14-i

CHAPTER 14. UTILITY IMPACT ANALYSIS

TABLE OF CONTENTS

14.1 INTRODUCTION ......................................................................................................... 14-1

14.2 METHOD ...................................................................................................................... 14-1

14.3 RESULTS ...................................................................................................................... 14-2

14.4 IMPACT OF STANDARDS ON NATURAL GAS AND ELECTRICITY 

PRICES AND ASSOCIATED BENEFITS FOR CONSUMERS............................... 14-15

14.4.1 Impact on Natural Gas Prices ...................................................................................... 14-16

14.4.2 Impact of Changes in Natural Gas Prices on Gas Users.............................................. 14-18

14.4.3 Discussion of Savings in Natural Gas Expenditures.................................................... 14-19

14.4.4 Impact on Electricity Prices......................................................................................... 14-20

14.4.5 Impact of Changes in Electricity Price on Electricity Users........................................ 14-22

14.4.6 Discussion of Savings in Electricity Expenditures...................................................... 14-23

LIST OF TABLES

Table 14.1 AEO2010 Reference Case Forecast................................................................... 14-3

Table 14.2 Furnace, Central Air Conditioner, and Heat Pump Trial Standard Level 1 

Forecast.............................................................................................................. 14-4

Table 14.3 Furnace, Central Air Conditioner, and Heat Pump Trial Standard Level 2 

Low Estimate Forecast....................................................................................... 14-5

Table 14.4 Furnace, Central Air Conditioner, and Heat Pump Trial Standard Level 2 

High Estimate Forecast...................................................................................... 14-6

Table 14.5 Furnace, Central Air Conditioner, and Heat Pump Trial Standard Level 3 

Low Estimate Forecast....................................................................................... 14-7

Table 14.6 Furnace, Central Air Conditioner, and Heat Pump Trial Standard Level 3 

High Estimate Forecast...................................................................................... 14-8

Table 14.7 Furnace, Central Air Conditioner, and Heat Pump Trial Standard Level 4 

Low Estimate Forecast....................................................................................... 14-9

Table 14.8 Furnace, Central Air Conditioner, and Heat Pump Trial Standard Level 4 

High Estimate Forecast.................................................................................... 14-10

Table 14.9 Furnace, Central Air Conditioner, and Heat Pump Trial Standard Level 5 

Forecast............................................................................................................ 14-11

Table 14.10 Furnace, Central Air Conditioner, and Heat Pump Trial Standard Level 6 

Forecast............................................................................................................ 14-12

Table 14.11 Furnace, Central Air Conditioner, and Heat Pump Trial Standard Level 7 

Forecast............................................................................................................ 14-13

Table 14.12 Reduction in Electric Generating Capacity in 2045 Under Furnace, Central 

Air Conditioner, and Heat Pump Trial Standard Levels.................................. 14-14

Table 14.13 Natural Gas Inverse Price Elasticity from Seven Energy Models................... 14-16

Table 14.14 Cumulative NPV of the Economy-Wide Savings in Natural Gas ................... 14-19
14-ii

Table 14.15 Cumulative NPV of the Economy Wide Savings in Electricity 

Expenditures Due to the Projected Decline in Electricity Prices Resulting 

from the Proposed Standard for Furnaces, Central Air Conditioners, and 

Heat Pumps* .................................................................................................... 14-23

LIST OF FIGURES

Figure 14.4.1 Change in U.S. Natural Gas Consumption Resulting From the Proposed 

Furnace and Central Air Conditioning Product Energy Conservation 

Standard ........................................................................................................... 14-17

Figure 14.4.2 Effects of the Proposed Furnace and Central Air Conditioning Product 

Energy Conservation Standard on Average U.S. Wellhead Natural Gas 

Prices................................................................................................................ 14-18

Figure 14.4.3 Change in U.S. Electricity Sales Associated with the Proposed Furnace, 

Central Air Conditioner, and Heat Pump Energy Conservation Standard....... 14-21

Figure 14.4.4 Effect of the Proposed Furnace, Central Air Conditioner, and Heat Pump 

Energy Conservation Standard on Average U.S. Electricity Prices (All 

Users)............................................................................................................... 14-22
14-1

CHAPTER 14. UTILITY IMPACT ANALYSIS

14.1 INTRODUCTION

DOE analyzed the effects of residential furnace and central air conditioner standard levels 

on the utility industry using a variant of the DOE/Energy Information Administration (EIA)’s 

National Energy Modeling System (NEMS).

a NEMS is a public domain, multi-sectored, partial 

equilibrium model of the U.S. energy sector. Each year, DOE/EIA uses NEMS to produce an

energy forecast for the United States, the Annual Energy Outlook (AEO). The AEO for 2010

(AEO2010) forecasts energy supply and demand through 2035.

1 DOE used a variant of this 

model, referred to here as NEMS-BT,

b to account for the impacts of furnace and central air 

conditioner energy conservation standards. DOE’s utility impact analysis consists of a 

comparison between model results for the AEO2010 Reference Case and for cases in which 

standards are in place, and applies the same basic set of assumptions as the AEO2010. The 

AEO2010 reference case corresponds to medium economic growth.

The utility impact analysis reports the changes in electric installed capacity and 

generation that result for each trial standard level (TSL) by plant type, as well as changes in 

residential natural gas consumption. 

NEMS-BT has several advantages that have led to its adoption as the forecasting tool in 

the analysis of energy conservation standards. NEMS-BT uses a set of assumptions that are well 

known and fairly transparent, due to the exposure and scrutiny each AEO receives. In addition, 

the comprehensiveness of NEMS-BT permits the modeling of interactions among the various 

energy supply and demand sectors, producing a complete picture of the effects of energy

conservation standards. Perhaps most importantly, NEMS-BT can be used to estimate marginal 

effects, which yield a better estimate of the actual impact of energy conservation standards than 

considering only average effects.

14.2 METHOD

The utility impact analysis uses the assumptions of the AEO2010 and treats furnaces and 

central air conditioning conservation standards as variations in policy. The effects of the policy 

are calculated as the difference between the AEO2010 Reference Case and each proposed 

standard case, which is described as a trial standard level (TSL). 

 

a For more information on NEMS, refer to the U.S. Department of Energy, Energy Information Administration 

documentation. A useful summary is National Energy Modeling System: An Overview 2003, DOE/EIA-0581(2003), 

March, 2003.

b DOE/EIA approves use of the name NEMS to describe only an official version of the model without any 

modification to code or data. Because this analysis entails some minor code modifications and the model is run 

under various policy scenarios that are variations on DOE/EIA assumptions, DOE refers to it by the name NEMSBT (BT is DOE’s Building Technologies Program, under whose aegis this work has been performed). NEMS-BT 

was previously called NEMS-BRS.
14-2

DOE used the energy savings developed in the national impact analysis (chapter 10) for 

each TSL as input to NEMS-BT. The magnitude of the energy decrement that would be required 

for NEMS-BT to produce stable results out of the range of numerical noise is larger than the 

highest efficiency standard under consideration. Therefore, DOE estimated results corresponding 

to each TSL using interpolation. DOE ran higher energy use reduction levels in NEMS-BT, 

representing multipliers of each TSL, and used these outputs to linearly interpolate the results to 

estimate actual changes in generation and capacity due to the standard.

Policy runs are executed by reducing electricity and fossil fuel consumption in the 

NEMS-BT Residential Demand Module. These energy savings are decremented with the 

appropriate end use. The Furnace and Central Air Conditioner rulemaking has both heating and 

cooling energy savings, therefore both of these end uses were decremented in the NEMS model. 

The model was decremented with both end uses simultaneously, the heating end use was 

decremented with the amount of energy resulting from space heating, and the cooling end use 

was decremented with the amount of energy savings resulting from space cooling. These

decrements are also divided amongst the nine U.S. Census divisions based upon the share of

energy end use consumption in each division, as given in NEMS.

