VII.5 refer to the NPV of 

consumer benefits. The costs to the government of each policy (such as rebates or tax 

credits) are not included in the costs for the NPV since, on balance, consumers in the 

aggregate both pay for rebates and tax credits through taxes and receive their benefits. 

The following paragraphs discuss the cumulative effect of each policy alternative listed in 

Table VII.1 through Table VII.5. (See the regulatory impact analysis in the final rule 

TSD for details.) For comparison with the results reported below for the non-regulatory 

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policies, the combined impacts of the standards for all product classes considered in this 

rulemaking are projected to result in 2.81 quads of national energy savings and an NPV 

of consumer benefit of $1.98 billion (at a 7-percent discount rate). 

No new regulatory action. The case in which no regulatory action is taken 

constitutes the “base case” (or “no action”) scenario. Since this is the base case, energy 

savings and NPV are zero by definition. 

Consumer Rebates. If consumers were offered a rebate that covered a portion of 

the incremental price difference between products meeting baseline efficiency levels and 

those meeting the energy efficiency levels in the standards, the number of consumers 

buying a more-efficient water heater, pool heater, or DHE would increase relative to the 

base case. For example, as a result of the consumer rebates, DOE’s analysis suggests that 

the market share of water heaters meeting the standard level would increase from 35 

percent (in the base case) to 62 percent for gas-fired storage products, and from 9 percent 

(in the base case) to 48 percent for electric storage products. DOE assumed this policy 

would permanently transform the market so that the increased percentage of consumers 

purchasing more-efficient products seen in the first year of the program would be 

maintained throughout the forecast period. At the estimated participation rates, the 

rebates would provide 0.79 quads of national energy savings and an NPV of consumer 

benefit of $0.36 billion (at a 7-percent discount rate) for the five considered product 

classes. Although DOE estimated that rebates would provide national benefits, they 

would be much smaller than the benefits resulting from the national standards. 

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Consumer Tax Credits. If consumers were offered a tax credit that covered a 

portion of the incremental price difference between products meeting baseline efficiency 

levels and those meeting the energy efficiency levels in the standards, DOE’s analysis 

suggests that the number of consumers buying a water heater, pool heater, or DHE that 

would take advantage of the tax credit would be approximately 60 percent of the number 

that would take advantage of rebates. For example, as a result of the consumer tax credit, 

the market share of water heaters meeting the standard level would increase from 35 

percent (in the base case) to 51 percent for gas-fired storage products and from 9 percent 

(in the base case) to 31 percent for electric storage products. DOE assumed this policy 

would permanently transform the market so that the increased percentage of consumers 

purchasing more-efficient products seen in the first year of the program would be 

maintained throughout the forecast period. At the estimated participation rates, consumer 

tax credits would provide 0.47 quads of national energy savings and an NPV of consumer 

benefit of $0.22 billion (at a seven-percent discount rate) for the five considered products. 

Hence, DOE estimated that consumer tax credits would yield a fraction of the benefits 

that consumer rebates would provide. 

Manufacturer Tax Credits. DOE estimates that even smaller benefits would result 

from a manufacturer tax credit program that would effectively result in a lower price to 

the consumer by an amount that covers part of the incremental price difference between 

products meeting baseline efficiency levels and those meeting the standards. Because 

these tax credits would go to manufacturers instead of consumers, DOE assumed that 

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fewer consumers would be aware of this program than would be aware of a consumer tax 

credit program. DOE assumes that 50 percent of the consumers who would take 

advantage of consumer tax credits would buy more-efficient products offered through a 

manufacturer tax credit program. For example, as a result of the manufacturer tax credit, 

the market share of water heaters meeting the standard would increase from 35 percent 

(in the base case) to 43 percent for gas-fired storage products and from 9 percent (in the 

base case) to 20 percent for electric storage products. DOE assumed this policy would 

permanently transform the market so that the increased percentage of consumers 

purchasing more-efficient products seen in the first year of the program would be 

maintained throughout the forecast period. At the estimated participation rates, the 

rebates would provide 0.23 quads of national energy savings and an NPV of consumer 

benefit of $0.1 billion (at a seven-percent discount rate) for the five considered products. 

Thus, DOE estimated that manufacturer tax credits would yield a fraction of the benefits 

that consumer tax credits and rebates would provide. 

Voluntary Energy Efficiency Targets. The Federal government’s ENERGY 

STAR program has voluntary energy efficiency targets for gas-fired and electric storage 

water heaters. Some equipment purchases that result from the ENERGY STAR program 

already are reflected in DOE’s base-case scenario for gas-fired and electric storage water 

heaters. DOE evaluated the potential impacts of increased marketing efforts by ENERGY 

STAR that would encourage the purchase of water heaters meeting the standard. For 

direct heating equipment and pool heaters, DOE evaluated a hypothetical ENERGY 

STAR program for these products with market impacts comparable to the impacts of 

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existing ENERGY STAR programs for similar products. DOE modeled the voluntary 

efficiency program based on these scenarios. DOE estimated that the enhanced 

effectiveness of voluntary energy efficiency targets would provide 0.31 quads of national 

energy savings and an NPV of consumer benefit of $0.40 billion (at a 7-percent discount 

rate) for the five considered products. Although this would provide national benefits, they 

would be much smaller than the benefits resulting from the national standards. 

Early Replacement Incentives. This policy alternative envisions a program to 

replace old, inefficient water heaters, DHE, and pool heaters with models meeting the 

efficiency levels in the standards. DOE projected a 4-percent increase in the annual 

retirement rate of the existing stock in the first year of the program. It assumed the 

program would last as long as it took to completely replace all of the eligible existing 

stock in the year that the program begins (2013 or 2015). DOE estimated that for such an 

early replacement program, the national energy savings benefits would be negligible in 

comparison with the benefits resulting from the national standards, and the NPV would 

actually be negative. 

Bulk Government Purchases. Under this policy alternative, the government would 

be encouraged to purchase increased amounts of equipment that meet the efficiency 

levels in the standards. Federal, State, and local government agencies could administer 

such a program. At the Federal level, this would be an enhancement to the existing 

Federal Energy Management Program (FEMP). DOE modeled this program by assuming 

an increase in installation of water heaters meeting the efficiency levels of the standards 

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among those households for whom government agencies purchase or influence the 

purchase of water heaters. (Because the market share of DHE units in publicly-owned 

housing is minimal and the market share of pool heaters in publicly-owned housing is 

zero, the Department did not consider bulk government purchases for those products.) 

DOE estimated that bulk government purchases would provide negligible national energy 

savings and NPV for the considered products, benefits that would be much smaller than 

those estimated for the national standards. 

Energy Conservation Standards. DOE is adopting the energy conservation 

standards listed in section VI.D. As indicated in the paragraphs above, none of the 

alternatives DOE examined would save as much energy as today’s standards. Also, 

several of the alternatives would require new enabling legislation because authority to 

carry out those alternatives may not exist. 

Additional Policy Evaluation. In addition to the above non-regulatory policy 

alternatives, DOE evaluated the potential impacts of a policy that would allow States to 

require that some water heaters installed in new homes have an efficiency level higher 

than the Federal standard. At present, States are prohibited from requiring efficiency 

levels higher than the Federal standard; the considered policy would remove this 

prohibition in the case of residential water heaters. DOE notes that removing the 

prohibition would require either legislative authority or DOE approval, after a case-bycase basis consideration on the merits, of waivers submitted by States. For the present 

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rulemaking, DOE evaluated the impacts that such a policy would have for electric storage 

water heaters. 

Specifically, DOE estimated the impacts for a policy case in which several States 

adopted provisions in their building codes that would require electric storage water 

heaters to meet efficiency level 6 (2.0 EF, heat pump with two-inch insulation). DOE 

assumed that such codes would affect 25 percent of water heaters in all new homes built 

in the United States in 2015 and that the percentage would increase linearly to 75 percent 

by 2045. (DOE did not attempt to define the specific geographic areas that would be 

affected.) In this policy case, all other water heaters (those bought for replacement in 

existing homes) would meet the proposed standard level of 0.95 (efficiency level 5). 

DOE’s analysis accounts for the estimate that some new homes would have a water 

heater with EF greater than or equal to 2.0 (e.g., heat pump technology) in the absence of 

any amended standards (the base case). 

