12

- i CHAPTER 12 . PRELIMINARY MANUFACTURER IMPACT ANALYSIS

TABLE OF CONTENTS

12.1 INTRODUCTION

................................ ................................ ................................ ....... 12

- 1

12.2 METHODOLOGY

................................ ................................ ................................ ...... 12

- 1

12.2.1 Phase I: Industry Profile

................................ ................................ .............................. 12

- 2

12.2.2 Phase II: Industry Cash

- Flow Analysis and Interview Guide

................................ ..... 12

- 2

12.2.2.1 Industry Cash

- Flow Anal ysis

................................ ................................ .... 12

- 2

12.2.2.2 Interview Guide

................................ ................................ ........................ 12

- 2

12.2.3 Phase III: Subgroup Analysis

................................ ................................ ...................... 12

- 2

12.2.3.1 Manufacturer Interviews

................................ ................................ ........... 12

- 3

12.2.3.2 Revised Industry Cash

- Flow Analysis

................................ ...................... 12

- 3

12.2.3.3 Manufacturer Subgroup Analysis

................................ ............................. 12

- 3

12.2.3.4 Competitive Impact Assessment

................................ ............................... 12

- 3

12.2.3.5 Manufacturing Capacity Impact

................................ ............................... 12

- 4

12.2.3.6 Employment Impact

................................ ................................ .................. 12

- 4

12.2.3.7 Cumulative Regulatory Burden

................................ ................................ 12

- 4

12.3 PRELIMINARY MANUFACTURER IMPACT ANALYSIS RESULTS

................ 12

- 4

12.3.1 Industry Overview

................................ ................................ ................................ ...... 12

- 4

12.3.1.1 Industry Cost Structure

................................ ................................ ............. 12

- 5

12.3.1.2 Inventory Levels

................................ ................................ ....................... 12

- 6

12.3.2 Interview Topics and Preliminary Findings

................................ ................................ 12

- 7

12.3.2.1 Market Shares and Industry Consolidation

................................ ............... 12

- 7

12.3.2.2 Production and Product Mix

................................ ................................ ..... 12

- 8

12.3.2.3 Cumulative Regulatory Burden

................................ ................................ 12

- 9

12.3.3 Overall Key Issues

................................ ................................ ................................ .... 12

- 10

12.3.3.1 Regulation of Components

................................ ................................ ..... 12

- 10

12.3.3.2 Customer Impact

................................ ................................ ..................... 12

- 11

12.3.3.3 PSC Market

................................ ................................ ............................. 12

- 1 1

LIST OF TABLES

Table 12.3

- 1 Employment and Earnings for the Air

- Conditioning and Warm Air Heating Equipment and Commercial and Industrial Refrigeration Equipment Manufacturing

................................ ................................ ................................ ....... 12

- 5

Table 12.3

- 2 Air

- Conditioning and Warm Air Heating Equipment and Commercial an d Industrial Refrigeration Equipment Manufacturing Industry Material and Payroll Costs

................................ ................................ ................................ ......... 12

- 6

Table 12.3

- 3 End

- of

- Year Inventory for t he Air

- Conditioning and Warm Air Heating Equipment and Commercial and Industrial Refrigeration Equipment Manufacturing Industry

................................ ................................ ........................ 12

- 6

Table 12.3

- 4 Air

- Conditioning and Warm Air Heating Equipment and Commercial and Industrial Refrigeration Equipment Manufacturing Industry Full Production Capacity Utilization Rates

................................ ................................ .................... 12

- 712

- 1 CHAPTER 12. PRELIMINARY MANUFACTURER IMPACT ANALYSIS

12.1 INTRODUCTION

The purpose of the manufacturer impact analysis (MIA) is to identify and quantify the likely impacts of energy conservation standards on manufacturers. In the notice of proposed rulemaking (NOPR) stage of the analysis, the U.S. Department of Energy (DOE) considers a wide range of quantitative and qualit ative industry impacts that might occur due to an energy conservation standard. For example, a particular standard level could require changes in manufacturing practices, equipment, raw materials, etc. DOE fully analyzes these impacts during the NOPR stage