Although the current time horizon of NEMS-BT is 2035, other parts of the energy

conservation standards analysis extend through the year 2045. It is not feasible to extend the 

forecast period of NEMS-BT for the purposes of this analysis, nor does DOE/EIA have an 

approved method for extrapolation of many outputs beyond 2035. While it might seem 

reasonable to make simple linear extrapolations of results, in practice this is not advisable 

because outputs could be contradictory. An analysis of various trends sufficiently detailed to 

guarantee consistency is beyond the scope of this work, and, in any case, would involve a great 

deal of uncertainty. Therefore, all extrapolations beyond 2035 are simple replications of year 

2035 results. To emphasize the extrapolated results wherever they appear, they are shaded in 

gray to distinguish them from actual NEMS-BT results.

14.3 RESULTS

This utility impact analysis reports NEMS-BT forecasts for residential-sector electricity

and natural gas consumption, total electricity generation by fuel type, and installed electricity 

generation capacity by fuel type. Results are presented in five-year increments to year 2035.

Beyond year 2035, an extrapolation through 2045 for each TSL represents a simple replication of 

the year 2035 results.

The results from the AEO2010 Reference Case are shown in Table 14.1. 

A set of seven TSLs were modeled for furnaces and central air conditioners and heat 

pumps. The results for each of these TSLs are presented in Tables 14.2 through 14.11, Each table 

shows forecasts for total U.S. electricity generation and installed capacity as well as natural gas 

consumption. For TSLs 2, 3, and 4, DOE calculated a range of results that reflect alternative 

assumptions with respect to how the market for non-weatherized and mobile home furnaces will 

respond to a standard at 90-percent or 92-percent AFUE. These assumptions are discussed in 
14-3

chapter 10. Results reported in chapter 10 at TSLs 2a, 3a, and 4a represent the low end of the 

range for forecasting standards-case efficiency distributions, while TSLs 2b, 3b, and 4b represent 

the high end of the range for forecasting standards-case efficiency distributions

Table 14.1 AEO2010 Reference Case Forecast 

NEMS-BT Results: AEO2010 Reference

2005 2010 2015 2020 2025 2030 2035

Residential Sector Energy Consumption 1

Electricity Sales (TWh)2 1,359 1,388 1,400 1,472 1,553 1,637 1,707

Total U.S. Electric Generation 3

Coal (TWh) 2,013 1,828 2,038 2,090 2,130 2,209 2,305

Gas (TWh) 759 857 690 769 886 1,018 1,095

Petroleum (TWh) 122 45 46 47 48 48 49

Nuclear (TWh) 782 813 834 883 886 886 895

Renewables (TWh) 358 462 649 714 797 850 890

Total (TWh)4 4,034 4,005 4,257 4,503 4,746 5,012 5,234

Installed Generating Capacity 5

Coal (GW) 314 321 325 326 326 330 337

Other Fossil (GW)6 439 468 445 446 467 501 534

Nuclear (GW) 100 102 105 111 111 111 113

Renewables (GW) 99 133 171 177 186 196 209

Total (GW)7 952 1,024 1,046 1,059 1,091 1,138 1,192

1

Comparable to Table A2 of AEO2010: Energy Consumption, Residential

2

Comparable to Table A8 of AEO2010: Electricity Sales by Sector

3

Comparable to Table A8 of AEO2010: Electric Generators and Cogenerators

4

Excludes "Other Gaseous Fuels" cogenerators and "Other" cogenerators

5

Comparable to Table A9 of AEO2010: Electric Generators and Cogenerators Capability

6

Includes "Other Gaseous Fuels" cogenerators

7

Excludes Pumped Storage and Fuel Cells
14-4

Table 14.2 Furnace, Central Air Conditioner, and Heat Pump Trial Standard Level 1 Forecast

NEMS-BT Results: Difference from AEO2010 Reference Case

2010 2015 2020 2025 2030 2035 2010 2015 2020 2025 2030 2035 2040 2043 2045

Residential Sector Energy Consumption Residential Sector Energy Consumption

Electricity Sales (TWh) 1,388 1,400 1,471 1,552 1,636 1,706 Electricity Sales (TWh) 0.00 0.00 -0.63 -1.16 -1.18 -1.05 -0.83 -0.71 -0.64

Natural Gas (EJ) 5.22 5.11 5.24 5.31 5.31 5.29 Natural Gas (EJ) 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000

Other (EJ) 1.68 1.52 1.47 1.42 1.38 1.35 Other (EJ) 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000

Natural Gas (Quads) 4.95 4.85 4.97 5.04 5.03 5.01 Natural Gas (Quads) 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000

Other (Quads) 1.59 1.45 1.40 1.35 1.31 1.28 Other (Quads) 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000

Total U.S. Electric Generation Total U.S. Electric Generation

Coal (TWh) 1,828 2,038 2,090 2,130 2,209 2,304 Coal (TWh) 0.00 0.09 -0.09 -0.20 -0.19 -0.23 -0.23 -0.23 -0.23

Gas (TWh) 857 690 769 885 1,018 1,095 Gas (TWh) 0.05 0.11 -0.24 -0.60 -0.53 -0.48 -0.48 -0.48 -0.48

Petroleum (TWh) 45 46 47 48 48 49 Petroleum (TWh) 0.00 0.00 -0.01 -0.01 -0.01 -0.01 -0.01 -0.01 -0.01

Nuclear (TWh) 813 834 883 886 886 895 Nuclear (TWh) 0.00 0.00 0.00 0.00 0.00 0.05 0.05 0.05 0.05

Renewables (TWh) 462 648 714 797 850 890 Renewables (TWh) -0.05 -0.22 -0.21 -0.28 -0.25 -0.16 -0.16 -0.16 -0.16

Total (TWh) 4,005 4,257 4,502 4,745 5,011 5,233 Total (TWh) 0.00 -0.02 -0.55 -1.08 -0.98 -0.81 -0.81 -0.81 -0.81

Installed Generating Capacity Installed Generating Capacity

Coal (GW) 321 325 326 326 330 336 Coal (GW) 0.00 -0.01 -0.01 -0.01 -0.02 -0.03 -0.03 -0.03 -0.03

Other Fossil (GW) 468 445 446 467 501 533 Other Fossil (GW) 0.00 -0.06 -0.10 -0.16 -0.26 -0.34 -0.34 -0.34 -0.34

Nuclear (GW) 102 105 111 111 111 113 Nuclear (GW) 0.00 0.00 0.00 0.00 0.00 0.01 0.01 0.01 0.01

Renewables (GW) 133 171 177 186 196 209 Renewables (GW) -0.01 -0.06 -0.06 -0.06 -0.05 -0.04 -0.04 -0.04 -0.04

Total (GW) 1,024 1,046 1,059 1,091 1,138 1,192 Total (GW) -0.01 -0.12 -0.17 -0.24 -0.33 -0.40 -0.40 -0.40 -0.40

Extrapolation
14-5

Table 14.3 Furnace, Central Air Conditioner, and Heat Pump Trial Standard Level 2 Low Estimate Forecast

NEMS-BT Results: Difference from AEO2010 Reference Case

2010 2015 2020 2025 2030 2035 2010 2015 2020 2025 2030 2035 2040 2043 2045

Residential Sector Energy Consumption Residential Sector Energy Consumption

Electricity Sales (TWh) 1,388 1,400 1,471 1,552 1,636 1,707 Electricity Sales (TWh) 0.00 0.00 -0.70 -1.27 -1.03 -0.42 0.27 0.67 0.91

Natural Gas (EJ) 5.22 5.11 5.22 5.28 5.26 5.22 Natural Gas (EJ) 0.000 0.000 -0.019 -0.037 -0.054 -0.068 -0.079 -0.085 -0.089

Other (EJ) 1.68 1.52 1.47 1.42 1.38 1.35 Other (EJ) 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000

Natural Gas (Quads) 4.95 4.85 4.95 5.00 4.98 4.95 Natural Gas (Quads) 0.000 0.000 -0.018 -0.035 -0.051 -0.064 -0.075 -0.081 -0.084

Other (Quads) 1.59 1.45 1.40 1.35 1.31 1.28 Other (Quads) 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000

