59204 Federal Register / Vol. 71, No. 194 / Friday, October 6, 2006 / Proposed Rules 

DEPARTMENT OF ENERGY 

Office of Energy Efficiency and 

Renewable Energy 

10 CFR Part 430 

[Docket Number EE–RM/STD–01–350] 

RIN 1904–AA78 

Energy Conservation Program for 

Consumer Products: Energy 

Conservation Standards for 

Residential Furnaces and Boilers 

AGENCY: Office of Energy Efficiency and 

Renewable Energy, Department of 

Energy. 

ACTION: Notice of proposed rulemaking 

and public meeting. 

SUMMARY: The Energy Policy and 

Conservation Act (EPCA or the Act) 

prescribes energy conservation 

standards for various consumer 

products and commercial and industrial 

equipment, and requires the Department 

of Energy (DOE or the Department) to 

determine if amendments to increase 

the stringency of the standards are 

technologically feasible and 

economically justified, and if they 

would save a significant amount of 

energy. In this notice, the Department is 

proposing to amend the energy 

conservation standards for residential 

furnaces and boilers and is announcing 

a public meeting. 

DATES: The Department will hold a 

public meeting on October 30, 2006, 

from 9 a.m. to 4 p.m., in Washington, 

DC. The Department must receive 

requests to speak at the public meeting 

before 4 p.m., October 16, 2006. The 

Department must receive a signed 

original and an electronic copy of 

statements to be given at the public 

meeting before 4 p.m., October 16, 2006. 

The Department will accept 

comments, data, and information 

regarding the notice of proposed 

rulemaking (NOPR) before and after the 

public meeting, but no later than 

January 15, 2007. See section VII, 

‘‘Public Participation,’’ of this notice for 

details. 

ADDRESSES: You may submit comments, 

identified by docket number EE–RM/ 

STD–01–350 and/or regulatory 

information number (RIN) 1904–AA78, 

by any of the following methods: 

1. Federal eRulemaking Portal: 

http://www.regulations.gov. Follow the 

instructions for submitting comments. 

2. E-mail: ResidentialFBNOPR

Comments@ee.doe.gov. Include docket 

number EE–RM/STD–01–350 and/or 

RIN number 1904–AA78 in the subject 

line of the message. 

3. Mail: Ms. Brenda Edwards-Jones, 

U.S. Department of Energy, Building 

Technologies Program, Mailstop EE–2J, 

NOPR for Residential Furnaces and 

Boilers, Docket Number EE–RM/STD– 

01–350 and/or RIN number 1904–AA78, 

1000 Independence Avenue, SW., 

Washington, DC 20585–0121. Please 

submit one signed original paper copy. 

4. Hand Delivery/Courier: Ms. Brenda 

Edwards-Jones, U.S. Department of 

Energy, Building Technologies Program, 

Room 1J–018, 1000 Independence 

Avenue, SW., Washington, DC 20585– 

0121. Telephone: (202) 586–2945. 

Please submit one signed original paper 

copy. 

Instructions: All submissions received 

must include the agency name and 

Docket Number or RIN for this 

rulemaking. For detailed instructions on 

submitting comments and additional 

information on the rulemaking process, 

see section VII, ‘‘Public Participation,’’ 

of this notice for details. 

Docket: For access to the docket to 

read background documents or 

comments received, visit the U.S. 

Department of Energy, Forrestal 

Building, Room 1J–018 (Resource Room 

of the Building Technologies Program), 

1000 Independence Avenue, SW., 

Washington, DC 20585–0121, (202) 586– 

2945, between 9 a.m. and 4 p.m., 

Monday through Friday, except Federal 

holidays. Please call Ms. Brenda 

Edwards-Jones at the above telephone 

number for additional information 

regarding visiting the Resource Room. 

Please note: The Department’s Freedom 

of Information Reading Room (formerly 

Room 1E–190 at the Forrestal Building) 

is no longer housing rulemaking 

materials. 

FOR FURTHER INFORMATION CONTACT: 

Mohammed Khan, Project Manager, 

Energy Conservation Standards for 

Residential Furnaces and Boilers, U.S. 

Department of Energy, Energy Efficiency 

and Renewable Energy, Building 

Technologies Program, EE–2J, 1000 

Independence Avenue, SW., 

Washington, DC 20585–0121, (202) 586– 

7892, e-mail: 

Mohammed.Khan@ee.doe.gov. 

Francine Pinto, Esq., U.S. Department 

of Energy, Office of the General Counsel, 

GC–72, 1000 Independence Avenue, 

SW., Washington, DC 20585–0121, (202) 

586–9507, e-mail: 

Francine.Pinto@hq.doe.gov. 

SUPPLEMENTARY INFORMATION: 

Table of Contents 

I. Summary of the Proposed Rule 

II. Introduction 

A. Consumer Overview 

B. Authority 

C. Background 

1. Current Standards 

2. History of Standards Rulemaking for 

Residential Furnaces and Boilers 

3. Process Improvement 

D. Negotiated Boiler Standards Agreement 

III. General Discussion 

A. General Issues 

1. Impact of Furnace and Boiler Standards 

on Future Natural Gas Prices 

2. Inclusion of Electricity Consumption in 

Furnace and Boiler Standards 

3. Separate Standards for Equipment 

Installed in New Homes and as 

Replacements 

4. Separate Standards for Different Regions 

B. Test Procedures 

C. Technological Feasibility 

1. General 

2. Maximum Technologically Feasible 

Levels 

D. Energy Savings 

1. Determination of Savings 

2. Significance of Savings 

E. Economic Justification 

1. Specific Criteria 

a. Economic Impact on Manufacturers and 

Consumers 

b. Life-Cycle Costs 

c. Energy Savings 

d. Lessening of Utility or Performance of 

Products 

e. Impact of Any Lessening of Competition 

f. Need of the Nation to Conserve Energy 

g. Other Factors 

2. Rebuttable Presumption 

IV. Methodology and Discussion of 

Comments 

A. Product Classes 

B. Engineering Analysis 

1. Manufacturing Costs 

2. Markups 

3. Installation Costs 

a. Non-Weatherized Gas Furnaces 

b. Other Product Classes 

4. Maintenance Costs 

5. Rebuttable-Presumption Payback Period 

C. Life-Cycle Cost and Payback Period 

Analysis 

1. Equipment Prices 

2. Installation Costs 

3. Household Annual Energy Consumption 

4. Energy Prices 

5. Maintenance Costs 

6. Equipment Lifetime 

7. Discount Rates 

8. Effective Date of the New Standards 

9. Inputs to Payback Period Analysis 

10. Base-Case Equipment 

D. National Impact Analysis—National 

Energy Savings and Net Present Value 

Analysis 

1. Shipments, National Energy Savings, 

and Net Present Value 

2. Annual Unit Energy Consumption 

3. Site-to-Source Conversion Factors 

4. Installed Equipment Costs 

5. Maintenance Costs 

6. Energy Prices 

7. Discount Rates 

E. Consumer Subgroup Analysis 

F. Manufacturer Impact Analysis 

1. General Description 

2. Industry Profile 

3. Industry Cash Flow Analysis 

4. Subgroup Impact Analysis 


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5. Government Regulatory Impact Model 

Analysis 

6. Manufacturer Interviews 

a. Issues 

b. GRIM Scenarios and Key Inputs 

1. Shipments Forecast 

2. Markups 

3. Product and Capital Conversion Costs 

G. Employment Impact Analysis 

H. Utility Impact Analysis 

I. Environmental Analysis 

V. Analytical Results 

A. Trial Standard Levels 

B. Economic Justification and Energy 

Savings 

1. Economic Impacts on Consumers 

a. Life-Cycle Cost and Payback Period 

b. Consumer Subgroup Analysis 

c. Rebuttable-Presumption Payback 

2. Economic Impacts on Manufacturers 

a. Industry Cash Flow Analysis Results 

i. Non-Weatherized Gas Furnaces 

ii. Weatherized Gas Furnaces 

iii. Mobile Home Gas Furnaces 

iv. Oil-Fired Furnaces 

v. Gas Boilers 

vi. Oil-Fired Boilers 

b. Impacts on Manufacturing Capacity 

c. Impacts on Subgroups of Manufacturers 

d. Cumulative Regulatory Burden 

3. National Impact Analysis 

a. Significance of Energy Savings 

b. Net Present Value 

c. Impacts on Employment 

4. Impact on Utility or Performance of 

Products 

5. Impact of Any Lessening of Competition 

6. Need of the Nation to Conserve Energy 

7. Other Factors 

C. Proposed Standard 

VI. Procedural Issues and Regulatory Review 

A. Review Under Executive Order 12866 

B. Review Under the Regulatory Flexibility 

Act 

C. Review Under the Paperwork Reduction 

Act 

D. Review Under the National 

Environmental Policy Act 

E. Review Under Executive Order 13132 

F. Review Under Executive Order 12988 

G. Review Under the Unfunded Mandates 

Reform Act of 1995 

H. Review Under the Treasury and General 

Government Appropriations Act of 1999 

I. Review Under Executive Order 12630 

J. Review Under the Treasury and General 

Government Appropriations Act of 2001 

K. Review Under Executive Order 13211 

L. Review Under the Information Quality 

Bulletin for Peer Review 

M. Review Under Executive Order 12898 

VII. Public Participation 

A. Attendance at Public Meeting 

B. Procedure for Submitting Requests to 

Speak 

C. Conduct of Public Meeting 

D. Submission of Comments 

E. Issues on Which DOE Seeks Comment 

VIII. Approval of the Office of the Secretary 

I. Summary of the Proposed Rule 

The Energy Policy and Conservation 

Act (EPCA or the Act), as amended, 

specifies that any new or amended 

energy conservation standard the 

Department of Energy (DOE or the 

Department) prescribes for consumer 

products shall be designed to ‘‘achieve 

the maximum improvement in energy 

efficiency * * * which the Secretary 

determines is technologically feasible 

and economically justified.’’ (42 U.S.C. 

6295(o)(2)(A)) Furthermore, the new or 

amended standard must ‘‘result in 

significant conservation of energy.’’ (42 

U.S.C. 6295(o)(3)(B)) In accordance with 

these and other statutory criteria 

discussed in this notice, the Department 

proposes to amend the residential 

furnace and boiler energy conservation 

standards and raise efficiency levels as 

shown in Table I.1. The proposed 

standards would apply to all covered 

furnaces and boilers offered for sale in 

the United States, effective on January 1, 

2015. 

TABLE I.1.—PROPOSED STANDARD

LEVELS FOR FURNACES AND BOILERS

Product class AFUE 

(%) 

Non-weatherized gas furnaces ..... 80 

Weatherized gas furnaces ............ 83 

Mobile home gas furnaces ........... 80 

Oil-fired furnaces .......................... 82 

Gas boilers ................................... 84 

Oil-fired boilers ............................. 83 

AFUE = annual fuel utilization efficiency. 

The Department’s analyses indicate 

that the proposed standards would save 

a significant amount of energy—an 

estimated 0.41 quadrillion British 

thermal units (Btu), or quads, of 

cumulative energy over 24 years (2015–

2038). For comparison, approximately 

six quads are used annually for space 

heating in U.S. homes. The economic 

impacts on consumers—i.e., the average 

life-cycle cost (LCC) savings—are 

positive. 

The cumulative national net present 

value (NPV) of total consumer costs and 

savings of the proposed standard (DOE’s 

trial standard level 2, or TSL2) from 

2015 to 2038, in 2004$, ranges from 

$650 million (seven-percent discount 

rate) to $2.48 billion (three-percent 

discount rate). This is the estimated 

total value of future operating-costsavings minus the estimated increased 

equipment costs, discounted to 2004. 

The Department estimated the furnace 

and boiler industry net present value 

(INPV) to be approximately $1.6 billion 

in 2004$. If the Department adopts the 

proposed standard, it expects 

manufacturers will lose 4.1 to 7 percent 

of the INPV, which is approximately 

$65–114 million. The NPV for 

consumers (at the seven-percent 

discount rate) exceeds industry losses 

due to energy efficiency standards by 

about seven times. 

The proposed standard will lead to 

reductions in greenhouse gas emissions, 

resulting in cumulative (undiscounted) 

emission reductions of 19.6 million tons 

(Mt) of carbon dioxide (CO2) from 2015 

to 2038. Additionally, the standard 

would result in 13.0 thousand tons (kt) 

of nitrogen oxides (NOX) emissions 

reductions or generate a similar amount 

of NOX emissions allowance credits in 

areas where such emissions are subject 

to emissions caps. The standard would 

also generate 1.5 kt of sulfur dioxide 

(SO2) emissions reductions from 2015 to 

2038. Most of the energy saved is 

natural gas. In addition, the Department 

expects the energy savings from the 

proposed standards to eliminate the 

need for approximately 14 megawatts 

(MW) of generating capacity by 2030. 

The above results reflect the 

Department’s use of energy price 

projections from the U.S. Energy 

Information Administration (EIA)’s 

Annual Energy Outlook 2005 

(AEO2005). In addition, the Department 

performed a sensitivity analysis to 

assess the impacts of the standard using 

the Annual Energy Outlook 2006 

(AEO2006) energy price forecasts. In 

this sensitivity analysis, the proposed 

standards would save the same amount 

of energy (0.41 quads) over 2015–2038. 

The cumulative NPV of total consumer 

costs and savings of the proposed 

standard from 2015 to 2038, in 2004$, 

ranges from $820 million (seven-percent 

discount rate) to $3.02 billion (threepercent discount rate). The other results 

are approximately the same as in the 

analysis using AEO2005. 

The Department has found the 

proposed standard represents the 

maximum improvement in energy 

efficiency that is technologically 

feasible and economically justified. The 

Department found the benefits to the 

Nation of the proposed standard (energy 

savings, consumer average LCC savings, 

national NPV increase, and emission 

reductions) outweigh the costs (loss of 

manufacturer NPV, and LCC increases 

for some consumers). The Department 

considered higher energy efficiency 

levels as trial standard levels; however, 

it found the burdens of the higher 

efficiency levels (loss of manufacturer 

NPV, LCC increases for some 

consumers, and safety concerns) 

outweigh the benefits (energy savings, 

LCC savings for some consumers, 

national NPV increase, and emission 

reductions). The Department concludes 

that the proposed standard is 

economically justified. Furthermore, 

DOE has found that the proposed 

standard is technologically feasible 

since products achieving these 


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efficiencies already are commercially 

available. 

II. Introduction 

A. Consumer Overview 

The Department is proposing to raise 

the energy conservation standard levels 

for residential furnaces and boilers as 

shown above in Table II.1. The 

proposed efficiency standard would 

apply to all covered furnaces and boilers 

offered for sale in the United States, 

effective on January 1, 2015. Relative to 

the current standard levels, the 

proposed levels for residential furnaces 

and boilers represent an improvement 

in energy efficiency of one to five 

percent, depending on the product 

class. 

TABLE II.1.—PROPOSED STANDARD

LEVELS FOR FURNACES AND BOILERS

Product class AFUE 

(%) 

Non-weatherized gas furnaces ......... 80 

Weatherized gas furnaces ................ 83 

Mobile home gas furnaces ............... 80 

Oil-fired furnaces .............................. 82 

Gas boilers ....................................... 84 

Oil-fired boilers ................................. 83 

AFUE = annual fuel utilization efficiency. 

B. Authority 

Title III of EPCA sets forth a variety 

of provisions designed to improve 

energy efficiency. Part B of title III (42 

U.S.C. 6291–6309) provides for the 

Energy Conservation Program for 

Consumer Products other than 

Automobiles. The program covers 

consumer products (referred to hereafter 

as ‘‘covered products’’), including 

residential furnaces and boilers. (42 

U.S.C. 6292(a)(5)) 

Under the Act, the program consists 

essentially of these parts: Testing, 

labeling, and Federal energy 

conservation standards. The Federal 

Trade Commission (FTC) is responsible 

for labeling, and DOE implements the 

remainder of the program. Section 323 

of the Act authorizes the Department, 

with assistance from the National 

Institute of Standards and Technology 

(NIST) and subject to certain criteria 

and conditions, to develop test 

procedures to measure the energy 

efficiency, energy use, or estimated 

annual operating cost of each covered 

product. (42 U.S.C. 6293) The furnace 

and boiler test procedures appear at 

Title 10 of the Code of Federal 

Regulations (CFR) part 430, subpart B, 

Appendix N. 

EPCA provides criteria for prescribing 

new or amended standards for covered 

products. As indicated above, any new 

or amended standard for a covered 

product must be designed to achieve the 

maximum improvement in energy 

efficiency that is technologically 

feasible and economically justified. (42 

U.S.C. 6295(o)(2)(A)) EPCA precludes 

the Department from adopting any 

standard that would not result in 

significant conservation of energy. (42 

U.S.C. 6295(o)(3)(B)) Moreover, the 

Department may not prescribe a 

standard: (1) For certain products, if no 

test procedure has been established for 

the product, or (2) if DOE determines by 

rule that the standard is not 

technologically feasible or economically 

justified. (42 U.S.C. 6295(o)(3)(B) The 

Act (42 U.S.C. 6295(o)(2)(B)(i)) also 

provides that, in deciding whether a 

standard is economically justified, DOE 

must, after receiving comments on the 

proposed standard, determine whether 

the benefits of the standard exceed its 

burdens by considering, to the greatest 

extent practicable, the following seven 

factors: 

(1) The economic impact of the standard 

on manufacturers and consumers of the 

products subject to the standard; 

(2) The savings in operating costs 

throughout the estimated average life of the 

covered products in the type (or class) 

compared to any increase in the price, initial 

charges, or maintenance expenses for the 

covered products that are likely to result 

from the imposition of the standard; 

(3) The total projected amount of energy 

savings likely to result directly from the 

imposition of the standard; 

(4) Any lessening of the utility or the 

performance of the covered products likely to 

result from the imposition of the standard; 

(5) The impact of any lessening of 

competition, as determined in writing by the 

Attorney General, that is likely to result from 

the imposition of the standard; 

(6) The need for national energy 

conservation; and 

(7) Other factors the Secretary considers 

relevant. 

EPCA contains what is commonly 

known as an ‘‘anti-backsliding’’

provision. (42 U.S.C. 6295(o)(1)) This 

provision mandates that the Secretary 

not prescribe any amended standard 

that either increases the maximum 

allowable energy use or decreases the 

minimum required energy efficiency of 

a covered product. Also, the Secretary 

may not prescribe an amended or a new 

standard if interested persons have 

established by a preponderance of the 

evidence that the standard is likely to 

result in the unavailability in the United 

States of any covered product type (or 

class) with performance characteristics, 

features, sizes, capacities, and volume 

that are substantially the same as those 

generally available in the United States. 

(42 U.S.C. 6295 (o)(4)) 

In addition, section 325(o)(2)(B)(iii) of 

EPCA establishes a rebuttablepresumption that a standard is 

economically justified if the Secretary 

finds that ‘‘the additional cost to the 

consumer of purchasing a product 

complying with an energy efficiency 

standard level will be less than three 

times the value of the energy * * * 

savings during the first year that the 

consumer will receive as a result of the 

standard, as calculated under the 

applicable test procedure * * *.’’ The 

rebuttable-presumption test is an 

alternative path to establishing 

economic justification. (42 U.S.C. 

6295(o)(2)(B)(iii)) 

Section 325(q)(1) of EPCA is 

applicable to promulgating a standard 

for a type or class of covered product 

that has two or more subcategories. The 

Department must specify a different 

standard level than that which applies 

generally to such type or class of 

products ‘‘for any group of covered 

products which have the same function 

or intended use, if * * * products 

within such group—(A) Consume a 

different kind of energy from that 

consumed by other covered products 

within such type (or class); or (B) have 

a capacity or other performance-related 

feature which other products within 

such type (or class) do not have and 

such feature justifies a higher or lower 

standard’’ that applies or will apply to 

the other products. (42 U.S.C.6295(q)(l)) 

In determining whether a performancerelated feature justifies such a different 

standard for a group of products, the 

Department must consider ‘‘such factors 

as the utility to the consumer of such a 

feature’’ and other factors DOE deems 

appropriate. Any rule prescribing such 

a standard must include an explanation 

of the basis on which such higher or 

lower level was established. (42 U.S.C. 

6295(q)(2)) 

Federal energy conservation 

requirements generally supersede State 

laws or regulations concerning energy 

conservation testing, labeling, and 

standards. (42 U.S.C. 6297 (a)–(c)) The 

Department can, however, grant waivers 

of preemption for particular State laws 

or regulations, in accordance with the 

procedures and other provisions of 

section 327(d) of the Act. (42 U.S.C. 

6297(d)) Specifically, States with a 

regulation that provides for an energy 

conservation standard for any type of 

covered product for which there is a 

Federal energy conservation standard 

may petition the Secretary for a DOE 

rule that allows the State regulation to 

become effective with respect to such 

covered product. The Department must 

prescribe a rule granting the petition if 

the State establishes by a preponderance 


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1EPCA states that a ‘‘furnace’’ includes forced-air 

and gravity central furnaces and low-pressure steam 

and hot water boilers, and that it must have a heat 

input rate of less than 225,000 Btu/h for forced-air 

and gravity central furnaces, and less than 300,000 

Btu/h for boilers. (42 U.S.C. 6291(23)) However, in 

this notice, DOE has adopted the terminology used 

in the heating, ventilating, and air conditioning 

industry, which considers furnaces and boilers as 

separate categories. 

2Pub. L. 104–34, the Department of the Interior 

and Related Agencies Appropriations Act for Fiscal 

Year 1996 which included a moratorium on 

proposing or issuing energy conservation appliance 

standard for FY 1996. 

3A notation in the form ‘‘AGA, No. 78 at p. 2’’

identifies a written comment the Department has 

received and has included in the docket of this 

rulemaking. This particular notation refers to a 

comment (1) By the American Gas Association 

(AGA), (2) in the document number 78 in the 

docket of this rulemaking (maintained in the 

Resource Room of the Building Technologies 

Program), and (3) appear on page 2 of document 

number 78. 

of the evidence that its regulation is 

needed to meet ‘‘unusual and 

compelling State or local energy * * * 

interests.’’ (42 U.S.C. 6297(d)(1)(B)) 

C. Background 

1. Current Standards 

EPCA established an energy 

conservation standard for residential 

furnaces and boilers.1 It set the standard 

in terms of the annual fuel utilization 

efficiency (AFUE) descriptor at a 

minimum value of 78 percent for most 

furnaces. It set the minimum AFUE at 

75 percent for gas steam boilers and 80 

percent for other boilers. For mobile 

home furnaces, EPCA set the minimum 

AFUE at 75 percent. These standards 

became effective on January 1, 1992, 

with the exception of the standard for 

mobile home furnaces, for which the 

effective date was September 1, 1990. 

(42 U.S.C. 6295(f)(1)–(2)) 

2. History of Standards Rulemaking for 

Residential Furnaces and Boilers 

For ‘‘small’’ gas furnaces (those 

having an input rate of less than 45,000 

Btu per hour), the Department 

published a final rule on November 17, 

1989, in which it set the minimum 

AFUE for these products at 78 percent, 

effective January 1, 1992. 54 FR 47916. 

For mobile home furnaces, the 

Department issued an advance notice of 

proposed rulemaking (ANOPR) on 

September 28, 1990 (55 FR 39624), 

followed by a proposed rule on March 

4, 1994. 59 FR 10464. The Interior and 

Related Agencies Appropriations for 

Fiscal Year 1996 (Pub. L. 104–34) 

included a moratorium on appliance 

standards rulemakings, preventing DOE 

from finalizing the standards on mobile 

home furnaces. The Department 

responded to the moratorium by 

developing an improved process, known 

as the Process Rule, for its energy 

conservation standards rulemakings 

(Procedures for Consideration of New or 

Revised Energy Conservation Standards 

for Consumer Products, Title 10 CFR 

part 430, Subpart C, Appendix A). 61 FR 

36974. The Process Rule provided 

guidance on how DOE prioritizes its 

standards rulemakings. As a result, the 

Department pursued standards 

rulemakings for other products rather 

than finalizing the proposed standard 

for mobile home furnaces. Therefore, 

the Department did not publish a final 

rule for amending mobile home furnace 

standards and the minimum energy 

conservation standard remained at 75 

percent AFUE. 

The Act also directed the Department 

to publish a final rule to determine 

whether the standards should be 

amended for all furnaces and boilers. 

(42 U.S.C. 6295(f)(3)(B)) On September 

8, 1993, the Department published an 

ANOPR (hereafter referred to as the 

September 1993 ANOPR) in which it 

presented the product classes for 

furnaces that it planned to analyze, and 

a detailed discussion of the analytical 

methodology that it expected to use in 

this rulemaking. 58 FR 47326. The 

Department invited stakeholders to 

submit comments and data on the 

planned methodology. However, the 

1996 moratorium on appliance 

standards rulemakings prevented DOE 

from proceeding further with the 

rulemaking process.2

In the fiscal year 2001 Priority Setting 

for the Appliance Rulemaking Process, 

DOE assigned a high level of priority to 

a rulemaking to consider amendments 

to the energy conservation standards for 

residential furnaces and boilers, 

including mobile home furnaces. On 

June 13, 2001, DOE published a 

Framework Document for Residential 

Furnaces and Boilers Standards 

Rulemaking (Framework Document). 

The Department held a public meeting 

on July 17, 2001, to discuss the 

procedural and analytical approaches in 

this rulemaking, and to seek stakeholder 

comments on the Framework Document. 

The Department held another public 

meeting on May 8, 2002, to receive and 

discuss comments on issues related to 

venting installations. In June 2002, the 

Gas Appliance Manufacturers 

Association (GAMA) commented on 

DOE’s analysis of manufacturing costs. 

In August 2002, GAMA convened a 

meeting with DOE and the American 

Council for an Energy-Efficient 

Economy (ACEEE) to discuss 

approaches for analyzing electricity use 

in furnaces. In September 2002, the 

Department posted its engineering 

analysis and received stakeholder 

comments. The Department published 

an ANOPR on July 29, 2004 (hereafter 

referred to as the 2004 ANOPR), and 

held a public meeting on September 29, 

2004, to present the methodology and 

results of the ANOPR analyses. 69 FR 

45419. 