.
DOE announced changes to the preliminary analysis MIA format through a report issued to Congress on January 31, 2006 (as required by section 141 of the Energy Policy Act of 2005 (EPACT 2005), titled Energy Con servation Standards Activities. 1

To the extent appropriate for this rulemak ing, DOE applies the methodology described below to evaluate energy conservation standards for furnace fans

. As a result, DOE collects, evaluates, and reports preliminary MIA information in the preliminary analysis (as opposed to waiting for the NOPR stage). Such preliminary information includes market data, market shares, industry consolidation, product mix, key issues, con version costs, foreign competition, and cumulative regulatory burden information, if available. DOE solicits this information during the preliminary manufacturer interviews and reports the results in this chapter.

12.2 METHODOLOGY

DOE conducts the MIA in three phases. In Phase I, DOE creates an industry profile to characterize the industry and conducts a prelimi nary MIA to identify important issues that require consideration. Section 12.3.1 of this chapter presents initial findings of the Phase I analysis. In Phase II, DOE prepares an industry cash flow model and a detailed interview questionnaire to guide subsequent discussions with manufacturers. In Phase III, DOE interviews manufacturers and assesses the impacts of energy conservation standards both quantitatively and

qu alitatively. DOE assesses industry and subgroup cash flow impacts and industry net present value using the Government Regulatory Impact Model (GRIM). For additional details on the GRIM, see section 12.2.2.1 . DOE also assesses impacts on competition, manufacturing capacity, employment, and regulatory burden based on manufacturer interviews and discussions. The NOPR and technical support document present results of the Phase II and III analyses.

1 U.S. Department of Energy. Energy Conservation Standards Activitie s. 2006. (Last accessed February 8, 2012 .) http://www1.eere.energy.gov/buildings/appliance_standards/schedule_setting.html12

- 2 12.2.1 Phase I: Industry Profile

In Phase I of the MIA, DOE collects pertinent qualitative and quantitative financial and market information. This includes data on wages, employment, industry costs, and capaci ty
utilization rates for manufacturers of furnace fans . Sources of information include reports published by industry groups, trade journals, the U.S. Census Bureau, and Securities Exchange Commission (SEC) 10

- K filings. In addition, DOE relies on informati on from its market and technology assessment, engineering analysis, life

- cycle cost analysis, and consumer price analysis to characterize the furnace fan manufacturing industry.

12.2.2 Phase II: Industry Cash

- Flow Analysis and Interview Guide

In Phase II, DOE pe rforms a preliminary industry cash

- flow analysis and prepares written guidelines for interviewing manufacturers.

12.2.2.1 Industry Cash

- Flow Analysis

The GRIM is a financial model that analyzes the impacts of energy conservation standards. Energy conservation standards may affect investment, production costs, and revenue through changes in prices and, possibly, shipments. The GRIM uses several factors to determine a series of annual cash flows for the year that energy conservation standards become effective

and for several years after implementation. These factors include annual expected revenues, costs of sales, selling and general administration costs, taxes, and capital expenditures. Inputs to the GRIM include financial information, manufacturing costs, shipm ent forecasts, and price forecasts developed in other analyses. The financial information is developed from publicly available data and confidentially submitted manufacturer information. DOE compares the results of the GRIM against baseline projections in which no energy conservation standards are in place. The financial impact of energy conservation standards is the difference between the two sets of

discounted annual cash flows.

12.2.2.2 Interview Guide

DOE conducts interviews with manufacturers to gather informa tion on the effects of energy conservation standards on revenues, costs, direct employment, capital assets, and industry competitiveness. Before the interviews, which occur in Phase III, DOE distributes an interview guide to help identify the impacts of en ergy conservation standards on individual manufacturers or subgroups of manufacturers. Interview guide topics include production costs, shipment projections, market share, product mix, conversion costs, markups and profitability, competition, manufacturing capacity, cumulative regulatory burden, and other relevant topics.