DOE estimated that a policy that would allow States to require that some electric 

storage water heaters installed in new homes have an efficiency level higher than the 

Federal standard would provide 2.18 quads of national energy savings and an NPV of 

consumer benefit of $1.23 billion (at a 7-percent discount rate). The energy savings from 

this State building code requirement for new homes would be greater than the savings 

from today’s energy conservation standard for electric storage water heaters. This 

contrasts with the non-regulatory policy alternatives discussed above, whose savings are 

lower than those of the considered standards. 

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B. Review Under the Regulatory Flexibility Act 

The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) requires preparation of an 

initial regulatory flexibility analysis (IRFA) for any rule that by law must be proposed for 

public comment, and a final regulatory flexibility analysis (FRFA) for any such rule that 

an agency adopts as a final rule, unless the agency certifies that the rule, if promulgated, 

will not have a significant economic impact on a substantial number of small entities. As 

required by Executive Order 13272, “Proper Consideration of Small Entities in Agency 

Rulemaking” 67 FR 53461 (August 16, 2002), DOE published procedures and policies on 

February 19, 2003, to ensure that the potential impacts of its rules on small entities are 

properly considered during the rulemaking process. 68 FR 7990. DOE has made its 

procedures and policies available on the Office of the General Counsel’s website 

(http://www.gc.energy.gov/). DOE reviewed the December 2009 NOPR and today’s final 

rule under the provisions of the Regulatory Flexibility Act and the procedure and policies 

published on February 19, 2003. 

For the manufacturers of the three types of heating products, the Small Business 

Administration (SBA) has set a size threshold, which defines those entities classified as 

“small businesses” for the purposes of the statute. DOE used the SBA’s small business 

size standards to determine whether any small entities would be subject to the 

requirements of the rule. 65 FR 30836, 30850 (May 15, 2000), as amended at 65 FR 

53533, 53545 (Sept. 5, 2000) and codified at 13 CFR part 121.The size standards are 

listed by North American Industry Classification System (NAICS) code and industry 

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description and are available at 

http://www.sba.gov/idc/groups/public/documents/sba_homepage/serv_sstd_tablepdf.pdf. 

Residential water heater manufacturing is classified under NAICS 335228 – “Other 

Major Household Appliance Manufacturing.” DHE and pool heater manufacturing are 

classified under NAICS 333414 – “Heating Equipment (Except Warm Air Furnaces) 

Manufacturing.” The SBA sets a threshold of 500 employees or less for an entity to be 

considered as a small business for both of these categories as shown in Table VII.6. 

Table VII.6 SBA and NAICS Classification of Small Business Manufacturers 

Potentially Affected by this Rule26 

Industry Description Revenue Limit Employee Limit NAICS 

Residential Water Heater Manufacturing N/A 500 335228 

Direct Heating Manufacturing N/A 500 333414 

Pool Heater Manufacturing N/A 500 333414 

In the December 2009 NOPR, DOE looked at each type of heating product (water 

heaters, pool heaters, and direct heating) separately for purposes of determining whether 

certification was appropriate or an initial regulatory flexibility analysis was needed. DOE 

identified five small residential water heater manufacturers, 12 small DHE 

manufacturers, and one small pool heater manufacturer that produce covered products 

and can be considered small businesses manufacturers. 74 FR 65852, 65984-86 (Dec. 11, 

2009). DOE concluded that the proposed standards for residential water heaters and gasfired pool heaters set forth in the proposed rule, if promulgated, would not have a 

26 In the December 2009 NOPR, DOE mistakenly listed gas-fired pool heater manufacturing under NAICS 

code 335228. 74 FR 65852, 65984 (Dec. 11, 2009). The correct classification for pool heater 

manufacturing is 333414. Both NAICS categories have the same 500 employee limit. 

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significant economic impact on a substantial number of small entities. DOE also sought 

comment on the impacts of the proposed amended energy conservation standards on 

small business manufacturers of residential water heaters and the impacts of the proposed 

amended energy conservation standards on small business manufacturers of gas-fired 

residential pool heaters. DOE received no comments on the certification or its additional 

requests for comment on small business impacts in response to the December 2009 

NOPR for residential water heaters and gas-fired pool heaters. Comments related to the 

economic impacts of the proposed rule generally are discussed elsewhere in the 

preamble, and no changes were made to the certification as a result of these comments. 

Thus, DOE reaffirms the certification and has not prepared a FRFA for this final rule for 

those products. 

DOE determined, however, that it could not certify that the proposed standards, if 

promulgated, would not have significant impact on a substantial number of small entities 

in the direct heating equipment industry. DOE made the determination that small 

business manufacturers of both traditional and gas hearth DHE could be negatively 

impacted by the standards proposed in the December 2009 NOPR. 74 FR 65852, 65985­

86 (Dec. 11, 2009). Because of the potential impacts on small DHE manufacturers, DOE 

prepared an IRFA for DHE during the NOPR stage of this rulemaking. DOE provided the 

IRFA in its entirety in the December 2009 NOPR. 74 FR 65852, 65984-92 (Dec. 11, 

2009). Chapter 12 of the TSD contains more information about the impact of this 

rulemaking on manufacturers. DOE presents the FRFA conducted for this rulemaking in 

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the following discussion. Comments received in response to the IRFA are also presented 

below. 

DOE’s determination that the rule may have a significant economic impact on a 

substantial number of small entities results from the large number of small DHE 

manufacturers and the expected impact of the standards on these small businesses. As 

presented and discussed below, the FRFA describes potential impacts on small business 

DHE manufacturers associated with the required capital and product conversion costs at 

each TSL and discusses alternatives that could minimize these impacts. 

Succinct Statement of the Need for, and Objectives of, the Rule 

The statement of the need for and objectives of the rule is set forth elsewhere in 

the preamble and is not repeated here. 

Description and Estimated Number of Small Entities Regulated 

After examining structure of the DHE industry, DOE determined it was necessary 

to divide potential impacts on small DHE manufacturers into two broad categories: (1) 

impacts on small manufacturers of traditional DHE (i.e., manufacturers of gas wall fan, 

gas wall gravity, gas floor, and gas room DHE); and (2) impacts on small manufacturers 

of gas hearth products. The FRFA presents the results for traditional DHE and gas hearth 

DHE separately to be consistent with the MIA results in section VI.C.2 which also 

separate DHE in this manner. Traditional DHE and gas hearth DHE are made by different 

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manufacturers (i.e., all manufacturers of gas hearth products do not manufacture 

traditional DHE, and vice versa, with one exception). 

Traditional Direct Heating Equipment 

Three major manufacturers control almost 100 percent of the traditional DHE 

market. Two of the three major manufacturers of traditional DHE are small business 

manufacturers. One of the small business manufacturers produces only traditional DHE 

and has products in all four traditional DHE product classes (i.e., gas wall fan, gas wall 

gravity, gas floor, and gas room DHE). The second small business manufacturer produces 

all five products classes of DHE, including gas hearth DHE. DOE identified a third small 

business manufacturer with less than a one-percent share of the traditional DHE market. 

This company offers two gas wall gravity models, but is mainly focused on specialty 

hearth products not covered by this rulemaking. 

Gas Hearth Direct Heating Equipment 

DOE identified 10 small business manufacturers of gas hearth DHE. Both small 

business manufacturers and large manufacturers indicated that the number of competitors 

in the market has been declining in recent years due to industry consolidation and smaller 

companies exiting the market. Three major domestic manufacturers now supply a 

majority of the marketplace. None of the three major manufacturers is considered a small 

business. The remainder of the market is either imported (mostly by Canadian 

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companies) or produced by one of 12 domestic manufacturers that hold varying market 

shares. 

Significant Issues Raised by Public Comments 

A number of interested parties commented on the appropriateness of the proposed 

standard level for traditional DHE, given the impacts DOE calculated in the MIA, and 

urged DOE to reconsider the traditional DHE standards for the final rule. See section 

V.A.2 for a summary of these comments, and see section VI.D.3 for a discussion of 

DOE’s conclusion about the final amended energy conservation standard for traditional 

DHE in light of these and other comments. 

DOE also received a number of comments from industry groups and 

manufacturers, including two small business manufacturers, about the potential of the 

proposed standards to have a tremendous impact on direct employment in the traditional 

DHE market. See section IV.I.4 for a discussion of these comments. Interested parties 

also commented on the MIA scenarios and profitability in the traditional DHE market 

after the compliance date of the amended energy conservation standards (section IV.I.2). 

Another issue raised by interested parties that could impact small business manufacturers 

and the industry in general is securing the funding for the conversion costs estimated by 

DOE (see section IV.I.5). 