As set forth in the updated 

rulemaking timeline published in the 

Department’s Semi-annual Regulatory 

Agenda on December 13, 2004, DOE 

expects to issue a final rule in 2007. 69 

FR 72713. The effective date for any 

new standards for furnaces and boilers 

published in 2007 would be 2015, or 

eight years after publication as a final 

rule in the Federal Register. (42 U.S.C. 

6295 (f)(3)(B)) 

3. Process Improvement 

The Process Rule applies to the 

development of energy conservation 

standards for all consumer products, 

including those for residential furnaces 

and boilers. 61 FR 36974. In this notice, 

the Department describes the framework 

and methodologies by which it is 

developing the standard. The framework 

and methodologies reflect 

improvements made and steps taken in 

accordance with the Process Rule, 

including the use of improved economic 

models and analytical tools. The 

rulemaking process is dynamic, and as 

timely new data, models, or tools that 

enhance the development of standards 

become available, the Department will 

incorporate them into the rulemaking. 

In response to the DOE’s 2004 

ANOPR, the American Gas Association 

(AGA) asserted that the spreadsheets 

used by the Department do not meet the 

requirements of the Process Rule, which 

specifies the use of transparent and 

robust analytical methods ‘‘that are fully 

documented for the public and that 

produce results that can be explained 

and reproduced * * *.’’ AGA suggested 

that DOE (1) explore simpler analytical 

methods for its analyses, or (2) provide 

stakeholders with more direct means of 

testing alternate assumptions and 

sensitivities. (AGA, No. 78 at p. 2) 3

Southern Company (Southern) 

commented that it would be helpful if 

DOE provided tools for the review of its 

analysis results that could be used more 

easily. (Southern, No. 71 at p. 3) After 

the 2004 ANOPR, DOE improved the 

design and user-friendliness of the 

analytical spreadsheets by creating 

process diagrams and by adding 

additional summary worksheets, help 

screens to assist the user, and input 

screens to allow the testing of alternate 

assumptions. The Department also 

expanded its documentation by adding 


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4Wiser, R., M. Bolinger, M. St. Clair. Easing the 

Natural Gas Crisis: Reducing Natural Gas Prices 

through Increased Deployment of Renewable 

Energy and Energy Efficiency. LBNL. January 2005. 

(http://eetd.lbl.gov/EA/EMP/reports/56756.pdf). 

appendices that explain in detail the 

design and use of the spreadsheets. 

GAMA commented that there should 

be more informal communication 

between DOE and the furnace industry 

during the course of the rulemaking. 

(GAMA, No. 67 at p. 8) In accordance 

with the Process Rule, DOE sought 

stakeholder review at several points in 

the rulemaking and organized public 

meetings, webcasts, and conference 

calls to discuss important issues. The 

Department recognizes the value of 

having informal, open communication 

with stakeholders, as stakeholder input 

can contribute significantly to the 

quality of the Department’s analyses and 

improve the Department’s decision 

making. However, the open nature of 

the process has introduced substantial 

delays in the Department’s rulemaking 

schedules. Such delays have been an 

unintended consequence of the Process 

Rule. The Department therefore, 

recognizes the need for a balance in the 

allowance of stakeholder input and 

maintaining rulemaking schedules, and 

will better integrate stakeholder input 

and expert review within the scope of 

the structured notice-and-comment 

rulemaking process. 

D. Negotiated Boiler Standards 

Agreement 

On July 14, 2006, GAMA and ACEEE, 

on behalf of 28 residential boiler 

manufacturers and four energy 

efficiency organizations, submitted a 

negotiated agreement recommending 

new national standards for residential 

boilers that would consist of a 

performance requirement (minimum 

AFUE levels) and design requirements. 

The recommended performance levels 

are the maximum that the industry feels 

would safeguard against corrosion and 

ensure safe venting. Both GAMA and 

ACEEE believe that the design 

requirements would bring about 

additional, non-trivial energy savings. 

For gas-fired boilers, both water and 

steam types, the agreement calls for a 

ban on standing pilots. For gas-fired 

water boilers only, there are two design 

requirements. In addition to the ban on 

standing pilots, the agreement also 

requires a ‘‘temperature reset’’ feature 

that automatically adjusts the boiler 

output according to the outdoor ambient 

air temperature. For oil-fired water 

boilers, the agreement contains the 

design requirement for the same 

‘‘temperature reset’’ feature. 

The Department sincerely appreciates 

the effort stakeholders have made to 

propose an agreement for the boiler 

portion of this rulemaking. However, 

the Department has determined that the 

recommended standards in the 

negotiated agreement are beyond the 

scope of its legal authority. The Energy 

Policy and Conservation Act (EPCA) 

authorizes the Secretary to amend 

energy conservation standards for 

specified products. (42 U.S.C. 6295) 

Section 321(6) of the EPCA defines the 

term ‘‘energy conservation standard’’ as 

(A) A performance standard which 

prescribes a minimum level of energy 

efficiency or a maximum quantity of 

energy use, * * * or 

(B) A design requirement for the 

products specified in paragraphs (6), (7), 

(8), (10), (15), (16), (17), and (19) of 

section 322(a) * * * [of this title.] 

(42 U.S.C. 6291(6)) 

The language of EPCA authorizes the 

Department to establish a performance 

standard or a single design standard. 

EPCA’s list of specified products for 

which a design standard can be 

established does not include residential 

furnaces and boilers. As such, a 

standard that establishes both a 

performance standard and a design 

requirement is beyond the scope of the 

Department’s legal authority. In the case 

of gas-fired water boilers, the agreement 

recommends two design requirements 

which is contrary to EPCA’s limit of one 

design requirement for the specified 

covered products. 

The Department’s staff met with 

representatives from GAMA and ACEEE 

on August 1, 2006, and August 7, 2006, 

respectively, to discuss the 

Department’s legal position on the 

negotiated agreement. The Department 

regrets that this negotiated agreement 

does not meet the statutory criteria in 

EPCA and therefore cannot be accepted. 

The Department strongly encourages 

stakeholders to continue to work 

together to propose agreements to the 

Department in the future, understanding 

that the Department must comply with 

EPCA’s statutory requirements. 

III. General Discussion 

A. General Issues 

The Department received comments 

on several general issues related to the 

furnace and boiler rulemaking. Those 

issues are related to the impact of the 

standards on future natural gas prices, 

furnace electricity consumption, 

separate standards for equipment in 

new homes and replacements, and 

separate standards for different regions. 

1. Impact of Furnace and Boiler 

Standards on Future Natural Gas Prices 

The Natural Resources Defense 

Council (NRDC), American Chemistry 

Council (ACC), ACEEE, and Dow 

Chemical Company commented that 

more stringent furnace and boiler 

standards may result in lower natural 

gas prices in the future, and that DOE 

should account for the associated 

benefit for all gas consumers. (NRDC, 

No. 52 at p. 2; ACC, No. 62 at p. 3; 

ACEEE, No. 84 at p. 9; and Joint 

Comment by NRDC and Dow, No. 64 at 

p. 3) The impact of appliance standards 

on energy prices has not historically 

been a part of DOE’s analysis. 

Estimating such impacts would require 

new analytical methods. The 

Department evaluated a recent study 

that includes consideration of the 

impacts of furnace and boiler standards 

on natural gas prices.4 While this study 

finds that standards could result in a 

small decrease in natural gas prices, the 

Department’s review of the study 

reveals that there is no conclusive 

evidence that furnace and boiler 

standards will affect overall natural gas 

prices. If the stakeholders’ assertion is 

correct, then consumer gas prices will 

decrease, in turn decreasing the income 

of gas utilities—resulting in a transfer of 

benefits from the natural gas producers 

to the consumers. However, on a 

societal level, there is no clear evidence 

that there will be any impact on natural 

gas prices resulting from the furnace 

and boiler standards. Furthermore, DOE 

believes it is currently impossible, 

within the framework of a standards 

rulemaking, to estimate the possible 

impact of energy conservation standards 

on utility prices. Therefore, the 

Department did not consider these 

impacts in the current rulemaking. 

2. Inclusion of Electricity Consumption 

in Furnace and Boiler Standards 

The Department received a number of 

comments regarding the inclusion of 

furnace and boiler electricity 

consumption in amended standards for 

furnaces and boilers. The Department 

was recently given authority to regulate 

the electricity consumed by furnaces for 

the purposes of circulating air by the 

Energy Policy Act of 2005, Pub. L. 104–

58 (EPACT 2005). EPACT 2005, section 

135(c), amended section 325 of EPCA 

(42 U.S.C. 6295(f)(3)) to include the 

following: ‘‘[T]he Secretary may 

consider and prescribe energy 

conservation standards or energy use 

standards for electricity used for 

purposes of circulating air through duct 

work.’’ However, at the November 15, 

2005, public meeting to discuss DOE’s 

appliance-standards-program schedulesetting, the Department received 

comments from GAMA and the 


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5A notation in the form ‘‘ACEEE, No. 59.8 at p. 

36,’’ identifies a comment in the transcript of the 

Public Meeting on Standards for Furnaces and 

Boilers held in Washington, DC, 9/29/2004, which 

is document number 59.8 in the docket of this 

rulemaking. This particular notation refers to a 

comment (1) by the American Council for an 

Energy-Efficient Economy (ACEEE), (2) in the 

document number 59.8 in the docket of this 

rulemaking (maintained in the Resource Room of 

the Building Technologies Program), and (3) 

appearing on page 36 of document number 59.8. 

6State, Regional, And National Monthly Heating 

Degree Days Weighted By Population (2000 Census), 

1971—2000 (and previous normal periods). 

Historical Climatography Series No. 5–1. National 

Environmental Satellite, Data, and Information 

Service, National Oceanic and Atmospheric 

Administration. Available at: http:// 

www5.ncdc.noaa.gov/climatenormals/hcs/ 

HCS_51.pdf. 

7Nationwide, the U.S. averages 5528 HDDs. The 

following States average 6000 or more HDDs: 

Alaska, Colorado, Connecticut, Idaho, Illinois, Iowa, 

Maine, Massachusetts, Michigan, Minnesota, 

Montana, Nebraska, New Hampshire, New York, 

North Dakota, South Dakota, Utah, Vermont, 

Wisconsin, and Wyoming. 

Appliance Standards Awareness Project 

(ASAP) urging the Department to 

complete the AFUE standard 

rulemaking as soon as possible. 

Furthermore, GAMA and ASAP 

expressed their preference that DOE 

address furnace blower electricity 

consumption separately from the AFUE 

standard rulemaking. Since adding 

electricity consumption standards to 

this rulemaking would likely cause 

further substantial delay in the 

rulemaking process, the Department 

accepts the recommendations from 

GAMA and ASAP and has decided not 

to address furnace electricity 

consumption in this rulemaking. It will 

consider furnace electricity 

consumption separately to enable it 

complete the furnace and boiler AFUE 

rulemaking as expeditiously as possible. 

3. Separate Standards for Equipment 

Installed in New Homes and as 

Replacements 

ACEEE suggested that DOE consider 

separate standards for new construction 

and retrofits. (ACEEE, No. 53 at p. 5) 

EPCA directs the Department to 

establish performance standards that 

prescribe minimum levels of energy 

efficiency or maximum levels of energy 

use for covered products. The Act does 

not authorize DOE to set multiple levels 

of efficiency for a given covered 

product, depending on where the 

product is installed—either in terms of 

a given region of the country or in terms 

of home type, i.e., new or existing. (42 

U.S.C. 6291(6)(A)) The Department 

believes it does not have the authority 

to set separate standards for furnaces 

and boilers for new homes and for 

existing homes and, therefore, rejects 

the suggestion that it consider separate 

standards for new construction and 

retrofits. 

4. Separate Standards for Different 

Regions 

The Department received numerous 

comments regarding the setting of 

separate furnace and boiler standards 

for different regions of the country. 

Some of the commentators expressed 

reasons why separate standards would 

be beneficial or asked if DOE had the 

authority to set regional standards. 

(Ohio Consumers’ Counsel (OCC), No. 

70 at p. 5; Individuals, No. 73 at p. 1; 

Baltimore Gas and Electricity (BGE), No. 

75 at p. 1; National Association of 

Regulatory Utility Commissioners 

(NARUC), No. 77 at p. 5; ACEEE, No. 

59.8 at pp. 36 5 and 165; Individual, No. 

87 at p. 1; Northeast Energy Efficiency 

Partnerships (NEEP), No. 55 at pp. 2 and 

3; NRDC, No. 59.8 at pp. 29 and 33, and 

No. 63 at p. 9; Oregon Department of 

Energy (ODOE), No. 61 at p. 2; National 

Consumer Law Center (NCLC), No. 66 at 

pp. 7 and 8; New Jersey Board of Public 

Utilities (NJBPU), No. 83 at p. 1; Izaak 

Walton League of America (IWL), No. 88 

at p. 1; Southern, No. 71 at p. 21 and 

No. 59.8 at p. 219; Trane, No. 59.8 at p. 

207; GAMA, No. 59.8 at pp. 206 and 

217; York, No. 65 at p. 2; Edison Electric 

Institute (EEI), No. 69 at p. 2; 

Manufactured Housing Institute (MHI), 

No. 89 at p. 2; National Propane Gas 

Association (NPGA), No. 72 at p. 2; 

AGA, No. 59.8 at p. 40; Alliance to Save 

Energy (ASE), No. 80 at p. 2; North 

American Insulation Manufacturers 

Association (NAIMA), No. 60 at p. 1; 

and Lennox, No. 79 at p. 3) 

As discussed in the 2004 ANOPR, the 

Department has determined that EPCA 

does not authorize DOE to set regional 

energy conservation standards; instead, 

the Department can only establish 

national standards. 69 FR 45419. None 

of the comments received in response to 

the 2004 ANOPR provided a basis for 

changing that determination. 

However, the Department notes that 

EPCA allows states to seek from the 

Department a waiver of Federal 

preemption of state or local energy 

conservation standards. Section 327(d) 

of EPCA, ‘‘Waiver of Federal 

Preemption,’’ states that, ‘‘Any State 

* * * with a State regulation which 

provides for any energy conservation 

standard * * * for any type * * * of 

covered product for which there is a 

Federal energy conservation standard 

* * * may file a petition with the 

Secretary requesting a rule that such 

State regulation become effective with 

respect to such covered product.’’ (42 

U.S.C. 6297(d)(1)(A)) Within a 

maximum of one year, DOE must act on 

any such petition. (42 U.S.C. 6297(d)(2)) 

The Department must prescribe a rule 

granting a waiver from Federal 

preemption if, subject to the condition 

specified in section 327(d), the State 

establishes by a preponderance of the 

evidence that its regulation is needed to 

meet ‘‘unusual and compelling State or 

local energy * * * interests.’’ (42 U.S.C. 

6297(d)(1)(B)) The statute states that the 

phrase ‘‘unusual and compelling State 

or local energy * * * interests’’ means 

interests which: 

(i) Are substantially different in nature or 

magnitude than those prevailing in the 

United States generally; and (ii) are such that 

the costs, benefits, burdens, and reliability of 

energy * * * savings resulting from the State 

regulation make such regulation preferable or 

necessary when measured against the costs, 

benefits, burdens, and reliability of 

alternative approaches to energy * * * 

savings or production, including reliance on 

reasonably predictable market-induced 

improvements in efficiency of all products 

subject to the State regulation. 

The factors described in clause (ii) shall be 

evaluated within the context of the State’s 

energy plan and forecast, and, with respect 

to a State regulation for which a petition has 

been submitted to the Secretary * * * [42 

U.S.C. 6297(d)(1)(c)] 

In evaluating the evidence that a State 

regulation is needed to meet unusual 

and compelling State energy interests, 

the Department will consider the factors 

described in 42 U.S.C. 6297(d)(1)(C)(i) 

and (ii). It appears to the Department 

that in the context of residential 

furnaces and boilers, where regional 

climatic effects can have significant 

impact on whether a specified energy 

conservation standard would be 

technologically feasible and 

economically justified in that region, 

such regional climatic effects will be 

important in DOE’s assessment of 

whether there are ‘‘unusual and 

compelling State or local energy 

interests’’ for State energy conservation 

standards. States having higher-thanaverage, population-weighted heating 

degree days (HDDs) based on long-term 

National Oceanic and Atmospheric 

Administration data 6 would seem to 

have the best prospects for 

demonstrating ‘‘unusual and 

compelling’’ interests to support a 

waiver of preemption in the particular 

circumstances presented here.7 (In 

conducting its analysis, the Department 

used average heating degree days within 

a State to divide States into groups for 

purposes of assessing standards.) States 

with significantly higher heating 

requirements have significantly higher 

furnace use. This may indicate that, for 


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those States, a State energy conservation 

standard which is higher than the 

Federal standard would be cost-effective 

and would provide significantly more 

energy savings than the Federal 

standard. If those States, particularly the 

ones most severely affected, adopted 

standards higher than DOE’s proposed 

standards, and sought waivers, it could 

result in certain contiguous States with 

higher requirements, which would 

lessen the impact on manufacturers. 

Another way to address the benefits 

and costs of proposed State regulations 

with higher energy conservation 

standards would be for a State in its 

application for a waiver of preemption 

to identify the saturation of homes with 

products that already meet those higher 

standards. For example, a State could 

provide evidence that a significant 

percentage of gas furnaces sold today in 

that State already meets, for example, a 

90–percent–AFUE condensing standard. 

A State applying to DOE for a 

preemption waiver also could identify 

any subsidies and/or incentives, such as 

tax rebates or purchase price rebates, 

that the State or other entities are 

offering. To the extent States 

demonstrate that these programs have 

not worked, they may be able to show 

that ‘‘the costs, benefits, burdens, and 

reliability’’ of energy savings from 

mandatory State energy conservation 

regulations make such regulations 

preferable to their voluntary programs. 

EPCA section 327(d)(3) further 

provides that DOE may not grant a 

waiver if interested persons establish by 

a preponderance of the evidence that 

the State regulation would significantly 

burden manufacturing, marketing, 

distribution, sale, or servicing of the 

covered product on a national basis. (42 

U.S.C. 6297(d)(3)) In determining 

whether the State regulation meets this 

criterion, the Department must consider 

the extent to which the State regulation 

addresses several factors. 

The first factor is ‘‘the extent to which 

the State regulation will increase 

manufacturing or distribution costs of 

manufacturers, distributors, and others 

* * *.’’ (42 U.S.C. 6297(d)(3)(A)) In 

addressing this factor, a State seeking a 

waiver of federal preemption likely 

would want to address the extent to 

which manufacturers already produce 

and sell products that would meet the 

State’s proposed standard. This 

description also could include 

information describing how efficiencies 

of shipments to that State already vary 

from current DOE efficiency levels. 

The second factor is ‘‘the extent to 

which the State regulation will 

disadvantage smaller manufacturers, 

distributors, or dealers or lessen 

competition in the sale of the covered 

product in the State * * *.’’ (42 U.S.C. 

6297(d)(3)(B)) Similar to the prior factor, 

in addressing this factor, a State seeking 

a waiver of federal preemption might 

wish to provide evidence with its 

petition that demonstrates that there are 

no, or just insignificant, differences 

between small and large manufacturers 

with respect to producing and selling 

furnaces in that State. A State also could 

offer other evidence as to why its 

regulation would not disadvantage these 

entities or lessen competition, based on 

the particular circumstances in that 

State. For example, a State could seek to 

demonstrate that the differences (or lack 

of differences) between small and large 

manufacturers, with respect to 

producing and selling furnaces in that 

State, indicate that the regulation would 

not disadvantage the smaller 

manufacturers. 

The third factor is ‘‘the extent to 

which the State regulation would cause 

a burden to manufacturers to redesign 

and produce the covered product type 

* * *, taking into consideration the 

extent to which the regulation would 

result in a reduction (i) in the current 

models, or in the projected availability 

of models, that could be shipped on the 

effective date of the regulation to the 

State and within the United States; or 

(ii) in the current or projected sales 

volume of the covered product type 

* * * in the State and the United States 

* * *.’’ (42 U.S.C. 6297(d)(3)(c)) In 

addressing this factor, a State seeking a 

waiver of federal preemption might seek 

to demonstrate that high-efficiency 

heating equipment, such as condensing 

furnaces, already have achieved 

significant market shares in that State. 

In some relatively cold States with 

significant heating requirements, sales 

of condensing furnaces are reported to 

be on the order of 50 percent. A State 

also might wish to submit other 

information that addresses why it 

believes its regulation would not affect 

sales volumes or the number of models 

available (except for elimination of 

lower efficiency models). 

The fourth factor is ‘‘the extent to 

which the State regulation is likely to 

contribute significantly to a 

proliferation of State appliance 

efficiency requirements and the 

cumulative impact such requirements 

would have.’’ (42 U.S.C. 6297(d)(3)(D)) 

In addressing this factor, a State seeking 

a waiver from DOE may wish to seek to 

demonstrate, for example, the extent to 

which it has chosen identical standard 

levels as other States that have 

developed proposed regulations or 

States that have regulations already in 

place. 

An additional factor DOE must 

consider is the extent to which ‘‘the 

State regulation is likely to result in the 

unavailability in the State of any 

covered product type * * * of 

performance characteristics (including 

reliability), features, sizes, capacities, 

and volumes that are substantially the 

same as those generally available in the 

State * * *.’’ (42 U.S.C. 6297(d)(4)) A 

State seeking preemption waiver may 

wish to explain in its petition or 

accompanying documents why it 

believes its regulation would not affect 

the characteristics and features (other 

than efficiency) of the furnaces that 

would be offered for sale in that State. 

It might seek to demonstrate, for 

example, that among products currently 

offered for sale in that or other States, 

high efficiency furnaces already have all 

of the characteristics and features 

available in less efficient furnaces sold 

in that State. 

The Department recognizes that States 

have set, or are considering, standards 

for furnaces and that some may wish to 

seek a determination from DOE that 

their standards are needed to meet 

‘‘unusual and compelling State or local 

energy interests.’’ The Department 

encourages States to coordinate among 

themselves the submission of any 

waiver petitions they may wish to file. 

The Department will consider an 

aggregate petition from multiple States 

as long as the petition individually 

addresses the statutory criteria for each 

of the States. The Department believes 

the approach taken in evaluating the 

regional impacts of standards in its 

analysis represents a reasonable 

approach for estimating the national 

impacts of having a Federal standard 

and one or more higher State energy 

conservation standards for furnaces and 

boilers. All petitions for waivers also 

must comply with requirements as 

described in 10 CFR Part 430.41(a)(1). 

B. Test Procedures 

Section 7(b) of the Process Rule 

provides that the Department will 

propose necessary modifications to the 

test procedures for a product before 

issuing the proposed rule concerning 

energy conservation standards for that 

product. For furnaces and boilers, the 

Department believes modifications are 

not currently necessary, so it has not 

proposed to modify the existing test 

procedure. 

C. Technological Feasibility 

1. General 

The Department considers a design 

option to be technologically feasible if it 

is in use by the respective industry or 


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if research has progressed to the 

development of a working prototype. 

The Process Rule sets forth a definition 

of technological feasibility as follows: 

‘‘Technologies incorporated in 

commercial products or in working 

prototypes will be considered 

technologically feasible.’’ 10 CFR part 

430, Subpart C, Appendix A, section 

4(a)(4)(i). 

In each standards rulemaking, the 

Department conducts a screening 

analysis, which it bases on information 

gathered regarding existing technology 

options and prototype designs. In 

consultation with manufacturers, design 

engineers, and other stakeholders, the 

Department develops a list of design 

options for consideration in the 

rulemaking. Once the Department has 

determined that a particular design 

option is technologically feasible, it 

further evaluates each design option in 

light of the other three criteria in the 

Process Rule. 10 CFR part 430, Subpart 

C, Appendix A, section 4(a)(3) and (4). 

The three additional criteria are: (a) 

Practicability to manufacture, install, 

and service, (b) adverse impacts on 

product utility or availability, or (c) 

health or safety concerns that cannot be 

resolved. All design options that pass 

these screening criteria are candidates 

for further assessment. 

As discussed in the 2004 ANOPR, the 

Department is not considering the 

following design options because they 

do not meet one or more of the 

screening criteria: self-generation of 

electric power, fuel-driven heat pumps, 

flue-gas recirculation, and smart valves. 

69 FR 45387. In this notice, DOE has not 

changed the list of technology options 

that it screened out of the analysis. (See 

the Technical Support Document (TSD) 

accompanying this notice, Chapter 4.) 

Lennox, Carrier, Trane, York, NPGA, 

Alagasco, and MHI commented that the 

maximum efficiency level considered 

for non-condensing, non-weatherized 

gas furnaces should be 80-percent 

AFUE. They contended that, at 81- 

percent AFUE, there would be a 

significant increase of risk to the 

consumer because of an increased 

potential for vent-system failure. These 

comments cited concerns regarding 

corrosion in vents from condensation, 

and noted that conditions under which 

consumers use the product are much 

more severe than lab conditions. 

(Lennox, Public Meeting Transcript, No. 

59.8 at p. 27 and No. 79 at p. 1; Carrier, 

Public Meeting Transcript, No. 59.8 at p. 

188 and No. 68 at p. 1; Trane, Public 

Meeting Transcript, No. 59.8 at p. 227; 

York, No. 65 at p. 7; NPGA, No. 72 at 

p. 3; Alagasco, No. 82 at p. 2; and MHI, 

No. 89 at p. 4) NAIMA, OCC, and 

NJBPU disagreed with limiting 

consideration to an 80-percent-AFUE 

level. (NAIMA, No. 60 at p. 1; OCC, No. 

70 at p. 5; and NJBPU, No. 83 at p. 2) 

The Department has reviewed the 

manufacturer literature and found that 

products at 81-percent AFUE are 

available for sale. It believes the fact that 

such products are being offered for sale 

demonstrates that they are practicable to 

manufacture, install, and service and 

cannot be excluded from consideration 

in this rulemaking. 

The Department recognizes that this 

AFUE level of 81 percent may pose 

health or safety concerns in certain 

conditions, but it believes that the 

concerns can likely be resolved with 

proper equipment and venting system 

design, as discussed in section IV.B.3. 

Therefore, DOE considered 81-percent 

AFUE in its analysis for nonweatherized gas furnaces, and took into 

account the stakeholders’ concerns. 