Total U.S. Electric Generation Total U.S. Electric Generation

Coal (TWh) 1,827 2,038 2,091 2,130 2,209 2,304 Coal (TWh) -0.11 0.14 0.51 0.63 -0.49 -0.42 -0.42 -0.42 -0.42

Gas (TWh) 858 691 769 885 1,019 1,096 Gas (TWh) 0.26 0.23 -0.36 -0.96 0.92 1.35 1.35 1.35 1.35

Petroleum (TWh) 45 46 47 48 48 49 Petroleum (TWh) 0.00 -0.01 -0.02 -0.01 -0.01 -0.02 -0.02 -0.02 -0.02

Nuclear (TWh) 813 834 883 886 886 895 Nuclear (TWh) 0.00 0.00 0.00 0.00 0.00 0.04 0.04 0.04 0.04

Renewables (TWh) 462 648 713 796 850 890 Renewables (TWh) -0.15 -0.39 -0.45 -0.56 -0.53 -0.45 -0.45 -0.45 -0.45

Total (TWh) 4,005 4,257 4,502 4,745 5,012 5,234 Total (TWh) 0.00 -0.03 -0.31 -0.91 -0.11 0.49 0.49 0.49 0.49

Installed Generating Capacity Installed Generating Capacity

Coal (GW) 321 325 326 326 330 336 Coal (GW) 0.00 0.00 -0.02 -0.02 -0.06 -0.04 -0.04 -0.04 -0.04

Other Fossil (GW) 468 445 445 466 501 533 Other Fossil (GW) 0.00 -0.19 -0.34 -0.78 -0.65 -0.49 -0.49 -0.49 -0.49

Nuclear (GW) 102 105 111 111 111 113 Nuclear (GW) 0.00 0.00 0.00 0.00 0.00 0.01 0.01 0.01 0.01

Renewables (GW) 133 171 177 186 196 209 Renewables (GW) -0.05 -0.09 -0.09 -0.10 -0.10 -0.12 -0.12 -0.12 -0.12

Total (GW) 1,024 1,046 1,059 1,090 1,137 1,192 Total (GW) -0.05 -0.28 -0.45 -0.89 -0.81 -0.65 -0.65 -0.65 -0.65

Extrapolation
14-6

Table 14.4 Furnace, Central Air Conditioner, and Heat Pump Trial Standard Level 2 High Estimate Forecast

NEMS-BT Results: Difference from AEO2010 Reference Case

2010 2015 2020 2025 2030 2035 2010 2015 2020 2025 2030 2035 2040 2043 2045

Residential Sector Energy Consumption Residential Sector Energy Consumption

Electricity Sales (TWh) 1,388 1,400 1,471 1,553 1,637 1,708 Electricity Sales (TWh) 0.00 0.00 -0.63 -0.79 -0.10 0.92 1.98 2.56 2.92

Natural Gas (EJ) 5.22 5.11 5.21 5.26 5.24 5.20 Natural Gas (EJ) 0.000 0.000 -0.028 -0.052 -0.075 -0.094 -0.109 -0.117 -0.122

Other (EJ) 1.68 1.52 1.47 1.42 1.38 1.35 Other (EJ) 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000

Natural Gas (Quads) 4.95 4.85 4.94 4.99 4.96 4.93 Natural Gas (Quads) 0.000 0.000 -0.027 -0.049 -0.071 -0.089 -0.104 -0.111 -0.116

Other (Quads) 1.59 1.45 1.40 1.35 1.31 1.28 Other (Quads) 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000

Total U.S. Electric Generation Total U.S. Electric Generation

Coal (TWh) 1,827 2,038 2,091 2,131 2,209 2,304 Coal (TWh) -0.14 0.10 0.54 1.02 -0.23 -0.78 -0.78 -0.78 -0.78

Gas (TWh) 857 690 769 884 1,019 1,100 Gas (TWh) 0.25 0.15 -0.36 -1.52 0.83 4.61 4.61 4.61 4.61

Petroleum (TWh) 45 46 47 48 48 49 Petroleum (TWh) 0.00 -0.02 -0.02 -0.01 -0.01 -0.05 -0.05 -0.05 -0.05

Nuclear (TWh) 813 834 883 886 886 894 Nuclear (TWh) 0.00 0.00 0.00 0.00 0.00 -0.23 -0.23 -0.23 -0.23

Renewables (TWh) 462 648 714 797 850 890 Renewables (TWh) -0.11 -0.25 -0.28 -0.28 -0.15 -0.57 -0.57 -0.57 -0.57

Total (TWh) 4,005 4,257 4,502 4,745 5,012 5,237 Total (TWh) 0.00 -0.02 -0.12 -0.80 0.45 2.99 2.99 2.99 2.99

Installed Generating Capacity Installed Generating Capacity

Coal (GW) 321 325 326 326 330 336 Coal (GW) 0.00 0.00 -0.02 -0.02 -0.03 -0.07 -0.07 -0.07 -0.07

Other Fossil (GW) 468 445 445 466 501 533 Other Fossil (GW) 0.00 -0.23 -0.38 -0.81 -0.25 -0.89 -0.89 -0.89 -0.89

Nuclear (GW) 102 105 111 111 111 112 Nuclear (GW) 0.00 0.00 0.00 0.00 0.00 -0.03 -0.03 -0.03 -0.03

Renewables (GW) 133 171 177 186 196 209 Renewables (GW) -0.03 -0.04 -0.03 -0.03 -0.01 -0.13 -0.13 -0.13 -0.13

Total (GW) 1,024 1,046 1,059 1,090 1,138 1,191 Total (GW) -0.03 -0.27 -0.44 -0.85 -0.29 -1.12 -1.12 -1.12 -1.12

Extrapolation
14-7

Table 14.5 Furnace, Central Air Conditioner, and Heat Pump Trial Standard Level 3 Low Estimate Forecast

NEMS-BT Results: Difference from AEO2010 Reference Case

2010 2015 2020 2025 2030 2035 2010 2015 2020 2025 2030 2035 2040 2043 2045

Residential Sector Energy Consumption Residential Sector Energy Consumption

Electricity Sales (TWh) 1,388 1,400 1,469 1,549 1,633 1,703 Electricity Sales (TWh) 0.00 0.00 -2.52 -4.12 -4.51 -4.21 -3.51 -3.10 -2.85

Natural Gas (EJ) 5.22 5.11 5.22 5.28 5.26 5.22 Natural Gas (EJ) 0.000 0.000 -0.019 -0.036 -0.052 -0.066 -0.077 -0.083 -0.086

Other (EJ) 1.68 1.52 1.47 1.42 1.38 1.35 Other (EJ) 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000

Natural Gas (Quads) 4.95 4.85 4.95 5.00 4.98 4.95 Natural Gas (Quads) 0.000 0.000 -0.018 -0.034 -0.050 -0.063 -0.073 -0.078 -0.081

Other (Quads) 1.59 1.45 1.40 1.35 1.31 1.28 Other (Quads) 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000

Total U.S. Electric Generation Total U.S. Electric Generation

Coal (TWh) 1,827 2,039 2,091 2,130 2,209 2,304 Coal (TWh) -0.14 0.51 0.37 0.68 -0.30 -0.92 -0.92 -0.92 -0.92

Gas (TWh) 858 691 768 883 1,017 1,095 Gas (TWh) 0.63 0.56 -1.09 -2.23 -0.96 -0.16 -0.16 -0.16 -0.16

Petroleum (TWh) 45 46 47 48 48 49 Petroleum (TWh) 0.00 -0.03 -0.04 -0.03 -0.02 -0.04 -0.04 -0.04 -0.04

Nuclear (TWh) 813 834 883 886 886 895 Nuclear (TWh) 0.00 0.00 0.00 0.00 0.00 0.17 0.17 0.17 0.17

Renewables (TWh) 462 647 713 795 849 889 Renewables (TWh) -0.47 -1.10 -1.18 -1.49 -1.35 -0.92 -0.92 -0.92 -0.92