Several comments argued that TSL 3, as presented in the December 2009 NOPR, 

presented a very negative business case for traditional DHE manufacturers, especially 

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small business manufacturers. In general, AHRI and the small business manufacturers 

argued that the market for traditional DHE would not support the sales volume necessary 

to recoup the investments in R&D and capital equipment required by TSL 3. Essentially, 

two factors drive this argument: (1) the costs required by amended standards; and (2) 

revenues that follow the standards. On the cost side, AHRI stated that manufacturers 

cannot afford the necessary investment for product development and redesign for nearly 

all of their models; the retooling and changing of their production lines; and the testing of 

those redesigned models to certify compliance with the applicable safety standards. On 

the revenue side, AHRI and manufacturers attributed the lack of volume necessary to 

recoup these costs to three factors: (1) the market has already been in steady decline in 

the base case; (2) there would be fewer retrofits—the products’ primary market—because 

of space constraints and the increased size associated with higher-efficiency products; 

and (3) higher first costs, including higher installation costs, would further reduce 

demand. (Williams, No. 96 at p. 1; Empire, Public Meeting Transcript, No. 57.4 at pp. 

298-300; AHRI, No. 91 at p. 10) AHRI and the manufacturers argued that the prospect of 

declining sales and the aforementioned costs would force those manufacturers to either 

drop product lines or exit the market entirely. (AHRI, No. 91 at p. 10; LTS, Public 

Meeting Transcript, No. 57.4 at p. 25) As a result, some segments of the traditional DHE 

market may shrink to only one or two manufacturers. (AHRI, No. 91 at p. 10) As 

mentioned in section VI.C.5, DOJ expressed concern that the proposed standards could 

adversely affect competition in the traditional DHE product categories. (DOJ, No. 99 at 

p. 2) 

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DOE also received comments specific to the small business analysis presented in 

the IRFA section of the December 2009 NOPR. LTS agreed that most manufacturers 

have existing products that meet the required efficiencies in three out of the four product 

types of traditional DHE, but said that that statement is misleading because only 15 

percent of LTS’ total sales come from product that meet the proposed standards. LTS 

stated its belief that its competitors similarly derive only a small portion of total revenue 

from products that would meet the proposed standards. (LTS, No. 56.7 at p. 2; Public 

Meeting Transcript, No. 57.4 at p. 22) LTS also disagreed with DOE’s statement in the 

December 2009 NOPR that small business manufacturers would be left with a viable 

number of product lines that meet the new standards, particularly for the gravity wall 

category which represents 60 percent of their business. Because only one manufacturer 

has two gas wall gravity models that would meet the proposed standard (which represent 

5 percent of sales and only have lower input ratings less than 25,000 BTU), LTS stated 

that these few products do not lead to maintaining a viable number of product offerings. 

(LTS, No. 56.7 at p. 3; LTS, Public Meeting Transcript, No. 57.4 at pp. 23-24; 286-287) 

Therefore, LTS did not agree with DOE’s conclusion that manufacturers would have a 

viable number of product lines at TSL 3 to maintain a sufficient production volume and 

remain in the market. (LTS, No. 56.7 at p. 2) 

DOE acknowledges that, according to the AHRI database, LTS produces only a 

few gas wall gravity DHE models that would meet the standards being adopted in this 

final rule. According the AHRI directory, LTS has certified four models that meet the 

proposed gas wall gravity standard in the 2009 NOPR. These four models are two basic 

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products that are listed twice in the directory (once for using natural gas as a fuel source 

and once for using propane gas as a fuel source). DOE also understands that these 

products currently reflect a small share of the market and that few of LTS’s current 

products in other categories would meet the standards proposed in the December 2009 

NOPR. To clarify, in the December 2009 NOPR, DOE concluded that a combination 

existing product lines that currently meet the standard and other select product lines— 

which would have to be upgraded—would allow manufacturers to offer a viable number 

of product lines after the compliance date of the amended energy conservation standard. 

DOE did and does not assume that only products that meet the current standard will be 

sufficient to support manufacturers after compliance with the amended standards is 

required. 

For these reasons, in the IRFA, DOE accounted for the costs the industry would 

incur to upgrade all of its other gas wall gravity product lines at the proposed standard. 

For the final rule, DOE used the AHRI database to update the number of product lines 

manufacturers currently have, and continued to use this methodology to estimate its 

capital conversion costs. DOE recognizes that its conversion costs may, therefore, be 

conservative because manufacturers may choose not to upgrade all of their current 

product lines. However, DOE assumed manufacturers would have to invest to maintain 

the shipment volumes forecasted in the NIA. See chapter 12 of the TSD for more details 

on DOE’s product line analysis. 

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AHRI stated that because manufacturers in the traditional DHE market provide 

products of every type, the total shipments of traditional DHE must be considered since 

that is the true base of manufacturers’ business. According to the commenter, DOE must 

reconsider its analysis for traditional DHE, both relative to the impacts on manufacturers 

and on national energy savings, given that total future shipments are expected to continue 

to decrease. (AHRI, No. 91 at p. 11) AHRI stated that, to date, the traditional DHE 

manufacturers have survived by offering replacements. Dropping product lines or 

dropping categories would hurt manufacturers because they would no longer be able to 

offer all replacements for all products, which could cause a complete exit from the 

market rather than upgrading some product lines. (AHRI, Public Meeting Transcript, No. 

57.4 at pp. 297-298) Williams stated that offering a range of products is critical to 

traditional DHE manufacturers, arguing that in a small, niche category, part of viability is 

being able to offer a breadth of products. Williams commented that it needs to be able to 

be able to offer like replacements, including units without electricity. (Williams, Public 

Meeting Transcript, No. 57.4 at pp. 301-302) 

DOE agrees with AHRI and Williams that total sales and offering a broad range 

of products are critical to traditional DHE manufacturers. In the December 2009 NOPR, 

DOE noted that the wide range of product offerings by manufacturers is a legacy of a 

once higher-volume market that now typically supplies replacement units. The remaining 

manufacturers have stayed in business by consolidating brands and the legacy products of 

companies that are no longer in business to take increasing shares of a smaller total 

market. Because maintaining a sufficiently broad product line is so critical to traditional 

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DHE manufacturers, DOE conducted its small business impact analysis by examining 

how the conversion costs to convert all product lines would impact small business 

manufacturers. Because each product line is manufactured in relatively low volumes, the 

discrepancy between unit shipments and the number of product lines requiring significant 

product and capital conversion costs results in negative impacts for all manufacturers. 74 

FR 65852, 65986 (Dec. 11, 2009). 

DOE notes that the comments it received on the IRFA pertain to the conclusion 

DOE drew from the results, rather than the methodology or results themselves. As such, 

DOE has maintained its methodology from the December 2009 NOPR (discussed in more 

detail in section IV.I) and believes it has appropriately captured the costs to traditional 

DHE manufacturers of upgrading all of their product lines to the TSLs. The cash flow 

impacts presented in section VI.C.2.b are reflective of this assumption. However, DOE 

recognizes the significant costs small business manufacturers could face in converting 

product lines. In light of these costs and the need to maintain a viable number of products 

to offer in the marketplace, DOE is adopting a different TSL for traditional DHE in 

today’s final rule. Particularly in light of this change, DOE continues to believe that 

manufacturers, including the small business manufacturers, will be able to maintain a 

viable number of products after the compliance date of the amended energy conservation 

standards. 

DOE did not receive any specific comments on the MIA for gas hearth DHE 

manufacturers. DOE also did not receive any comments on its request for comment on 

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the characterization of a typical large and small business manufacturer of gas hearth DHE 

nor its request for comment on the potential impacts on small business manufacturers of 

gas hearth DHE. 

Description and Estimate of Compliance Requirements 

 Traditional DHE 

While DOE explicitly analyzed one representative input capacity range for the gas 

wall gravity, gas wall fan, gas floor, and gas room types of DHE, manufacturers offer 

product lines that typically span multiple BTU ranges with many different features. This 

can result in many individual models offered by each manufacturer per product line. 

