## 14

- i CHAPTER 1 4

. UTILITY IMPACT ANALYSIS

TABLE OF CO NTENTS

14.1 INTRODUCTION

................................ ................................ ................................ ......... 14

- 1
14.2 METHOD

................................ ................................ ................................ ...................... 14

- 1
14.3 RESULTS

................................ ................................ ................................ ...................... 14

- 2
14.4 IMPACT OF STANDARDS ON NATURAL GAS AND E LECTRICITY
PRICES AND ASSOCIATE D BENEFITS FOR CONSU MERS

............................... 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 Ai r Conditioner, and Heat Pump Trial Standard Level 1
Forecast

................................ ................................ ................................ .............. 14

- 4 Table 14.3 Furnace, Central Air Conditioner, and Heat Pump Trial S tandard 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

- Wi de Savings in Natural Gas

................... 14

- 19

## 14

- ii Table 14.15 Cumulative NPV of the Economy Wide Savings in Electricity Expenditures Due to the Projec ted 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 ANALY SIS

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 a n energy forecast for the U nited States , the Annual Energy Outlook (AEO)

. The AEO for 2010 (AEO2010 ) forecasts e nerg y 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 AEO20 10 Reference Case and for cases in whic h standards are in place, and applies the same basic set of assumptions as the AEO20 10

. The
AEO2010 reference case corresponds to medium economic growth.

The utility impact analysis reports the changes in electric installed capacity and generation that r esult for each trial standard level (TSL) by plant type , as well as changes in residen tial 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

cons idering only average effects.

14.2 METHOD

The utility impact analysis uses the assumptions of the AEO20 10 and treat s furnaces and central air conditioning conservation standards as variations in policy. The effect s of the policy

are calculated as the difference between the AEO20 10 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 va rious policy scenarios that are variations on DOE/EIA assumptions, DOE refers to it by the name NEMS

BT (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 in terpolation. 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 a re executed by redu cing 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 ene rgy savings, therefore both of these end uses were decremented in the NEMS model. The model was decremented wi th 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

. The se decrements are also divided amongst the nine U.S. Census divi sions 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 , o ther parts of the energy conservation standards analysis extend through the year 204 5

. It is not feasible to extend the forecast period of NEMS

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

app roved method for extrapola tion 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 f uel type, and installed electricity generation capacity by fuel type

. Results are presented in f ive

- year increments to year 2035

. Beyond year 2035 , an extrapolation through 204 5 for each TSL represents a sim ple replication of the year 2035 results.

The results from the AEO20 10 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 1 4 .2 through 1 4

. 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 stand ards

- 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 Condition er , 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 1 4

. 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 Tria l 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 electri city 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 ELEC TRICITY

PRICES AND ASSOCIATE D BENEFITS FOR CONSUMERS

Using the framework of the utility impact analysis

, DOE analyzed the potential impact on electricity and natural gas prices res ulting from proposed standard s o n furnace and central air conditioning products . A ssocia ted benefits for all energy users in all sectors of the economy are then derived from these pric e impacts

.
DOE’s analysis of energy price impacts used NEMS

- BT in a similar man ner 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 b ased 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 ela sticity during 2013

– 2035 is 1.38 for the TSL4 low estimate and 0.99 for the TSL4 high estimate, the proposed standard levels . A val ue of 1.38 means that, given a one

- percent decrease in demand, the pr ice of gas would decline by 1.38 percent.

In a review of such studies that used versions of NEMS to examine the impacts on nat ural gas prices resulting from reductions in natural gas demand, Wiser and Bollinger 2 

## 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 value s f rom DOE's cu rrent 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 thos e incorporated in NEMS. Table 14.1 3 compares the results of several studies that mod eled 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, t wo 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 co nducted by the National
Petroleum Council 4 

## and the National Commission on Energy Policy 5 

## that are based on the EEA model. The EEA model has higher inverse price elasticities (between 4.0 an d 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 g as 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 Ene rgy 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 saving s at TSL 4, the proposed standard

. The price effects re pr esent 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 b ase case

. The price reduction for the low estimate averages 1.0 cents per MMBtu (in 2 009$) , this is a reduction of
0.14 percent in wellhead prices. The price reduction for the high estimate averages 1.5 cents per MMBtu (in 2009$), 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 2033quads 

## Change in Total U.S. Gas Consumption

TSL4 Low Estimate

TSL4 High Estimate

## 14-18 Figure 14.4

. 2 Ef fects 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 woul d 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 pri ce 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 14.1 4 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 203 5 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 l argely 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 20332009$/MMBtu 

## Change in Lower 48 States Wellhead Prices

TSL4 Low Estimate

TSL4 High Estimate

## 14-19 post

- 203 5 results as a rough indication of the benefits to natural gas users in the post

- 203 5 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 Pr oposed 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 201 3 through 204 5



## 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 exi sting 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 beca use 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 wors e 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 th e 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 pric es 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 po int 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

ex pect, however, that most of the forecasted price declin e 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 (witho ut 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 liq uefied 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 sou rces 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 sug gests 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 low

cost natural gas supplies and decreased imports of high

- cost LNG. This result fur ther 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 regressio n was made to calculate the total impacts at this standard level

. Results were generated u sing higher decrements to energy consumption. A

regr essed interpolation toward the origin was then used to derive the price effects associated w ith 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 t he 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 .0 13 cents per k Wh (in 2009$) . This average price reduction equal s 0. 13 percent. The price reduction for the TSL 4 high estimate avera ges 0.014 cents per kWh (in 2009$). 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 pric es 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 b e 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 2033TWH 

### Change in Total U.S. Electricity Sales

TSL 4 Low Estimate

TSL4 High Estimate

## 14-22 Figure 14.4

. 4 Eff ect 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 electr icity 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) mult iplied 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 savi ngs 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 el ectricity consumption after 2035 uses the av erage annual growth rate in 2031

- 2035 of total U.S. electricity consumption forecasted by NEMS. This f orecast 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 20332009$/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 t he Pro posed 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 201 3 through 204 5



## 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 i n 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 Off ice 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 Wis er, 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 G as, 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 Recomme ndations, 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 >