The 2004 ANOPR analysis included 

non-weatherized gas furnaces at 82 and 

83-percent AFUE. However, because it 

is well understood that significant vent 

system corrosion problems, which can 

lead to potential safety issues, may exist 

at these efficiency levels for nonweatherized gas furnaces, the 

Department does not believe these 

products can be mass-produced and be 

reliable to install and service on the 

scale necessary to serve the relevant 

market by the effective date of the 

proposed standard. Therefore, DOE did 

not consider non-weatherized gas 

furnaces at 82 and 83-percent AFUE in 

the analysis for today’s proposed rule. 

The evaluated technologies all have 

been used (or are being used) in 

commercially available products or 

working prototypes. The designs all 

incorporate materials and components 

that are commercially available in 

today’s furnace and boiler supply 

market. The Department believes all of 

the efficiency levels evaluated in this 

notice are technologically feasible. 

2. Maximum Technologically Feasible 

Levels 

In developing today’s proposed rule, 

the Department followed the provisions 

of section 325(p)(2) of the Act, which 

states that, when the Department 

proposes to adopt, or to decline to 

adopt, an amended or new standard for 

each type (or class) of covered product, 

‘‘the Secretary shall determine the 

maximum improvement in energy 

efficiency or maximum reduction in 

energy use that is technologically 

feasible * * * .’’ The Department 

determined the maximum 

technologically feasible (‘‘max tech’’) 

efficiency level in the engineering 

analysis using the most efficient design 

parameters that lead to the creation of 

the highest equipment efficiencies 

achievable. (See TSD Chapter 6.) Table 

III.1 lists the max tech levels that the 

Department determined for this 

rulemaking. 

TABLE III.1.—MAX TECH LEVELS CONSIDERED IN FURNACE AND BOILER

RULEMAKING

Product class AFUE 

(%) 

Non-weatherized gas furnaces ..... 96 

Weatherized gas furnaces ............ 83 

Mobile home gas furnaces ........... 90 

Oil-fired furnaces .......................... 85 

Gas boilers ................................... 99 

Oil-fired boilers ............................. 95 

For all product classes, products with 

these efficiency levels already are being 

sold in small quantities. (There is one 

weatherized gas furnace listed in the 

GAMA directory at 82.8-percent AFUE.) 

No production models or prototypes of 

equipment at higher efficiency levels are 

currently available. For weatherized gas 

furnaces, the Department recognizes 

that the 83-percent-AFUE level may 

pose health or safety concerns in certain 

installations. DOE believes these 

concerns can be resolved with proper 

equipment and system design and 

proper installation. 

D. Energy Savings 

1. Determination of Savings 

The Department used its national 

energy savings (NES) spreadsheet to 

estimate energy savings from amended 

standards for furnaces and boilers. (The 

NES Spreadsheet Model is described in 

section IV.D of this notice.) The 

Department forecasted energy savings 

over the period of analysis (beginning 

with 2015, the year that amended 

standards would go into effect, and 

ending in 2038) for each trial standard 

level, relative to the base case. It 

quantified the energy savings 

attributable to amended energy 

conservation standards as the difference 

in energy consumption between the 

standards case and the base case. The 

base case represents the forecast of 

energy consumption in the absence of 

amended energy conservation 

standards. The base case considers 

market demand for more-efficient 

products; for example, in the case of 

non-weatherized gas furnaces, the base 

case forecasts an increase in the market 

share of condensing furnaces by 2015. 

The NES Spreadsheet Model 

calculates the electricity savings in ‘‘site 

energy’’ expressed in kilowatt-hours 


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8The Department conducted an energy price 

sensitivity analysis using EIA’s AEO2006. Section 

IV.C.4 provides further explanation and details of 

the energy price sensitivity analysis. 9 Greening, L.A., D.L. Greene, and C. Difiglio. 

Energy efficiency and consumption—the rebound 

effect—a survey. Energy Policy. 2000. 28: pp. 389–

401. 

10EIA, Price Responsiveness in the AEO2003 

NEMS Residential and Commercial Buildings 

Sector Models (p. 3). 

(kWh). Site energy is the energy directly 

consumed on location by the furnace or 

boiler. The Department reports national 

energy savings in terms of the source 

energy savings, which is the savings of 

the energy that is used to generate and 

transmit the energy consumed at the 

site. (See TSD, Chapter 10.) The 

Department derived these conversion 

factors, which change with time, from 

the EIA’s AEO2005.8

AGA commented that DOE should 

consider the ‘‘rebound effect’’ that may 

occur as a result of more intensive use 

of a more energy-efficient appliance, 

leading to higher energy consumption. 

(AGA, No. 54 at p. 3) ACEEE stated that 

the rebound effect has often been 

hypothesized, but actual field 

experience indicates that there is rarely 

a rebound effect resulting from use of 

more-efficient appliances. (ACEEE, No. 

84 at p. 13) 

The Department examined a summary 

of the literature regarding the rebound 

effect in relation to space heating 

equipment.9 Based on five studies 

chosen for their robust methodology, the 

summary concluded that, for a 100 

percent increase in fuel efficiency, 

values of ‘‘take-back’’ or rebound for 

space heating are between 10 and 30 

percent of the energy consumption 

savings. The National Energy Modeling 

System (NEMS), which is used for 

developing EIA’s AEO, incorporates a 

rebound effect for space heating. 

According to an EIA report,10 the 

rebound effect for the residential 

module in NEMS results in a 0.15 

percent increase in energy consumption 

for a 1 percent increase in efficiency. In 

keeping with EIA’s approach, the 

Department chose to apply a rebound 

effect of 15 percent (for a 100 percent 

increase in efficiency) in its analysis of 

furnace and boiler standards. That is, 

DOE reduced the calculated energy 

savings and associated emissions 

reductions by 15 percent. 

The take-back in energy consumption 

associated with the rebound effect 

provides consumers with increased 

value (e.g., a warmer indoor 

environment, since the increased 

efficiency enables consumers to use 

their heating equipment more 

intensively). The impact on consumers 

is thus the sum of the change in the cost 

of owning the heating equipment (i.e., 

life-cycle cost) and the increased value 

for the warmer indoor environment. 

However, the Department is unable to 

monetize this increase in consumer 

value in the LCC analysis. The 

Department believes that, if it were able 

to monetize the increased value to 

consumers added by the rebound effect, 

this value would be at least as great as 

the value of the foregone energy savings. 

For this analysis, the Department 

estimates that this value is equivalent to 

the monetary value of the energy 

savings that would have occurred 

without the rebound effect. Therefore, 

the economic impacts on consumers 

with or without the rebound effect, as 

measured in the LCC and NPV analyses, 

are the same. 

2. Significance of Savings 

Section 325 of the Act prohibits the 

Department from adopting a standard 

for a product if that standard would not 

result in ‘‘significant’’ energy savings. 

(42 U.S.C. 6295(o)(3)(B)) While the Act 

does not define the term ‘‘significant,’’

the U.S. Court of Appeals, in Natural 

Resources Defense Council v. 

Herrington, 768 F.2d 1355, 1373 (D.C. 

Cir. 1985), indicated that Congress 

intended ‘‘significant’’ energy savings in 

this context to be savings that were not 

‘‘genuinely trivial.’’ The energy savings 

for energy conservation standards at 

each of the trial standard levels 

considered in this rulemaking are 

nontrivial, and therefore the Department 

considers them ‘‘significant’’ within the 

meaning of section 325 of the Act. 

E. Economic Justification 

1. Specific Criteria 

As noted earlier, EPCA provides 

seven factors to be evaluated in 

determining whether an energy 

conservation standard is economically 

justified. (42 U.S.C. 6295(o)(2)(B)) The 

following sections discuss how the 

Department has addressed each of those 

seven factors in this rulemaking. 

a. Economic Impact on Manufacturers 

and Consumers. The Process Rule 

established procedures, interpretations, 

and policies to guide the Department in 

the consideration of new or revised 

appliance energy conservation 

standards. The provisions of the rule 

have direct bearing on the 

implementation of the manufacturer 

impact analysis (MIA). First, as 

provided in Section 10 of the Process 

Rule (Principles for the Analysis of 

Impacts on Manufacturers), the 

Department uses an annual-cash-flow 

approach in determining the 

quantitative impacts of a new or 

amended standard on manufacturers. 

This includes both a short-term 

assessment, based on the cost and 

capital requirements during the period 

between the announcement of a 

regulation and the time when the 

regulation becomes effective, and a 

long-term assessment. The impacts 

analyzed include INPV, cash flows by 

year, changes in revenue and income, 

and other measures of impact, as 

appropriate. Second, the Department 

analyzes and reports the impacts on 

different types of manufacturers, with 

particular attention to impacts on small 

manufacturers. Third, the Department 

considers the impact of standards on 

domestic manufacturer employment, 

manufacturing capacity, plant closures, 

and loss of capital investment. Finally, 

the Department takes into account 

cumulative impacts of different DOE 

regulations on manufacturers. 

For consumers, measures of economic 

impact include the changes in LCC and 

payback period for each trial standard 

level. As the Act sets forth, the LCC is 

one of the seven factors to be considered 

in determining economic justification. 

(42 U.S.C. 6295(o)(2)(B)(i)(II)) It is 

discussed in detail in the section below. 

ODOE commented that the simple 

payback period is not a useful metric, 

since it fails to take into account the 

rising costs of fuel. (ODOE, No. 61 at p. 

10) The Department uses simplepayback-period results as one of the 

factors in evaluating the economic 

impacts of standards on consumers, but 

it relies more heavily on the impacts on 

LCC to take into account the changing 

cost of fuel. 

b. Life-Cycle Costs. The LCC is the 

sum of the purchase price of equipment, 

including the installation, and the 

operating expense, including energy and 

maintenance expenditures, discounted 

over the lifetime of the equipment. 

Where possible in estimating the energy 

costs in the LCC calculation, DOE uses 

consumer marginal energy rates, which 

are the energy rates that correspond to 

incremental changes in energy use. 

For each furnace and boiler product 

class, the Department calculated both 

LCC and LCC savings for various 

efficiency levels. The LCC analysis 

estimated the LCC for representative 

equipment in housing units that are 

representative of the segment of the U.S. 

housing stock that uses furnaces and 

boilers. To account for uncertainty and 

variability in specific inputs, such as 

equipment lifetime and discount rate, it 

used a distribution of values with 

probabilities attached to each value. For 

each housing unit, DOE sampled the 

values of these inputs from the 

probability distributions. As a result, the 


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11The EIA approves the use of the name NEMS 

to describe only an AEO version of the model 

without any modification to code or data. Because 

the present analysis entails some minor code 

modifications and runs the model under various 

policy scenarios that deviate from AEO 

assumptions, the name NEMS–BT refers to the 

model as used here. For more information on 

NEMS, refer to The National Energy Modeling 

System: An Overview. DOE/EIA–0581 (98), 

February, 1998. BT is DOE’s Building Technologies 

Program. NEMS–BT was formerly called NEMS–

BRS. 

analysis produced a range of LCCs. A 

distinct advantage of this approach is 

that DOE can identify the percentage of 

consumers achieving LCC savings or 

attaining certain payback values due to 

an increased energy conservation 

standard, in addition to the average LCC 

savings or average payback for that 

standard. The Department gives the LCC 

savings as a distribution, with a mean 

value and a range. The Department 

assumed in its analysis that the 

consumer purchases the furnace or 

boiler in 2015. 

c. Energy Savings. While significant 

conservation of energy is a separate 

statutory requirement for imposing an 

energy conservation standard, the Act 

requires DOE, in determining the 

economic justification of a standard, to 

consider the total projected energy 

savings that are expected to result 

directly from the standard. (42 U.S.C. 

6295(o)(2)(B)(i)(III)) The Department 

used the NES Spreadsheet results in its 

consideration of total projected savings. 

d. Lessening of Utility or Performance 

of Products. In establishing classes of 

products, and in evaluating design 

options and the impact of potential 

standard levels, the Department aimed 

to develop standards for residential 

furnaces and boilers which would not 

lessen the utility or performance of the 

products under consideration in this 

rulemaking. (42 U.S.C. 

6295(o)(2)(B)(i)(IV)) None of the 

considered trial standard levels would 

reduce the utility or performance of 

furnaces and boilers. The efficiency 

levels considered in this rulemaking do 

not involve changes in equipment 

design or unusual installation 

requirements that could reduce the 

utility or performance of furnaces and 

boilers. 

e. Impact of Any Lessening of 

Competition. The Act directs the 

Department to consider any lessening of 

competition that is likely to result from 

standards. It directs the Attorney 

General to determine the impact, if any, 

of any lessening of competition likely to 

result from a proposed standard and to 

transmit such determination to the 

Secretary, not later than 60 days after 

the publication of a proposed rule, 

together with an analysis of the nature 

and extent of such impact. (42 U.S.C. 

6295(o)(2)(B)(i)(V) and (B)(ii)) The 

Department has transmitted a copy of 

today’s proposed rule to the Attorney 

General and has requested that the 

Department of Justice (DOJ) provide its 

determination on this issue. 

f. Need of the Nation To Conserve 

Energy. The non-monetary benefits of 

the proposed standard are likely to be 

reflected in improvements to the 

security and reliability of the Nation’s 

energy system—namely, reductions in 

the overall demand for energy will 

result in reduced costs for maintaining 

reliability of the Nation’s electricity 

system. The Department conducts a 

utility impact analysis to estimate how 

standards may impact the Nation’s 

needed power generation capacity. This 

analysis captures the effects of 

efficiency improvements on furnace 

electricity consumption, as well as 

impacts associated with the market shift 

from natural gas heating to electric 

heating that DOE estimates will occur at 

higher gas-furnace efficiency levels. 

This market shift more than offsets the 

electricity savings from more efficient 

furnace designs, resulting in an increase 

in projected generating capacity for the 

higher trial standard levels. 

The Department has determined that 

the energy conservation standards 

proposed today would result in 

reductions in greenhouse gas emissions. 

The Department quantified a range of 

primary energy conversion factors and 

estimated the emissions reductions 

associated with the generation displaced 

by the energy conservation standards. 

The Department reports the 

environmental effects of amended 

energy conservation standards at each 

trial standard level for this equipment in 

the TSD environmental assessment. 

g. Other Factors. The Act allows the 

Secretary of Energy, in determining 

whether a standard is economically 

justified, to consider any other factors 

the Secretary deems to be relevant. (42 

U.S.C. 6295 (o)(2) (B)(i)(VII)) Under this 

provision, the Department considered 

the potential for furnace and boiler 

standards to pose public health risks 

due to carbon monoxide release into the 

home as a result of venting system 

failure. 

2. Rebuttable Presumption 

As set forth in section 325(o)(2)(B)(iii) 

of EPCA, 42 U.S.C. 6295(o)(2)(B)(iii), 

there is a rebuttable presumption that an 

energy conservation standard is 

economically justified if the increased 

installed cost for a product that meets 

the standard is less than three times the 

value of the first-year energy savings 

resulting from the standard. However, 

although the Department examined the 

rebuttable-presumption criteria, it 

determined economic justification for 

the proposed standard levels through a 

more detailed analysis of the economic 

impacts of increased efficiency as 

described above, pursuant to section 

325(o)(2)(B)(i) of EPCA. (42 U.S.C. 

6295(o)(2)(B)(i)) The rebuttable 

presumption payback calculation is 

discussed in section IV.B.5 of this 

notice. 

IV. Methodology and Discussion of 

Comments 

The Department used spreadsheet 

models to meet certain objectives of the 

Process Rule for this rulemaking. It used 

the Engineering Spreadsheet to develop 

the relationship between cost and 

efficiency for furnaces and boilers and 

to calculate the simple payback for the 

purposes of satisfying the rebuttable 

payback requirements. The LCC 

Spreadsheet calculates the consumer 

benefits and payback periods for 

amended energy conservation 

standards. The National Impact 

Analysis Spreadsheet provides 

shipments forecasts and then calculates 

NES and NPV impacts of potential 

amended energy conservation 

standards. The Department also 

assessed manufacturer impacts, largely 

through the use of the Government 

Regulatory Impact Model (GRIM). 

Additionally, DOE estimated the 

impacts of residential furnace and boiler 

energy conservation standards on 

utilities and the environment. The 

Department used a version of EIA’s 

NEMS for the utility and environmental 

analyses. The NEMS model simulates 

the energy economy of the U.S. and has 

been developed over several years by 

the EIA primarily for the purpose of 

preparing the AEO. The NEMS produces 

forecasts for the U.S. that are available 

in the public domain. The version of 

NEMS used for appliance standards 

analysis is called NEMS–BT, and is 

primarily based on the AEO2005 

version with minor modifications.11 The 

NEMS offers a sophisticated picture of 

the effect of standards, since it accounts 

for the interactions between the various 

energy supply and demand sectors and 

the economy as a whole. 

The Department invites comments on 

the validity of the analytical methods 

used in this rulemaking and the 

appropriateness of the interpretation 

and use of the results of the analysis. 

A. Product Classes 

For this rulemaking, the Department 

initially considered the product classes 


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discussed in the 1993 ANOPR. In 1987, 

the Act set the initial Federal energy 

conservation standard, which covered 

furnaces, boilers, mobile home furnaces, 

and ‘‘small’’ furnaces. In the 1993 

ANOPR, the Department expanded the 

product classes to differentiate fuel 

type, heat transfer medium (i.e., hot 

water or steam for boilers), and outdoor 

and indoor installation suitability (i.e., 

weatherized or non-weatherized). Table 

IV.1 lists the product classes DOE 

initially considered in this rulemaking. 

TABLE IV.1.—PRODUCT CLASSES CONSIDERED IN FURNACE AND BOILER RULEMAKING

Product Characteristics 

Gas furnaces ............................................................................................ Non-weatherized and weatherized. 

Oil-fired furnaces ...................................................................................... Non-weatherized and weatherized. 

Mobile home furnaces .............................................................................. Gas and oil-fired. 

Electric resistance furnaces ..................................................................... Electric. 

Hot water boilers ...................................................................................... Gas and oil-fired. 

Steam boilers ............................................................................................ Gas and oil-fired. 

Based on the market assessment and 

stakeholder comments, the Department 

grouped the product classes into three 

categories for the analysis for today’s 

proposed rule. The first category 

consists of the most widely used 

product class, non-weatherized gas 

furnaces. 

The second category consists of those 

classes that have fewer shipments, but 

typically more than 100,000 per year: 

Weatherized gas furnaces, mobile home 

gas furnaces, non-weatherized oil-fired 

furnaces, hot-water gas boilers, and hotwater oil-fired boilers. The Department’s 

analysis of these product classes was 

similar to its analysis of nonweatherized gas furnaces. 

The third category includes product 

classes for which DOE did not perform 

analyses and is not proposing an 

amendment to the current standards for 

these products. This category includes 

steam gas boilers and steam oil-fired 

boilers, which have annual shipments 

below 40,000 units and show a 

declining trend of shipments. This 

category also includes weatherized oilfired furnaces, mobile home oil-fired 

furnaces, and electric furnaces. 

Weatherized oil-fired furnaces and 

mobile home oil-fired furnaces have 

very low shipments and are represented 

by only a few models in the GAMA 

directory; promulgating a higher 

standard for these products would result 

in de minimis energy savings. 

Additionally, all of the GAMA-listed 

models for weatherized oil-fired 

furnaces and mobile home oil-fired 

furnaces exceed the current 78-percentAFUE standard. Therefore, for these 

classes, DOE is not proposing an update 

of the existing standard. The 

Department did not consider electric 

furnaces since their efficiency 

approaches 100-percent AFUE and 

improvements to them would also have 

de minimis energy-savings potential. 

Therefore, for electric furnaces, DOE is 

not proposing a standard. 

B. Engineering Analysis 

The purpose of the engineering 

analysis is to characterize the 

relationship between efficiency and cost 

of furnaces and boilers. The Department 

used this efficiency/cost relationship as 

input to the payback period, LCC, and 

NES analyses. 

The engineering analysis develops 

data that can be used to establish the 

consumer price of more-efficient 

equipment. These data include 

manufacturing costs, markups, 

installation costs, and maintenance 

costs. 

To generate the manufacturing costs, 

the Department identified three basic 

methodologies: (1) The design-option 

approach, which provides the 

incremental costs of adding design 

options to a baseline model that will 

improve efficiency; (2) the efficiencylevel approach, which provides the 

incremental costs of moving to higher 

energy-efficiency levels, without regard 

to the particular design option(s) used to 

achieve such increases; and (3) the costassessment (or reverse-engineering) 

approach, which provides ‘‘bottom-up’’

manufacturing cost assessments for 

achieving various levels of increased 

efficiency, based on detailed data on 

costs for parts and material, labor, 

shipping/packaging, and investment for 

models that operate at particular 

efficiency levels. 

The Department began the 

manufacturing cost analysis by 

exploring how manufacturers would 

likely design products to perform at the 

various efficiency levels considered and 

to thoroughly understand the 

relationships between different 

equipment configurations and 

efficiency. The Department initially 

considered several design options that 

could meet each considered efficiency 

level. It selected the design option(s) it 

believed manufacturers would most 

likely implement to achieve a given 

considered energy efficiency level. To 

estimate the manufacturing costs of 

these design options, the Department 

relied primarily on the cost-assessment 

(or reverse-engineering) approach, but 

also used the design-option approach. 

To compare the total additional 

consumer cost of improved equipment 

efficiency, the Department defined a 

baseline design for each product class. 

The baseline model establishes the 

starting point for analyzing technologies 

that provide energy-efficiency 

improvement. Based on its market 

assessment and input provided by 

GAMA, the Department defined a 

baseline model as an appliance with an 

efficiency at the minimum level 

prescribed by EPCA (i.e., 78-percent 

AFUE for non-weatherized gas 

furnaces), and having commonly 

available features and technologies. 

The Department next determined 

markups, installation cost, and 

maintenance cost to complete the 

engineering analysis. It estimated 

markups using publicly available 

corporate and industry data and, for 

mobile home furnaces, data from MHI. 

To estimate installation costs, DOE 

created an Installation Model to assess 

venting costs, and verified it against 

known existing data. It estimated 

maintenance costs using publicly 

available industry data. 

Table IV.2 summarizes the approach 

and data DOE used to derive the inputs 

to the engineering analysis for the 2004 

ANOPR analysis, and the changes made 

in the analysis for today’s proposed 

rule. Discussion of the changes follows 

in the sections below. 


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TABLE IV.2.—APPROACH AND DATA USED TO DERIVE THE INPUTS TO THE ENGINEERING ANALYSIS

Input 2004 ANOPR analysis Proposed rule analysis 

Equipment Cost .................................................. For the most widely used efficiency levels, 

used a cost model of manufacturing costs 

created by tear-down analysis; for the remaining levels, used design-opinion analysis. Incorporated industry feedback from 

GAMA and individual manufacturers to generate manufacturing-cost-versus-efficiency 

curves.

Added cost of drip pan for condensing units. 

Some units omit a combustion air pipe. Updated underlying metal and cost data to 

2004 via Consumer Price Index. Did not 

consider design options at 82-percent and 

83-percent AFUE for non-weatherized gas 

furnaces due to potential safety hazards. 

Updated manufacturing-cost-versus-efficiency curves. 

Markups .............................................................. Derived markups from an analysis of corporate financial data. Multiplied manufacturing costs by manufacturer, distributor, 

contractor, and builder markups, and sales 

tax, as appropriate, to get equipment price.

No change. 

Installation Cost .................................................. Used a distribution of weighted-average installation costs from the Installation Model. 

Installation configuration are weight-averaged by frequency of occurrence in the 

field, and vary by installation size. The Installation Model is based on a commonly 

used cost-estimation method and is comparable to available, known data.

Same method; new assumption that all 81- 

percent AFUE gas furnaces use double wall 

vents. 

Maintenance Costs ............................................. Used Gas Research Institute data for gas furnaces and boilers, water heater rulemaking 

survey results for oil-fired equipment, and 

data from the 1993 rulemaking for mobile 

home furnaces.

Same sources, but accounted for higher 

maintenance frequency for modulating design option, and used same costs for condensing and non-condensing equipment. 

Annual Energy Use* ........................................... Calculated energy use using the DOE test 

procedure.** 

No change. 

Energy Prices* .................................................... AEO2003 forecast prices for year 2012 .......... AEO2005 forecast prices for effective date of 

2015. 

* Inputs required to calculate rebuttable-presumption payback period. For more details on the rebuttable-presumption payback period, refer to 

section IV.B.5. 

** The Department uses field-representative energy use values in the LCC and payback period analysis. Refer to section IV.C.3. for more 

details. 

The Department received comments 

concerning the efficiency levels it 

should consider in the engineering 

analysis. 

GAMA and Rheem expressed concern 

about producing an entire family of gas 

furnaces at 81-percent AFUE and 

suggested that, for some, and not all, 

furnace models within a given family, it 

is possible to design and produce units 

that can safely perform at the 81-percent 

level. They indicated that developing a 

complete family of furnaces, spanning 

the full range of capacities, in which all 

units could safely operate at 81-percent 

AFUE, would be difficult due to 

confining design and manufacturing 

procedures. (GAMA, Public Meeting 

Transcript, No. 59.8 at p. 177; Rheem, 

Public Meeting Transcript, No. 59.8 at p. 

179) In response to these comments, 

DOE conducted an analysis evaluating 

approaches necessary to manufacture a 

full line of product that can perform at 

81-percent AFUE and the additional 

costs involved for producing such a 

family of furnaces. 

To perform this analysis, the 

Department identified an approach to 

manufacturing an entire furnace family 

at 81-percent AFUE without posing 

unacceptable safety and reliability risks. 

The Department identified two potential 

cases for producing an entire family of 

81-percent AFUE non-weatherized gas 

furnaces, and the additional per-unit 

cost associated with each case. The 

Department based the estimates for both 

cases on manufacturer-provided data, 

which an independent consultant 

reviewed. The first case, estimate case 1, 

includes SKU cost (Stock Keeping Unit 

and customization development cost), 

parts cost increases, and vent connector 

cost; case 2, in addition to the above 

costs, assumes that a heat exchanger 

redesign cost would be needed. The 

estimated additional per-unit cost for 

producing a family of furnaces that can 

achieve reliable, safe operation at 81- 

percent AFUE is $47.20 for case 1 (the 

default case) and $88.70 for case 2. 

York asserted that DOE cannot set the 

proposed standard for mobile home 

furnaces above 80-percent AFUE, since 

section 325(o)(4) of EPCA, 42 U.S.C. 