Total (TWh) 4,005 4,257 4,501 4,743 5,009 5,232 Total (TWh) 0.02 -0.06 -1.95 -3.07 -2.64 -1.87 -1.87 -1.87 -1.87

Installed Generating Capacity Installed Generating Capacity

Coal (GW) 321 325 326 326 330 336 Coal (GW) 0.00 0.00 -0.04 -0.04 -0.07 -0.10 -0.10 -0.10 -0.10

Other Fossil (GW) 468 445 445 465 498 531 Other Fossil (GW) 0.00 -0.46 -0.88 -1.96 -2.72 -3.27 -3.27 -3.27 -3.27

Nuclear (GW) 102 105 111 111 111 113 Nuclear (GW) 0.00 0.00 0.00 0.00 0.00 0.02 0.02 0.02 0.02

Renewables (GW) 133 171 176 186 196 209 Renewables (GW) -0.14 -0.31 -0.32 -0.33 -0.28 -0.26 -0.26 -0.26 -0.26

Total (GW) 1,024 1,045 1,058 1,088 1,135 1,189 Total (GW) -0.14 -0.77 -1.24 -2.33 -3.07 -3.61 -3.61 -3.61 -3.61

Extrapolation
14-8

Table 14.6 Furnace, Central Air Conditioner, and Heat Pump Trial Standard Level 3 High Estimate Forecast

NEMS-BT Results: Difference from AEO2010 Reference Case

2010 2015 2020 2025 2030 2035 2010 2015 2020 2025 2030 2035 2040 2043 2045

Residential Sector Energy Consumption Residential Sector Energy Consumption

Electricity Sales (TWh) 1,388 1,400 1,469 1,550 1,634 1,705 Electricity Sales (TWh) 0.00 0.00 -2.48 -3.65 -3.47 -2.63 -1.45 -0.79 -0.38

Natural Gas (EJ) 5.22 5.11 5.21 5.26 5.23 5.19 Natural Gas (EJ) 0.000 0.000 -0.032 -0.058 -0.082 -0.102 -0.118 -0.127 -0.131

Other (EJ) 1.68 1.52 1.47 1.42 1.38 1.35 Other (EJ) 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000

Natural Gas (Quads) 4.95 4.85 4.94 4.98 4.96 4.92 Natural Gas (Quads) 0.000 0.000 -0.030 -0.055 -0.078 -0.097 -0.112 -0.120 -0.124

Other (Quads) 1.59 1.45 1.40 1.35 1.31 1.28 Other (Quads) 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000

Total U.S. Electric Generation Total U.S. Electric Generation

Coal (TWh) 1,827 2,039 2,091 2,130 2,209 2,304 Coal (TWh) -0.21 0.62 0.76 0.46 -0.09 -0.58 -0.58 -0.58 -0.58

Gas (TWh) 858 691 768 884 1,018 1,096 Gas (TWh) 0.71 0.49 -1.15 -1.85 0.12 1.29 1.29 1.29 1.29

Petroleum (TWh) 45 46 47 48 48 49 Petroleum (TWh) 0.00 -0.04 -0.05 -0.03 -0.03 -0.06 -0.06 -0.06 -0.06

Nuclear (TWh) 813 834 883 886 886 895 Nuclear (TWh) 0.00 0.00 0.00 0.00 0.00 0.20 0.20 0.20 0.20

Renewables (TWh) 462 647 713 795 849 889 Renewables (TWh) -0.49 -1.14 -1.25 -1.56 -1.41 -0.86 -0.86 -0.86 -0.86

Total (TWh) 4,005 4,257 4,501 4,743 5,010 5,234 Total (TWh) 0.02 -0.06 -1.70 -2.98 -1.40 0.00 0.00 0.00 0.00

Installed Generating Capacity Installed Generating Capacity

Coal (GW) 321 325 326 326 330 336 Coal (GW) 0.00 0.00 -0.03 -0.03 -0.08 -0.04 -0.04 -0.04 -0.04

Other Fossil (GW) 468 445 445 465 498 531 Other Fossil (GW) 0.00 -0.52 -1.05 -2.31 -2.77 -3.29 -3.29 -3.29 -3.29

Nuclear (GW) 102 105 111 111 111 113 Nuclear (GW) 0.00 0.00 0.00 0.00 0.00 0.03 0.03 0.03 0.03

Renewables (GW) 133 171 176 186 196 209 Renewables (GW) -0.15 -0.31 -0.31 -0.33 -0.23 -0.23 -0.23 -0.23 -0.23

Total (GW) 1,024 1,045 1,058 1,088 1,135 1,189 Total (GW) -0.15 -0.83 -1.39 -2.67 -3.08 -3.53 -3.53 -3.53 -3.53

Extrapolation
14-9

Table 14.7 Furnace, Central Air Conditioner, and Heat Pump Trial Standard Level 4 Low Estimate Forecast

NEMS-BT Results: Difference from AEO2010 Reference Case

2010 2015 2020 2025 2030 2035 2010 2015 2020 2025 2030 2035 2040 2043 2045

Residential Sector Energy Consumption Residential Sector Energy Consumption

Electricity Sales (TWh) 1,388 1,399 1,468 1,549 1,632 1,703 Electricity Sales (TWh) 0.00 -0.79 -3.20 -4.66 -4.91 -4.47 -3.67 -3.22 -2.94

Natural Gas (EJ) 5.22 5.10 5.21 5.27 5.25 5.22 Natural Gas (EJ) 0.000 -0.010 -0.026 -0.042 -0.058 -0.070 -0.080 -0.085 -0.088

Other (EJ) 1.68 1.52 1.47 1.42 1.38 1.35 Other (EJ) 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000

Natural Gas (Quads) 4.95 4.84 4.94 5.00 4.98 4.95 Natural Gas (Quads) 0.000 -0.009 -0.025 -0.040 -0.055 -0.066 -0.076 -0.080 -0.083

Other (Quads) 1.59 1.44 1.40 1.35 1.31 1.28 Other (Quads) 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000

Total U.S. Electric Generation Total U.S. Electric Generation

Coal (TWh) 1,827 2,038 2,090 2,131 2,209 2,304 Coal (TWh) -0.14 -0.04 0.21 0.85 -0.38 -0.81 -0.81 -0.81 -0.81

Gas (TWh) 858 691 768 882 1,017 1,095 Gas (TWh) 0.74 0.74 -1.01 -3.15 -0.75 -0.06 -0.06 -0.06 -0.06

Petroleum (TWh) 45 46 47 48 48 49 Petroleum (TWh) 0.00 -0.03 -0.04 -0.03 -0.02 -0.04 -0.04 -0.04 -0.04

Nuclear (TWh) 813 834 883 886 886 895 Nuclear (TWh) 0.00 0.00 0.00 0.00 0.00 0.19 0.19 0.19 0.19

Renewables (TWh) 462 647 712 795 848 889 Renewables (TWh) -0.58 -1.43 -1.51 -1.85 -1.70 -1.27 -1.27 -1.27 -1.27

Total (TWh) 4,005 4,256 4,500 4,742 5,009 5,232 Total (TWh) 0.02 -0.76 -2.35 -4.17 -2.86 -1.99 -1.99 -1.99 -1.99

Installed Generating Capacity Installed Generating Capacity

Coal (GW) 321 325 326 326 330 336 Coal (GW) 0.00 0.00 -0.05 -0.05 -0.09 -0.10 -0.10 -0.10 -0.10

Other Fossil (GW) 468 445 445 465 498 530 Other Fossil (GW) 0.00 -0.53 -0.97 -2.08 -2.77 -3.38 -3.38 -3.38 -3.38

Nuclear (GW) 102 105 111 111 111 113 Nuclear (GW) 0.00 0.00 0.00 0.00 0.00 0.03 0.03 0.03 0.03

Renewables (GW) 133 171 176 186 195 209 Renewables (GW) -0.18 -0.42 -0.42 -0.44 -0.37 -0.36 -0.36 -0.36 -0.36