Again, the wide range of product offering by manufacturers is a legacy of a once highervolume market that now typically supplies replacement units. The remaining 

manufacturers have stayed in business by consolidating brands and the legacy products of 

companies that are no longer in business to take increasing shares of a smaller total 

market. Because each product line is manufactured in low volumes, the discrepancy 

between unit shipments and the number of product lines requiring significant product and 

capital conversion costs results in negative impacts for all manufacturers. Many product 

development costs (e.g., testing, certification, and marketing) are somewhat fixed, so 

achieving manufacturing scale is an important consideration in determining whether the 

product conversion costs are economically justified. Similarly, even though any capital 

conversion costs can be capitalized over a number of years, these costs must be paid up 

front, and there must be a large enough volume to justify an added per-unit cost. 

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DOE calculated capital and product conversion costs for traditional DHE by 

estimating a per-product-line cost and assuming that every manufacturer would face the 

same per-product-line cost within each product class. DOE also assumed that any product 

line that does not meet the efficiency level being analyzed would be upgraded, thereby 

requiring product conversion and capital conversion costs. DOE used public data to 

calculate the number of product lines that would need to be upgraded at each TSL for 

each product class. To show how the small business manufacturers could be differentially 

harmed, DOE compared the conversion costs for a typical large manufacturer and a 

typical small business manufacturer within the industry. To calculate the conversion costs 

for a typical small business manufacturer and a typical large manufacturer, DOE used 

publicly-available information to determine the average number of product lines that 

meet each efficiency level in each product category for a typical small business 

manufacturer and a typical large manufacturer of traditional DHE. DOE updated this 

information for the final rule, adding products that had been released since the December 

2009 NOPR analysis. For both small business and large manufacturers, DOE multiplied 

the number of product lines that fell below the required efficiency level by its estimate of 

the per-line capital and product conversion cost. Table VII.7 and Table VII.8 show 

DOE’s estimates of the average number of product lines requiring conversion at each 

TSL for a typical small business manufacturer and a typical large manufacturer of 

traditional DHE, respectively. 

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Table VII.7 Number of Product Lines Requiring Conversion for a Typical Small 

Business Manufacturer of Traditional Direct Heating Equipment 

Number of 

Gas Wall 

Fan Product 

Lines 

Requiring 

Conversion 

Number of 

Gas Wall 

Gravity 

Product 

Lines 

Requiring 

Conversion 

Number of 

Gas Floor 

Product 

Lines 

Requiring 

Conversion 

Number of 

Gas Room 

Product 

Lines 

Requiring 

Conversion 

Total 

Number of 

Product 

Lines 

Requiring 

Conversion 

Total 

Product 

Lines that 

Meet 

Each or 

Exceed 

Each TSL 

Baseline 0 0 0 0 0 13 

TSL 1 2 2.5 0.5 1 6 7 

TSL 2 2 2.5 0.5 1.5 6.5 6.5 

TSL 3 3 4 0.5 2 9.5 3.5 

TSL 4 3.5 4 0.5 2 10 3 

TSL 5 2 4 0.5 2 8.5 4.5 

TSL 6 3.5 4 0.5 2 10 3 

*Fractions of product lines result from taking the average number of product lines from publiclyavailable information 

Table VII.8 Number of Product Lines Requiring Conversion for a Typical Large 

Manufacturer of Traditional Direct Heating Equipment 

Number of 

Gas Wall 

Fan Product 

Lines 

Requiring 

Conversion 

Number of 

Gas Wall 

Gravity 

Product 

Lines 

Requiring 

Conversion 

Number of 

Gas Floor 

Product 

Lines 

Requiring 

Conversion 

Number of 

Gas Room 

Product 

Lines 

Requiring 

Conversion 

Total 

Number of 

Product 

Lines 

Requiring 

Conversion 

Total 

Product 

Lines that 

Meet 

Each or 

Exceed 

Each TSL 

Baseline 0 0 0 0 0 18 

TSL 1 1 0 1 1 3 15 

TSL 2 2 0 1 1 4 14 

TSL 3 4 3 1 2 10 8 

TSL 4 7 3 1 2 13 5 

TSL 5 1 6 1 3 11 7 

TSL 6 7 6 1 3 17 1 

Amended energy conservation standards have the potential to differentially affect 

the small business manufacturers, because they generally lack the large-scale resources to 

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alter their existing products and production facilities for those TSLs requiring major 

redesigns. While all manufacturers would be expected to be negatively impacted by 

amended energy conservation standards to varying degrees, the small business 

manufacturers would face higher product conversion costs at lower TSLs than their large 

competitor. Both large and small business manufacturers have several product offerings 

in each product class, sometimes at varying efficiency levels, but the larger manufacturer 

produces products with higher efficiencies in larger volumes. As a result, to produce a 

sufficiently large volume, the small business manufacturers would have to upgrade more 

product lines at lower TSLs than the large manufacturer at lower TSLs. As shown in 

Table VII.9 and Table VII.10, modifying facilities and developing new, more-efficient 

products would cause a typical small business manufacturer to incur higher conversion 

costs than a typical larger manufacturer for TSL 1 through TSL 3. 

Table VII.9 Total Conversion Costs for a Typical Small Business Manufacturer of 

Traditional Direct Heating Equipment 

Capital 

Conversion 

Costs for a 

Typical Small 

Business 

Manufacturer 

(2009$ millions) 

Product 

Conversion 

Costs for a 

Typical Small 

Business 

Manufacturer 

(2009$ millions) 

Total Conversion 

Costs for a 

Typical Small 

Business 

Manufacturer 

(2009$ millions) 

Baseline $ - $ - $ ­

TSL 1 $ 0.86 $ 0.41 $ 1.27 

TSL 2 $ 1.35 $ 0.57 $ 1.92 

TSL 3 $ 1.89 $ 0.81 $ 2.70 

TSL 4 $ 2.18 $ 0.92 $ 3.10 

TSL 5 $ 1.93 $ 1.44 $ 3.37 

TSL 6 $ 2.52 $ 1.65 $ 4.17 

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Table VII.10 Total Conversion Costs for a Typical Large Manufacturer of 

Traditional Direct Heating Equipment 

Capital 

Conversion 

Costs for a 

Typical Large 

Manufacturer 

(2009$ millions) 

Product 

Conversion 

Costs for a 

Typical Large 

Manufacturer 

(2009$ millions) 

Total Conversion 

Costs for a 

Typical Large 

Manufacturer 

(2009$ millions) 

Baseline $ - $ - $ ­

TSL 1 $ 0.23 $ 0.14 $ 0.38 

TSL 2 $ 0.54 $ 0.25 $ 0.79 

TSL 3 $ 1.81 $ 0.79 $ 2.60 

TSL 4 $ 2.59 $ 1.11 $ 3.70 

TSL 5 $ 2.90 $ 2.13 $ 5.03 

TSL 6 $ 4.08 $ 2.61 $ 6.69 

Because the larger manufacturer offers more products at higher efficiencies, a 

typical small business manufacturer faces disproportionate costs at the lower TSLs in 

absolute terms at TSL 1 through TSL 3. Despite being similar in absolute terms, at these 

TSLs, the small business manufacturers would be more likely to be disproportionately 

harmed at any TSL because they have a much lower volume across which to spread 

similar costs. To show how a smaller scale would harm a typical small business 

manufacturer, DOE used estimates of the market shares within the industry for each 

product class to estimate the typical annual revenue, operating profit, research and 

development expense, and capital expenditures for a typical large manufacturer and a 

typical small business manufacturer using the financial parameters in the DHE GRIM. 

Comparing the conversion costs of a typical small business manufacturer to a typical 

large manufacturer with operating profit provides a rough estimate of how quickly the 

investments could be recouped. Table VII.11 and Table VII.12 show these comparisons. 