12.2.3 Phase III: Subgroup Analysis

Phase III activities take place after publication of the preliminary analysis. These activities include manufacturer interviews; revision of the industry cas h

- flow analysis; a manufacturer subgroup analysis; and an assessment of the impacts on industry competition, manufacturing capacity, direct employment, cumulative regulatory burden, as well as other qualitative impacts.12

- 3 12.2.3.1 Manufacturer Interviews

DOE conduct s detailed interviews with manufacturers to gain insight into the potential impacts of energy conservation standards on sales, direct employment, capital assets, and industry competitiveness. The interview process is critical to the MIA because it provides an opportunity for manufacturers to privately express their views on important issues. Interviews are scheduled well in advance to provide every opportunity for manufacturers to be available for comment. Although a written response to the questionnaire is acceptable, DOE prefers interactive interviews, which help clarify responses and provide the opportunity to identify additional issues not specifically addressed in the interview questionnaire. A non

- disclosure agreement allows confidential or sensitive i nformation to be considered in DOE’s decision

making process. Confidential information will not be made available in the public record. At most, sensitive or confidential information may be aggregated and presented in industry

- wide representations.

DOE sup plements the information gathered in Phase I and the cash

- flow analysis performed in Phase II with information gathered during manufacturer interviews.

12.2.3.2 Revised Industry Cash

- Flow Analysis

A s discussed, DOE requests information about profitability impacts, necessary plant changes, and other manufacturing impacts during the interview process. DOE revises its industry cash flow model based on the feedback it receives in comments and during interviews.

12.2.3.3 Manufacturer Subgroup Analysis

Using average cost assumptions to develop an industry cash flow estimate will not adequately assess differential impacts among manufacturer subgroups. Smaller manufacturers, niche players, and manufacturers exhibiting a cost structure that differs largely from the industry

a verage could be more negatively affected. Ideally, DOE would consider the impact on every firm individually; however, it typically uses the results of the industry characterization to group manufacturers with similar characteristics. During the interviews, DOE discusses the potential subgroups that have been identified for the analysis. DOE asks manufacturers and other interested parties to suggest what subgroups or characteristics are most appropriate for the analysis.

12.2.3.4 Competitive Impact Assessment

Secti on 342(6)(B)(i)(V) of the Energy Policy Act of 1992 (EPACT 1992), modifying the Energy Policy and Conservation Act (EPCA), directs DOE to consider any lessening of competition likely to result from the imposition of standards. EPCA further directs the U.S. Attorney General to determine the impacts, if any, of any decrease in competition. DOE attempts to gather and report firm

- specific financial information and impacts wherever possible. DOE bases the competitive impact assessment on manufacturer cost data a nd other information collected from interviews. When assessing competitive impacts, DOE’s interviews generally focus on assessing asymmetrical cost increases, the potential increase in business risks from an increased proportion of fixed costs, and potenti al barriers to market entry (e.g., proprietary12

- 4 technologies). The competitive analysis will also focus on assessing any differential impacts to

smaller manufacturers.

12.2.3.5 Manufacturing Capacity Impact

One of the significant outcomes of energy conservation sta ndards can be the obsolescence of existing manufacturing assets, including tooling and other investments. The manufacturer interview guide presents a series of questions to help identify impacts on manufacturing capacity, specifically capacity utilization and plant location decisions in the United States with and without energy conservation standards. The interview guide also addresses the ability of manufacturers to upgrade or remodel existing facilities to accommodate the new requirements; the nature and value of stranded assets, if any; and estimates for any one

time restructuring or other charges, where applicable.

12.2.3.6 Employment Impact

The impact of energy conservation standards on employment is an important consideration in the rulemaking process. To asse ss how domestic employment patterns might be affected, the interview process explores current employment trends in the furnace fan industry and solicits manufacturer views on changes in employment patterns that may result from

increased standard levels. Th e employment impacts section of the interview guide focuses on current employment levels at production facilities, expected future employment levels with and without an energy conservation standard, differences in workforce skills, and employee retraining.

12.2.3.7 Cumulative Regulatory Burden

DOE seeks to mitigate the overlapping effects on manufacturers due to energy conservation standards and other regulatory actions. DOE analyzes and considers the impact on manufacturers of multiple, product

- specific regulatory actions.