Total (GW) 1,024 1,045 1,058 1,088 1,135 1,188 Total (GW) -0.18 -0.95 -1.44 -2.57 -3.23 -3.81 -3.81 -3.81 -3.81

Extrapolation
14-10

Table 14.8 Furnace, Central Air Conditioner, and Heat Pump Trial Standard Level 4 High Estimate Forecast

NEMS-BT Results: Difference from AEO2010 Reference Case

2010 2015 2020 2025 2030 2035 2010 2015 2020 2025 2030 2035 2040 2043 2045

Residential Sector Energy Consumption Residential Sector Energy Consumption

Electricity Sales (TWh) 1,388 1,399 1,468 1,549 1,633 1,704 Electricity Sales (TWh) 0.00 -0.79 -3.22 -4.25 -3.91 -2.93 -1.63 -0.92 -0.48

Natural Gas (EJ) 5.22 5.10 5.19 5.24 5.22 5.18 Natural Gas (EJ) 0.000 -0.015 -0.047 -0.071 -0.093 -0.111 -0.124 -0.131 -0.135

Other (EJ) 1.68 1.52 1.47 1.42 1.38 1.35 Other (EJ) 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000

Natural Gas (Quads) 4.95 4.83 4.92 4.97 4.95 4.91 Natural Gas (Quads) 0.000 -0.014 -0.044 -0.067 -0.088 -0.105 -0.118 -0.124 -0.128

Other (Quads) 1.59 1.44 1.40 1.35 1.31 1.28 Other (Quads) 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000

Total U.S. Electric Generation Total U.S. Electric Generation

Coal (TWh) 1,827 2,038 2,090 2,131 2,209 2,304 Coal (TWh) -0.20 -0.33 -0.02 1.41 -0.05 -0.60 -0.60 -0.60 -0.60

Gas (TWh) 858 691 768 882 1,018 1,096 Gas (TWh) 0.84 0.96 -0.71 -3.77 0.15 1.33 1.33 1.33 1.33

Petroleum (TWh) 45 46 47 48 48 49 Petroleum (TWh) 0.00 -0.05 -0.05 -0.03 -0.03 -0.05 -0.05 -0.05 -0.05

Nuclear (TWh) 813 834 883 886 886 895 Nuclear (TWh) 0.00 0.00 0.00 0.00 0.00 0.31 0.31 0.31 0.31

Renewables (TWh) 462 647 712 795 848 889 Renewables (TWh) -0.62 -1.32 -1.43 -1.68 -1.62 -0.94 -0.94 -0.94 -0.94

Total (TWh) 4,005 4,256 4,500 4,742 5,010 5,234 Total (TWh) 0.02 -0.74 -2.21 -4.07 -1.55 0.05 0.05 0.05 0.05

Installed Generating Capacity Installed Generating Capacity

Coal (GW) 321 325 326 326 330 336 Coal (GW) 0.00 0.00 -0.04 -0.04 -0.08 -0.05 -0.05 -0.05 -0.05

Other Fossil (GW) 468 445 445 465 498 530 Other Fossil (GW) 0.00 -0.61 -1.18 -2.50 -2.86 -3.41 -3.41 -3.41 -3.41

Nuclear (GW) 102 105 111 111 111 113 Nuclear (GW) 0.00 0.00 0.00 0.00 0.00 0.04 0.04 0.04 0.04

Renewables (GW) 133 171 176 186 196 209 Renewables (GW) -0.19 -0.36 -0.36 -0.37 -0.26 -0.27 -0.27 -0.27 -0.27

Total (GW) 1,024 1,045 1,057 1,088 1,135 1,189 Total (GW) -0.19 -0.97 -1.58 -2.91 -3.21 -3.69 -3.69 -3.69 -3.69

Extrapolation
14-11

Table 14.9 Furnace, Central Air Conditioner, and Heat Pump Trial Standard Level 5 Forecast

NEMS-BT Results: Difference from AEO2010 Reference Case

2010 2015 2020 2025 2030 2035 2010 2015 2020 2025 2030 2035 2040 2043 2045

Residential Sector Energy Consumption Residential Sector Energy Consumption

Electricity Sales (TWh) 1,388 1,400 1,469 1,550 1,634 1,705 Electricity Sales (TWh) 0.00 0.00 -2.49 -3.66 -3.47 -2.64 -1.46 -0.80 -0.39

Natural Gas (EJ) 5.22 5.11 5.21 5.26 5.23 5.19 Natural Gas (EJ) 0.000 0.000 -0.032 -0.058 -0.082 -0.102 -0.118 -0.127 -0.131

Other (EJ) 1.68 1.52 1.47 1.42 1.38 1.35 Other (EJ) 0.000 0.000 -0.001 -0.001 -0.002 -0.002 -0.002 -0.002 -0.002

Natural Gas (Quads) 4.95 4.85 4.94 4.98 4.96 4.92 Natural Gas (Quads) 0.000 0.000 -0.030 -0.055 -0.078 -0.097 -0.112 -0.120 -0.124

Other (Quads) 1.59 1.45 1.40 1.35 1.31 1.28 Other (Quads) 0.000 0.000 -0.001 -0.001 -0.002 -0.002 -0.002 -0.002 -0.002

Total U.S. Electric Generation Total U.S. Electric Generation

Coal (TWh) 1,827 2,039 2,091 2,130 2,209 2,304 Coal (TWh) -0.20 0.58 0.62 0.40 0.02 -0.58 -0.58 -0.58 -0.58

Gas (TWh) 858 691 768 884 1,018 1,096 Gas (TWh) 0.69 0.57 -0.99 -1.89 0.01 1.16 1.16 1.16 1.16

Petroleum (TWh) 45 46 47 48 48 49 Petroleum (TWh) 0.00 -0.04 -0.06 -0.04 -0.04 -0.06 -0.06 -0.06 -0.06

Nuclear (TWh) 813 834 883 886 886 895 Nuclear (TWh) 0.00 0.00 0.00 0.00 0.00 0.22 0.22 0.22 0.22

Renewables (TWh) 462 647 713 795 849 889 Renewables (TWh) -0.48 -1.18 -1.27 -1.53 -1.39 -0.83 -0.83 -0.83 -0.83

Total (TWh) 4,005 4,257 4,501 4,743 5,010 5,234 Total (TWh) 0.01 -0.06 -1.69 -3.05 -1.40 -0.08 -0.08 -0.08 -0.08

Installed Generating Capacity Installed Generating Capacity

Coal (GW) 321 325 326 326 330 336 Coal (GW) 0.00 0.00 -0.04 -0.04 -0.08 -0.06 -0.06 -0.06 -0.06

Other Fossil (GW) 468 445 445 465 498 531 Other Fossil (GW) 0.00 -0.53 -1.06 -2.31 -2.75 -3.30 -3.30 -3.30 -3.30

Nuclear (GW) 102 105 111 111 111 113 Nuclear (GW) 0.00 0.00 0.00 0.00 0.00 0.03 0.03 0.03 0.03

Renewables (GW) 133 171 176 186 196 209 Renewables (GW) -0.15 -0.31 -0.31 -0.32 -0.22 -0.23 -0.23 -0.23 -0.23

Total (GW) 1,024 1,045 1,058 1,088 1,135 1,189 Total (GW) -0.15 -0.84 -1.41 -2.68 -3.06 -3.56 -3.56 -3.56 -3.56

Extrapolation
14-12

Table 14.10 Furnace, Central Air Conditioner, and Heat Pump Trial Standard Level 6 Forecast

NEMS-BT Results: Difference from AEO2010 Reference Case

2010 2015 2020 2025 2030 2035 2010 2015 2020 2025 2030 2035 2040 2043 2045

Residential Sector Energy Consumption Residential Sector Energy Consumption

Electricity Sales (TWh) 1,388 1,400 1,464 1,542 1,624 1,694 Electricity Sales (TWh) 0.00 0.00 -7.47 -11.50 -13.07 -13.12 -12.43 -11.88 -11.43