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Table VII.11 Comparison of a Typical Small Business Manufacturer’s Conversion 

Costs to Annual Expenses, Revenue, and Operating Profit 

Capital 

Conversion Cost 

as a Percentage 

of Annual 

Capital 

Expenditures 

Product 

Conversion Cost 

as a Percentage 

of Annual R&D 

Expense 

Total Conversion 

Cost as a 

Percentage of 

Annual Revenue 

Total Conversion 

Cost as a 

Percentage of 

Annual EBIT 

Baseline - - - -

TSL 1 267% 190% 9% 252% 

TSL 2 332% 210% 11% 302% 

TSL 3 466% 299% 15% 426% 

TSL 4 537% 341% 17% 489% 

TSL 5 474% 535% 19% 531% 

TSL 6 619% 612% 23% 657% 

Table VII.12 Comparison of a Typical Large Manufacturer’s Conversion Costs to 

Annual Expenses, Revenue, and Operating Profit 

Capital 

Conversion Cost 

as a Percentage 

of Annual 

Capital 

Expenditures 

Product 

Conversion Cost 

as a Percentage 

of Annual R&D 

Expense 

Total Conversion 

Cost as a 

Percentage of 

Annual Revenue 

Total Conversion 

Cost as a 

Percentage of 

Annual EBIT 

Baseline - - - -

TSL 1 33% 30% 1% 34% 

TSL 2 77% 53% 3% 72% 

TSL 3 257% 169% 8% 237% 

TSL 4 368% 237% 12% 337% 

TSL 5 412% 456% 16% 458% 

TSL 6 580% 559% 22% 610% 

Table VII.11 and Table VII.12 illustrate that, although the investments required at 

each TSL can be considered substantial for all companies, the impacts could be relatively 

greater for a typical small business manufacturer, because of much lower production 

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volumes and a comparable number of product offerings. At higher TSLs, it is more likely 

that manufacturers of traditional DHE would reduce the number of product lines they 

offer to keep their conversion costs at manageable levels. At higher TSLs, small business 

manufacturers would face increasingly difficult decisions on whether to: (1) invest the 

capital required to be able to continue offering a full range of products; (2) cut product 

lines; (3) consolidate to maintain a large enough combined scale to spread the required 

conversion costs and operating expenses; or (4) exit the market altogether. Because of the 

high conversion costs at higher TSLs, manufacturers would likely eliminate their lowervolume product lines. Small business manufacturers might only be able to afford to 

selectively upgrade their most popular products and be forced to discontinue lowervolume products, because the product development costs that would be required to 

upgrade all of their existing product lines would be too high. 

DOE’s product line analysis revealed the potential for small businesses 

manufacturers to be disproportionately harmed by the proposed standard levels and 

higher TSLs. Additionally, DOE agrees with comments that small business traditional 

DHE manufacturers have less access to capital than their larger competitor. Larger 

manufacturers profit from offering a variety of products and have the ability to fund 

required capital and product conversion costs using cash generated from all products. 

Unlike large manufacturers, the small business manufacturers cannot leverage resources 

from other departments. With these considerations, it is more likely that the small 

businesses would have to spend an even greater proportion of their annual R&D and 

capital expenditures than shown in the industry-wide figures. 

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 Inaddition, small business manufacturers have less buying power than their larger 

competitor. Traditional DHE is a low-volume industry, which can make it difficult for 

any manufacturer to take advantage of bulk purchasing power or economies of scale. The 

two small business manufacturers have approximately half the market share of their large 

competitor, which puts them at a disadvantage when purchasing components and raw 

materials. In addition, the large manufacturer has a parent company that manufactures 

products and equipment other than traditional DHE. This manufacturer’s larger scale and 

additional manufacturing capacity (required for products and equipment other than DHE) 

also give the company more leverage with its suppliers as it purchases greater volumes of 

components and raw materials. During the manufacturer interviews, the small businesses 

manufacturers commented that to comply with amended energy conservation standards, 

they would likely need to buy more purchased parts instead of producing most of the 

final product in-house. Because the large manufacturer has an advantage in purchasing 

power that would likely allow it to buy purchased parts at lower costs, an amended 

energy conservation standard that requires more purchased parts may differentially harm 

the profitability of the small business manufacturers. 

Even though there is a potential for the small business manufacturers to be 

negatively impacted by today’s final rule, DOE believes that manufacturers, including the 

small businesses, would be able to maintain a viable number of product offerings at TSL 

2, the adopted standard level. A typical small business manufacturer of traditional DHE 

offers product families in the four product types that would meet or exceed the standard 

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levels adopted in today’s final rule. For example, over two-thirds of the product lines 

identified by DOE as currently on the market meet the standard established by today’s 

final rule for gas wall gravity DHE, which comprise over 60 percent of the traditional 

DHE market. While recognizing that the product lines that currently meet the standard 

represent a minority of current revenue, the standard levels do not require manufacturers, 

including those that are small businesses, to completely redesign all their product lines. 

For those product lines that would need to be redesigned, DOE believes that small 

business manufacturers would offer fewer product lines in response to the amended 

energy conservation standards. However, DOE believes that the standards adopted in 

today’s final rule will allow the small business manufacturers to selectively upgrade their 

existing product lines and maintain viable production volumes after the compliance date 

of the amended energy conservation standards. 

Gas Hearth DHE 

For gas hearth DHE in the IRFA, DOE used publicly-available information to 

estimate the conversion costs for a typical large and a typical small business 

manufacturer of gas hearth DHE as shown in the December 2009 NOPR. 74 FR 65852, 

65984-92 (Dec. 11, 2009). DOE tentatively concluded that a typical small business 

manufacturer could be differentially impacted by amended energy conservation standards 

because of their smaller scale. However, DOE believed that a typical small business 

manufacturer would not face prohibitively large conversion costs and that the required 

changes would not require significant investments in product development. DOE 

tentatively concluded that because a typical manufacturer of gas hearth DHE already 

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offers multiple product lines that meet and exceed the required efficiencies and because 

most product lines that did not meet the proposed standard could be upgraded with 

relatively minor changes, manufacturers, including the small business manufacturers, 

would be able to maintain a viable number of product offerings. 74 FR 65852, 65991 

(Dec. 11, 2009). In this final rule, while DOE is adopting a different TSL for direct 

heating equipment (i.e., TSL 2), the efficiency requirements are identical to the proposed 

amended energy conservation standard for gas hearth DHE. Additionally, because DOE 

did not receive any comments on the IRFA or the potential impacts on small business 

manufacturers of gas hearth DHE, DOE continues to believe that the analysis developed 

for the IRFA and presented in the December 2009 NOPR accurately presents the 

potential impacts on small business manufacturers of gas hearth DHE. (See 74 FR 65852, 

65989-91 (Dec. 11, 2009) for additional details.) Therefore, for the FRFA detailed in 

today’s final rule, DOE continues to believe that gas hearth DHE manufacturers, 

including the small business manufacturers, will be able to maintain a viable number of 

product offerings following the compliance date of the amended energy conservation 

standard. 

Description of the Steps DOE has Taken to Minimize the Significant Economic Impact 

on Small Entities Consistent with the Stated Objectives of Applicable Statutes 

DOE acknowledges all the potential impacts highlighted by manufacturers and 

industry and updated its small business analysis for the impacts on traditional DHE 

manufacturers in light of these comments and additional information and analysis. The 

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impacts on small business manufacturers of traditional DHE, as illustrated in public 

comments, contributed to DOE’s ultimate determination that the TSL proposed in the 

December 2009 NOPR for traditional DHE (TSL 3) was not economically justified. 

DOE discusses how it has considered the new information about the impacts on 

traditional DHE in section VI.D.3. Even though there is a potential for the small business 

manufacturers to be negatively impacted by today’s final rule, DOE believes that 

manufacturers, including the small businesses, would be able to maintain a viable number 

of product offerings at TSL 2, the adopted standard level. For today’s final rule, the small 

business manufacturers of traditional DHE have an average of 6.5 product lines out of 13 

that already meet the required efficiencies. In total, 61 percent of the models offered by a 

typical small business manufacturer meet the amended energy conservation standards. 

DOE also reviewed the conversion costs required for each of the small business 

manufacturers to upgrade an average of approximately seven product lines for a capital 

cost totaling $1.35 million to offer replacements for all models that do not meet the 

standard. At the proposed standards in the December 2009 NOPR, DOE estimated small 

business manufacturers would be required to spend approximately 3.5 years worth of 

operating profit to convert every product line. For today final rule, that estimate has fallen 

to 3.0 years despite changes to the analysis that lowered annual shipments and updates to 

the product line analysis to include new product lines. While DOE believes that this 

would still be a substantial undertaking, DOE has carefully reviewed the impact of the 

conversion costs on small business manufacturers and has carefully considered what 

would be required for these manufacturers to continue to offer a viable number of 

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replacement models that are critical to their ability to remain in the market. In sum, DOE 

has concluded that adoption of a standard level at TSL 2 in this final rule (as compared to 

TSL 3 proposed in the NOPR) minimizes the impact on small business manufacturers to 

the extent possible, given EPCA’s requirements for setting energy conservation 

standards. 

Although the TSL lower than the adopted TSL would be expected to further 

reduce the impacts on small entities, DOE is required by EPCA to establish standards that 

achieve the maximum improvement in energy efficiency that are technically feasible and 

economically justified, and result in a significant conservation of energy, after 

considering a variety of factors. As explained earlier in the preamble, DOE rejected the 

lower TSL based on its analysis conducted pursuant to these EPCA requirements. 