12.3 PRELIMINARY MANUFACTURER IMPACT ANALYSIS RESULTS

During the preliminary activities phase, DOE conducted a preliminary evaluation of the impact of potential energy conservation standards on the furnace fan industry.

The primary sources of information for this analysis are the U.S. Census, industry reports, and interviews with manufacturers of furnace fans , conducted during the summer of

201 1 . To maintain confidentiality, DOE only reports aggregated information here. D OE does not disclose company

- specific information, nor does it identify the in dividual manufacturers that

disclosed information.

12.3.1 Industry Overview

Th e following section summarizes publicly available industry data.12

- 5 12.3.1.1 Industry Cost Structure

DOE is unaware of any publicly available industry

- wide cost data specific to only

manufacturers of residential furnace fans . DOE examined the North American Industry Classification System (NAICS) codes for small business sizes and determined that furnace f an manufacturing is classified as a subset under NAICS code 333415, Air

- Conditioning and Warm Air Heating Equipment and Commercial and Industrial Refrigeration Equipment Manufacturing. 2 Therefore, DOE presents the data below as a broader industry proxy for the

furnace fan industry, which, in combination with information gained in interviews, inform DOE’s analysis of the industry cost structure.

DOE obtained the below data from the U.S. Census Bureau’s Annual Survey of Manufacturers, Statistics for Industry Groups and Industries from 2002 to 2010 3

.

Table 12.3

- 1 presents the industry employment level s and earnings from 2002 to 2010

. The statistics illustra te approximately a 23 .3% decrease in production workers and a 23 .0% percent decrease in overall numbe r of employees from 2002 to 2010

.

Table 12.3

- 1 Employment and Earnings for the Air

- Conditioning and Warm Air Heating Equipment and Commercial and Industrial Refrigeration Equipment Manufacturing

Industry Year Production Workers All Employees Annual Payroll
$ 1 000s

2002 80,400 108,252 3,815,129

2003 77,471 104,646 3,775,799

2004 73,559 99,669 3,707,969

2005 76,011 102,354 3,942,808

2006 74,909 98,097 4,019,813

2007 74,728 101,485 4,034,043

2008 70,787 96,610 4,020,656

2009 60,259 85,475 3,768,643

2010 61,668 83,361 3

, 778

, 633

Source: U.S. Census Bureau. Annual Survey of Manufacturers , 2002

- 2010

.

Table 12.3

- 2 presents the costs of materials and industry payroll as a percentage of shipment value from 2 002 to 2010

. During that timeframe, t he cost of materials as a percentage of shipment value has increased 6.5%, t he cost of payroll for production workers as a percentage of shipment value has decreased 20.8%, and the cost of total payroll as a percentage of shipment

value has decreased 15.2%

.

2 U.S. Census Bureau. North American Industry Classification System (NAICS) code 3 33415. “Air

- Conditioning and Warm Air Heating Equipment and Commercial and Industrial Refrigeration Equipment Manufacturing.” 2007. ( Last accessed February 9, 2012.) http://www.census.gov/cgi

bin/sssd/naics/naicsrch?code=333415&search=2007%20NAICS%20Search

3 U.S. Census Bureau. Annual Survey of Manufacturers, Statistics for Industry Groups and Industries. (Last accessed February 9, 2012.) www.census.gov/manufacturing/asm/index.html12

- 6 Table 12.3

- 2 Air

- Conditioning and Warm Air Heating Equipment and Commercial and Industrial Refrigeration Equipment Manufacturing Industry Material and Pa yroll Costs

Year Cost of Materials % of shipment value Cost of Payroll for

Production Workers % of shipment value Cost of Total Payroll % of shipment value

2002 49.36 9.83 15.85

2003 50.59 9.53 15.39

2004 51.81 8.99 14.57

2005 53.78 8.52 13.78

2006 53.17 8.87 13.80

2007 55.59 8.17 13.43

2008 54.83 8.13 13.50

2009 54.14 7.89 14.05

2010 52.59 7.79 13.44

Source: U.S. Census Bureau. Annual Survey of Manufacturers , 2002

- 2010

.