Natural Gas (EJ) 5.22 5.11 5.21 5.26 5.23 5.19 Natural Gas (EJ) 0.000 0.000 -0.032 -0.058 -0.082 -0.102 -0.118 -0.127 -0.131

Other (EJ) 1.68 1.52 1.47 1.42 1.38 1.35 Other (EJ) 0.000 0.000 -0.001 -0.001 -0.002 -0.002 -0.002 -0.002 -0.002

Natural Gas (Quads) 4.95 4.85 4.94 4.98 4.96 4.92 Natural Gas (Quads) 0.000 0.000 -0.030 -0.055 -0.078 -0.097 -0.112 -0.120 -0.124

Other (Quads) 1.59 1.45 1.40 1.35 1.31 1.28 Other (Quads) 0.000 0.000 -0.001 -0.001 -0.002 -0.002 -0.002 -0.002 -0.002

Total U.S. Electric Generation Total U.S. Electric Generation

Coal (TWh) 1,827 2,039 2,091 2,131 2,209 2,302 Coal (TWh) -0.33 1.23 0.81 1.55 -0.51 -3.08 -3.08 -3.08 -3.08

Gas (TWh) 859 692 766 880 1,014 1,094 Gas (TWh) 1.74 2.03 -2.66 -5.10 -3.93 -1.50 -1.50 -1.50 -1.50

Petroleum (TWh) 45 46 47 48 48 49 Petroleum (TWh) 0.00 -0.04 -0.10 -0.08 -0.07 -0.12 -0.12 -0.12 -0.12

Nuclear (TWh) 813 834 883 886 886 894 Nuclear (TWh) 0.00 0.00 0.00 0.00 0.00 -0.34 -0.34 -0.34 -0.34

Renewables (TWh) 461 645 710 793 846 888 Renewables (TWh) -1.36 -3.53 -3.83 -4.38 -3.66 -2.55 -2.55 -2.55 -2.55

Total (TWh) 4,005 4,257 4,497 4,738 5,004 5,226 Total (TWh) 0.04 -0.31 -5.78 -8.01 -8.17 -7.59 -7.59 -7.59 -7.59

Installed Generating Capacity Installed Generating Capacity

Coal (GW) 321 325 326 326 330 336 Coal (GW) 0.00 0.00 -0.09 -0.09 -0.21 -0.42 -0.42 -0.42 -0.42

Other Fossil (GW) 468 444 443 463 494 524 Other Fossil (GW) 0.00 -1.30 -2.20 -4.61 -7.44 -9.35 -9.35 -9.35 -9.35

Nuclear (GW) 102 105 111 111 111 112 Nuclear (GW) 0.00 0.00 0.00 0.00 0.00 -0.04 -0.04 -0.04 -0.04

Renewables (GW) 132 170 176 185 195 209 Renewables (GW) -0.42 -0.98 -0.99 -1.04 -0.86 -0.71 -0.71 -0.71 -0.71

Total (GW) 1,024 1,044 1,056 1,085 1,130 1,182 Total (GW) -0.42 -2.28 -3.28 -5.75 -8.51 -10.52 -10.52 -10.52 -10.52

Extrapolation
14-13

Table 14.11 Furnace, Central Air Conditioner, and Heat Pump Trial Standard Level 7 Forecast

NEMS-BT Results: Difference from AEO2010 Reference Case

2010 2015 2020 2025 2030 2035 2010 2015 2020 2025 2030 2035 2040 2043 2045

Residential Sector Energy Consumption Residential Sector Energy Consumption

Electricity Sales (TWh) 1,388 1,400 1,447 1,512 1,584 1,648 Electricity Sales (TWh) 0.00 0.00 -25.02 -41.76 -53.09 -59.47 -61.93 -62.02 -61.66

Natural Gas (EJ) 5.22 5.11 5.16 5.17 5.12 5.06 Natural Gas (EJ) 0.000 0.000 -0.083 -0.143 -0.193 -0.231 -0.260 -0.273 -0.280

Other (EJ) 1.68 1.52 1.47 1.42 1.37 1.34 Other (EJ) 0.000 0.000 -0.005 -0.008 -0.011 -0.013 -0.014 -0.014 -0.014

Natural Gas (Quads) 4.95 4.85 4.89 4.90 4.85 4.80 Natural Gas (Quads) 0.000 0.000 -0.079 -0.135 -0.183 -0.219 -0.246 -0.258 -0.265

Other (Quads) 1.59 1.45 1.39 1.34 1.30 1.27 Other (Quads) 0.000 0.000 -0.005 -0.008 -0.010 -0.012 -0.013 -0.013 -0.013

Total U.S. Electric Generation Total U.S. Electric Generation

Coal (TWh) 1,827 2,042 2,090 2,133 2,206 2,293 Coal (TWh) -0.85 3.60 0.12 3.45 -3.38 -11.66 -11.66 -11.66 -11.66

Gas (TWh) 863 696 760 864 998 1,077 Gas (TWh) 5.43 5.33 -8.96 -21.30 -20.14 -17.85 -17.85 -17.85 -17.85

Petroleum (TWh) 45 46 47 47 48 49 Petroleum (TWh) 0.00 -0.12 -0.30 -0.23 -0.19 -0.36 -0.36 -0.36 -0.36

Nuclear (TWh) 813 834 883 886 886 893 Nuclear (TWh) 0.00 0.00 0.00 0.00 0.00 -1.61 -1.61 -1.61 -1.61

Renewables (TWh) 458 639 703 784 838 881 Renewables (TWh) -4.40 -9.91 -10.55 -12.52 -12.19 -9.32 -9.32 -9.32 -9.32

Total (TWh) 4,005 4,256 4,483 4,715 4,976 5,193 Total (TWh) 0.17 -1.10 -19.69 -30.59 -35.91 -40.81 -40.81 -40.81 -40.81

Installed Generating Capacity Installed Generating Capacity

Coal (GW) 321 325 325 326 329 335 Coal (GW) 0.00 -0.05 -0.35 -0.35 -0.94 -1.47 -1.47 -1.47 -1.47

Other Fossil (GW) 468 441 438 453 477 502 Other Fossil (GW) 0.00 -4.34 -7.20 -14.56 -23.77 -31.60 -31.60 -31.60 -31.60

Nuclear (GW) 102 105 111 111 111 112 Nuclear (GW) 0.00 0.00 0.00 0.00 0.00 -0.20 -0.20 -0.20 -0.20

Renewables (GW) 131 169 174 183 193 207 Renewables (GW) -1.36 -2.72 -2.74 -2.95 -2.57 -2.32 -2.32 -2.32 -2.32

Total (GW) 1,023 1,039 1,049 1,073 1,111 1,157 Total (GW) -1.36 -7.11 -10.29 -17.86 -27.27 -35.59 -35.59 -35.59 -35.59

Extrapolation
14-14

Table 14.12 presents the estimated reduction in electricity generating capacity in 2045 for the TSLs that DOE considered in 

this rulemaking.

Table 14.12 Reduction in Electric Generating Capacity in 2045 Under Furnace, Central Air Conditioner, and Heat Pump

Trial Standard Levels

TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 TSL 6 TSL 7

Furnaces, Central Air 

Conditioners, and Heat 

Pumps

Gigawatts

0.397 0.646 to 

1.12

3.61 to 

3.53

3.81 to 

3.69

3.56 10.5 35.6
14-15

14.4 IMPACT OF STANDARDS ON NATURAL GAS AND ELECTRICITY 

PRICES AND ASSOCIATED BENEFITS FOR CONSUMERS

Using the framework of the utility impact analysis, DOE analyzed the potential impact on 

electricity and natural gas prices resulting from proposed standards on furnace and central air 

conditioning products. Associated benefits for all energy users in all sectors of the economy are 

then derived from these price impacts.

DOE’s analysis of energy price impacts used NEMS-BT in a similar manner as described 

in section 14.2. Like other widely-used energy-economic models, NEMS uses elasticities to 

estimate the energy price change that would result from a change (increase or decrease) in 

energy demand. The elasticity of price to a decrease in demand is the “inverse price elasticity.” 