In addition to the other TSLs being considered, the December 2009 NOPR TSD 

included a regulatory impact analysis. For DHE, this report discusses the following 

policy alternatives: (1) no new regulatory action; (2) consumer rebates; (3) consumer tax 

credits; (4) manufacturer tax credits; (5) voluntary energy efficiency targets; (6) early 

replacement incentives; and (7) bulk government purchases. While these alternatives may 

mitigate the economic impacts on small entities compared to the adopted standards, the 

energy savings of these regulatory alternatives are significantly smaller than those 

expected to result from the adopted standard levels. Thus, DOE rejected these alternatives 

and is adopting the standards set forth in this rulemaking. 

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C. Review Under the Paperwork Reduction Act of 1995 

This rule contains a collection-of-information requirement subject to the 

Paperwork Reduction Act of 1995 (PRA) which has been approved by OMB under 

control number 1910-1400. As described in the December 2009 NOPR, public reporting 

burden for compliance reporting for energy and water conservation standards is estimated 

to average 30 hours per response, including the time for reviewing instructions, searching 

existing data sources, gathering and maintaining the data needed, and completing and 

reviewing the collection of information. 74 FR 65852, 65992 (Dec. 11, 2009). DOE did 

not receive any comments regarding this burden estimate, or any other aspect of this data 

collection in response to its proposals. DOE believes that the collection of information 

required by this final rule is the least burdensome method of meeting the statutory 

requirements. 

Notwithstanding any other provision of the law, no person is required to respond 

to, nor shall any person be subject to a penalty for failure to comply with, a collection of 

information subject to the requirements of the PRA, unless that collection of information 

displays a currently valid OMB Control Number. 

D. Review Under the National Environmental Policy Act of 1969 

DOE prepared an environmental assessment (EA) of the impacts of today’s final 

rule, pursuant to the National Environmental Policy Act of 1969 (NEPA) (42 U.S.C. 

4321 et seq.), the regulations of the Council on Environmental Quality (40 CFR parts 

1500-1508), and DOE’s regulations for compliance with NEPA (10 CFR part 1021). This 

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assessment includes an examination of the potential effects of emission reductions likely 

to result from the rule in the context of global climate change, as well as other types of 

environmental impacts. The final EA has been incorporated into the final rule TSD at 

chapter 16. DOE found the environmental effects associated with today’s standard levels 

for water heaters, direct heating equipment, and pool heaters to be insignificant. 

Therefore, DOE is issuing a finding of no significant impact (FONSI) as part of the final 

EA. The FONSI is available in the docket for this rulemaking. 

E. Review Under Executive Order 13132 

DOE reviewed this rule pursuant to Executive Order 13132, “Federalism,” 64 FR 

43255 (August 4, 1999), which imposes certain requirements on agencies formulating 

and implementing policies or regulations that preempt State law or that have Federalism 

implications. The Executive Order requires agencies to examine the constitutional and 

statutory authority supporting any action would limit the policymaking discretion of the 

States and to carefully assess the necessity for such actions. The Executive Order also 

requires agencies to have an accountable process to ensure meaningful and timely input 

by State and local officials in the development regulatory policies that have Federalism 

implications. On March 14, 2000, DOE published a statement of policy describing the 

intergovernmental consultation process it will follow in the development of such 

regulations. 65 FR 13735. DOE has examined the today’s final rule and has determined 

that it would not have a substantial direct effect on the States, on the relationship between 

the national government and the States, or on the distribution of power and 

responsibilities among the various levels of government. EPCA governs and prescribes 

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Federal preemption of State regulations as to energy conservation for the products that 

are the subject of today’s final rule. States can petition DOE for exemption from such 

preemption to the extent, and based on criteria, set forth in EPCA. (42 U.S.C. 6297(d)) 

Therefore, no further action is required by Executive Order 13132. 

F. Review Under Executive Order 12988 

With respect to the review of existing regulations and the promulgation of new 

regulations, section 3(a) of Executive Order 12988, "Civil Justice Reform" (61 FR 4729 

(Feb. 7, 1996)) imposes on Federal agencies the general duty to adhere to the following 

requirements: (1) eliminate drafting errors and ambiguity; (2) write regulations to 

minimize litigation; and (3) provide a clear legal standard for affected conduct rather than 

a general standard and promote simplification and burden reduction. Section 3(b) of 

Executive Order 12988 specifically requires that Executive agencies make every 

reasonable effort to ensure that the regulation: (1) clearly specifies the preemptive effect, 

if any; (2) clearly specifies any effect on existing Federal law or regulation; (3) provides 

a clear legal standard for affected conduct while promoting simplification and burden 

reduction; (4) specifies the retroactive effect, if any; (5) adequately defines key terms; 

and (6) addresses other important issues affecting clarity and general draftsmanship under 

any guidelines issued by the Attorney General. Section 3(c) of Executive Order 12988 

requires Executive agencies to review regulations in light of applicable standards in 

section 3(a) and section 3(b) to determine whether they are met or it is unreasonable to 

meet one or more of them. DOE has completed the required review and determined that, 

to the extent permitted by law, this final rule meets the relevant standards of Executive 

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Order 12988. 

G. Review Under the Unfunded Mandates Reform Act of 1995 

As indicated in the December 2009 NOPR, DOE reviewed the proposed rule 

under Title II of the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4) (UMRA), 

which requires each Federal agency to assess the effects of their Federal regulatory 

actions on State, local, and Tribal governments and the private sector. See 74 FR 65852, 

65992-93 (Dec. 11, 2009). For a proposed regulatory action likely to result in a rule that 

may cause the expenditure by State, local, and Tribal governments, in the aggregate, or 

by the private sector of $100 million or more in any one year (adjusted annually for 

inflation), section 202 of UMRA requires a Federal agency to publish a written statement 

that estimates the resulting costs, benefits, and other effects of the rule on the national 

economy. (2 U.S.C. 1532(a), (b)) The UMRA also requires a Federal agency to develop 

an effective process to permit timely input by elected State, local, and Tribal 

governments on a proposed “significant intergovernmental mandate,” and requires an 

agency plan for giving notice and opportunity for timely input to potentially affected 

small governments before establishing any requirements that might significantly or 

uniquely affect small governments. On March 18, 1997, DOE published a statement of 

policy on its process for intergovernmental consultation under UMRA (62 FR 12820) 

(also available at http://www.gc.doe.gov). Although today’s final rule does not contain a 

Federal intergovernmental mandate, it may impose expenditures of $100 million or more 

on the private sector. 

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DOE has concluded that this final rule would likely result in a final rule that could 

impose expenditures of $100 million or more between 2013 and 2045 in the private 

sector. For the final rule, DOE estimated annualized impacts for the final standards using 

the results of the national impacts analysis. The national impact analysis results, 

expressed as annualized values, range from $1.55 – $2.03 billion (at a 7-percent discount 

rate) and $1.90 – $2.38 billion (at a 3-percent discount rate) in total annualized benefits 

from the final rule. The NIA also reports $1.28 billion (at a 7-percent discount rate) and 

$1.25 billion (at a 3-percent discount rate) in annualized costs, and $0.27 – $0.75 billion 

(at a 7-percent discount rate) and $0.65 – $1.13 billion (at a 3-percent discount rate) in 

annualized net benefits. Details are provided in chapter 10 of the TSD. Therefore, DOE 

must publish a written statement assessing the costs, benefits, and other effects of the rule 

on the national economy. 

Section 205 of UMRA also requires DOE to identify and consider a reasonable 

number of regulatory alternatives before promulgating a rule for which UMRA requires 

such a written statement. DOE must select from those alternatives the most cost-effective 

and least burdensome alternative that achieves the objectives of the rule, unless DOE 

publishes an explanation for doing otherwise or the selection of such an alternative is 

inconsistent with law. 

As required by EPCA (42 U.S.C. 6295(o)), today’s energy conservation standards 

for residential water heaters, direct heating equipment, and pool heaters would achieve 

the maximum improvement in energy efficiency that DOE has determined to be both 

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technologically feasible and economically justified. DOE may not select a regulatory 

alternative that does not meet this statutory standard. A discussion of the alternatives 

considered by DOE is presented in the “Regulatory Impact Analysis” section of the TSD 

for this final rule. Also, section 202(c) of UMRA authorizes an agency to prepare the 

written statement required by UMRA in conjunction with or as part of any other 

statement or analysis that accompanies the proposed rule. (2 U.S.C. 1532(c)) The TSD, 

preamble, and regulatory impact analysis for today’s final rule contain a full discussion of 

the rule’s costs, benefits, and other effects on the national economy, and, therefore, 

satisfy UMRA’s written statement requirement. 