6295(o)(4), provides that DOE may not 

prescribe an amended standard if ‘‘the 

standard is likely to result in the 

unavailability in the United States of 

any covered product type (or class) of 

performance characteristics (including 

reliability), features, sizes, capacities, 

and volumes that are substantially the 

same as those generally available in the 

United States.’’ York also stated that 

there are no non-condensing mobile 

home furnaces currently available on 

the market that exceed 80-percent 

AFUE. Additionally, York stated that 

their interpretation of this EPCA 

provision also applies to 90-percent 

AFUE units for mobile home furnaces. 

(York, No. 65 at p. 7) 

After considering the comments from 

York, DOE concluded that section 

325(o)(4) of EPCA, 42 U.S.C. 6295(o)(4), 

does not require it to set a new or 

amended energy conservation standard 

either at an efficiency level currently 

available in the U.S., or at an efficiency 

level that would ensure all products 

meeting the standard would have all of 

the attributes of currently available 

products. The ‘‘performance 

characteristics’’ and ‘‘features’’ referred 

to in section 325(o)(4) of EPCA, 42 

U.S.C. 6295(o)(4), do not include 

efficiency or energy-use levels. Rather, 

these terms refer to other types of 

product characteristics of concern to 

consumers, such as features affecting 

temperature control or user comfort. To 


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interpret section 325(o)(4) of EPCA, 42 

U.S.C. 6295(o)(4), otherwise would bar 

DOE from ever prescribing higher 

minimum standard levels, because any 

such higher levels necessarily result in 

new energy-efficiency-improving 

technologies incorporated into the 

product and the unavailability of 

products including less efficient 

technologies. This interpretation would 

be inconsistent with EPCA’s other 

provisions and its purpose of improving 

product efficiencies. Thus, the lack of 

currently available, non-condensing, 

mobile home furnaces above 80-percent 

AFUE does not mean that section 

325(o)(4) of EPCA, 42 U.S.C. 6295(o)(4), 

bars DOE from adopting a level higher 

than that as a minimum standard for 

this product class. Thus, DOE believes 

that section 325(o)(4) of EPCA, 42 U.S.C. 

6295(o)(4), does not preclude DOE from 

considering efficiencies for mobile 

home furnaces above a given level, such 

as 80-percent AFUE. As discussed in 

section III.C.2 above, DOE identified 90- 

percent AFUE as the maximum 

technologically feasible level for mobile 

home furnaces. The Department 

analyzed efficiency levels that include 

80-percent and 90-percent AFUE for 

mobile home furnaces and the results 

are presented in section V.C. 

1. Manufacturing Costs 

The Department adjusted its 

engineering cost model based on cost 

data received from several individual 

manufacturers, and used the model to 

create new cost-efficiency curves for the 

industry. The Department then used 

these cost-efficiency curves as 

manufacturing cost inputs for the MIA. 

Details of the MIA are in Chapter 12 of 

the TSD. 

Lennox, York, and GAMA commented 

that the cost of materials in the 2004 

ANOPR TSD was outdated. (Lennox, 

Public Meeting Transcript, No. 59.8 at p. 

66; York, No. 65 at p. 3; and GAMA, No. 

67 at p. 6) For the 2004 ANOPR 

engineering analysis, reviewed by 

manufacturers, the Department used a 

five-year average of material prices from 

years 2000 through 2004. In response to 

various comments, the Department 

reviewed material-cost data from the 

first quarter of 2005 and found prices 

higher than those in the reference 

scenario that it used in the 2004 ANOPR 

analysis. Based on the more recent data, 

DOE updated the five-year average 

prices used in the analysis for this 

notice and conducted a material price 

sensitivity analysis with two additional 

material-price scenarios. The reference 

case uses a revised five-year average of 

material prices from years 2000 through 

2004. The new prices of copper, 

aluminum, steel, and stainless steel 

reflect prices from the Bureau of Labor 

Statistics (BLS) Producer Price Indices 

(PPIs) spanning 2000–2004. The 

Department used the PPIs for copper 

rolling, drawing, and extruding, and for 

steel mill products, and adjusted them 

to 2004$ using the gross-domesticproduct implicit-price deflator. 

The Department created two scenarios 

for the material-price sensitivity 

analysis: a low-bound and a highbound. It calculated the low-bound 

scenario by finding the lowest price per 

pound of M6 core steel between 2000 

and 2004. The lowest price of M6 core 

steel on a per-pound basis occurred in 

2002. Then, DOE applied a 15-percent 

reduction to each of the raw material 

costs in that same year. It used these 

prices to determine their effect on the 

cost-efficiency relationship. Likewise, 

DOE calculated the high-bound scenario 

using the average price for each of the 

raw materials from the first quarter of 

2005, when prices of raw materials were 

uncharacteristically high. The 

Department evaluated the results of the 

material price sensitivity analysis, using 

all three material-cost scenarios, in the 

engineering analysis and then used 

them as inputs for the LCC analysis. The 

results for the material-price-sensitivity 

analysis are presented in Appendix Z of 

the TSD. 

GAMA stated that DOE’s cost estimate 

for modulating furnaces is about 30 

percent too low because of faulty 

assumptions regarding the cost of 

upgrading the controls. (GAMA, No. 67 

at p. 2) The Department reviewed its 

cost estimate for modulating furnaces. 

Based on market data, it determined that 

the cost of the components for the 

evaluated design (two-stage modulation) 

is slightly higher than the cost used in 

the ANOPR analysis. Consequently, the 

Department implemented this small 

change in price for the NOPR analysis. 

Carrier stated that improving 

efficiency with modulation assumes 

maintaining constant excess air when 

switching from high fire to low fire. 

Carrier further stated that a brushless, 

direct-current (DC) draft inducer motor 

is required to maintain constant excess 

air, so DOE should include the cost of 

brushless, DC draft inducers in its 

analysis. (Carrier, Public Meeting 

Transcript, No. 59.8 at p. 181) To some 

extent, DOE did this in the analysis for 

the 2004 ANOPR. Current modulating 

furnaces have a two-stage motor for the 

draft inducer, and DOE included the 

cost of this motor in analyzing the cost 

of achieving that level of efficiency. The 

Department has revised its analysis for 

the proposed rule to account for the cost 

of the two-stage modulation design 

option components, including the cost 

of the draft inducer as advocated by 

Carrier, for all products that achieve 

higher efficiencies using modulation. 

2. Markups 

Using the cost data, DOE developed 

estimates of the consumer price of 

furnaces and boilers. To estimate prices, 

DOE determined typical markups at 

each stage of the distribution chain, 

from the manufacturer to the consumer. 

In addition to estimating average 

markups, the Department characterized 

the markups with probability 

distributions through a statistical 

analysis of U.S. Census data and used 

these distributions in the LCC analysis. 

(See TSD, Chapter 5.) 

The Department estimated the 

manufacturer markup based on analysis 

of corporate financial records. It 

included the following expenses in the 

determination of the manufacturer 

markup: research and development 

(R&D), net profit, general and 

administrative costs, warranty expenses, 

taxes, and sales and marketing costs. It 

excluded shipping expenses (outbound) because these expenses were 

included in the manufacturing cost. The 

Department determined R&D expenses 

by assuming that engineering budgets 

would be reallocated from value 

engineering and new-feature 

development to product development 

and redesign. 

The Department based the wholesale 

and contractor markups on firm balance 

sheet data. It estimated builder markup 

(applied to new construction 

installations only) from U.S. Census 

data for the residential and commercial 

building construction industry and from 

heating, ventilating, and airconditioning (HVAC) industry data. The 

Department used recent State and local 

sales tax data to estimate sales taxes 

(applied to replacement installations 

only). 

For mobile home furnaces, the 

distribution chain is shorter than the 

distribution chains for other product 

classes. The heating equipment 

manufacturer sells to the manufactured 

housing maker, who installs the furnace 

at the factory. In this case, the 

Department estimated markups using 

information from MHI. 

The overall markups are lower for 

new construction installations than for 

replacement installations. For 

wholesalers and contractors, the markup 

on incremental costs (i.e., the costs over 

and above the costs for a baseline 

model) is lower than the markup on the 

baseline model cost. The reason is that 

only wholesalers’ and contractors’

profits and other operating costs 


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typically scale with the price they pay 

for the products they sell. Trane 

questioned the assumption that 

incremental markups should be lower 

than baseline markups. (Trane, Public 

Meeting Transcript, No. 59.8 at p. 147) 

AGA said that wholesalers, contractors, 

and builders will base markups not on 

incremental costs of the technology, but 

on the economic value of the product in 

the supply chain. (AGA, No. 78 at p. 4) 

The Department evaluated the markup 

chain and found that the markup on 

incremental costs is lower than the 

baseline markup for wholesalers and 

contractors, so the Department did not 

change its application of markups. (See 

TSD, Chapter 5.) 

3. Installation Costs 

The Department defines the 

installation cost as the expense to the 

consumer for professional installation of 

a furnace or a boiler. The installation 

cost is not part of the equipment’s retail 

price. The cost of installation covers all 

labor and material costs associated with 

the installation of a new unit or the 

replacement of an existing one, 

excluding the cost of the unit itself. For 

furnaces and boilers, the installation 

cost is typically the largest single 

component of the total cost to the 

consumer and is greater than the 

equipment price. 

The predominant part of the 

installation cost is the venting system. 

The American National Standards 

Institute (ANSI) standard Z21.47–1993 

defines four furnace and boiler 

categories (I–IV) with respect to the 

venting system. The categories are 

defined based on the operating pressure 

and temperature of the combustion 

gases inside the vent. Most noncondensing equipment falls into 

Category I (high temperature, negative 

pressure). Most condensing equipment 

falls into Category IV (low temperature, 

positive pressure), but some noncondensing boilers are in Category III 

(high temperature, positive pressure). 

Category III venting requires stainless 

steel material (AL29–4C) and sealed 

joints. 

The Department devoted considerable 

effort to identifying appropriate cost 

figures to use in its analysis. In the 

process, DOE found that there is no 

complete, up-to-date data source for 

installation costs for the product classes 

under consideration. Therefore, DOE 

developed its own Installation Model to 

determine installation costs for nonweatherized gas furnaces. The 

Department used RS Means, a wellknown construction-cost-estimation 

method, to develop labor costs, and 

obtained quotes from national 

distributors to develop material costs. 

The Installation Model weight-averages 

the detailed costs for a large variety of 

typical installations in the field, 

including both new construction and 

retrofit installations; single and 

multifamily housing; plastic, metal, and 

masonry chimney vents; single- and 

double-wall vent connectors; and 

common venting with other appliances. 

Chimney relining practices and 

orphaned water heaters are explicitly 

modeled. The Department modified 

certain assumptions to apply the 

Installation Model to oil-fired furnaces 

and gas- and oil-fired boilers. 

In their comments, Carrier, Lennox, 

Alagasco, and York addressed space 

constraints and other issues related to 

the cost of installing furnaces and 

boilers. Carrier stated that, in southern 

and western markets, many furnaces are 

installed in attics, and if the furnace is 

more than 21 inches wide, it will not fit 

into the attic through the attic access. 

(Carrier, Public Meeting Transcript, No. 

59.8 at p. 51) Lennox asked that the 

installation analysis account for nonconventional installations of very large 

units. (Lennox, Public Meeting 

Transcript, No. 59.8 at p. 75) Lennox 

commented that, with regard to oil-fired 

furnaces, because of the larger heat 

exchangers, the physical size of the 

furnace cabinet can cause space 

constraint problems. (Lennox, No. 79 at 

p. 2) Alagasco stated that DOE’s 

installation model underestimates costs 

associated with the installation of gas 

furnaces, especially for replacement 

markets. (Alagasco, No. 82 at pp. 1–2) 

Finally, York stated that, due to the 

large size of residences in some areas of 

the country, more than one furnace 

system may be installed in a dwelling, 

and installing or changing multiple 

systems has a different cost impact than 

changing or installing a single system. 

(York, Public Meeting Transcript, No. 

59.8 at p. 74) The Department’s 

Installation Model includes a wide 

variety of installation situations, as 

mentioned above, and accounts for most 

situations where space constraints may 

be an issue. 

a. Non-Weatherized Gas Furnaces. In 

the 2004 ANOPR, DOE estimated that 

eight percent of all installations of nonweatherized gas furnaces at 81-percent 

AFUE will require Category III venting. 

It based this estimate on the fact that if 

the steady-state efficiency of a noncondensing furnace exceeds 83 percent, 

it must be vented with a Category III 

venting system to prevent condensation 

problems. The Department arrived at the 

eight-percent value by considering the 

difference between the steady-state 

efficiency and the AFUE for actual 

models, based on the model information 

listed in the GAMA directory. Carrier 

and Lennox commented that the 

Department did not appropriately 

account for the fraction of 81-percentAFUE furnaces that would require 

Category III venting and recommended 

that the eight-percent number be raised 

considerably. (Lennox, Public Meeting 

Transcript, No. 59.8 at p. 89 and No. 79 

at p. 2; and Carrier, Public Meeting 

Transcript, No. 59.8 at p. 89) GAMA and 

Carrier stated that DOE’s approach 

underestimates the fraction of Category 

III models because there is at least 0.5- 

percent difference between the steadystate efficiency as measured by the DOE 

test procedure and as measured in the 

ANSI Z21.47 categorization test. (The 

ANSI Z21.47 test is applied by 

manufacturers to identify venting 

categories to develop information for the 

manufacturers’ installation manuals.) 

(GAMA, Public Meeting Transcript, No. 

59.8 at p. 85 and No. 67 at p. 5; and 

Carrier, Public Meeting Transcript, No. 

59.8 at p. 93 and No. 68 at p. 1) 

In the analysis for this proposed rule, 

DOE did not directly estimate the 

fraction of Category III models by 

considering the difference between the 

steady-state efficiency and the AFUE for 

actual models. For this analysis, DOE 

investigated existing models and 

manufacturers’ installation manuals. It 

determined that non-weatherized gas 

furnaces at 80- and 81-percent AFUE, 

when applied in vertical venting 

installations, fall into Category I. When 

81-percent-AFUE furnaces replace 80- 

percent-AFUE furnaces, a significant 

fraction of installations requires an 

update from a single-wall to a Type-B, 

double-wall vent connector. In the case 

of replacement installations, the 

Department added the cost of a Type-B, 

double-wall vent connector to 40- 

percent of the installations. When 

applied in horizontal venting 

installations, furnaces at 80 and 81- 

percent AFUE are either in Category III 

or are in Category I using a power 

venter. The cost for these two venting 

methods is similar. Since horizontal 

installations account for a negligible 

fraction of all non-condensing furnace 

installations (estimated at less than 0.1- 

percent), DOE did not include this type 

of installation in its analysis. 

Carrier, NPGA, and Lennox 

commented that lack of knowledge on 

the part of installers regarding proper 

installation practices for 81-percentAFUE furnaces could result in incorrect 

installation and unsafe conditions for 

the consumer. (Carrier, Public Meeting 

Transcript, No. 59.8 at p. 83; NPGA, No. 

72 at p. 4; and Lennox, No. 79 at p. 2) 

York and Alagasco stated that there are 


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issues regarding long-term safety, 

reliability, and performance of the 

Category III venting materials or systems 

available on the market today, and this 

is a major concern if thousands of 

installations across the country will 

require such systems. (York, No. 65 at 

p. 3; Alagasco, No. 82 at p. 2) Carrier, 

Rheem, and York commented that they 

do not offer Category III appliances, and 

stated that Category III venting is not 

used for 81-percent-AFUE models. 

(Carrier, Public Meeting Transcript, No. 

59.8 at p. 115; Rheem, Public Meeting 

Transcript, No. 59.8 at p. 117; and York, 

No. 65 at p. 3) The Department 

recognizes the stakeholders’ concerns. 

As discussed above, however, analysis 

for this proposed rule indicated that 

Category III venting would be required 

for a negligible fraction of installations 

of 81-percent-AFUE gas furnaces. 

Furthermore, based on the existing use 

of Category III venting, particularly for 

high-efficiency boilers, the Department 

believes that the relevant stainless steel 

materials (AL29–4C) would perform 

with an acceptable degree of safety and 

reliability for Category III furnaces. 

The ODOE commented that the 

assumed overall cost for condensing 

furnace installation is too high, as it 

fails to account for the expected growth 

in the share of condensing furnaces that 

are for the replacement market, and the 

relatively small installation cost for 

replacing a condensing furnace. (ODOE, 

No. 61 at pp. 7–8) NRDC noted that 

installation costs will decline when 

replacement of 90-percent-AFUE 

furnaces becomes widespread. (NRDC, 

No. 528 at p. 4) The Department 

adjusted its estimate of installation costs 

for condensing furnaces to account for 

a higher share of replacements in total 

installations of condensing furnaces in 

2015. With regard to the cost for 

replacing a condensing furnace, the 

Department did not find any new data 

to justify a change to the cost used in 

the 2004 ANOPR analysis. 

AGA stated that installation costs for 

condensing furnaces are incompletely 

represented in the 2004 ANOPR, since 

installation codes require that 

condensing appliances be provided with 

an auxiliary drain pan to prevent 

damage to building components in the 

event of a blockage in the condensate 

drain piping system, and an estimated 

40-percent of all condensing furnace 

installations need drain pans. (AGA, No. 

78 at p. 5) The Department adjusted its 

Installation Model to account for the use 

of drain pans in 40 percent of 

condensing furnace installations. 

In addition, the Department 

recognizes that some consumers may 

experience additional costs that exceed 

those used in the Department’s analysis 

to address necessary structural changes 

for installing a condensing furnace, 

primarily for the vent systems 

associated with non-weatherized gas 

furnaces and for mobile home gas 

furnaces at or above 90-percent-AFUE. 

The Department understands that, for 

some dwellings, it may be necessary to 

make ‘‘structural’’ changes, such as the 

removal or penetration of an interior 

wall, exterior wall, or roof, to 

accommodate new vent systems (and 

combustion air intakes). While the 

Department has no data to quantify the 

number of consumers that may be 

affected in this manner and the cost 

magnitude, it believes the possible cost 

impacts may be significant enough to 

warrant consideration in evaluating the 

adoption of a standard level that would 

require condensing technology. The 

Department invites comments on the 

number of consumers that may be 

affected by structural changes for 

installing a condensing furnace and the 

cost magnitude of any structural 

changes. 

b. Other Product Classes. For 

weatherized gas furnaces, the 

Department estimated the installation 

cost for the baseline model using data 

from Section 400 of the 2002 RS Means 

Mechanical Cost Data. The assumption 

that installation costs remain mostly 

constant as efficiency increases seems 

reasonable for single-package systems. 

The increases in size and weight for 

more-efficient systems are small relative 

to the large size and weight of the 

baseline model unit. 

For mobile home gas furnaces in new 

homes, installation costs are part of the 

equipment cost because mobile home 

gas furnaces are assembled in the 

factory rather than in the field. The 

Department included these factory 

assembly costs in the manufacturer 

markup. With respect to mobile home 

gas furnaces for replacement, the 

Department did not find any new data 

to estimate an installation cost, so it 

used the same approach as for newhome furnaces. 

York, GAMA, and MHI commented 

on venting issues related to mobile 

home furnaces. GAMA and York 

suggested that DOE did not sufficiently 

explore vent corrosion issues related to 

mobile home furnaces and weatherized 

furnaces in the 2004 ANOPR analysis. 

(GAMA, Public Meeting Transcript, No. 

59.8 at p. 228; and York, No. 65 at p. 

5) York, GAMA, and MHI noted that 

approved venting materials for Category 

III venting are not available for mobile 

home furnace installations. (York, No. 

65 at p. 5; GAMA, No. 67 at p. 6; and 

MHI, No. 89 at p. 3) York also stated 

that condensation and resulting 

corrosion must be considered for 

weatherized furnaces, along with the 

cost impact of materials having more 

corrosion-resistant properties. (York, 

No. 65 at p. 8) GAMA agreed with DOE 

that it is appropriate not to include 

venting costs for weatherized products, 

but stated that there is a need to capture 

the increased likelihood of heat 

exchanger and flue corrosion resulting 

in premature failure. (GAMA, No. 67 at 

p. 6) In conducting its analysis for this 

notice, DOE reviewed the issue of vent 

corrosion for mobile home furnace 

installations and included a cost to 

account for proper venting system 

installation. For weatherized furnaces, 

the Department reviewed corrosion 

issues and found that current models 

having an AFUE of up to 82 percent do 

not have special requirements to 

address corrosion issues. Therefore, the 

Department did not change its cost 

estimates for this product class for this 

proposed rule. 

For gas hot water boilers, the 2004 

ANOPR analysis used a uniform 

assumption that 20-percent of 

installations would require Category III 

venting at 80–84-percent-AFUE levels. 

GAMA, ACEEE, and AGA commented 

that the analysis should include a 

gradually increasing share of Category 

III venting as the AFUE rises. (GAMA, 

Public Meeting Transcript, No. 59.8 at p. 

111; ACEEE, Public Meeting Transcript, 

No. 59.8 at p. 113; and AGA, No. 78 at 

p. 5) GAMA asked that DOE’s analysis 

use GAMA’s data showing the fraction 

of gas hot water boiler models vented 

with Category III by efficiency level. 

(GAMA, Public Meeting Transcript, No. 

59.8 at p. 107) AGA stated that 

manufacturers’ installation instructions 

for a number of gas hot water boilers in 

the range of 83–84-percent AFUE do 

require Category III venting, and 

recommended that DOE consider these 

requirements. (AGA, No. 78 at p. 5) 

In the analysis for today’s proposed 

rule, DOE used data provided by GAMA 

on the fraction of installations at each 

efficiency level that would require 

Category III venting. The Department 

also conducted a sensitivity analysis 

using similar assumptions as in the 

2004 ANOPR. This analysis reflected 

current construction practices, which 

use Category III venting for horizontal 

venting installations at all efficiency 

levels. 

GAMA and ACEEE commented that 

DOE should further investigate 

installation practices for oil-fired 

equipment at various efficiency levels. 

(GAMA, Public Meeting Transcript, No. 

59.8 at pp. 112 and No. 67 at p. 4; and 

ACEEE, No. 53 at p. 6) ACEEE stated 


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12Although the Department conducted an energy 

price sensitivity analysis using EIA’s AEO2006, it 

did not perform a sensitivity analysis to determine 

the effect of AEO2006 energy prices on the 

rebuttable-presumption payback period. 

that DOE’s analysis for oil systems does 

not fully account for the fact that 

exhaust from oil systems is generally at 

a higher temperature and has lower 

moisture content than exhaust from gas 

systems. (ACEEE, No. 84 at p. 11) 

Carrier urged DOE to perform vent 

condensation analyses on higherefficiency oil furnace designs. (Carrier, 

No. 68 at p. 4) 

The 2004 ANOPR analytical approach 

for oil-fired furnaces assumed that all 

installations of 83-percent-AFUE, or 

lower efficiency, equipment would be 

vented using Type L vents, and all 

installations of 84-percent-AFUE, or 

higher efficiency, equipment would be 

vented using 316-grade stainless steel 

vent systems. For this notice, the 

Department consulted Brookhaven 

National Laboratory and other experts, 

and also reviewed the National Fire 

Protection Association (NFPA) 

standards NFPA–31 Standard for the 

Installation of Oil-Burning Equipment 

and NFPA–11 Standard for Chimneys, 

Fireplaces, Vents, and Solid FuelBurning Appliances. The analysis for 

today’s proposed rule has taken into 

consideration the NFPA–31 standard, 

which provides that Type L vents can be 

used safely with products of up to 88 

percent, steady-state efficiency (or 87- 

percent AFUE), depending on the vent 

configurations and equipment size. The 

Department used a gradual increase in 

the number of 316-grade stainless steel 

vent installations from zero percent at 

80–82-percent AFUE to 100-percent at 

86-percent AFUE. The mid-point of the 

range is 50 percent at 84-percent AFUE. 

This assumption accounts for the 

NFPA–31 recommendations at the 

upper end of the range. The Department 

used a similar approach for oil-fired 

boilers, but shifted the above AFUE 

values upward by one AFUE efficiency 

point, in accordance with the NFPA–31 

standard. The approach DOE used in 

this proposed rule accounts for the fact 

that exhaust from oil systems is 

generally at a higher temperature and 

has lower moisture content than exhaust 

from gas systems. It also addresses vent 

condensation on higher-efficiency, oilfired furnace designs. 

4. Maintenance Costs 

Maintenance costs are the costs of 

regular maintenance of a furnace or 

boiler when it fails, including all 

associated labor and material costs. For 

non-weatherized and weatherized gas 

furnaces and gas boilers, in the 2004 

ANOPR analysis, DOE used data on the 

cost and frequency of maintenance that 

were provided in the Gas Research 

Institute (GRI)-94/0175 topical report 

Assessment of Technology for 

Improving the Efficiency of Residential 

Gas Furnaces and Boilers. The 

Department used this information to 

estimate required minimum 

maintenance frequencies of once every 

five years for all equipment without 

modulation, and once every four years 

for all equipment with modulation, to 

account for the greater complexity of the 

modulation feature. For oil-fired 

furnaces and oil-fired boilers, DOE 

applied the results of a survey 

performed for its previous water heater 

rulemaking. For mobile home furnaces, 

DOE used data from the Technical 

Support Document: Energy Efficiency 

Standards for Consumer Products, DOE/ 

EE–0009, published in November 1993. 

(See TSD, Chapter 6.) 

The ODOE and York stated that the 

GRI data DOE used are outdated. 

(ODOE, No. 61 at p. 9; and York, No. 65 

at p. 6) GAMA stated that maintenance 

costs should at least scale with the cost 

of the product, if not meet some other 

more rigorous assumption. (GAMA, 

Public Meeting Transcript, No. 59.8 at p. 

165) ODOE commented that, unless 

DOE can provide data that support its 

contention that the maintenance costs 

vary proportionally to the efficiency of 

the furnace, using the same 

maintenance costs would be appropriate 

for all furnaces. (ODOE, No. 61 at p. 9) 

In its review of these comments, DOE 

confirmed that maintenance frequency, 

and therefore cost, does not necessarily 

vary with AFUE. Rather, the greater 

complexity of the modulation feature 

causes furnaces with this feature to 

require more frequent maintenance and 

thus incur higher maintenance costs. 