The calculated inverse price elasticity based on NEMS-BT simulations differs throughout the 

forecast period in response to the dynamics of supply and demand for natural gas or electricity. 

The average inverse gas price elasticity during 2013–2035 is 1.38 for the TSL4 low 

estimate and 0.99 for the TSL4 high estimate, the proposed standard levels. A value of 1.38

means that, given a one-percent decrease in demand, the price of gas would decline by 1.38

percent.

In a review of such studies that used versions of NEMS to examine the impacts on natural 

gas prices resulting from reductions in natural gas demand, Wiser and Bollinger2 examined 

analyses that reported the reductions in natural gas demand caused by certain energy policies, 

and the resulting decline in the average U.S. wellhead gas price. Wiser and Bollinger found that 

the average values of the inverse price elasticity throughout the forecast period in each study 

ranged from 0.7 to 4.7. The average inverse price elasticities in 13 of 19 analyses were between 

0.8 and 2.0. The values from DOE's current analysis (1.38 and 0.99 at TSL 4) fall within this

range.

Other widely used, complex energy demand/supply models produce price elasticities that 

are similar to those incorporated in NEMS. Table 14.13 compares the results of several studies 

that modeled the response of natural gas prices to changes in gas consumption. These results are 

summarized in a 2003 study by Stanford's Energy Modeling Forum (EMF).3 Although the 

magnitude of the price response (as summarized by the inverse price elasticity) varies 

considerably among the models, they generally confirm a sizable price effect associated with 

changes in natural gas consumption.c It is worth noting that the NEMS average value determined 

by the EMF study is smaller than that of most of the other models. Therefore, it is reasonable to 

conclude that the impacts estimated by NEMS are conservative.

 

c The EMF scenarios modeled the effect of increased gas demand on price. Assuming a smooth supply curve over 

the long term, however, the elasticities implied by an increase in demand should be equivalent to those implied by a 

decrease in demand. For undetermined reasons, two of the models studied in the Wiser and Bollinger report

(NANGAS and NARG) report somewhat anomalous inverse elasticities.
14-16

Table 14.13 Natural Gas Inverse Price Elasticity from Seven Energy Models

2005 2010 2015 2020 Average

NEMS 1.8 2.2 0.53 0.11 1.2

POEMS 2.4 1.8 2.5 1.8 2.1

CRA 3.5 2.5 1.1 0.9 2.0

NANGAS 5.4 7.0 7.6 5.1 6.3

E2020 1.5 1.0 1.0 0.7 1.1

MARKAL N/A 2.0 N/A 2.1 2.1

NARG 8.7 12.4 5.6 2.4 7.3

Source: Based on EMF, 2003.

NEMS (National Energy Modeling System, 2002); POEMS (Policy Office Electricity Modeling System); CRA 

(Charles River Associates); NANGAS (North American Natural Gas Analysis System), E2020 (Energy 2020); 

MARKAL (MARKet ALlocation); NARG (North American Regional Gas model).

In addition to the models listed above, studies have been conducted by the National 

Petroleum Council4 and the National Commission on Energy Policy5 that are based on the EEA 

model. The EEA model has higher inverse price elasticities (between 4.0 and 16.8) than those 

predicted by NEMS and most other national energy models, leading to larger natural gas price 

reductions for a given decrease in demand.

14.4.1 Impact on Natural Gas Prices

Figure 14.4.1 shows the annual change in U.S. natural gas consumption, relative to the

base case which involves no new standards, for the proposed standard (TSL 4). Because 

standards may decrease electricity demand, and a significant percentage of electricity is 

generated using natural gas, the standards may reduce natural gas consumption in the utility 

sector as well as in the residential sector.
14-17

Figure 14.4.1 Change in U.S. Natural Gas Consumption Resulting From the Proposed

Furnace and Central Air Conditioning Product Energy Conservation 

Standard

As described in section 14.2, using NEMS-BT to analyze impacts of relatively small

annual changes in energy consumption typically involves using higher-decrements to isolate the

impacts of the standards from numerical noise (i.e., larger energy savings quantities than those

resulting from the considered standards). After generating results using higher decrements to gas

and electricity consumption, DOE utilized a regressed interpolation toward the origin to derive 

the natural gas price effects resulting from energy savings at TSL 4, the proposed standard. The 

price effects represent an estimate of utility impacts at TSL 4. Figure 14.4.2 shows the annual 

change in average U.S. wellhead price for natural gas, relative to the base case. The price 

reduction for the low estimate averages 1.0 cents per MMBtu (in 2009$), this is a reduction of

0.14 percent in wellhead prices. The price reduction for the high estimate averages 1.5 cents per 

MMBtu (in 2009$), this is a reduction of 0.21 percent in wellhead prices.

-0.12

-0.10

-0.08

-0.06

-0.04

-0.02

0.00

0.02

2013 2018 2023 2028 2033

quads

Change in Total U.S. Gas Consumption

TSL4 Low Estimate

TSL4 High Estimate
14-18

Figure 14.4.2 Effects of the Proposed Furnace and Central Air Conditioning Product 

Energy Conservation Standard on Average U.S. Wellhead Natural Gas 

Prices

14.4.2 Impact of Changes in Natural Gas Prices on Gas Users

Although NEMS indicates that amended standards for furnaces and central air 

conditioners reduce natural gas prices by only a small amount, the associated economy-wide 

savings in natural gas expenditures during the forecast period are substantial. For each TSL, 

DOE calculated the nominal savings in total natural gas expenditures in each year by multiplying 

the annual change in the average-user price for natural gas by the total annual U.S. natural gas 

consumption forecast by NEMS.d The amended standards would continue to reduce demand for 

natural gas after 2035 (which is the last year in the NEMS forecast). DOE’s estimate for 2036–

2045 (the period used to estimate the NPV of the national consumer benefits from amended 

standards) multiplied the average gas price reduction in 2013–2035 by estimated total annual gas 

consumption in 2036–2045.e DOE then discounted the stream of reduced expenditures to 

calculate a NPV.

Table 14.14 shows the calculated NPV of the economy-wide savings in natural gas 

expenditures for each considered TSL at 3-percent and 7-percent discount rates. The need to 

extrapolate price effects and gas consumption beyond 2035 suggests that one should interpret the 

 

d The average user includes electric utilities. Presumably the decrease in expenditures of natural gas that they 

experience would largely be passed on to electricity consumers.

e The estimation of gas consumption after 2035 uses the average annual growth rate in 2031-2035 from the AEO 

2010 Reference projection. 

-0.050

-0.040

-0.030

-0.020

-0.010

0.000

0.010

0.020

0.030

0.040

2013 2018 2023 2028 2033

2009$/MMBtu

Change in Lower 48 States Wellhead Prices

TSL4 Low Estimate

TSL4 High Estimate
14-19

post-2035 results as a rough indication of the benefits to natural gas users in the post-2035

period. 

Table 14.14 Cumulative NPV of the Economy-Wide Savings in Natural Gas

Expenditures Due to the Projected Decline in Natural Gas Prices

Resulting from the Proposed Standard for Furnaces, Central Air Conditioners, and Heat 

Pumps*

Discount Rate Cumulative NPV

billion $2009

3 percent 4.116 to 6.611

7 percent 1.818 to 2.988

* Impacts for units sold from 2013 through 2045

14.4.3 Discussion of Savings in Natural Gas Expenditures

A decline in natural gas consumption may lower natural gas prices for two primary

reasons. One reason is that decreasing consumption would lower the output of existing natural

gas production capacity, leading to increased competition and downward pressure on prices. A

second reason is that reduced consumption slows the depletion of low-cost gas reserves, lowers

the future cost of finding and extracting natural gas resources, and dampens expectations for

future prices.

When gas prices drop in response to 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)f. 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

made no worse off.

The short-term impact of lower consumption on natural gas price likely results from

changes in the utilization of natural gas production and capacity. It is likely that reduced

consumption has only a short-term impact on capacity utilization in the natural gas industry.