H. Review Under the Treasury and General Government Appropriations Act, 1999 

Section 654 of the Treasury and General Government Appropriations Act, 1999 

(Pub. L. 105-277) requires Federal agencies to issue a Family Policymaking Assessment 

for any rule that may affect family well-being. In the December 2009 NOPR, DOE 

tentatively determined that this rulemaking would not have any impact on the autonomy 

or integrity of the family as an institution, and, accordingly, that it is not necessary to 

prepare a Family Policymaking Assessment. See 74 FR 65852, 65993 (Dec. 11, 2009). 

DOE received no comments concerning Section 654 in response to the December 2009 

NOPR, and, therefore, has concluded that no further action is necessary in today’s final 

rule with respect to this provision. 

I. Review Under Executive Order 12630 

DOE tentatively determined under Executive Order 12630, “Governmental 

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Actions and Interference with Constitutionally Protected Property Rights,” 53 FR 8859 

(March 18, 1988), that this rule would not result in any takings that might require 

compensation under the Fifth Amendment to the U.S. Constitution. 74 FR 65852, 65993 

(Dec. 11, 2009). DOE received no comments concerning Executive Order 12630 in 

response to the December 2009 NOPR, and, therefore, has concluded that no further 

action is necessary in today’s final rule with respect to this Executive Order. 

J. Review Under the Treasury and General Government Appropriations Act, 2001 

Section 515 of the Treasury and General Government Appropriations Act, 2001 

(44 U.S.C. 3516 note) provides for agencies to review most disseminations of 

information to the public under guidelines established by each agency pursuant to general 

guidelines issued by OMB. OMB’s guidelines were published at 67 FR 8452 (Feb. 22, 

2002), and DOE’s guidelines were published at 67 FR 62446 (Oct. 7, 2002). DOE has 

reviewed today’s final rule under the OMB and DOE guidelines and has concluded that it 

is consistent with applicable policies in those guidelines. 

K. Review Under Executive Order 13211 

Executive Order 13211, “Actions Concerning Regulations That Significantly 

Affect Energy Supply, Distribution, or Use,” 66 FR 28355 (May 22, 2001), requires 

Federal agencies to prepare and submit to the Office of Information and Regulatory 

Affairs (OIRA) at OMB, a Statement of Energy Effects for any proposed significant 

energy action. A “significant energy action” is defined as any action by an agency that 

promulgates or is expected to lead to promulgation of a final rule, and that: (1) Is a 

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significant regulatory action under Executive Order 12866, or any successor order; and 

(2) is likely to have a significant adverse effect on the supply, distribution, or use of 

energy; or (3) is designated by the Administrator of OIRA as a significant energy action. 

For any proposed significant energy action, the agency must give a detailed statement of 

any adverse effects on energy supply, distribution, or use should the proposal be 

implemented, and of reasonable alternatives to the action and their expected benefits on 

energy supply, distribution, and use. 

DOE has determined that today’s rule, which sets energy conservation standards 

for residential water heaters, direct heating equipment, and pool heaters, is not a 

“significant energy action” within the meaning of Executive Order 13211, because the 

standards are not likely to have a significant adverse effect on the supply, distribution, or 

use of energy, nor has it been designated as such by the Administrator of OIRA. 

Accordingly, DOE has not prepared a Statement of Energy Effects. 

L. Review Under the Information Quality Bulletin for Peer Review 

In consultation with the Office of Science and Technology Policy (OSTP), OMB 

issued on December 16, 2004, its “Final Information Quality Bulletin for Peer Review” 

(the Bulletin). 70 FR 2664 (Jan. 14, 2005). The Bulletin establishes that certain scientific 

information shall be peer reviewed by qualified specialists before it is disseminated by 

the Federal government, including influential scientific information related to agency 

regulatory actions. The purpose of the Bulletin is to enhance the quality and credibility of 

the government’s scientific information. Under the Bulletin, the energy conservation 

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standards rulemaking analyses are “influential scientific information,” which the Bulletin 

defines as “scientific information that agency reasonably can determine will have or does 

have a clear and substantial impact on important public policies or private sector 

decisions.” 70 FR 2664, 2667 (Jan. 14, 2005). 

In response to OMB’s Bulletin, DOE conducted formal in-progress peer reviews of 

the energy conservation standards development process and analyses, and has prepared a 

Peer Review Report on the energy conservation standards rulemaking analyses. 

Generation of this report involved a rigorous, formal, and documented evaluation using 

objective criteria and qualified and independent reviewers to make a judgment as to the 

technical/scientific/business merit, the actual or anticipated results, and the productivity 

and management effectiveness of programs and/or projects. The “Energy Conservation 

Standards Rulemaking Peer Review Report” dated February 2007 has been disseminated 

and is available at the following website: 

http://www1.eere.energy.gov/buildings/appliance_standards/peer_review.htm. 

M. Congressional Notification 

As required by 5 U.S.C. 801, DOE will submit to Congress a report regarding the 

issuance of today’s final rule prior to the effective date set forth at the outset of this 

notice. The report will state that it has been determined that the rule is a “major rule” as 

defined by 5 U.S.C. 804(2). DOE also will submit the supporting analyses to the 

Comptroller General in the U.S. Government Accountability Office (GAO) and make 

them available to each House of Congress. 

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EE-2006-BT-STD-0129 COMMENT 105
For the reasons set forth in the preamble, DOE amends part 430 of chapter II, subchapter 

D, of title 10 of the Code of Federal Regulations, to read as set forth below: 

PART 430—ENERGY CONSERVATION PROGRAM FOR CONSUMER 

PRODUCTS 

1. The authority citation for part 430 continues to read as follows: 

Authority: 42 U.S.C. 6291–6309; 28 U.S.C. 2461 note. 

2. In §430.2, add the definitions “Direct heating equipment” and “Vented hearth heater,” 

in alphabetical order and revise the definition “Vented home heating equipment,” to read 

as follows: 

§430.2 Definitions. 

* * * * * 

Direct heating equipment means vented home heating equipment and unvented home 

heating equipment. 

* * * * * 

Vented hearth heater means a vented appliance which simulates a solid fuel fireplace and 

is designed to furnish warm air, with or without duct connections, to the space in which it 

is installed. The circulation of heated room air may be by gravity or mechanical means. A 

vented hearth heater may be freestanding, recessed, zero clearance, or a gas fireplace 

insert or stove. Those heaters with a maximum input capacity less than or equal to 9,000 

British thermal units per hour (Btu/h), as measured using DOE’s test procedure for 

vented home heating equipment (10 CFR part 430, subpart B, appendix O), are 

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considered purely decorative and are excluded from DOE’s regulations. 

Vented home heating equipment or vented heater means 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 except for vented hearth 

heaters, which may be with or without duct connections) and includes: vented wall 

furnace, vented floor furnace, vented room heater, and vented hearth heater. 

* * * * * 

3. In §430.32, revise paragraphs (d), (i), (k) to read as follows: 

§430.32 Energy and water conservation standards and their effective dates. 

* * * * * 

(d) Water heaters. 

The energy factor of water heaters shall not be less than the following for 

products manufactured on or after the indicated dates. 