The ODOE disagreed with how the 

2004 ANOPR analysis represented 

maintenance costs for condensing 

equipment in terms of maintenance 

contracts. (ODOE, No. 61 at p. 9) In the 

2004 ANOPR, DOE used a value for 

condensing equipment from the GRI 

report that represented the cost of a 

service contract that includes a 

specified set of routine repairs. In the 

analysis for this notice, the Department 

compared maintenance instructions for 

non-condensing and condensing gas 

furnaces from manufacturers’ manuals, 

researched RS Means literature for 

maintenance differences between noncondensing and condensing gas 

furnaces, and collected opinions from 

several furnace installation and 

maintenance experts. It found, as 

asserted by ODOE, that annual 

maintenance contracts are not 

commonly applicable to condensing gas 

furnaces, and it did not find evidence of 

differences in maintenance 

requirements between condensing and 

non-condensing designs. Thus, in 

accordance with ODOE’s comment, the 

Department used the same maintenance 

cost data for condensing and noncondensing furnaces, and it applied the 

same considerations to gas boilers. 

5. Rebuttable-Presumption Payback 

Period 

Section 325(o)(2)(B)(iii) of the Act 

establishes a rebuttable-presumption 

that a standard is economically justified 

if the Secretary finds that ‘‘the 

additional cost to the consumer of 

purchasing a product complying with 

an energy conservation standard level 

will be less than three times the value 

of the energy * * * savings during the 

first year that the consumer will receive 

as a result of the standard, as calculated 

under the applicable test procedure 

* * *.’’ (42 U.S.C. 6295(o)(2)(B)(iii)) 

The Department defines the 

rebuttable-presumption payback period 

as the length of time it takes the 

consumer to recover the higher installed 

cost of more-energy-efficient equipment 

through lowering operating costs. 

Numerically, the rebuttablepresumption payback period is the ratio 

of the increase in total installed cost 

(including the purchase price and 

installation cost) to the decrease in 

operating expenses (including 

maintenance). Energy expenses are the 

primary component of operating 

expenses. The Department determines 

the changes in total installed cost and 

operating expenses relative to the 

baseline for each product class (i.e., the 

current standard level). Energy-expense 

savings are the first year’s energy 

savings multiplied by the average 

energy prices forecast for the year in 

which a new standard is expected to 

take effect—in this case, the year 2015. 

The Department used energy price 

forecasts from the AEO2005 to estimate 

the energy price in the year 2015.12 To 

calculate energy-expense savings at each 

efficiency level, the Department uses the 

DOE test procedure for calculating 

annual energy consumption. (See TSD, 

Chapter 6.) 

C. Life-Cycle Cost and Payback Period 

Analysis 

In response to the requirements of 

section 325(o)(2)(B)(i) of the Act, the 

Department conducted an LCC and 

payback period analysis to evaluate the 

economic impacts of possible new 

furnace and boiler energy conservation 

standards on individual consumers. 

This section of this notice describes the 


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LCC and payback period analysis. The 

Department conducted the analysis 

using a spreadsheet model developed in 

Microsoft (MS) Excel for Windows 2000 

or XP. (See TSD, Chapter 8.) 

The LCC is the total consumer 

expense over the life of the furnace or 

boiler, including purchase and 

installation expense and operating costs 

(energy expenditures and maintenance 

costs). To compute LCCs, the 

Department discounted future operating 

costs to the time of purchase and 

summed them over the lifetime of the 

furnace or boiler. The payback period is 

the change in purchase expense due to 

an increased efficiency standard, 

divided by the change in annual 

operating cost that results from the 

standard. Otherwise stated, the payback 

period is the number of years it would 

take for the consumer to recover the 

increased costs of a higher-efficiency 

product through energy savings. 

The Department measures the change 

in LCC and the change in payback 

period associated with a given 

efficiency level relative to a base case 

forecast of equipment efficiency. The 

base case forecast reflects the market in 

the absence of amended mandatory 

energy conservation standards. It 

depicts the current status of the market, 

including the existing demand for 

products that exceed the current energy 

conservation standards. 

The Department calculated the LCC 

and payback periods for a nationally 

representative set of housing units. It 

selected the representative sample of 

households from EIA’s Residential 

Energy Consumption Survey (RECS). 

Whereas the 2004 ANOPR used the 

1997 RECS, the analysis for today’s 

proposed rule used the 2001 survey 

(RECS 2001), which are the most recent 

data available. For each sampled 

household, DOE determined the energy 

consumption and energy price for either 

a furnace or a boiler. Thus, by using a 

representative sample of households, 

the analysis allowed for the capture of 

the wide variability in energy 

consumption and energy prices 

associated with furnace and boiler use. 

The Department determined the LCCs 

and payback periods for each sampled 

household using the furnace or boiler 

energy consumption and energy price 

unique to each household, as well as 

other input variables. As discussed 

below, DOE characterized the other 

input variables with probability 

distributions. The Department 

calculated the LCC associated with the 

baseline furnace or boiler in each 

household. To calculate the LCC savings 

and payback period associated with 

more-efficient equipment (i.e., 

equipment meeting higher efficiency 

standards), DOE substituted the baseline 

unit with a more efficient design. 

Inputs for determining the total 

installed cost include equipment 

prices—which account for manufacturer 

costs, manufacturer markups, 

distributor and wholesaler markups, 

builder or contractor markups, and sales 

taxes—and installation costs. Inputs for 

determining operating expenses include 

annual household energy consumption, 

marginal natural gas and electricity 

prices, natural gas and electricity price 

projections, maintenance costs, 

equipment lifetime, discount rates, and 

the year standards take effect. 

To account for uncertainty and 

variability in certain inputs, the 

Department created distributions of 

values with probabilities attached to 

each value. Of the listed installed cost 

inputs, DOE characterized the 

manufacturer, dealer, distributor, and 

builder markups, as well as the sales tax 

and installation price, with 

distributions. Of the operating cost 

inputs, it characterized the discount rate 

and the equipment lifetime with 

distributions. For each housing unit, 

DOE sampled and randomly selected 

the values of these inputs from the 

distributions, according to their 

probability. With regard to energy 

consumption and energy price, as noted 

earlier, DOE determined unique values 

for each sampled household. Although 

DOE did not characterize energy 

consumption and energy price with 

probability distributions, it captured the 

variability of these inputs by using a 

representative set of households in the 

LCC and payback period analysis. The 

LCC and Payback Period Model uses a 

Monte Carlo simulation to incorporate 

uncertainty and variability into the 

analysis when combined with Crystal 

Ball (a commercially available software 

program). The Monte Carlo simulations 

sampled input values randomly from 

the probability distributions. The model 

calculated the LCC and payback period 

for each design option for 10,000 

housing units per simulation run. 

AGA commented that it appeared 

DOE was using Monte Carlo analysis for 

variables that are independent and for 

which DOE did not account for the 

correlation. (AGA, No. 54 at p. 3) For 

those variables that it characterized with 

probability distributions, DOE had no 

evidence to suggest that any of the 

variables—for example, discount rates 

and equipment lifetime—were 

correlated with each other. Thus, DOE 

assigned the discount rate associated 

with any given household based on its 

probability of occurrence, without 

consideration of the assumed lifetime 

for the furnace or boiler in that 

household. In the case of energy 

consumption and energy price, because 

DOE determined unique values for each 

sampled household rather than 

assigning them using probability 

distributions, it in effect correlated 

energy consumption and energy price 

for each household. 

AGA also said that probability 

distributions for a number of variables 

used in the uncertainty analysis appear 

to be unjustified by data. (AGA, No. 54 

at p. 2) In constructing probability 

distributions for the variables, the 

Department used the most recent data 

from multiple sources (See TSD, 

Chapters 7 and 8). The Department 

reviewed the data used to develop the 

probability distributions for all of the 

variables. The Department believes that 

the distributions are supported by the 

available data. 

GAMA commented that the LCC 

analysis should include financing costs, 

since many consumers use some form of 

credit to purchase a furnace or boiler. 

(GAMA, Public Meeting Transcript, No. 

59.8 at p. 153) The Department 

implicitly accounts for financing costs 

in its application of discount rates. As 

discussed in section IV.C.7, the discount 

rate for equipment purchased as part of 

a new home is based on mortgage rates, 

and the discount rate for replacement 

equipment considers interest rates for a 

number of loan and credit types. Using 

these rates, the discounted sum of 

annual payments on a loan or credit 

amount would be equal to the total 

installed cost if it were paid in full at 

the time of purchase. Therefore, the 

Department believes it is not necessary 

to separately account for financing 

costs. 

Table IV.3 summarizes the approach 

and data DOE used to derive the inputs 

to the LCC and payback period 

calculations for the 2004 ANOPR, and 

the changes it made for today’s 

proposed rule. Discussion of the inputs 

and the changes follows in the sections 

below. 


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TABLE IV.3.—SUMMARY OF INPUTS AND KEY ASSUMPTIONS USED IN THE LCC AND PAYBACK PERIOD ANALYSES

Inputs 2004 ANOPR description Changes for proposed rule 

Affecting Installed Costs 

Equipment Price ................................................. Derived by multiplying manufacturer cost by 

manufacturer, distributor, contractor, and 

builder markups and sales tax, as appropriate.

No change. 

Installation Cost .................................................. Used a distribution of weighted-average installation costs from the Installation Model. 

Weight-averaged installation configuration 

by frequency of occurrence in the field.

No change. 

Affecting Operating Costs 

Maintenance Costs ............................................. Used GRI data for gas furnaces and boilers, 

water heater rulemaking survey results for 

oil-fired equipment, and data from the 1993 

rulemaking for mobile home furnaces.

Same sources, supplemented with new information that indicates higher maintenance 

frequency for modulating equipment, and 

identical maintenance costs for condensing 

and non-condensing equipment (See TSD, 

Chapter 5). 

Annual Heating Load .......................................... Calculated heating and cooling loads using 

1997 RECS data. Assumed the furnace 

input capacity versus airflow capacity based 

on the vintage of the equipment and characteristics of each house.

Calculated heating loads using 2001 RECS 

data (cooling loads not considered). Incorporated adjustment to account for change 

in new home size and shell performance 

between 2001 and 2015 (See TSD, Chapter 7). 

Annual Energy Use ............................................ Used 26 virtual models that captured the 

range of common furnace sizes. Energy 

calculations used annual heating load for 

each housing unit.

Same method, using RECS 2001 data. 

Energy Prices * ................................................... Calculated 1998 average and marginal energy 

prices for each sample house. Used 

AEO2003 forecasts to estimate future average and marginal energy prices.

Calculated 2001 average and marginal energy 

prices for each sample house. Used 

AEO2005 forecasts to estimate future average and marginal energy prices. 

Affecting Present Value of Annual Operating Cost Savings 

Lifetime ............................................................... Used 2001.58(9) Appliance Magazine survey 

results.

Same, except for boilers, for which DOE developed new estimates based on a literature review (See TSD, Chapter 8). 

Discount Rate ..................................................... Applied data from 1998 Survey of Consumer 

Finances and other sources to estimate a 

discount rate for each house. (See ANOPR 

TSD, Chapter 8).

Same sources; used more recent data (See 

TSD, Chapter 8). 

* The Department used the AEO2006 forecasts to estimate future average and marginal energy prices for the energy price sensitivity analysis. 

Section IV.C.4. provides further explanation of the rationale and methodology for the energy price sensitivity analysis. 

1. Equipment Prices 

As described in section IV.B.1 above, 

the Department determined 

manufacturing costs reflecting different 

efficiency levels using a reverseengineering cost analysis for one size of 

equipment representative of each 

product class. To derive the 

manufacturing costs for other sizes of 

furnaces and boilers, DOE scaled the 

costs from the sizes used in the 

engineering analysis. 

To develop a range of equipment sizes 

for non-weatherized gas furnaces that 

represent the majority of combinations 

of input capacity and nominal 

maximum airflow, the Department 

developed generic models to represent 

26 different combinations of those two 

variables. The Department derived the 

models from baseline models with the 

most commonly occurring input 

capacities and corresponding maximum 

nominal airflow rates. To develop the 

manufacturing cost for each model, DOE 

took the cost from the engineering 

analysis for a model with a typical 

capacity, scaled the cost for other input 

capacities, and adjusted costs for 

furnaces with different-size blowers. 

For the analysis of weatherized gas 

furnaces, DOE used the same generic 

models as in the analysis of nonweatherized gas furnaces. For the 

analysis of mobile home furnaces, the 

Department used a subset of those 

models. For the analysis of oil-fired 

furnaces and gas- and oil-fired boilers, 

the Department used a number of 

different sizes derived from the 

distribution of models in the GAMA 

March 2005 directory. For all of these 

product classes, DOE scaled the cost for 

each input size from the cost identified 

for a typical model for the specific 

product class in the engineering 

analysis. 

The Department applied markups to 

the manufacturer cost of each virtual 

model to arrive at the equipment price 

paid by the purchaser. It determined 

markups on each stage of the 

distribution chain from the 

manufacturer to the consumer. (See 

TSD, Chapter 5.) In addition to 

estimating average markups, the 

Department characterized the markups 

with probability distributions through a 

statistical analysis of U.S. Census data. 

The markups assigned to units in the 

new construction subsample include a 

builder markup. The markups assigned 

to units in the replacement equipment 

subsample include sales taxes. The 

Department determined that the markup 


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for wholesalers and contractors on 

incremental costs for higher efficiency 

equipment is lower than the markup on 

the cost of a baseline model. Thus, for 

calculating the equipment cost of 

baseline equipment, the Department 

used the distribution of baseline 

markups. For the incremental cost of 

equipment at efficiency levels above the 

baseline, the Department applied 

incremental markups. 

2. Installation Costs 

The LCC and payback period analysis 

drew on the engineering analysis for 

installation costs at various efficiency 

levels. The Department assigned each 

household an installation cost from a 

distribution of weight-averaged values. 

For non-weatherized gas furnaces, oilfired furnaces, and gas- and oil-fired 

boilers, DOE calculated the distribution 

using its Installation Model. For 

weatherized gas furnaces, DOE used 

calculations based on the RS Means 

approach to determine a mean value 

and assigned a triangular distribution of 

±15-percent around the mean. For 

mobile home furnaces, it included the 

installation cost in the manufacturer 

markup. 

3. Household Annual Energy 

Consumption 

The Department calculated furnace 

fuel and electricity use by considering 

how furnaces operate in the sample 

housing units. (See TSD, Chapter 7.) 

While the AFUE measure does not 

consider electricity use, it is necessary 

to include it in the LCC analysis because 

both fuel and electricity consumption 

change with AFUE and these changes 

together determine the overall energy 

savings. The Department recognizes that 

the heat from a furnace blower 

contributes to heating the conditioned 

space. It included this effect in its LCC 

analysis to capture all operating 

expenses and completely evaluate the 

impact of new furnace standards on 

consumers. 

The LCC and payback period analysis 

calculated furnace and boiler energy 

consumption under field conditions for 

a representative sample of housing 

units. These conditions included the 

climate conditions during the heating 

season and the size of the house, which 

influence the number of hours the 

equipment operates. 

The calculation of furnace or boiler 

energy consumption required an 

estimate of the annual heating load for 

each housing unit (the amount of heat 

needed to keep it comfortable over an 

entire year). Determining the annual 

heating load for a housing unit required 

making assumptions about its size and 

construction, thermal efficiency, and 

geographical location. In the 2004 

ANOPR analysis, DOE used data 

associated with the sample houses from 

the 1997 RECS. North Star Energy 

Group (NSEG) and Lennox commented 

that DOE’s estimation of heating loads 

should account for improvement in 

thermal shells and changes in home size 

that are likely by the effective date of 

new standards. (NSEG, Public Meeting 

Transcript, No. 59.8 at p. 195; Lennox, 

Public Meeting Transcript, No. 59.8 at p. 

166) In the analysis for today’s proposed 

rule, the Department adjusted heating 

loads calculated for new construction 

housing units using data from AEO2005 

that projected changes in the thermal 

efficiency and the floor area of new 

houses. While thermal efficiency is 

projected to improve somewhat, the 

impact on heating load is roughly 

balanced by an expected increase in 

floor area. The Department applied 

these adjustment factors to the 

calculated heating loads for those RECS 

houses designated as representative of 

new houses. 

Determination of the energy 

consumption of the equipment installed 

in each sampled housing unit also 

required estimating the input capacity 

and efficiency of the existing furnace. 

The Department then calculated how 

much energy furnaces with various 

improved designs would need to meet 

the heating load of the sampled housing 

unit. 

The Department received several 

comments suggesting that it re-examine 

its 2004 ANOPR calculation of the 

energy consumption impacts of twostage modulation. (GAMA, Public 

Meeting Transcript, No. 59.8 at p. 177; 

Individual, Public Meeting Transcript, 

No. 59.8 at p. 183; Lennox, Public 

Meeting Transcript, No. 59.8 at p. 152; 

York, No. 65 at p. 3; Carrier, No. 68 at 

p. 68; AGA, No. 78 at p. 4; and 

Alagasco, No. 82 at p. 2) For today’s 

proposed rule, DOE took into account 

these comments and revised the energy 

consumption calculation. It used the 

2004 public review draft of the 

proposed update of the American 

Society of Heating, Refrigerating and 

Air-Conditioning Engineers (ASHRAE) 

SPC 103 test procedure, ‘‘Method of 

Testing for Annual Fuel Utilization 

Efficiency of Residential Central 

Furnaces and Boilers,’’ which accounts 

for the effects of two-stage modulation. 

The results now show that this design 

option does not provide efficiency 

benefits unless an electronically 

commutated blower motor is used. 

ACEEE and ODOE commented that 

DOE’s electricity consumption results in 

the 2004 ANOPR LCC analysis appear to 

be inconsistent with the data on average 

annual auxiliary electricity 

consumption (Eae) as reported in the 

GAMA directory of models. (ACEEE, 

No. 53 at p. 3; and ODOE, No. 61 at p. 

4) For this proposed rule, DOE revised 

its approach for calculating electricity 

consumption for the LCC analysis. It 

based the revised calculations on data 

on the most current manufacturer 

product literature. (See TSD, Chapter 7) 

The resulting electricity consumption 

values are consistent with the data in 

the GAMA directory. 

4. Energy Prices 

The Department used average energy 

prices to calculate the energy costs of 

the base-case equipment and marginal 

energy prices for the cost of saved 

energy associated with higher-efficiency 

equipment. Marginal energy prices 

reflect a change in a consumer’s bill 

associated with a change in energy 

consumed, and thus such prices capture 

the value of the increment of energy 

saved as a result of standards. Consumer 

gas bills typically have multiple rates—

a base rate for the first block of gas used 

and different rates for further 

increments. Increased efficiency will 

impact the gas use at the rate applied to 

the last incremental consumption. For 

oil-fired furnaces and boilers, as well as 

gas furnaces using liquefied petroleum 

gas (LPG), the Department used average 

fuel prices for both base-case and 

higher-efficiency equipment, since 

consumers typically purchase fuel oil 

and LPG in bulk amounts, and the 

energy saved is based on the price paid 

for the bulk amount. 

For each household sampled from the 

RECS database, DOE identified the 

average gas and electricity prices either 

from that household’s data, if available, 

or from another household in the same 

Census division for which both prices 

were available. The Department 

estimated marginal energy prices from 

the RECS monthly billing data. The 

estimated marginal prices are very close 

to average prices. The Department 

invites comments on the methodology 

and data it used to determine marginal 

energy prices. 

As in past rulemakings, the 

Department used price forecasts by the 

EIA to estimate the future trend in 

energy prices. It multiplied the average 

or marginal prices by the forecasted 

annual price changes in the Reference 

Case forecast in AEO2005. 

EIA published its Annual Energy 

Outlook for 2006, AEO2006, after DOE 

had completed much of the analysis for 

this proposed rule. While the energy 

price forecast in AEO2006 did not 

change substantially for electricity after 


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2015, the effective date of this 

rulemaking, the natural gas price 

forecasts were significantly different 

when compared to the energy price 

forecast in AEO2005. The natural gas 

price forecasts in the AEO2005 are 

consistently lower by an average of 

$1.40 after 2015 than the natural gas 

price forecasts in the AEO2006. The oil 

price forecasts in the AEO2005 are 

consistently lower by an average of 

$4.60 after 2015 than the oil price 

forecasts in the AEO2006 by an average 

of $4.60 after 2015. On average, the 

AEO2006 forecasts show approximately 

a 20-percent increase in energy prices 

over those in AEO2005. Since most of 

the energy used by furnaces is natural 

gas (and oil), this change could impact 

the analysis results. To account and 

assess the possible impact of these 

increases in projected energy prices, the 

Department conducted an energy price 

sensitivity analysis using the AEO2006 

scenario. The energy price sensitivity 

analysis uses recently published energy 

prices, housing starts, and site-to-source 

conversion factors based on the 

AEO2006. It examines the impact of 

these changes on the LCC and Payback 

Period, Consumer Subgroup, and 

National Impact analyses. The results of 

each analysis are shown in sections 

V.B.1.a., V.B.1.b., V.B.3.a., and V.B.3.b., 

respectively. For the AEO2006 energy 

price sensitivity analysis, the 

Department determined that the 

consumers’ purchasing decisions in the 

base case (i.e., in the case where no 

change in standards is assumed to 

occur) would be similar to those as in 

the energy price trajectory using 

AEO2005. The Department welcomes 

comment on the determination of the 

forecast of the gas furnace shipments as 

a function of the energy prices. 

Furthermore, the Department intends to 

use the most recent energy price 

forecasts from the EIA in its revised 

analyses for the final rule. 

5. Maintenance Costs 

For the LCC analysis, DOE used the 

maintenance cost data derived in the 

engineering analysis. Based on a 

sensitivity analysis in a 1994 GRI report 

and on engineering judgment, the 

Department assumed a triangular 

distribution for maintenance costs to 

capture the variability of these costs 

among homes, with a minimum at 80 

percent of the average cost and a 

maximum at 120 percent of the average 

cost. The Department is not aware of 

any recent data that provide a 

distribution of maintenance costs. 

6. Equipment Lifetime 

The Department defines the 

equipment lifetime as the age at which 

a furnace or boiler is retired from 

service. Because none of the available 

data on equipment lifetime show a clear 

relationship between efficiency and 

lifetime, DOE assumed that equipment 

lifetime is independent of efficiency. 

The Department used a triangular 

probability distribution from the range 

for each product class to assign a 

lifetime to individual furnaces and 

boilers in the sample housing units. 

In the 2004 ANOPR, DOE used an 

average lifetime of 20 years for gas 

furnaces, 15 years for oil-fired furnaces 

and boilers, and 17 years for gas boilers. 

ACEEE commented that DOE’s 

equipment lifetime estimates appeared 

to be somewhat short, and were a 

significant change from values used in 

the last DOE rulemaking on these 

products. ACEEE recommended that 

DOE look for field data on actual 

average equipment lifetime. (ACEEE, 

No. 84 at p. 11) The Department 

conducted a literature review to obtain 

estimates of boiler lifetime. Based on the 

information found, it increased the 

lifetimes used for gas- and oil-fired 

boilers to 25 years. 

7. Discount Rates 

The Department derived the discount 

rates for the LCC analysis from estimates 

of the finance cost to purchase a furnace 

or boiler. New-housing equipment is 

purchased as part of the home, which is 

almost always financed with a mortgage 

loan. Therefore, the Department 

estimated discount rates for newhousing equipment using the effective 

mortgage rate for home buyers, not 

simply the nominal rate. For the 

consumer life-cycle-cost calculation, the 

effective rate corresponds to the interest 

rate after deduction of mortgage interest 

for income tax purposes. Such 

adjustment is not appropriate for the 

NPV calculations. As described in 

section IV.D.7., for the NPV calculations 

the Department used discount rates of 

both seven percent and three percent, in 

accordance with the Office of 

Management and Budget (OMB)’s 

guidelines contained in Circular A–4, 

Regulatory Analysis, September 17, 

2003. (OMB Circular A–4, § E 

(September 17, 2003)). 

Households use a variety of methods, 

the prevalence of which may change 

over time, to finance a replacement 

furnace or boiler. The shares of different 

financing vehicles in total replacement 

equipment purchases are unknown, so 

the Department identified all possible 

customary sources of acquiring funds 

for purchase of replacement furnaces, 

including household assets that might 

be sold to raise funds. The Department 

then estimated the shares of the various 

debt and equity classes in the average 

U.S. household equity and debt 

portfolios using data from the 1998 and 

2001 Federal Reserve Board’s Survey of 

Consumer Finances (SCF) (See TSD, 

Chapter 8.) The Department estimated a 

distribution of interest or return rates 

associated with each type of equity and 

debt from the SCF and other sources, 

and then developed a distribution of 

weighted-average finance costs for 

replacement equipment. 

NRDC commented that DOE’s 

approach for deriving discount rates in 

the 2004 ANOPR analysis had 

shortcomings that resulted in the use of 

rates that were too high. (NRDC, No. 63 

at p. 12) The Department acknowledges 

there are diverse views on selecting 

discount rates for household purchase 

of appliances, but the approach DOE 

used for furnaces and boilers is 

consistent with the method it used for 

its rulemaking for residential airconditioning equipment. For this notice, 

DOE incorporated more recent data on 

consumer finances, mortgage rates, 

other debt interest rates, and rates of 

return on equity classes. The resulting 

discount rates are lower than those used 

in the 2004 ANOPR analysis for newhome furnace and boiler purchases (See 

TSD, Chapter 8.) 

GAMA commented that using a 

different discount rate for each 

household is questionable. (GAMA, No. 

67 at p. 7) The Department disagrees. 

Since the finance cost for purchasing a 

furnace or boiler varies among 

households depending on their financial 

situation, the Department found that 

using different discount rates was 

appropriate. 

8. Effective Date of the New Standards 

Generally all covered products to 

which a new or amended energy 

conservation standard applies must 

comply with the standard if they are 

manufactured or imported on or after a 

specified date. (42 U.S.C. 6291(10), 6295 

(b)–(k)) Section 325(f)(3)(B) of EPCA 

directs that DOE is to publish a final 

rule for furnaces and boilers by January 

1, 1994, and that any amendment shall 

apply to products manufactured on or 

after January 1, 2002. The Department 

has applied this eight-year 

implementation period to determine the 

effective date of any standard prescribed 

by this rulemaking. Since DOE expects 

to issue a final rule in 2007, the effective 

date for this rulemaking will be 8 years 

from the date of publication of the final 

rule, that is, in 2015. Thus, the 


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13The Department assumed the same 

disbursement of condensing furnaces, 35 percent, 

within the sampled housing units for nonweatherized gas furnaces in the energy price 

sensitivity analysis, which it based on AEO2006. 