12.3.1.2 Inventory Levels

Table 12.3

- 3 shows the year

- end inventory for the Air

- Conditioning and Warm Air Heating Equipment and Commercial and Industrial Refrigeration Equipment Manufacturing industry obtained from the U.S. Census Bureau, Annual Survey of Manufacturers, Statistics for Industry Groups and Industries from 2002 to 20 10 . Year

- end inventory refers to the amount of inventory a manufacturer has on hand at year end, which includes work

- in

- progress and finished goods. Again, DOE presents these data as a broader measure of the furnace fan industry. The industry’s end

- of

- year inventory increased from 2002 to 20 07, and the n de creased from 2007 to

2010

.

Table 12.3

- 3 End

- of

- Year Inventory for the Air

- Conditioning and Warm Air Heating Equipment and Commercial and Industrial Refrigeration Equipment Manufacturing Industry

Year End

- of

- Year Inventory
$000s End

- of

- Year Inventory % of shipment value

2002 2,302,012 9.57

2003 2,376,827 9.69

2004 2,473,932 9.72

2005 2,687,441 9.39

2006 2,887,139 9.91

2007 3,036,616 10.11

2008 2,888,034 9.72

2009 2,636,972 9.83

2010 2,585,194 9.19

Source: U.S. Census Bureau. Annual Survey of Manufacturers , 2002

- 2010

.

DOE obtained full production capacity utilization rates from the U.S. Census Bureau, Current Industrial Reports, Survey of Pl ant Capacity from 2002 to 2010

. 4 Table 12.3

- 4 presents

4 U.S. Census Bureau. Survey of Plant Capacity Utilization. (Last accessed February 9, 2012.) http://www.census.gov/manufacturing/capacity/index.html12

- 7 production capacity utilization rates for NAICS code 3334. Full production capacity is defined as the maximum level of production an establish ment could attain under normal operating conditions. In the Survey of Plant Capacity report, the full production utilization rate is a ratio of the actual level of operations to the full production level.

Table 12.3

- 4 Air

- Conditioning and Warm Air Heating Equipment and Commercial and Industrial Refrigeration Equipment Manufacturing Industry Full Production Capacity

Utilization Rates

Year Ventilation, H eating, Air C onditioning, and C ommerc ial

R efrigeration E quipment M anufacturing %

2002 60

2003 62

2004 60

2005 66

2006 63

2007 58

2008 64

2009 57

2010 60

Source: U.S. Census Bureau. Quarterly Survey of Plant Capacity Utilization : F ourth Quarters 2002 through 2010

.

12.3.2 Interview Topics and Preliminary Findings

The following section summarizes information gathered during interviews held du ring

the summer of 2011 for the preliminary MIA.

12.3.2.1 Market Shares and Industry Consolidation

Energy conservation standards can alter the competitive dynamics of the marketplace, prompting companies to enter the market, exit the market, or merge with other companies. The preliminary MIA interview questions asked manufacturers to share their perspectives on industry

consolidation both in the presence of current energy conservation standards, as well as in the case of future, potentially more stringent standard levels. The interview questions focused on gathering information that assessed:

**•** current and anticipated market share in the event of standards;

**•** disproportionate cost increases to some manufacturers;

**•** likelihood of industry consolidation;

**•** increased proportion of fixed costs potentially increasing business risks; and

**•** potential barriers to market entry (e.g., proprietary technologies).

The need to assess anti

- competitive effects of potential amended energy conservation standards derives from the need to protect consumer interests. During the interviews, DOE also solicited information to determine whether amended energy conservation stand ards could result in disproportionate economic or performance penalties for particular consumer or user subgroups. Manufacturers were also asked if energy conservation standards could result in12

- 8 products that would be more or less desirable to consumers due to changes in product functionality, utility, or other features.

Market Shares . DOE inquired about current market shares of manufacturers in the

furnace fan industry and about how those shares might change after potential amendment of

energ y conservation standards. Manufacturers stated that, in the presence of amended standards

, market shares would be more likely to change for smaller companies than for larger companies, which typically have access to more resources.