Product Class Energy factor as 

of January 20, 

2004 

Energy Factor as of [INSERT DATE 5 YEARS 

AFTER DATE OF PUBLICATION IN THE 

FEDERAL REGISTER] 

Gas-fired Water 0.67 – (0.0019 x For tanks with a Rated Storage Volume at or below 55 

Heater Rated Storage 

Volume in 

gallons) 

gallons: EF = 0.675 – (0.0015 x Rated Storage 

Volume in gallons) 

For tanks with a Rated Storage Volume above 55 

gallons: 

EF = 0.8012 – (0.00078 x Rated Storage Volume in 

gallons) 

Oil-fired Water 0.59 – (0.0019 x EF = 0.68 – (0.0019 x Rated Storage Volume in 

Heater Rated Storage 

Volume in 

gallons) 

gallons) 

Electric Water 

Heater 

0.97 – (0.00132 

x Rated Storage 

Volume in 

For tanks with a Rated Storage Volume at or below 55 

gallons: EF = 0.960 – (0.0003 x Rated Storage 

Volume in gallons) 

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gallons) For tanks with a Rated Storage Volume above 55 

gallons: 

EF = 2.057 – (0.00113 x Rated Storage Volume in 

gallons) 

Tabletop Water 

Heater 

0.93 – (0.00132 

x Rated Storage 

Volume in 

gallons) 

EF = 0.93 – (0.00132 x Rated Storage Volume in 

gallons) 

Instantaneous 

Gas-fired Water 

Heater 

0.62 – (0.0019 x 

Rated Storage 

Volume in 

gallons) 

EF = 0.82 – (0.0019 x Rated Storage Volume in 

gallons) 

Instantaneous 

Electric Water 

Heater 

0.93 – (0.00132 

x Rated Storage 

Volume in 

gallons) 

EF = 0.93 – (0.00132 x Rated Storage Volume in 

gallons) 

NOTE: The Rated Storage Volume equals the water storage capacity of a water heater, in gallons, as 

specified by the manufacturer. 

* * * * * 

(i) Direct heating equipment. 

(1) Vented home heating equipment manufactured on or after January 1, 1990 and before 

[INSERT DATE 3 YEARS AFTER DATE OF PUBLICATION IN THE FEDERAL 

REGISTER], shall have an annual fuel utilization efficiency no less than: 

Product Class Annual fuel utilization efficiency, Jan. 1, 

1990 (percent) 

1. Gas wall fan type up to 42,000 Btu/h 73 

2. Gas wall fan type over 42,000 Btu/h 74 

3. Gas wall gravity type up to 10,000 Btu/h 59 

4. Gas wall gravity type over 10,000 Btu/h up 

to 12, 000 Btu/h 

60 

5. Gas wall gravity type over 12,000 Btu/h up 

to 15,000 Btu/h 

61 

6. Gas wall gravity type over 15,000 Btu/h up 

to 19,000 Btu/h 

62 

7. Gas wall gravity type over 19,000 Btu/h and 

up to 27,000 Btu/h 

63 

8. Gas wall gravity type over 27,000 Btu/h and 

up to 46,000 Btu/h 

64 

9. Gas wall gravity type over 46,000 Btu/h 65 

10. Gas floor up to 37,000 Btu/h 56 

11. Gas floor over 37,000 Btu/h 57 

12. Gas room up to 18,000 Btu/h 57 

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13. Gas room over 18,000 Btu/h up to 20,000 

Btu/h 

58 

14. Gas room over 20,000 Btu/h up to 27,000 

Btu/h 

63 

15. Gas room over 27,000 Btu/h up to 46,000 

Btu/h 

64 

16. Gas room over 46,000 Btu/h 65 

(2) Vented home heating equipment manufactured on or after [INSERT DATE 3 

YEARS AFTER DATE OF PUBLICATION IN THE FEDERAL REGISTER], shall 

have an annual fuel utilization efficiency no less than: 

Product Class Annual fuel utilization efficiency, [INSERT 

DATE 3 YEARS AFTER DATE OF 

PUBLICATION IN THE FEDERAL 

REGISTER] (percent) 

1. Gas wall fan type up to 42,000 Btu/h 75 

2. Gas wall fan type over 42,000 Btu/h 76 

3. Gas wall gravity type up to 27,000 Btu/h 65 

4. Gas wall gravity type over 27,000 Btu/h up 

to 46,000 Btu/h 

66 

5. Gas wall gravity type over 46,000 Btu/h 67 

6. Gas floor up to 37,000 Btu/h 57 

7. Gas floor over 37,000 Btu/h 58 

8. Gas room up to 20,000 Btu/h 61 

9. Gas room over 20,000 Btu/h up to 27,000 

Btu/h 

66 

10. Gas room over 27,000 Btu/h up to 46,000 

Btu/h 

67 

11. Gas room over 46,000 Btu/h 68 

12. Gas hearth up to 20,000 Btu/h 61 

13. Gas hearth over 20,000 Btu/h and up to 

27,000 Btu/h 

66 

14. Gas hearth over 27,000 Btu/h and up to 

46,000 Btu/h 

67 

15. Gas hearth over 46,000 Btu/h 68 

* * * * * 

(k) Pool heaters. (1) Gas-fired pool heaters manufactured on or after January 1, 1990 and 

before [INSERT DATE 3 YEARS AFTER DATE OF PUBLICATION IN THE 

FEDERAL REGISTER], shall have a thermal efficiency not less than 78%. 

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(2) Gas-fired pool heaters manufactured on or after [INSERT DATE 3 YEARS AFTER 

DATE OF PUBLCIATION IN THE FEDERAL REGISTER], shall have a thermal 

efficiency not less than 82%. 

* * * * * 

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APPENDIX 

[The following letter from the Department of Justice will not appear in the Code of 

Federal Regulations.] 

DEPARTMENT OF JUSTICE 

Antitrust Division 

CHRISTINE A. VARNEY 

Assistant Attorney General 

Main Justice Building 

950 Pennsylvania Avenue, N.W. 

Washington, D.C 20530-0001 

(202) 514-2401 / (202) 616-2645 

(Fax) 

E-mail: antItrust.atr@usdoj.gov 

Web site: http://www 

usdoj.gov/atr 

February 12, 2010 

Robert H. Edwards, Jr. 

Deputy General Counsel for Energy Policy 

Department of Energy 

Washington, DC 20585 

Dear Deputy General Counsel Edwards: 

I am responding to your letter seeking the views of the Attorney General about the 

potential impact on competition of proposed energy conservation standards for residential 

water heaters, direct heating equipment and pool heaters (collectively, residential heating 

products). Your request was submitted pursuant to Section 325(0)(2)(B)(i)(V) of the 

Energy Policy and Conservation Act, as amended, ("EPCA"), 42 U.S.C. § 

6295(0)(B)(i)(V), which requires the Attorney General to make a determination of the 

impact of any lessening of competition that is likely to result from the imposition of 

proposed energy conservation standards. The Attorney General's responsibility for 

responding to requests from other departments about the effect of a program on 

competition has been delegated to the Assistant Attorney General for the Antitrust 

Division in 28 CFR § 0.40(g). 

In conducting its analysis, the Antitrust Division examines whether a proposed 

standard may lessen competition, for example, by substantially limiting consumer choice, 

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leaving consumers with fewer competitive alternatives, placing certain manufacturers of 

a product at an unjustified competitive disadvantage compared to other manufacturers, or 

by inducing avoidable inefficiencies in production or distribution of particular products. 

We have reviewed the proposed standards contained in the Notice of Proposed 

Rulemaking ("NOPR") (74 Fed. Reg. 65852, December 11, 2009) and the supplementary 

information submitted to the Attorney General, and attended the January 7, 2010 public 

hearing on the proposed standards. 

Based on this review, the Department of Justice does not believe that the proposed 

standard for residential hot water heaters or pool heaters would likely lead to a lessening 

of competition. Our review has focused upon the standards DOE has proposed adopting; 

we have not determined the impact on competition of more stringent standards than those 

proposed in the NOPR. 

With respect to direct heating equipment (DHE), the Department does not see any 

competitive issue with gas hearth-heaters. The Department, however, is concerned that 

the proposed efficiency standards could adversely affect competition in the traditional 

DHE product categories: (1) gravity wall furnaces; (2) fan-forced wall furnaces; (3) floor 

furnaces; and (4) room heaters. 

The Department notes that essentially only three manufacturers currently market 

products for each of these four traditional DHE categories. It appears from the record that 

meeting the proposed standards may require the manufacturers, even those currently 

producing models that meet the proposed standards, to make a substantial capital 

investment to convert or expand their production facilities. It also appears that each 

manufacturer will have to commit significant resources for research and development. 

Based on our review, the proposed efficiency standards could affect competition 

by limiting the number of competitors in each category. Given the capital investments 

and research and development costs required to produce products meeting the standards, 

there is a significant risk that no more than one or two DHE manufacturers will choose to 

continue to produce products in anyone DHE category. 

Although the Department of Justice is not in a position to judge whether 

manufacturers will be able to meet - or choose to make the capital expenditures to meet - 

the proposed standards, we ask the Department of Energy to take into account the 

possible impact on competition in determining its final energy efficiency standards for 

DHE. 

Sincerely, 

Christine A. Varney 

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