Department calculated the LCC and 

payback period for all consumers as if 

each one purchased a new residential 

furnace or boiler in 2015. 

9. Inputs to Payback Period Analysis 

The payback period is the length of 

time it takes the consumer to recover the 

higher installed cost of more-energyefficient equipment through lower 

operating costs. Numerically, the 

payback period is the ratio of the 

increase in total installed cost 

(including the purchase price and 

installation cost) to the decrease in 

operating expenses (including 

maintenance). Thus, similar to the LCC, 

the payback period is based on the total 

installed cost and the operating 

expenses. However, unlike for the LCC, 

DOE considers only the first year’s 

operating expenses in the calculation of 

the payback period. Because DOE 

considers only the first year’s operating 

expenses, the payback period does not 

take into account changes in operating 

expense over time or the time value of 

money; that is, electricity price trends 

and discount rates are not required 

inputs. Energy expenses are the primary 

component of operating expenditures. 

The Department determines the energyexpense savings for the payback period 

as the first year’s energy savings 

multiplied by the energy prices for the 

year in which a new standard is 

expected to take effect, in this case the 

year 2015. 

The energy consumption DOE used to 

calculate the payback period for the LCC 

analysis reflects current field conditions 

for a representative sample of housing 

units. This approach to determining 

energy consumption and savings is in 

contrast to the rebuttable-paybackperiod calculations in the engineering 

analysis, which use the DOE test 

procedure’s method for calculating 

annual energy consumption. The change 

in the annual energy consumption 

(otherwise called the energy savings) 

between the base-case furnace or boiler 

and a more efficient unit, as calculated 

in the LCC analysis, is smaller than the 

change in the energy consumption 

calculated from the DOE test procedure. 

Because smaller energy savings result in 

smaller decreases in operating expenses, 

the payback periods calculated for the 

LCC analysis are longer than the 

rebuttable-payback periods. 

10. Base-Case Equipment 

The base-case forecasts equipment 

that consumers are expected to purchase 

in the absence of new standards. In the 

2004 ANOPR analysis, DOE developed 

the base-case forecast for each product 

class using the available data on 

shipments of furnaces and boilers by 

efficiency levels. For non-weatherized 

gas furnaces, the Department forecasted 

the base-case share of condensing 

furnaces based on the average growth 

rate for the period 1991–2000. The 

projected condensing furnace market 

share increased from 24 percent in the 

late 1990s to 27 percent in 2015. The 

Gas Technology Institute (GTI), ACEEE, 

NSEG, AGA, GAMA, York, and Lennox 

commented that DOE should account 

for recent market trends that are leading 

to greater sales of condensing gas 

furnaces. (GTI, No. 74 at p. 2; ACEEE, 

No. 84 at p. 13; NSEG, Public Meeting 

Transcript, No. 59.8 at p. 23; AGA, No. 

59.8 at p. 42; GAMA, Public Meeting 

Transcript, No. 59.8 at p. 158; York, No. 

65 at p. 2; and Lennox, 79 at p. 3) The 

Department agrees that use of the most 

recent data is important. In its analysis 

for this notice, the Department revised 

its assignment of gas furnaces to 

sampled housing units in the base case 

to reflect the recent trend toward a 

higher market share for condensing 

furnaces, as shown in shipments data 

through 2003 provided by GAMA. There 

is a strong correlation between 

condensing furnace market share and 

the natural gas price for the 1990–2003 

period. The Department based the 

projected market share of condensing 

furnaces in 2015 on an evaluation of 

this correlation, projected natural gas 

prices from AEO2005, and market 

factors that could sustain the 

condensing furnace market share even 

with a lower gas price. The projected 

condensing furnace market share for 

2015 is 35 percent. Therefore, for the 

LCC analysis base case, the Department 

assigned condensing furnaces to 35 

percent of the sampled housing units 

with non-weatherized gas furnaces.13

GAMA commented that the 2004 

ANOPR analysis does not draw a 

correlation between an individual 

household’s characteristics and the 

furnace it would have bought under the 

base case. (GAMA, Public Meeting 

Transcript, No. 59.8 at p. 158) The 

Department’s analysis does correlate the 

type of furnace assigned as base-case 

equipment with certain household 

characteristics. Specifically, in assigning 

condensing furnaces as base-case 

equipment, the Department used a 

ranking of the RECS sample housing 

units by heating degree days to assign 

condensing furnaces to households in 

colder climates. 

For other product classes, the 

Department assigned base-case 

equipment to the sampled housing units 

from a distribution of AFUEs that is 

representative of current shipments for 

each product class. The assignment of 

equipment efficiency took climate into 

account. 

D. National Impact Analysis—National 

Energy Savings and Net Present Value 

Analysis 

1. Shipments, National Energy Savings, 

and Net Present Value 

The Department calculated the NES 

and the NPV of total customer costs and 

savings expected to result from new 

standards at specific efficiency levels, 

defined as a difference between a basecase forecast (without new standards) 

and the standards case (with new 

standards). The NES refers to 

cumulative energy savings from 2015 

through 2038. The Department 

calculated net monetary savings in each 

year relative to the base-case as the 

difference between total operating-cost 

savings and increases in total installed 

cost. Cumulative savings are the sum of 

the annual NPV over the specified time 

period. The Department accounted for 

operating-cost savings until all the 

equipment installed through 2038 is 

retired. 

An important element in the estimate 

of the future impact of a standard is 

product shipments. The shipments 

portion of the NES Spreadsheet uses 

historical data as a basis for projecting 

furnace and boiler shipments. Furnace 

and boiler shipments comprise units 

used to replace retired units of the same 

type or of another fuel type, as well as 

units installed in new homes. (See TSD, 

Chapter 9.) 

In the 2004 ANOPR analysis, the 

Department estimated retirements based 

solely on past shipments and the 

assumed equipment lifetimes. For gas 

furnaces (all three product classes 

together), the resulting total shipments 

in the 1993–2001 period were less than 

those reported by GAMA. (GAMA, No. 

24) For today’s proposed rule, the 

Department added two additional 

components of gas furnace shipments in 

this period, early retirement and fuel 

switching, which brought the shipments 

estimated by the model into closer 

agreement with the GAMA data. 

(GAMA, No. 94) 

The first added component of gas 

furnace shipments is the early 

retirement of non-condensing furnaces 

and their replacement with moreefficient condensing furnaces. Evidence 

for this trend can be seen in the GAMA 

data, which show a large increase in 


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condensing furnace shipments in this 

period in response to rising natural gas 

prices. The second added component is 

conversion from non-central gas heating 

to central heating with a gas furnace. 

There is evidence for this conversion in 

the RECS data, which show a large 

increase between 1993 and 2001 in 

homes with central gas heating that 

were built before 1990, as well as in the 

trade literature. The shipments from 

these additional components are most 

likely to be non-weatherized gas 

furnaces, because they account for about 

90 percent of all gas furnace shipments. 

The Department assumed that 

shipments from these additional 

components follow a normal 

distribution, rising gradually from 1993, 

reaching a maximum value, and then 

decreasing again. It assumed that 

shipments from these additional 

components gradually taper off due to a 

decline in the number of homes for 

which conversion from non-central gas 

heating or early retirement of noncondensing furnaces is possible or 

economically attractive. The 

Department corrected replacements in 

subsequent years to avoid doublecounting due to furnaces being removed 

from the stock before the end of their 

lifetime. The Department also estimated 

the annual number of replacements 

based on past shipments, projected 

shipments to new housing construction 

over the next decade, and equipment 

retirement rates. 

York stated that the 2004 ANOPR 

analysis neglected the market for 

replacement of furnaces in mobile 

homes. (York, No. 65 at p. 5) In the NES 

calculations for the proposed rule, the 

Department included estimated 

shipments for replacement of furnaces 

in mobile homes. 

To estimate future conversions to 

natural gas, DOE used data from utility 

surveys conducted by the AGA that 

report the numbers of households that 

converted to natural gas space heating. 

ACC commented that DOE should 

consider expected relative prices of 

natural gas and electricity in estimating 

future conversions. (ACC, No. 62 at p. 

3) The Department estimated the annual 

conversions to natural gas as a constant 

percentage of projected replacements 

using data from the 1985–1995 period. 

The trend in relative energy prices in 

this period is similar to the trend of 

projected energy prices. 

EEI commented that DOE should 

address the impact of DOE’s new energy 

conservation standard for heat pumps 

on heating system conversions after 

January 2006. (EEI, No. 69 at p. 2) The 

Department believes few existing houses 

with a heat pump that is due to be 

replaced would be likely to convert to 

a combination of a gas furnace and 

central air conditioner, even if the price 

of a new heat pump is several hundred 

dollars more after the new central air 

conditioner/heat pump standard goes 

into effect. Houses with a heat pump 

typically lack venting systems, and/or 

access to a source of natural gas, which 

are necessary to convert to gas heating. 

Therefore, the Department did not 

include conversions from heat pumps to 

natural gas equipment in its analysis. 

The Department also estimated the 

number of annual shipments of each 

product class going to new housing 

units as a function of the market share 

estimated for each product class. For 

non-weatherized and mobile home gas 

furnaces, the Department estimated 

market-shift effects from changes in 

relative fuel prices and from equipment 

price increases expected from higher 

efficiency standards. In forecasting gas 

furnace market shares, the Department 

assumed an impact of higher installed 

costs due to standards would be a 

decrease in market share held by gas 

furnaces in new construction, in favor of 

electric heating. The Department 

accounted for these market shift effects 

in the calculation of NES and NPV by 

considering the differential in energy 

consumption, utility bills and 

equipment cost between households 

with gas heating and those with electric 

heating. The Department based its 

estimates on the current market share of 

heat pumps and electric furnaces in 

households with electric space heating, 

as provided by RECS 2001. For nonweatherized gas furnaces, DOE assumed 

that heat pumps account for 54 percent 

of the additional electric heating 

equipment purchased due to market 

shift, and electric resistance furnaces 

account for 46 percent. It based these 

values on equipment shares in homes 

built in 1999–2003. For mobile home 

gas furnaces, the assumed shares of 

additional electric heating equipment 

purchased due to market shift are 41 

percent for heat pumps and 59 percent 

for electric resistance furnaces. In 

determining market shift effects, the 

Department assumed the above shares of 

heat pumps and electric resistance 

furnaces remained constant over the 

analysis period. The Department invites 

comments on its assumption of constant 

heat pump and electric resistance 

furnace market shares in order to 

calculate the market shift effects on NES 

and NPV. 

NPGA, Laclede, and NSEG 

recommended that DOE analyze the 

potential for a market shift from gas 

furnaces to electric heating equipment 

resulting from new gas furnace 

standards. (NPGA, No. 72 at p. 4; 

Laclede, No. 76 at p. 3; and NSEG, 

Public Meeting Transcript, No. 59.8 at p. 

24) Similarly, EEI commented that DOE 

should consider how the increased 

energy-efficiency standards for heat 

pumps in 2006 will shift market shares 

in new construction from electric to gas 

space-heating systems. (EEI, No. 69 at p. 

2) In the analysis for this notice, the 

Department used the same approach to 

evaluate market shifts as in the 2004 

ANOPR analysis, but it used more 

recent data on heating equipment 

prices. (See TSD, Chapter 9.) The 

Department also included the impact of 

projected higher heat pump prices after 

2006. (See TSD, Chapter 9.) Projected 

market share shifts are reflected in the 

MIA. 

Southern and Carrier commented that 

standards for gas furnaces could induce 

switching to combination space- and 

water-heating appliances. (Southern, 

Public Meeting Transcript, No. 59.8 at p. 

200; and Carrier, Public Meeting 

Transcript, No. 59.8 at p. 198) The 

Department believes that the historical 

market data necessary for estimating the 

potential for consumers to switch to 

combination space- and water-heating 

appliances do not exist. Therefore, DOE 

was not able to include this potential 

market effect in the shipments 

projection. 

The Department estimated the future 

market shares of oil-fired furnaces and 

gas- and oil-fired boilers in total new 

housing completions based on their 

average shares in homes built in the 

1999–2003 period. For new homes that 

use oil-fired equipment, gas is generally 

not available, so the Department 

considered the market shares to be 

independent of changes in equipment 

price due to the implementation of 

standards. Gas boilers in new homes are 

associated with specific types of heating 

systems, such as hydronic radiators or 

radiant floors, so substitution of 

alternative equipment is unlikely. 

Therefore, the Department assumed that 

the market share would not be affected 

by changes in equipment price due to 

standards. 

Table IV.4 summarizes the approach 

and data DOE used to derive the inputs 

to the shipments analysis for today’s 

proposed rule, and the changes made in 

the analysis for this proposed rule. (See 

TSD, Chapter 9.) 


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14The following States average 5000 or more 

HDDs: Alaska, Colorado, Connecticut, Idaho, 

Illinois, Indiana, Iowa, Kansas, Maine, 

Massachusetts, Michigan, Minnesota, Missouri, 

Montana, Nebraska, New Hampshire, New Jersey, 

New York, North Dakota, Ohio, Oregon, 

Pennsylvania, Rhode Island, South Dakota, Utah, 

Vermont, Washington, West Virginia, Wisconsin, 

and Wyoming. 

TABLE IV.4.—APPROACH AND DATA USED TO DERIVE THE INPUTS TO THE SHIPMENTS ANALYSIS

Input 2004 ANOPR description Changes for proposed rule 

Shipments* ......................................................... Calculated total shipments for replacements 

based on past shipments and retirement 

function, and for new homes based on projection of new housing from AEO2003. The 

projected market shares in new homes 

were a function of relative heating equipment prices. Based conversions-upon-replacement on historic survey data.

Same approach as ANOPR, with updated 

shipments data from GAMA. Included shipments for mobile home furnace replacement. Projection of new housing updated to 

AEO2005. Market share projection used reestimated parameters. Model used two additional shipment categories to calibrate 

with GAMA data. 

Replacements in kind ......................................... Replacement of worn-out heating equipment 

with unit of same equipment type (i.e., furnace versus boiler) and same fuel (natural 

gas or oil). Applies a replacement probability distribution based on equipment lifetime.

No change. 

Conversions ........................................................ Replacement of worn-out heating equipment 

with equipment utilizing a different fuel. 

Based on utility surveys conducted by AGA 

that report the numbers of households that 

converted from oil or electricity to natural 

gas space heating. Source: AGA House 

Heating Survey 1985–1995.

No change. 

Installations in new housing ............................... Installation of heating equipment into new single-family, multi-family or mobile homes according to construction rates and equipment 

type market shares. Used housing completions according to DOE forecast and modeled market shares according to energy 

and equipment price trends.

No change. 

Gas furnace early replacement .......................... Not applied ....................................................... Early replacement of non-condensing furnaces with more efficient condensing furnaces. Model calibrated to GAMA data, 

which show a large increase in condensing 

furnace shipments in response to rising natural gas prices. 

Conversion from non-central gas heating to 

central heating with a gas furnace.

Not applied ....................................................... Conversion from non-central gas heating to 

central heating with a gas furnace. Model 

used RECS data, which show a large increase between 1993 and 2001 in homes 

with central gas heating that were built before 1990. 

*For the energy price sensitivity analysis, the Department based its new housing projections on forecasts from the AEO2006. Section V.B.3.a 

presents the results of the energy price sensitivity analysis. 

To make the analysis more accessible 

and transparent to stakeholders, the 

Department used an MS Excel 

spreadsheet model to calculate the NES 

and NPV. MS Excel is the most widely 

used spreadsheet calculation tool in the 

U.S. and there is general familiarity 

with its basic features. Thus, the 

Department’s use of MS Excel for the 

spreadsheet models provides 

stakeholders access to the models 

within a familiar context. In addition, 

the TSD and other documentation that 

DOE provides during the rulemaking 

explain the models and how to use 

them, and stakeholders can review 

DOE’s analyses by changing various 

input quantities within the spreadsheet. 

Unlike the LCC analysis, the NES 

Spreadsheet does not use distributions 

for inputs. The Department examined 

the sensitivity of monetary savings by 

applying different scenarios of energy 

prices and societal discount rates. (See 

TSD, Chapter 10.) 

In addition to analyzing national 

impacts, the Department analyzed the 

NES and NPV for the Southern and 

Northern regions. The Department 

defined the Southern region as 

including those States that have an 

average of less than 5,000 heating 

degree-days. The Department defined 

the Northern region as including those 

States that have an average of more than 

5,000 heating degree-days.14 See section 

III.A.4 for a list of States that fall under 

the Northern or Southern regions. 

Table IV.5 summarizes the approach 

and data DOE used to derive the inputs 

to the NES and NPV analyses for the 

2004 ANOPR, and the changes made in 

the analyses of the proposed rule. (See 

TSD, Chapter 10.) 


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15The Department assumed the same 

disbursement of condensing furnaces, 35 percent, 

within the sampled housing units for nonweatherized gas furnaces in the energy price 

sensitivity analysis. In other words, the Department 

did not update this percentage based on AEO2006 

for the energy price sensitivity analysis. 

16For the energy price sensitivity analysis, the 

Department derived the annual site-to-source 

conversion factors using the NEMS AEO2006 

Reference Case. 

TABLE IV.5.—APPROACH AND DATA USED TO DERIVE THE INPUTS TO THE NATIONAL ENERGY SAVINGS AND NET

PRESENT VALUE ANALYSES

Input 2004 ANOPR description Changes for proposed rule 

Shipments ........................................................... Annual Shipments form shipments model ....... See Table IV.4.

Date Products Must Meet Standard ................... 2012 ................................................................. 2015. 

Annual UEC (Unit Energy Consumption) ........... Annual weighted-average values were a function of efficiency level. Base case UEC for 

non-weatherized gas furnaces accounted 

for projected share of condensing furnaces.

No change. Projected share of condensing 

furnaces reflected recent shipments data. 

Installed Cost per Unit ........................................ Annual weighted-average values were a function of efficiency level (established from the 

LCC analysis).

No change. 

Maintenance Cost per Unit ................................ Annual weighted-average values were a function of efficiency level (established from the 

LCC analysis).

No change. 

Energy Prices * .................................................. AEO2003 forecasts to 2025 and extrapolation 

beyond 2025.

AEO2005 forecasts to 2025 and extrapolation 

beyond 2025. 

Energy Site-to-Source Conversion ..................... Generated by DOE/EIA’s National Energy 

Modeling System (includes electric generation, transmission, and distribution losses).

No change. 

Discount Rate ..................................................... 7-percent and 3-percent real ........................... No change. 

Present Year ...................................................... Future expenses discounted to year 2001 ...... Future expenses discounted to year 2004. 

* For the energy price sensitivity analysis, the Department used AEO2006 forecasts to derive its energy prices up to 2025 and extrapolated beyond 2025. The rationale and methodology for the energy price sensitivity analysis is further explained in Section V.B.3.a. 

2. Annual Unit Energy Consumption 

The annual unit energy consumption 

(UEC) values for the base-case forecast 

and each higher efficiency level come 

from the LCC analysis. Each UEC 

includes a value for gas (or oil) 

consumption. The base-case forecast 

reflects the expected pattern of 

equipment purchases in the absence of 

any new standards. Since there is little 

evidence of change in recent years in 

the average AFUE for each product 

class, DOE used the average values from 

recent GAMA shipments data for each 

year of the base-case forecast. In 

particular, for non-weatherized gas 

furnaces, DOE took into account the 

considerable rise in the market share of 

condensing furnaces in 2001–2003 

shown in data provided by GAMA. This 

increase (to 31 percent) corresponds to 

the sharp rise in the average residential 

gas price in this period. Given that the 

price forecast in the AEO2005 shows a 

residential gas price in future years that 

is considerably lower than in 2003, one 

might expect the condensing furnace 

market share to be lower in the future 

than in 2003. However, other factors 

could potentially sustain the 

condensing furnace market share even 

with a lower gas price (such as the 

greater acceptance of condensing 

furnaces among homebuilders). 

Therefore, the Department projected 

that the share remains at slightly above 

the 2003 level (35 percent) throughout 

the considered period.15 The 

Department also evaluated alternative 

scenarios of the future condensing 

furnace market share. Appendix R of the 

TSD describes these scenarios and 

presents the NES and NPV results for 

non-weatherized gas furnaces using the 

alternative scenarios. The Department 

invites comments on its assumption of 

constant condensing furnace market 

share in its default scenario for 

calculating annual unit energy 

consumption. 

3. Site-to-Source Conversion Factors 

Primary energy consumption includes 

energy used and lost in the production 

and transmission of the energy 

consumed at the site. The Department 

derived annual site-to-source 

conversion factors using the NEMS 

AEO2005 Reference Case and estimated 

energy savings and system load impacts 

as a result of possible standards for each 

year.16 The factors the Department used 

are marginal values, which represent the 

response of the system to an 

incremental decrease in consumption 

associated with energy conservation 

standards. Natural gas losses include 

pipeline leakage, pumping energy, and 

transportation fuel. 

4. Installed Equipment Costs 

Average installed equipment costs for 

the base-case forecast and each 

efficiency level came from the LCC 

analysis. Total equipment costs for each 

efficiency level equal the average cost 

multiplied by shipments in each year. 

The Department assumed no change in 

real equipment costs at each level after 

2015. In cases where a market shift 

away from gas furnaces is projected, 

DOE accounted for the equipment costs 

of the electric heating equipment 

purchased instead. 

5. Maintenance Costs 

The Department took average 

annualized maintenance costs for the 

base-case forecast and each efficiency 

level from the LCC analysis. It considers 

the annualized maintenance cost to be 

an operating cost that is applied for each 

year that the equipment remains in the 

stock. The Department assumed no 

change in real maintenance costs after 

2015. 

6. Energy Prices 

The NPV calculation used energy 

prices to value energy savings for 

natural gas and electricity. It used 

average energy prices for fuel oil and 

LPG, since consumers typically 

purchase fuel oil and LPG in bulk 

amounts, and the energy saved is based 

on the price paid for the bulk amount. 

The Department used 2001 energy 

prices for the RECS housing sample in 

the LCC analysis. To project prices out 

to 2025, DOE used energy price 

projections from AEO2005. In the 

energy price sensitivity analysis, DOE 

calculated the NES and NPV using the 

recently-published energy price 

projections from AEO2006. For the 

years after 2025, DOE applied the 


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59228 Federal Register / Vol. 71, No. 194 / Friday, October 6, 2006 / Proposed Rules 

17U.S. Department of Energy, Framework 

Document for Residential Furnaces and Boilers 

Energy Conservation Standards Rulemaking, July 

17, 2001. This document is available at http:// 

www.eere.energy.gov/buildings/ 

applicance_standards/residential/ 

furnace_boiler_framework_mtg.html. 

average annual growth rate in 2010–

2025 for gas and heating oil prices and 

the average annual growth rate in 2015–

2025 for electricity prices in both cases. 

The Northwest Power and 

Conservation Council (NPCC) asked if 

NEMS (used for the AEO2005 

projections) has a feedback loop 

between gas consumption and the 

forecast of future prices for natural gas. 

(NPCC, Public Meeting Transcript, No. 

59.8 at p. 245) NEMS does incorporate 

such feedback. 

Southern, ACEEE, and ODOE 

commented that DOE should conduct a 

sensitivity analysis using a greater range 

of fuel prices, and independent 

forecasts, such as forecasts prepared by 

Energy and Environmental Analysis, 

Inc. (Southern, No. 71 at p. 3; ACEEE, 

Public Meeting Transcript, No. 59.8 at p. 

163; and ODOE, No. 61 at p. 10) The 

Department used for today’s analysis 

price forecasts from the AEO2005, 

including the High and Low Economic 

Growth Cases. For the energy price 

sensitivity analysis, the Department 

used the price forecasts from AEO2006, 

including the High and Low Economic 

Growth Cases. The range of prices in 

these forecasts, especially for natural 

gas, is quite wide and encompasses the 

scenarios in the AGA’s ‘‘Natural Gas 

Outlook to 2020’’ (February 2005), 

which were prepared by the Energy and 

Environmental Analysis, Inc. Therefore, 

the Department concludes that its 

analysis encompasses a reasonable 

range of future energy prices. 

GTI commented that the analysis 

should consider reallocation of gas 

utility distribution costs in the case 

where furnace standards result in lower 

natural gas demand. (GTI, No. 51 at p. 

2) Historically, DOE has used the same 

energy price forecasts for standards 

cases as for the base case. Lower natural 

gas demand due to furnace standards 

could lead to higher fixed-cost charges 

for natural gas consumers, but such 

charges are subject to State regulation 

and the Department is not aware of a 

reliable method for estimating the 

magnitude of the impact on average 

retail prices. Since developing a reliable 

method for evaluating such costs is 

outside the scope of the rulemaking, 

DOE has not included this factor in its 

analysis. 

7. Discount Rates 

To discount future impacts, the 

Department used discount rates of both 

seven percent and three percent, in 

accordance with the Office of 

Management and Budget (OMB)’s 

guidelines contained in Circular A–4, 

Regulatory Analysis, September 17, 

2003. (OMB Circular A–4, § E 

(September 17, 2003)). For the purpose 

of this analysis, the Department used 

2005 as the reference year for 

discounting because it concluded the 

analysis in this year. 

E. Consumer Subgroup Analysis 

In analyzing the potential consumer 

impact of new or amended standards, 

the Department evaluated the impact on 

identifiable groups of consumers (i.e., 

subgroups) that may be 

disproportionately affected by a national 

standard level. The Department 

analyzed the potential effect of 

standards on households with low 

income levels and households occupied 

by seniors, two consumer subgroups of 

interest. The Department defined 

seniors as those households having a 

head of household over age 65, and 

defined low income as those households 

at or below 100 percent of the poverty 

level. (See TSD, Chapter 11.) 

The Department also analyzed the 

potential effect of standards on 

Southern and Northern households. For 

this analysis, the Department defined 

Southern households as those 

households located in States that have 

an average of less than 5,000 heating 

degree-days. The Department defined 

Northern households as those 

households located in States that have 

an average of more than 5,000 heating 

degree-days. See section III.A.4 for a list 

of States that fall under the Northern or 

Southern regions. 