Producers can adjust to changes in consumption in the long term by either increasing or

decreasing investments in infrastructure to bring capacity utilization rates back to original levels.

The long-term impact on natural gas prices probably results from changes in extraction

costs. Natural gas is an exhaustible resource, and conventional natural gas sources are limited.

When those low-cost sources are depleted, producers must turn to higher-cost sources of natural

gas, at which point extraction costs and wellhead prices will increase. Reduced demand creates

downward pressure on extraction costs and prices because it delays the depletion of low-cost

reserves and forestalls a shift toward higher-cost sources.

 

f Gas producers include domestic, other North American, and overseas LNG producers. The proportion of domestic 

producers is expected to decline in the future.
14-20

Because the NEMS is a complex model, it is difficult to determine exactly how much of

the model-estimated drop in natural gas price in any given year is explained by a decrease in

utilization of capacity, and how much is explained by a decrease in extraction costs. One would

expect, however, that most of the forecasted price decline after 2013 is caused by a decline in

extraction costs. Supporting evidence for this conclusion derives from comparing the sources of

natural gas drawn upon to supply consumers in the base case (without standards) and the

standards cases of the model runs. The three principal sources of natural gas considered in

NEMS for 2035 are termed conventional sources, unconventional sources, and imports. The 

imports are primarily of liquefied natural gas (LNG). Conventional sources are the lowest-cost, 

and imports are the highest-cost source of natural gas, as forecast by NEMS.

The effect of standards on extraction costs is revealed by comparing the rate of natural

gas production from the three natural gas sources in model runs for the base case with the rates

for the standards cases. NEMS indicates that standards produce decreases in natural gas 

production from all three sources, but production from the higher-cost sources declines most of 

all. This result suggests that, based on the NEMS model, energy conservation standards decrease 

future costs for natural gas extraction because they result in decreased rates of depletion of lowcost natural gas supplies and decreased imports of high-cost LNG. This result further suggests 

that a significant part of the long-term decreases in wellhead prices forecasted by the NEMS 

represents both a benefit to consumers of natural gas and a net benefit to society.

14.4.4 Impact on Electricity Prices

DOE analyzed the electricity price effect of furnace and central air conditioning products 

at TSL 4, the selected standard level. A single regression was made to calculate the total impacts 

at this standard level. Results were generated using higher decrements to energy consumption. A 

regressed interpolation toward the origin was then used to derive the price effects associated with 

the total energy savings.

Figure 14.4.3 shows the annual change in U.S. electricity sales for the proposed standard, 

relative to the base case which involves no new standards. Although the TSL 4 high estimate has 

more overall energy savings, it has less electricity savings than the TSL 4 low estimate, this 

results in a smaller impact on U.S. electricity sales.
14-21

Figure 14.4.3 Change in U.S. Electricity Sales Associated with the Proposed Furnace, 

Central Air Conditioner, and Heat Pump Energy Conservation Standard

Figure 14.4.4 shows the annual change in average U.S. price for electricity, relative to the 

Reference case, projected to result from the proposed standard. The price reduction for the TSL 4 

low estimate averages 0.013 cents per kWh (in 2009$). This average price reduction equals 0.13

percent. The price reduction for the TSL 4 high estimate averages 0.014 cents per kWh (in 

2009$). This average price reduction equals 0.14 percent. Although the reduction in electricity 

demand for the TSL 4 high estimate is smaller than the TSL 4 low estimate, there is a greater 

reduction in electricity prices for the TSL 4 high estimate. 

The AEO2010 states that electricity prices are affected by natural gas prices in addition 

to electricity demand, among many other factors. The significant reduction in natural gas prices 

in the TSL 4 high estimate may be following through to the electricity price impact, creating a 

larger than expected decline in electricity prices.

-4.5

-4.0

-3.5

-3.0

-2.5

-2.0

-1.5

-1.0

-0.5

0.0

2013 2018 2023 2028 2033

TWH

Change in Total U.S. Electricity Sales

TSL 4 Low Estimate

TSL4 High Estimate
14-22

Figure 14.4.4 Effect of the Proposed Furnace, Central Air Conditioner, and Heat Pump

Energy Conservation Standard on Average U.S. Electricity Prices (All 

Users)

14.4.5 Impact of Changes in Electricity Price on Electricity Users

Using the estimated electricity price impacts, DOE calculated the nominal savings in total 

electricity expenditures in each year by multiplying the annual change in the average-user price 

for electricity by the total annual U.S. electricity sales forecast by NEMS, adjusted for the impact 

of the standards. The amended standards would continue to reduce demand for electricity after 

2035 (which is the last year in the NEMS forecast). DOE’s estimate for 2036–2045 (the period 

used to estimate the NPV of the national consumer benefits from amended standards) multiplied 

the average electricity price reduction in 2013–2035 by estimated total annual electricity sales in 

2036–2045.

g DOE then discounted the stream of reduced expenditures to calculate a NPV.

Table 14.15 shows the calculated NPV of the economy-wide savings in electricity 

expenditures for each considered TSL at 3-percent and 7-percent discount rates. The need to 

extrapolate price effects and electricity sales beyond 2035 suggests that one should interpret the 

post-2035 results as a rough indication of the benefits to electricity users in the post-2035 period.

 

 

g The estimation of electricity consumption after 2035 uses the average annual growth rate in 2031-2035 of total 

U.S. electricity consumption forecasted by NEMS. This forecast includes the impact of the standards.

-0.00028

-0.00024

-0.00020

-0.00016

-0.00012

-0.00008

-0.00004

0.00000

0.00004

2013 2018 2023 2028 2033

2009$/KWH

Change in U.S. Electricity Prices

TSL 4 Low Estimate

TSL4 High Estimate
14-23

Table 14.15 Cumulative NPV of the Economy Wide Savings in Electricity Expenditures 

Due to the Projected Decline in Electricity Prices Resulting from the Proposed Standard 

for Furnaces, Central Air Conditioners, and Heat Pumps*

Discount Rate Cumulative NPV

billion $2009

3 percent 9.734 to 10.790

7 percent 4.480 to 4.967

* Impacts for units sold from 2013 through 2045

14.4.6 Discussion of Savings in Electricity Expenditures

Although the aggregate benefits for all electricity users are potentially large, there may be 

negative effects on the actors involved in electricity supply. The electric power industry is a 

complex mix of power plant providers, fuel suppliers, electricity generators, and electricity 

distributors. While the distribution of electricity is regulated everywhere, the institutional 

structure of the power sector varies, and has changed over time. For these reasons, an assessment 

of impacts on the actors involved in electricity supply from reduction in electricity demand 

associated with energy conservation standards is beyond the scope of this rulemaking. 

In considering the potential benefits to electricity users, DOE takes under advisement the 

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”). Specifically, at page 38, Circular A-4 instructs that 

transfers should be excluded from the estimates of the benefits and costs of a regulation. DOE is 

continuing to investigate the extent to which change in electricity prices projected to result from 

standards represents a net gain to society.
14-24

REFERENCES

1. Energy Information Administration, Annual Energy Outlook 2010 with Projections to 

2035, 2010. Washington, DC. Report No. DOE/EIA-0383(2010). 

<http://www.eia.doe.gov/oiaf/aeo/>

2. Ryan Wiser, Mark Bolinger, and Matt St. Clair, Easing the Natural Gas Crisis: Reducing 

Natural Gas Prices through Increased Deployment of Renewable Energy and Energy 

Efficiency, January, 2005. Lawrence Berkeley National Laboratory. Report No. 56756. 

3. Natural Gas, Fuel Diversity and North American Energy markets, September 2003. 

Energy Modeling Forum, Stanford University. Report No. EMF Report 20. 

4. Balancing Natural Gas Policy - Fueling the Demands of a Growing Economy, Vol. I 

Summary of Findings and Recommendations, September 25, 2003. National Petroleum 

Council. 

5. National Commission on Energy Policy, Increasing U.S. Natural Gas Supplies: A 

Discussion Paper and Recommendations from the National Commission on Energy 

Policy, October, 2003. <www.energycommission.org>