Industry Consolidation . The furnace fans industry has experienced some consolidation in
recent years

. However, manufacturers interviewed as part of the preliminary MIA indicated that consolidation has been driven more by economic conditions and the housing industry rather than by government regulations

.

12.3.2.2 Production and Product Mix

DOE requested manufacturers’ feedback on the possible impact of energy conservation standards on p rofitability. For instance, capital and product conversion outlays may be required to upgrade or redesign products before they have reached the end of their useful life, which could result in reduced cash flow and stranded investments. Higher energy conservation standards could also result in higher per

- unit costs that could cause consumers to shift t o less expensive products, if available.

Product Mix. DOE is interested in understanding if amended energy conservation standards might change a manufacturer’s product mix and if this change would affect profits. For example, higher energy efficiency stan dards might limit a manufacturer’s ability to differentiate products and market premium products that command higher profit margins. DOE will also investigate how amended energy conservation standards might affect a manufacturer’s consumer

mix and its dist ribution channels, and how in turn this might change profitability. During preliminary interviews, one manufacturer stated that setting a new energy conservation standard is unlikely to impact product mix because the standard would impact all product class es similarly

. As explained in more detail in chapters 3 and 5 of this TSD, DOE expects that

manufacturers can use similar technology pathways to achieve similar inc reases in efficiency at similar cost for units with similar capacities, regardless of product class

. Therefore, a standard would not have differential cost or efficiency impacts for any given product class that could result in a shift in product mix

.

However, product mix may be affected by the relationship between furnace fan minimum

effi ciency levels and SEER levels for uncovered blower

- coils in air

- conditioners. Manufacturers of HVAC products that use furnace fans that are covered in this rulemaking also manufacture HVAC products , such as CAC blower

- coil units, that use circulation fans that are not covered in this rulemaking

. The electrical consumption of circulation fans used in CAC blower

- coil air handlers is regulated by DOE using the SEER metric in a separate rulemaking

. The minim um efficiency level set by the furnace fan rulemaking could be more or less stringent on fan electrical consumption compared to the SEER standards

. If so, the combined effect of the furnace fan and SEER standards would have differential impacts on covered products compared to uncovered products like CAC blowe r

- coil air handlers

. These differential impacts could result12

- 9 in a shift in the product mix

. Chapter 3 of this TSD provides a detailed discussion of the scope of coverage of this rulemaking

.

Product Utility. Amended energy conservation standards might require changes in product functionality, utility, and other features that would make products less desirable to

consumers. Manufacturers express ed concern that complying with new standard s for a component such a s furnace fans may reduce the efficiency of the overall finished product. One

manufacturer recalled an ASHRAE publication on air mover systems in which the overall performance of a unit is more efficient when several less efficient movers are used, rather than

one more efficient unit. The manufacturer did not provide detailed reference information for the study

. Therefore, setting a standard for a component may reduce product utility by limiting synergies between components. Furthermore, due to the higher c osts of more efficient fans, customers may switch to cheaper heating technologies that may not provide the same features or quality of heating and cooling provided by furnaces and air conditioners. For example, some
customers may use space heating equipmen t to heat their homes instead of a central heating system, which does not provide comparable distribution of conditioned air

. Product utility may also be affected by the use of certain technology options DOE has identified

. For example,

a lthough PSC motors may be less efficient, they are generally more reliable and easier to

maintain than ECMs

. Also, Backward

- curved impellers are more sensitive to installation configuration

. Manufacturers may not be able to offer models using backward

- curved impellers

that can be installed in a multiple configurations (i.e. upflow, downflow, and horizontal) as is common with HVAC products that use forward

- curved impellers.

12.3.2.3 Cumulative Regulatory Burden

While any one regulation may not impose a significant burden on manufact urers, 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. F or the cumulative regulatory burden analysis, DOE describes other significant equipment

- specific regulations that could affect

furnace fan manufacturers or their parent companies.