EEI commented that DOE should 

examine the same subgroups that it 

analyzed for the residential air 

conditioner and heat pump rulemaking. 

(EEI, No. 69 at p. 5) The Department 

analyzed households with low income 

levels and households occupied by 

seniors in the furnace and boiler 

analysis, as it did in the residential air 

conditioner and heat pump rulemaking. 

NSEG suggested that DOE use discount 

rates specific to each subgroup. (NSEG, 

No. 51 at p. 6) The Department’s 

analysis uses a distribution of discount 

rates that accounts for all consumer 

subgroups. 

F. Manufacturer Impact Analysis 

1. General Description 

In determining whether a standard for 

a covered product is economically 

justified, the Secretary of Energy is 

required to consider ‘‘the economic 

impact of the standard on the 

manufacturers and on the consumers of 

the products subject to such standard.’’

(42 U.S.C. 6295(o)(2)(B)(i)(I)) The statute 

also calls for an assessment of the 

impact of any lessening of competition 

as determined by the Attorney General. 

(42 U.S.C. 6295(o)(2)(B)(i)(V)) The 

Department conducted the MIA to 

estimate the financial impact of 

efficiency standards on the residential 

furnace and boiler industry and to 

assess the impact of such standards on 

employment and manufacturing 

capacity. 

The MIA has both quantitative and 

qualitative components. The 

quantitative part of the MIA primarily 

relies on the GRIM, an industry-cashflow model adapted for this rulemaking. 

The key GRIM inputs relate to industry 

cost structure, shipments, and pricing 

strategies. The GRIM’s key output is the 

INPV. The model estimates the financial 

impact of higher efficiency standards by 

comparing changes in INPV between the 

baseline and the various trial standard 

levels. The qualitative part of the MIA 

addresses factors such as product 

characteristics, characteristics of 

particular firms, and market and 

product trends, and includes an 

assessment of the impacts of standards 

on subgroups of manufacturers. (See 

TSD, Chapter 12.) 

On July 17, 2001, the Department 

prepared a Framework Document 

entitled Framework Document for 

Residential Furnaces and Boilers Energy 

Conservation Standards Rulemaking.17

This document outlined the procedural 

and analytical approaches to be used in 

the MIA. Later in the rulemaking, the 

2004 ANOPR further discussed the 

three-step process involved in 

determining the impact of new 

residential furnace and boiler standards 

on manufacturers. 69 FR 45451. This 

process is detailed below. In response to 

the 2004 ANOPR documentation and 

public meeting, the Department 

received specific comments on the MIA, 

which are addressed in this section. 

As outlined, the Department 

conducted the MIA in three phases. 

Phase 1, Industry Profile, consisted of 

preparing an industry characterization, 

including data on market share, sales 

volumes and trends, pricing, 

employment, and financial structure. 

Phase 2, Industry Cash Flow, focused on 

the industry as a whole. In this phase, 

DOE used the GRIM to prepare an 

industry-cash-flow analysis. Using 

publicly available information 

developed in Phase 1, the Department 

adapted the GRIM’s generic structure to 

perform an analysis of residential 

furnace and boiler energy conservation 


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standards. In Phase 3, Subgroup Impact 

Analysis, DOE conducted interviews 

with manufacturers representing over 80 

percent of domestic furnace and boiler 

sales. This group included large and 

small manufacturers of furnaces and 

boilers, providing a representative crosssection of the industry. During these 

interviews, the Department discussed 

engineering, manufacturing, 

procurement, and financial topics 

specific to each company and also 

obtained each manufacturer’s view of 

the industry as a whole. The interviews 

provided valuable information that the 

Department used to evaluate the 

impacts of a standard on manufacturers’

cash flows, manufacturing capacities, 

and employment levels. 

2. Industry Profile 

In Phase 1 of the MIA, the Department 

prepared a profile of the residential 

furnace and boiler industry that built on 

the market and technology assessments 

originally prepared for the 2004 ANOPR 

analysis and subsequently updated for 

today’s proposed rule. Before initiating 

the detailed impact studies, DOE 

collected information on the present 

and past structure and market 

characteristics of residential furnace and 

boiler manufacturing. The information 

DOE collected at that time included 

market share, product shipments, 

markups, and cost structure for various 

manufacturers. The industry profile 

includes further detail on product 

characteristics, estimated manufacturer 

market shares, the financial situation of 

manufacturers, trends in the number of 

firms, the market, and product 

characteristics of the residential furnace 

and boiler industry. 

The industry profile included a 

topdown cost analysis of residential 

furnace and boiler manufacturers that 

DOE used to derive cost and 

preliminary financial inputs for the 

GRIM (e.g., revenues; material; labor; 

overhead; depreciation; selling, general, 

and administrative expenses; and R&D 

expenses). The Department also used 

public sources of information to expand 

its initial characterization of the 

industry, including 10–K reports from 

the Securities and Exchange 

Commission, Moody’s company data 

reports, Standard & Poor’s stock reports, 

Value Line industry composites, 

corporate annual reports, the U.S. 

Census Bureau’s Economic Census, Dun 

& Bradstreet reports, and industry 

analysis from Ibbotson Associates and 

Dow Jones Financial Services. 

3. Industry Cash Flow Analysis 

Phase 2 of the MIA focused on the 

financial impacts of new standards on 

the industry as a whole. Energy 

conservation standards can affect 

furnace and boiler manufacturers in 

three distinct ways, including: (1) 

Increased investment; (2) higher 

production costs per unit; and (3) 

altered revenue by virtue of higher perunit prices and changes in sales 

volumes. The analytical tool DOE uses 

for calculating the financial impacts of 

standards on manufacturers is the 

GRIM. To quantify these impacts in 

Phase 2 of the MIA, the Department 

performed a cash flow analysis of the 

residential furnace and boiler industry 

using the GRIM. 

4. Subgroup Impact Analysis 

Using average cost assumptions to 

develop an industry-cash-flow estimate 

is not adequate for assessing differential 

impacts among subgroups of 

manufacturers. Small manufacturers, 

niche players, or manufacturers 

exhibiting a cost structure that largely 

differs from the industry average could 

be more negatively affected. The 

Department used the results of the 

industry characterization to group 

manufacturers exhibiting similar 

characteristics. In the Framework 

Document and at the 2004 ANOPR 

public meeting, the Department invited 

stakeholders to comment on the 

manufacturing subgroups that should be 

analyzed for the MIA. The Department 

had established six subgroups 

corresponding to each of the product 

classes in the 2004 ANOPR. It did not 

receive comments at the public meeting 

or in response to either the Framework 

Document or the 2004 ANOPR. 

Consequently, the Department decided 

to use the six subgroups that correspond 

to each of the product classes in the 

MIA, based on the market assessment. 

Based on this decision, the 

Department prepared two different 

interview guides—one for furnace 

manufacturers and one for boiler 

manufacturers. The Department used 

these interview guides to tailor the 

GRIM to incorporate unique financial 

characteristics from both industries. 

Within each of these industries, the 

Department contacted companies from 

its database of manufacturers, which 

provided a representation of each 

subgroup. It interviewed small and large 

companies, subsidiaries and 

independent firms, and public and 

private corporations. The Department 

also made an effort to interview 

companies that had previously 

participated in the Department’s 

rulemaking process for residential 

furnaces and boilers. The purpose of the 

meetings was to enhance the 

Department’s understanding of how 

manufacturer impacts vary with the trial 

standard levels. During the course of the 

MIA, the Department held nine 

interviews with furnace manufacturers 

and five interviews with boiler 

manufacturers, together representing 

over 80 percent of domestic furnace and 

boiler sales. Finally, DOE developed a 

GRIM for each of the six subgroups. 

The Department also evaluated the 

impact of the energy conservation 

standards on small businesses. Small 

businesses, as defined by the Small 

Business Administration (SBA) for the 

furnace and boiler manufacturing 

industry, are manufacturing enterprises 

with 750 or fewer employees. The 

Department created a version of the 

interview guide tailored for small 

furnace and boiler manufacturers, and 

contacted 11 small businesses to 

determine if they were interested in 

discussing differential impacts 

standards would have on their 

companies. (See TSD, Chapter 12.) 

5. Government Regulatory Impact Model 

Analysis 

A higher energy conservation 

standard can affect a manufacturer’s 

cash flow in three distinct ways, 

resulting in: (1) Increased investment; 

(2) higher production costs per unit; and 

(3) altered revenue by virtue of higher 

per-unit prices and changes in sales 

volumes. As mentioned, the Department 

uses the GRIM to quantify changes in 

cash flow that result in a higher or lower 

industry value. The GRIM analysis uses 

a standard, annual-cash-flow analysis 

that incorporates manufacturer prices, 

manufacturing costs, shipments, and 

industry financial information as inputs 

and models changes in costs, 

distribution of shipments, investments, 

and associated margins that would 

result from new regulatory conditions 

(in this case, standard levels). The GRIM 

spreadsheet uses a number of inputs to 

arrive at a series of annual cash flows, 

beginning with the base year of the 

analysis, 2004, and continuing to 2038. 

The Department calculated INPVs by 

summing the stream of annual 

discounted cash flows during this 

period. 

The Department used the GRIM to 

calculate cash flows using standard 

accounting principles and to compare 

changes in INPV between a baseline and 

different trial standard levels for energy 

conservation standards (the standards 

case). Essentially, the difference in INPV 

between the baseline and the standards 

case represents the financial impact of 

the new standard on manufacturers. The 

Department collected this information 

from a number of sources, including 

publicly available data and interviews 


sroberts on PROD1PC70 with PROPOSALS
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with several manufacturers. (See TSD, 

Chapter 12.) 

GAMA asked if the MIA included 

consideration of cumulative regulatory 

burden. (GAMA, Public Meeting 

Transcript, No. 59.8 at p. 241) The 

Department considered the impacts of 

cumulative regulations in the MIA. 

Section V.B.2.d of this notice and 

Chapter 12 of the TSD summarize these 

impacts. 

6. Manufacturer Interviews 

As part of the MIA, DOE discussed 

potential impacts of standards with 

manufacturers responsible for a majority 

of residential furnace and boiler sales. 

The manufacturers interviewed 

comprise 82 percent of the gas furnace 

market, close to 100 percent of the 

mobile home furnace market, 61 percent 

of the oil-fired furnace market, and 79 

percent of the boiler market. These 

interviews were in addition to those the 

Department conducted during the 2004 

ANOPR as part of the engineering 

analysis. The interviews provided 

valuable information that DOE used to 

evaluate the impacts of new standards 

on manufacturers’ cash flows, 

manufacturing capacities, and 

employment levels. 

a. Issues. Venting was the most 

common concern discussed by 

manufacturers, both at the 2004 ANOPR 

public meeting and during the 

manufacturer interviews. Proper venting 

is necessary because of the safety and 

reliability issues associated with 

corrosion that is caused from 

condensation within the venting 

systems at certain efficiency levels. Due 

to this concern, many manufacturers 

commented that residential furnaces 

and boilers cannot be properly or safely 

vented at certain AFUE levels. Instead, 

some manufacturers stated that they 

would choose not to manufacturer an 

entire line of products at those 

efficiency levels for which the safety 

concerns exceed the benefits. To 

address these concerns, the Department 

requested additional information from 

manufacturers. For example, for nonweatherized gas furnaces, the 

Department requested information from 

manufacturers on the costs for 

designing, manufacturing, and selling 

an entire furnace family at an 81- 

percent-AFUE efficiency level. The 

Department used manufacturer 

responses to update product costs in the 

engineering analysis and investment 

figures in the MIA. However, this still 

does not fully address manufacturer 

concerns with venting because some 

manufacturers stated they are not 

willing to bear the increased risk at any 

cost. (See TSD, Chapter 12.) 

Manufacturers of furnaces and boilers 

stated that the development, 

manufacture, sale, and use of the 

products at near-condensing levels 

would increase the risk of warranty and 

product liability claims, and that such 

claims could be substantial and have a 

significant adverse effect on their future 

profitability. During the interviews, 

manufacturers indicated that their 

warranty costs could double or even 

triple. Considering that earnings before 

interest and taxes are typically about 

seven percent for manufactures of 

furnaces and boilers, this level of 

increase in warranted costs could 

reduce profits by twenty percent or 

more. Although DOE attempted to 

quantify the financial impacts resulting 

from warranty cost increases, it did not 

consider these costs in its assessment of 

INPV due to insufficient information 

relating to changes in equipment failure 

rates and their associated costs. The 

Department seeks comment and 

information which would help to 

monetize these impacts. (See TSD, 

Chapter 12.) 

Another concern expressed by the 

manufacturers during the interviews 

centered on the shipments forecasted by 

the NES model. The NES model 

forecasts the total number of products 

sold and the efficiency distribution of 

these products for the base case and all 

trial standard levels. During the course 

of the interviews, DOE asked 

manufacturers to comment on the NES 

forecasts. For many product classes, 

manufacturers generally agreed with the 

projected impacts of standards on total 

shipments and the distribution mix of 

efficiencies. However, most 

manufacturers stated that DOE 

overestimated the shipment levels 

predicted at higher efficiency levels 

(trial standard levels 4 and 5). In some 

cases, they maintained that consumers 

would stop buying furnaces and boilers 

and would choose heat pumps and/or 

combination systems instead. The 

manufacturers expressed a common 

view that new construction markets and 

southern States are most susceptible to 

product switching. They also noted that 

higher efficiency standards will affect 

replacement market sales, where 

consumers may be more inclined to 

repair their existing system than to 

purchase a new system with a costly 

installation. Finally, manufacturers 

commented on the predicted 

distribution of products by efficiency 

level for the year 2015. In several 

instances, they provided revised 

estimates, which the Department used 

to revise the shipment forecasts in the 

GRIM. The next section provides further 

details on the manufacturers’ shipments 

forecast and the NES shipments 

forecast. 

b. GRIM Scenarios and Key Inputs. 

1. Shipments Forecast. The GRIM 

estimates manufacturer revenues based 

on total-unit-shipment forecasts and the 

distribution of these values by AFUE 

levels. Changes in the efficiency mix by 

standard level are a key driver of 

manufacturer finances. For this analysis, 

the GRIM used both NES and 

manufacturers’ shipments forecasts for 

each product from 2004 to 2038. Total 

shipments forecasted by the NES for all 

trial standard levels in 2015 are shown 

in Table IV.6 and are further detailed in 

this section of this proposed rule. 

TABLE IV.6.—TOTAL NES-FORECASTED SHIPMENTS IN 2015 

[Millions] 

Product class Base 

case TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 

Non-weatherized gas furnaces ........................................................................................ 2.77 2.77 2.77 2.76 2.74 2.67 

Weatherized gas furnaces ............................................................................................... 0.424 

Mobile home gas furnaces .............................................................................................. 0.196 0.195 0.195 0.192 0.182 0.182 

Oil-fired furnaces .............................................................................................................. 0.0879 

Gas boilers ....................................................................................................................... 0.279 

Oil-fired boilers ................................................................................................................. 0.12 

As described above, manufacturers 

stated during interviews that the NES 

understated the decline in shipments at 

increased efficiency levels. In particular, 

some manufacturers commented that at 

trial standard level 4 and above, for nonVerDate Aug<31>2005 16:32 Oct 05, 2006 Jkt 211001 PO 00000 Frm 00028 Fmt 4701 Sfmt 4702 E:\FR\FM\06OCP2.SGM 06OCP2

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weatherized gas furnaces, they expect 

consumers to switch to heat pumps or 

repair their existing equipment due to 

the increased cost of condensing nonweatherized gas furnaces. 

Manufacturers also suggested that there 

will be a market shift away from nonweatherized gas furnaces at 90-percent 

AFUE and above in the southern 

climates, where heat pumps are more 

feasible. One manufacturer expects on 

the order of a 50-percent drop in 

shipments at trial standard level 5 and 

a 25-percent drop in shipments at trial 

standard level 4 for non-weatherized gas 

furnaces. Manufacturers also expressed 

their concern that, at trial standard 

levels 1, 2, and 3, equipment switching 

alone would cause shipment drops that 

did not seem to be characterized by the 

NES. 

For weatherized gas furnaces, some 

manufacturers stated that there would 

be a decline in shipments for all 

efficiency levels above the current 

standard, with more significant declines 

at 83-percent AFUE. One manufacturer 

commented that consumers would be 

more likely to purchase heat pumps 

because of their reliability, and because 

of the increased risk of condensation 

with 83-percent-AFUE furnaces. 

However, some manufacturers 

acknowledged that consumers usually 

buy weatherized gas furnaces with an 

air-conditioning unit, and the airconditioning unit is the key driver in 

consumers’ decision. 

Manufacturers expressed similar 

concerns for mobile home furnaces as 

they did for non-weatherized gas 

furnaces at and above 90-percent AFUE. 

They commented that consumers will 

switch to heat pumps or combination 

systems rather than make an increased 

investment in more-efficient mobile 

home furnaces. For oil-fired furnaces, 

manufacturers suggested that the 

industry for this equipment will begin 

to shrink at trial standard levels 4 and 

5. In addition, they foresee a drop in 

shipments at higher efficiency levels 

because consumers will either change to 

alternative heating sources like heat 

pumps or use propane. Finally, 

manufacturers of boilers expressed 

concern that the NES analysis did not 

forecast any decline in shipments at any 

of the trial standard levels. They stated 

that, because of increased first cost, 

consumers are more likely to choose 

radiant or electric furnaces than moreefficient boiler systems. One 

manufacturer recognized that there had 

already been consolidation within the 

boiler industry and predicted that 

increased efficiency standards would 

cause further consolidation within the 

boiler industry. Furthermore, other 

manufacturers stated that they believe 

that the industry would continue to 

move toward consolidation even in the 

absence of increased energy efficiency 

standards. 

The Department took into 

consideration all of the manufacturers’

concerns with the NES shipments 

forecast and derived an alternative 

shipments forecast (referred to as 

‘‘manufacturers forecast’’) for each 

product class, based on information 

received during the manufacturer 

interviews. Table IV.7 shows the 

alternative shipments forecast for all 

trial standard levels in 2015 by product 

class. 

TABLE IV.7.—TOTAL MANUFACTURERS’ FORECASTED SHIPMENTS IN 2015 

[Millions] 

Product class NAECA TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 

Non-weatherized gas furnaces ........................................................................................ 2.77 2.77 2.77 2.76 2.33 1.49 

Weatherized gas furnaces ............................................................................................... 0.424 

Mobile home gas furnaces .............................................................................................. 0.196 0.195 0.195 0.192 0.182 0.182 

Oil-fired furnaces ............................................................................................................. 0.0879 0.088 0.088 0.088 0.086 0.082 

Gas boilers ...................................................................................................................... 0.279 0.279 0.251 0.251 0.251 0.223 

Oil-fired boilers ................................................................................................................ 0.12 0.12 0.12 0.12 0.12 0.096 

The manufacturers’ shipments 

forecast shows increased declines over 

the declines forecasted by the NES 

model for most product classes at 

increased efficiency levels. Trial 

standard level 5 shows a more 

significant decline for all product 

classes except weatherized gas furnaces. 

For non-weatherized gas furnaces, the 

difference between the decline 

forecasted by the manufacturers’

shipments and the decline forecasted by 

the NES shipments for trial standard 

levels 4 and 5 is approximately -14 

percent and -44 percent, respectively. 

For weatherized gas furnaces, the 

Department used the NES shipments 

forecast because the prices of the 

products did not largely vary across trial 

standard levels and, thus, the 

Department would not expect a decline 

in the total shipments. Finally, based on 

its analysis of the furnace and boiler 

industry, DOE assumed that shipments 

at lower efficiencies were most likely to 

be rolled up into higher efficiency levels 

in response to increases in the efficiency 

standard. In other words, at an 

increased minimum standard level, the 

shipments at efficiencies below the new 

minimum standard level will be added 

to the shipments at the new minimum 

standard level. The Department took 

both the NES shipments forecast and the 

manufacturers’ shipments forecast into 

consideration when assessing impacts 

on the industry. 

2. Markups. During the interviews, 

manufacturers commented on the 

differentiation between basic and 

premium products. Manufacturers 

generally stated that they differentiate 

between basic and premium products 

and include both in their mix of product 

offerings. To accomplish this 

differentiation, manufacturers usually 

offer higher efficiency levels and more 

features for premium products, which 

increases their profitability for these 

types of products. To estimate the 

manufacturer price of the equipment 

sold, DOE applied different markups to 

the production costs estimated in the 

engineering analysis. 

For the MIA analysis, DOE considered 

up to four distinct markup scenarios to 

bound the range of expected product 

prices following standards. For each 

product class, the Department used the 

markup scenarios that best characterize 

the markup conditions described by 

manufacturers, and that reflect the type 

of market responses manufacturers 

expect as a result of standards. Table 

IV.8 summarizes the markup scenario 

DOE used for each product class and the 

markup applied for the flat markup 

scenario. (See TSD, Chapter 12.) 


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TABLE IV.8.—SUMMARY OF MARKUP SCENARIO BY PRODUCT CLASS

Product class 

Flat markup 

(Markup applied) 

Two-tier markup Three-tier 

markup 

Constant price 

markup 

Non-weatherized gas furnaces ........................................................................ 1.4 x 

Weatherized gas furnaces ............................................................................... 1.4 x 

Mobile home gas furnaces* ............................................................................. 1.29 

Oil-fired furnaces ............................................................................................. 1.4 x 

Gas boilers ....................................................................................................... 1.44 x 

Oil-fired boilers ................................................................................................. 1.44 x 

* For mobile home gas furnaces, the Department used flat markup scenario only. 

For the flat markup scenario, the 

Department applied a uniform ‘‘flat 

markup’’ across all products, which it 

calculated from industry data. A flat 

markup assumes no differentiation in 

gross-margin percentage across product 

efficiency levels. The Department based 

the two-tier markup on the assumption 

that manufacturers differentiate between 

baseline and premium products—giving 

a baseline product one markup and a 

premium product another, higher 

markup. The Department used the threetier markup assumption for boilers, 

based on the information the 

manufacturers provided during the 

interviews regarding the change in 

profitability for different efficiency 

levels. Finally, since some 

manufacturers commented that they 

will not be able to recover any of the 

incremental product cost resulting from 

new standards for some product classes, 

the Department used a constant price 

markup and modeled this situation by 

assuming manufacturers’ baseline prices 

remain unchanged even if the baseline 

efficiency level is increased. 

3. Product and Capital Conversion 

Costs. Energy conservation standards 

typically cause manufacturers to incur 

one-time conversion costs to bring their 

production facilities and product 

designs into compliance with the new 

regulation. For the purpose of the MIA, 

DOE classified these one-time 

conversion costs into two major groups. 

Product conversion expenses are onetime investments in research, 

development, testing, and marketing, 

focused on making product designs 

comply with the new efficiency 

standard. Conversion-capital 

expenditures are one-time investments 

in property, plant, and equipment to 

adapt or change existing production 

facilities so that new product designs 

can be fabricated and assembled. 

The Department assessed the R&D 

expenditures manufacturers would be 

required to invest at each trial standard 

level. It obtained financial information 

through manufacturer interviews and 

compiled the results in an aggregated 

form to mask any proprietary or 

confidential information from any one 

manufacturer. For each product class 

and trial standard level, DOE considered 

a number of manufacturer responses. 

The Department estimated the total 

product conversion expenditures by 

gathering the responses received during 

the manufacturer interviews, then 

weighed these data by market share for 

each industry and, finally, extrapolated 

each manufacturer’s R&D expenditures 

for each product. 

The Department also evaluated the 

level of conversion-capital expenditures 

needed to comply with new energy 

conservation standards. It prepared 

preliminary estimates of the capital 

investments required using the 

manufacturing cost model. The 

Department then used the manufacturer 

interviews to gather additional data on 

the level of capital investment required 

at the various efficiency levels. 

Manufacturers explained how different 

trial standard levels impacted their 

ability to use existing plants, 

warehouses, tooling, and equipment. 

From the interviews, the Department 

was able to estimate what portion of 

existing manufacturing assets needed to 

be replaced and/or reconfigured, and 

what additional manufacturing assets 

were required to manufacture the higher 

efficiency equipment. In most cases, 

higher standards required the 

replacement of a larger proportion of 

existing assets. 

G. Employment Impact Analysis 

The Process Rule includes 

employment impacts among the factors 

that DOE considers in selecting a 

proposed standard. Employment 

impacts include direct and indirect 

impacts. Direct employment impacts are 

any changes in the number of 

employees for furnace and boiler 

manufacturers. Indirect impacts are 

those changes of employment in the 

larger economy that occur due to the 

shift in expenditures and capital 

investment that is caused by the 

purchase and operation of moreefficient furnace and boiler equipment. 

The MIA addresses direct employment 

impacts; this section describes indirect 

impacts. 

Indirect employment impacts from 

furnace and boiler standards consist of 

the net jobs created or eliminated in the 

national economy, other than in the 

manufacturing sector being regulated, as 

a consequence of: (1) Reduced spending 

by end users on energy (electricity, 

gas—including LPG—and oil); (2) 

reduced spending on new energy supply 

by the utility industry; (3) increased 

spending on the purchase price of new 

furnaces and boilers; and (4) the effects 

of those three factors throughout the 

economy. The Department expects the 

net monetary savings from standards to 

be redirected to other forms of economic 

activity. The Department also expects 

these shifts in spending and economic 

activity to affect the demand for labor in 

the short term. 

In developing this proposed rule, the 

Department estimated indirect national 

employment impacts using an input/ 

output model of the U.S. economy, 

called IMBUILD (impact of building 

energy efficiency programs). The 

Department’s Office of Building 

Technology, State, and Community 

Programs (now the Building 

Technologies Program) developed the 

model. IMBUILD is a personalcomputer-based, economic-analysis 

model that characterizes the 

interconnections among 35 sectors of 

the economy as national input/output 

structural matrices, using data from the 

U.S. Bureau of Labor Statistics (BLS). 

The IMBUILD model estimates changes 

in employment, industry output, and 

wage income in the overall economy of 

the United States resulting from changes 

in expenditures in the various sectors of 

the economy. The Department estimated 

changes in expenditures using the NES 

Spreadsheet. Using IMBUILD, it then 

estimated the net national, indirectemployment impacts of potential 

furnace and boiler efficiency standards 

on employment by sector. 