Based on its own research and discussions with manufa cturers, DOE identified several

re gulations relevant to furnace fans , including:

**•** DOE Energy Efficiency Standards

**•** Canadian Standards

**•** UL Certification

**•** California Title 24

**•** ASHRAE Standards

**•** Energy Star

DOE Energy Efficiency Standards. DOE recently issued amended standards for

residential furnaces and central air conditioners in June 2011. Since manufacturers of furnace

fans are also manufacturers of furnaces and air conditioners, they would need to comply with

DOE standards at both the component and system levels.12

- 10 Canadian Standards. Many manufacturers are also affected by Canadian energy efficiency standards. The CSA C823 standard specifies requirements for measuring the air delivery and the electrical energy consumption of air handl ers in residential space conditioning systems over a range of static pressures and speed control settings. Manufacturers who sell their products in the US and in Canada would need to comply with two different sets of standards for

furnace fans.

Californi a Title 24. Title 24, Part 6, of the California Code of Regulations includes building energy efficiency standards for residential and nonresidential buildings

. The California Energy Commission (CEC) published new standards in 2008 that became effective Jan uary 1,

2010

. These standards include W/CFM limits for fans used in central, residential HVAC systems. Manufacturers would need to comply with state standards, such as California Title 24, as well as the federal energy conservation standard.

Energy Star

. ENERGY STAR originally set specifications for residential gas and oil furnaces in 1995. ENERGY STAR specifications for furnaces did not include provisions for the electrical consumption of the furnace fan until the most recent revisions, Versions 3.0 and 4.0

. In versions 3.0 and 4.0, the furnace fan electrical consumption must account for less than 2% of the total energy consumption (electrical and fuel) of the furnace. Version 3.0 took effect on February 1, 2012 and Version 4.0 will take effect on Februar y 1, 2013.

12.3.3 Overall Key Issues

Perhaps the most important aspect of the preliminary MIA is the opportunity it creates for DOE to identify key manufacturer issues early in the development of energy conservation standards. During preliminary interviews, man ufacturers identified several major issues, which are detailed in the following sections.

12.3.3.1 Regulation of Components

During the preliminary manufacturer impact analysis interview process, manufacturers expressed concern that DOE is now regulating components and sub

- assemblies . In doing so, system effects could be ignored . One manufacturer provided the example that, in commercial HVAC equipment, using several less efficient fans may result in a more efficient system overall than using a single more efficient fan , but this system effect is not considered when determining minimum efficiency levels for individual components . Furthermore, some manufacturers stated that adopting such a narrow scope would limit design ingenuity, especially if few options are

availab le which would allow compliance with new standards. Manufacturers also commented that customers may have difficulty making purchasing decisions if too many ratings are included on energy guide labels. For instance, having both an AFUE rating and a fan effi ciency rating (FER) r ating on the labels may confuse customers.12

- 11 12.3.3.2 Customer Impact

Manufacturers were also concerned about potential impacts on their customers

. If new standards are set too high, consumers may have a very limited range of options for furnac e fans. Furthermore, if ECM motors are used, customers may have to pay more in order to maintain a level of AFUE efficiency that would have been attainable at a lower price for furnaces that use PSC motors. Customers who do not want to increase costs may decide to purchase units with lower AFUE ratings to offset the increase in price due to use of an ECM motor

. In addition to being more expensive, ECM motors may also require more maintenance. I f the price of furnace

fans increases due to th e new standards, customers may be more likely to repair an old unit rather than purchase a new unit. In addition, as described in section 12.3.3.1, customer purchasing

dec isions may be complicated if more than one rating is included on furnace fan energy guide

labels.

12.3.3.3 PS C Market

Manufacturers also commented on the possibility that the PSC market may be eliminated

if new standards are set. The minimum efficiency levels that would be required by a new standard may be more difficult to meet with PSC motors, and therefore th e market for PSC motors in the furnace fan industry may shrink or disappear. With approximately 70% of new construction currently using PSC blowers, the impact on both manufacturers and suppliers of the furnace fan industry would be significant. If the PSC market were eliminated, manufacturers stated that consumers may switch to cheaper, alternative heating technologies. For example, if PSC motors could not be used to meet new minimum efficiency levels and the use of more expensive ECM motors rais ed the price of furnaces, some consumers may decide to heat their

homes with water heaters instead.