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While both the IMBUILD input/ 

output model and the direct use of BLS 

employment data suggest the proposed 

furnace and boiler standards could 

increase the net demand for labor in the 

economy, the gains would most likely 

be very small relative to total national 

employment. The Department therefore 

concludes only that the proposed 

furnace and boiler standards are likely 

to produce employment benefits that are 

sufficient to offset fully any adverse 

impacts on employment in the furnace 

and boiler or energy industries. (See 

TSD, Chapter 14.) 

The Department did not receive 

stakeholder comments on these indirect 

employment impact methods, which it 

proposed in the 2004 ANOPR for use in 

the today’s analysis. 

H. Utility Impact Analysis 

The utility impact analysis estimates 

the change in the forecasted power 

generation capacity for the Nation. This 

analysis separately determines the 

changes to supply and demand as a 

result of natural gas, fuel oil, LPG or 

electricity residential consumption 

savings due to the standard. The 

Department calculated this change using 

the NEMS–BT computer model. The 

NEMS–BT models certain policy 

scenarios such as the effect of reduced 

energy consumption per trial standard 

level by fuel type. The analysis output 

provides a forecast for the needed 

generation capacities at each trial 

standard level. The estimated net 

benefit of the standard is the difference 

between the forecasted generation 

capacities by NEMS–BT and the 

AEO2005 Reference Case. 

The Department obtained the energy 

savings inputs associated with 

electricity and natural gas consumption 

savings from the NES analysis. These 

inputs reflect the effects of efficiency 

improvement on furnace energy 

consumption, both fuel (natural gas, fuel 

oil, and LPG) and electricity. The inputs 

also reflect the impacts associated with 

the market shift from natural gas heating 

to electric heating projected to occur at 

trial standard levels that have an 

increased installed cost for gas furnaces. 

At trial standard levels 4 and 5, the 

electricity consumption due to the 

market shift more than offsets the 

electricity savings through moreefficient furnace designs. This effect 

results in an overall increase in 

projected generating capacity. The 

results represent the corresponding 

changes to utility sector supply and 

demand as a result of natural gas, fuel 

oil, LPG, or electricity residential 

consumption savings (or in some cases 

increases). Chapter 13 of the TSD 

presents results of the utility impact 

analysis. 

AGA stated that the impact of market 

shifts from natural gas heating to 

electric heating on natural gas utilities 

should be developed in the utility 

impact analysis. (AGA, Public Meeting 

Transcript, No. 59.8 at p. 41) 

Historically, the Department’s approach 

for the utility impact analysis has only 

evaluated the impact of market shifts 

associated with standards on energy 

consumption, which is related to utility 

sales. The evaluation of other types of 

utility impacts that result from declines 

in the sales of natural gas or other forms 

of energy is not part of the analysis 

methodology; thus, DOE did not 

perform this type of evaluation in the 

utility impact analysis for the furnace 

and boiler standards rulemaking. 

EEI commented that DOE should 

evaluate the direct impact of new 

standards on the peak loads of the 

natural gas grid and oil supply chain in 

the United States, in addition to any 

analysis on the indirect impacts on the 

electric system. (EEI, No. 69 at p. 5) The 

utility impact analysis used NEMS to 

account for electricity peak load 

impacts. It did not consider peak load 

impacts on the natural gas grid and oil 

supply chain because these systems 

have sufficient storage to avoid peak 

demand impacts. 

I. Environmental Analysis 

Under 42 U.S.C. 6295(o)(2)(B)(i)(VI), 

the Department determined the 

environmental impacts of the proposed 

standard. The Department estimated 

direct emissions impacts at the 

household level as well as impacts on 

power plant emissions. While the 

Department is not proposing to regulate 

furnace and boiler electricity use, the 

electricity use of these appliances 

affects power plant emissions. 

The Department calculated the 

reduction in power plant emissions of 

CO2 and NOX using the NEMS–BT 

computer model. The NEMS–BT is 

similar to the AEO2005 NEMS, except 

that furnace and boiler energy usage is 

reduced by the amount of energy (by 

fuel type) saved due to the trial standard 

levels. The Department obtained the 

input of energy savings from the NES 

Spreadsheet. For the environmental 

analysis, the output is the forecasted 

physical emissions. The net impact of 

the standard is the difference between 

emissions estimated by NEMS–BT and 

the AEO2005 Reference Case. NEMS–BT 

tracks CO2 emissions using a detailed 

module that provides robust results 

because of its broad coverage of all 

sectors and inclusion of interactive 

effects. The Department also generated 

alternative price forecasts for use by 

NEMS–BT, corresponding to the High 

and Low Economic Growth sensitivity 

cases found in AEO2005, and used them 

as alternative scenarios. The Department 

presents these forecasts in the 

environmental assessment in the TSD. 

The Department does not report an 

estimated reduction in power plant 

emissions of SO2 because any such 

reduction resulting from an efficiency 

standard would not affect the overall 

level of SO2 emissions in the U.S. The 

Clean Air Act Amendments of 1990 set 

an SO2 emissions cap on all power 

generation. The attainment of this target 

is flexible among generators and is 

enforced through the use of emissions 

allowances and tradable permits. 

Accurate simulation of SO2 trading 

implies that the effect of efficiency 

standards on physical emissions will be 

near zero because emissions will always 

be at or near the allowed ceiling. Thus, 

there may not be an actual reduction in 

SO2 emissions from electricity savings 

as long as emission ceilings are binding. 

However, although there may not be an 

environmental benefit from reduced SO2

emissions from electricity savings, there 

still may be an economic benefit. 

Electricity savings can decrease the 

need to purchase or produce SO2

emissions allowance credits, which 

decreases the costs of complying with 

regulatory caps on emissions. The 

Department reports household SO2

emissions savings, because the SO2

emissions caps do not apply to 

household emissions. 

Power sector NOX emissions impacts 

will be affected by the Clean Air 

Interstate Rule (CAIR), which the U.S. 

Environmental Protection Agency (EPA) 

issued on March 10, 2005. CAIR will 

permanently cap emissions of NOX in 

28 eastern states and the District of 

Columbia. 70 FR 25162 (May 12, 2005). 

As with SO2 emissions, a cap on NOX

emissions means that equipment 

efficiency standards may result in no 

physical effects on these emissions. 

When NOX emissions are subject to 

emissions caps, the Department’s 

emissions reduction estimate 

corresponds to incremental changes in 

emissions allowance credits in cap-andtrade emissions markets rather than 

physical emissions reductions. 

Therefore, while the emissions cap may 

not result in physical emissions 

reduction from the proposed standards, 

it does produce an environmentalrelated economic benefit in the form of 

emissions allowance credits. 

In addition to electricity, the 

operation of furnaces and boilers 

requires use of fossil fuels, and results 

in household emissions of CO2, NOX,


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18The Department established the efficiency 

levels in each TSL based on the analysis using 

AEO2005 energy price forecasts. 

and SO2 at the sites where appliances 

are used. NEMS–BT provides no means 

for estimating such household 

emissions. Therefore, DOE calculated 

separate estimates of the effect of the 

proposed standard on household 

emissions of CO2, NOX, and SO2, based 

on emissions factors derived from the 

literature. 

The Department invites comments on 

the environmental assessment that is 

published with the TSD. 

V. Analytical Results 

A. Trial Standard Levels 

The Department analyzed the benefits 

and burdens of the five trial standard 

levels considered in today’s proposed 

rule. Table V.1 presents the five trial 

standard levels and the corresponding 

product class efficiencies. 

TABLE V.1.—TRIAL STANDARD LEVELS FOR FURNACES AND BOILERS

Product classes 

Trial standard levels 

(AFUE, %) 

TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 

Non-weatherized gas furnaces ........................................................................................................ 80 80 81 90 96 

Weatherized gas furnaces ............................................................................................................... 80 83 83 83 83 

Mobile home gas furnaces .............................................................................................................. 80 80 81 90 90 

Oil-fired furnaces .............................................................................................................................. 80 82 82 84 85 

Gas boilers ....................................................................................................................................... 82 84 84 84 99 

Oil-fired boilers ................................................................................................................................. 83 83 83 84 95 

Trial standard level 1 represents the 

most common product efficiencies of 

the current market, based on the NES 

shipments forecast. (See TSD, Chapter 

9.) For example, for non-weatherized, 

gas-fired furnaces, trial standard level 1 

is 80-percent AFUE. The Department 

also examined the 2005 GAMA 

directory and compared the number of 

models listed in the directory to the 

NES shipments forecast. For nonweatherized gas furnaces, 80-percent 

AFUE also represents the highest 

number of models listed in the 2005 

GAMA directory. Furthermore, trial 

standard level 1, 80-percent AFUE, for 

non-weatherized gas furnaces represents 

a two-percent increase in AFUE 

compared to the current base-case 

standard level for these products. 

Trial standard level 2 is the set of 

efficiencies for all product classes that 

yields the maximum NPV as calculated 

in the NES analysis, assuming a sevenpercent discount rate and only 

considering non-condensing 

technologies.18 (See TSD, Chapter 10.) 

For example, for weatherized gas 

furnaces, 83-percent AFUE represents 

the efficiency level that corresponds to 

the maximum NPV calculated in the 

NES. Trial standard level 2, 83-percent 

AFUE, also corresponds to the 

maximum technologically feasible level 

for weatherized gas furnaces. 

Trial standard level 3 consists of the 

efficiency ratings that correspond to the 

maximum NPV as defined by the 

selection criteria for trial standard level 

2, except that the efficiency levels for 

non-weatherized gas furnaces and 

mobile home furnaces are adjusted to 

81-percent AFUE. The Department 

recognizes there is a potential for 

increased safety risk to consumers at 81- 

percent AFUE for non-weatherized gas 

furnaces and mobile home furnaces 

because of a higher potential for vent 

system and heat exchanger corrosion 

failure. In its 2004 ANOPR analysis, the 

Department found that as many as eight 

percent of the installations could pose 

increased risk of vent and heat 

exchanger failure. 69 FR 45419. The 

Department believes the increased 

safety risk can likely be resolved 

through the use of venting materials that 

are impervious to the corrosive effects of 

condensate and improved heat 

exchanger designs. It included the cost 

of implementing such techniques in its 

analysis for trial standard level 3. In 

addition, DOE recognizes that, in some 

instances, consumers could instead 

elect to install a more efficient, 

condensing gas-fired furnace. The 

Department’s analysis did not capture 

that possibility. 

Trial standard level 4 consists of 

efficiency ratings that correspond to the 

maximum efficiency level that has 

positive NPV calculated by the NES, 

assuming a three-percent discount rate. 

For example, oil-fired boilers at trial 

standard level 4, or 84-percent AFUE, 

represent the maximum efficiency level 

for which there would still be positive 

savings between the standards case and 

the base case. At efficiency levels above 

trial standard level 4, there are negative 

consumer impacts as shown by the 

negative NPVs. 

Trial standard level 5 is the maximum 

technologically feasible level. It 

represents condensing technologies for 

all classes, except weatherized gas-fired 

furnaces and oil-fired boilers. 

B. Economic Justification and Energy 

Savings 

1. Economic Impacts on Consumers 

a. Life-Cycle Cost and Payback Period. 

To evaluate the net economic impact of 

the standards on consumers, the 

Department conducted an LCC and 

payback period analysis for each of the 

trial standard levels. Higher-efficiency 

furnaces and boilers would affect 

consumers in two ways: Annual 

operating expense would decrease and 

purchase price and payback period 

would increase. The payback period is 

an economic benefit-cost measure that 

uses benefits and costs without 

discounting. Section IV.C discusses the 

inputs used for calculating the LCC and 

payback period. 

For each trial standard level and for 

all product classes, the LCC analysis 

estimates the fraction of households for 

which the LCC will either decrease (net 

benefit), or increase (net cost), or exhibit 

no change (no impact) relative to the 

base case equipment forecast. No 

impacts occur when the equipment 

efficiencies of the base case forecast 

already equal or exceed the considered 

trial standard level efficiency. 

Tables V.2 through V.7 show the 

mean LCC savings and the percent of 

households with a net cost, no impact, 

and a net benefit (i.e., positive savings) 

at each trial standard level for each of 

the product classes, using the AEO2005 

energy prices forecast. (Values in 

parentheses in the columns for LCC 

savings represent an increase in LCC.) 

The tables also show the mean payback 

period at each trial standard level. 


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The annual energy consumption 

calculated from the test procedure is 

greater than the annual energy 

consumption used in the LCC analysis. 

Therefore, the mean payback periods 

calculated for the LCC analysis are 

longer than the rebuttable payback 

periods, which use the test procedure 

energy consumption results. 

TABLE V.2.—SUMMARY OF LCC AND PAYBACK PERIOD RESULTS FOR NON-WEATHERIZED GAS FURNACES

[AEO2005 energy price forecast] 

Trial 

standard level 

Efficiency 

level 

(AFUE) 

(%) 

LCC Payback 

period 

LCC LCC 

savings Net cost No impact Net benefit 

years 

2004$ 2004$ % % % 

Baseline Unit ........................................ 78 9,985 ...................... .................... .................... .................... ......................

1 ........................................................... 80 9,834 2 0 98 2 1 .5 

2 ........................................................... 80 9,834 2 0 98 2 1 .5 

3 ........................................................... 81 9,826 2 32 36 32 26 

4 ........................................................... 90 9,753 5 39 35 25 23 

5 ........................................................... 96 10,521 (731 ) 88 4 8 88 

TABLE V.3.—SUMMARY OF LCC AND PAYBACK PERIOD RESULTS FOR WEATHERIZED GAS FURNACES

[AEO2005 energy price forecast] 

Trial 

standard level 

Efficiency 

level 

(AFUE) 

(%) 

LCC Payback 

period 

LCC LCC 

savings Net cost No impact Net benefits 

years 

2004$ 2004$ % % % 

Baseline Unit ............................................ 78 8,256 .................... .................... .................... .................... ....................

1 ............................................................... 80 8,179 2 0 98 2 1.6 

2 ............................................................... 83 8,085 73 6 0 94 4.6 

3 ............................................................... 83 8,085 73 6 0 94 4.6 

4 ............................................................... 83 8,085 73 6 0 94 4.6 

5 ............................................................... 83 8,085 73 6 0 94 4.6 

TABLE V.4.—SUMMARY OF LCC AND PAYBACK PERIOD RESULTS FOR MOBILE HOME GAS FURNACES

[AEO2005 energy price forecast] 

Trial 

standard level 

Efficiency 

level 

(AFUE) 

(%) 

LCC Payback 

period 

LCC LCC 

savings Net cost No impact Net benefit 

years 

2004$ 2004$ % % % 

Baseline Unit ............................................ 75 7,930 .................... .................... .................... .................... ....................

1 ............................................................... 80 7,600 51 1 85 14 5 

2 ............................................................... 80 7,600 51 1 85 14 5 

3 ............................................................... 81 7,635 18 71 5 24 31 

4 ............................................................... 90 7,524 124 42 5 53 25 

5 ............................................................... 90 7,524 124 42 5 53 25 

TABLE V.5.—SUMMARY OF LCC AND PAYBACK PERIOD RESULTS FOR OIL-FIRED FURNACES

[AEO2005 energy price forecast] 

Trial 

standard level 

Efficiency 

level 

(AFUE) 

(%) 

LCC Payback 

period 

LCC LCC 

savings Net cost No impact Net benefit 

years 

2004$ 2004$ % % % 

Baseline Unit ............................................ 78 11,593 .................... .................... .................... .................... ....................

1 ............................................................... 80 11,418 7 0 96 4 0.3 

2 ............................................................... 82 11,257 113 0 30 70 0.8 

3 ............................................................... 82 11,257 113 0 30 70 0.8 

4 ............................................................... 84 11,425 (23) 54 15 31 18 

5 ............................................................... 85 11,518 (109) 67 7 25 22 


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TABLE V.6.—SUMMARY OF LCC AND PAYBACK PERIOD RESULTS FOR GAS BOILERS

[AEO2005 energy price forecast] 

Trial 

standard level 

Efficiency 

level 

(AFUE) 

(%) 

LCC Payback 

period 

LCC LCC 

savings Net cost No impact Net benefit 

years 

2004$ 2004$ % % % 

Baseline Unit ............................................ 80 15,847 .................... .................... .................... .................... ....................

1 ............................................................... 82 15,416 158 11 44 46 12 

2 ............................................................... 84 15,334 232 18 15 67 12 

3 ............................................................... 84 15,344 232 18 15 67 12 

4 ............................................................... 84 15,344 232 18 15 67 12 

5 ............................................................... 99 16,412 (795) 77 3 20 40 

TABLE V.7.—SUMMARY OF LCC AND PAYBACK PERIOD RESULTS FOR OIL-FIRED BOILERS

[AEO2005 energy price forecast] 

Trial 

standard level 

Efficiency 

level 

(AFUE) 

(%) 

LCC Payback 

period 

LCC LCC 

savings Net cost No impact Net benefit 

years 

2004$ 2004$ % % % 

Baseline Unit ............................................ 80 16,896 .................... .................... .................... .................... ....................

1 ............................................................... 83 16,506 40 0 84 16 1.2 

2 ............................................................... 83 16,506 40 0 84 16 1.2 

3 ............................................................... 83 16,506 40 0 84 16 1.2 

4 ............................................................... 84 16,606 1 24 61 15 27 

5 ............................................................... 95 17,775 (1070) 90 0 10 36 

Similarly, Tables V.8 through V.13 

show LCC results for the energy price 

sensitivity analysis. They list the mean 

LCC savings and the percent of 

households with a net cost, no impact, 

and a net benefit (i.e., positive savings) 

at each trial standard level for each of 

the product classes, based on energy 

price forecast from AEO2006. (Values in 

parentheses in the columns for LCC 

savings represent an increase in LCC.) 

The tables also show the mean payback 

period at each trial standard level. 

TABLE V.8.—SUMMARY OF LCC AND PAYBACK PERIOD RESULTS FOR NON-WEATHERIZED GAS FURNACES IN THE

ENERGY PRICE SENSITIVITY ANALYSIS

[AEO2006 energy price forecast] 

Trial 

standard level 

Efficiency 

level 

(AFUE) 

(%) 

LCC Payback 

period 

LCC LCC 

savings Net cost No impact Net benefit 

years 

2004$ 2004$ % % % 

Baseline Unit .......................................... 78 11,214 ...................... .................... .................... .................... ....................

1 ............................................................. 80 11,038 2 0 98 2 1.6 

2 ............................................................. 80 11,038 2 0 98 2 1.6 

3 ............................................................. 81 11,018 8 30 36 34 22 

4 ............................................................. 90 10,850 63 35 35 29 20 

5 ............................................................. 96 11,564 (626 ) 85 4 12 75 

TABLE V.9.—SUMMARY OF LCC AND PAYBACK PERIOD RESULTS FOR WEATHERIZED GAS FURNACES IN THE ENERGY

PRICE SENSITIVITY ANALYSIS

[AEO2006 energy price forecast] 

Trial 

standard level 

Efficiency 

level 

(AFUE) 

(%) 

LCC Payback 

period 

LCC LCC 

savings Net cost No impact Net benefit 

years 

2004$ 2004$ % % % 

Baseline Unit ............................................ 78 8,898 .................... .................... .................... .................... ....................

1 ............................................................... 80 8,809 2 0 98 2 1.4 

2 ............................................................... 83 8,698 86 5 0 95 4.0 


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TABLE V.9.—SUMMARY OF LCC AND PAYBACK PERIOD RESULTS FOR WEATHERIZED GAS FURNACES IN THE ENERGY

PRICE SENSITIVITY ANALYSIS—Continued 

[AEO2006 energy price forecast] 

Trial 

standard level 

Efficiency 

level 

(AFUE) 

(%) 

LCC Payback 

period 

LCC LCC 

savings Net cost No impact Net benefit 

years 

2004$ 2004$ % % % 

3 ............................................................... 83 8,698 86 5 0 95 4.0 

4 ............................................................... 83 8,698 86 5 0 95 4.0 

5 ............................................................... 83 8,698 86 5 0 95 4.0 

TABLE V.10.—SUMMARY OF LCC AND PAYBACK PERIOD RESULTS FOR MOBILE HOME GAS FURNACES IN THE ENERGY

PRICE SENSITIVITY ANALYSIS

[AEO2006 energy price forecast] 

Trial standard level 

Efficiency 

level 

(AFUE) 

(%) 

LCC Payback 

period 

LCC LCC 

savings Net cost No impact Net benefit 

years 

2004$ 2004$ % % % 

Baseline Unit ............................................ 75 9,399 .................... .................... .................... .................... ....................

1 ............................................................... 80 8,940 $71 1 85 14 3.6 

2 ............................................................... 80 8,940 71 1 85 14 3.6 

3 ............................................................... 81 8,964 49 64 5 31 28 

4 ............................................................... 90 8,764 240 32 5 63 21 

5 ............................................................... 90 8,764 240 32 5 63 21 

TABLE V.11.—SUMMARY OF LCC AND PAYBACK PERIOD RESULTS FOR OIL-FIRED FURNACES IN THE ENERGY PRICE

SENSITIVITY ANALYSIS

[AEO2006 energy price forecast] 

Trial standard level 

Efficiency 

level 

(AFUE) 

(%) 

LCC Payback 

period 

LCC LCC 

savings Net cost No impact Net benefit 

years 

2004$ 2004$ % % % 

Baseline Unit ............................................ 78 14,946 .................... .................... .................... .................... ....................

1 ............................................................... 80 14,690 10 0 96 4 0.2 

2 ............................................................... 82 14,453 167 0 30 70 0.6 

3 ............................................................... 82 14,453 167 0 30 70 0.6 

4 ............................................................... 84 14,548 90 39 15 46 13 

5 ............................................................... 85 14,606 37 52 7 41 15 

TABLE V.12.—SUMMARY OF LCC AND PAYBACK PERIOD RESULTS FOR GAS BOILERS IN THE ENERGY PRICE SENSITIVITY

ANALYSIS

[AEO2006 energy price forecast] 

Trial standard level 

Efficiency 

level 

(AFUE) 

(%) 

LCC Payback 

period 

LCC LCC 

savings Net cost No impact Net benefit 

years 

2004$ 2004$ % % % 

Baseline Unit ............................................ 80 17,772 .................... .................... .................... .................... ....................

1 ............................................................... 82 17,193 196 9 44 47 10 

2 ............................................................... 84 17,074 299 15 15 70 10 

3 ............................................................... 84 17,074 299 15 15 70 10 

4 ............................................................... 84 17,074 299 15 15 70 10 

5 ............................................................... 99 17,922 (508) 70 3 27 35 


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TABLE V.13.— SUMMARY OF LCC AND PAYBACK PERIOD RESULTS FOR OIL-FIRED BOILERS IN THE ENERGY PRICE

SENSITIVITY ANALYSIS

[AEO2006 energy price forecast] 

Trial 

standard level 

Efficiency 

level 

(AFUE) 

(%) 

LCC Payback 

period 

LCC LCC 

savings Net cost No impact Net benefit 

years 

2004$ 2004$ % % % 

Baseline Unit ........................................ 80 22,527 ...................... .................... .................... .................... ......................

1 ........................................................... 83 21,937 61 0 84 16 0 .8 

2 ........................................................... 83 21,937 61 0 84 16 0 .8 

3 ........................................................... 83 21,937 61 0 84 16 0 .8 

4 ........................................................... 84 21,973 47 17 61 22 19 

5 ........................................................... 95 22,542 (471 ) 72 0 28 26 

b. Consumer Subgroup Analysis. 

Using the LCC Spreadsheet Model, the 

Department determined the impact of 

the standards for non-weatherized gas 

furnaces on the following consumer 

subgroups: Low-income households, 

senior-only households, and Southern 

and Northern households. The results 

for low-income and senior-only 

households indicate that the LCC 

impacts on these subgroups and the 

payback periods are similar to the LCC 

impacts and payback periods on the full 

sample of residential consumers. Thus, 

the proposed furnace and boiler 

standards would have an impact on 

low-income households and senior-only 

households that would be similar to 

their impact on the general population 

of residential consumers. (See TSD, 

Chapter 11.) 

The Department also determined the 

impact of the standards for nonweatherized gas furnaces on Southern 

and Northern households. Tables V.14 

and V.15 show the mean LCC savings 

and the percent of households with a 

net cost, no impact, and a net benefit 

(i.e., positive savings) at each trial 

standard level for non-weatherized gas 

furnaces, using the AEO2005 energy 

prices forecast. (Values in parentheses 

in the columns for LCC savings 

represent an increase in LCC.) The 

tables also show the mean payback 

period at each trial standard level. 

TABLE V.14.—SUMMARY OF LCC AND PAYBACK PERIOD RESULTS FOR NON-WEATHERIZED GAS FURNACES IN THE

NORTHERN REGION

[AEO2005 energy price forecast] 

Trial standard level 

Efficiency 

level 

(AFUE) 

(%) 

LCC Payback 

period 

LCC LCC 

savings Net cost No impact Net benefit 

years 

2004$ 2004$ % % % 

Baseline Unit ............................................ 78 11,383 .................... .................... .................... .................... ....................

1 ............................................................... 80 11,202 2 0 99 1 0.6 

2 ............................................................... 80 11,202 2 0 99 1 0.6 

3 ............................................................... 81 11,179 10 23 48 30 17 

4 ............................................................... 90 10,990 79 24 48 28 15 

5 ............................................................... 96 11,695 (582) 85 6 9 65 

TABLE V.15.—SUMMARY OF LCC AND PAYBACK PERIOD RESULTS FOR NON-WEATHERIZED GAS FURNACES IN THE

SOUTHERN REGION

[AEO2005 energy price forecast] 

Trial standard level 

Efficiency 

level 

(AFUE) 

(%) 

LCC Payback 

period 

LCC LCC 

savings Net cost No impact Net benefit 

years 

2004$ 2004$ % % % 

Baseline Unit ............................................ 78% 8,359 .................... .................... .................... .................... ....................

1 ............................................................... 80 8,242 1 0 98 2 2.1 

2 ............................................................... 80 8,242 1 0 98 2 2.1 

3 ............................................................... 81 8,250 (9) 44 20 35 32 

4 ............................................................... 90 8,305 (79) 57 19 23 29 

5 ............................................................... 96 9,140 (894) 91 1 7 110 

Similarly, Tables V.16 and V.17 show 

the LCC subgroup results by region for 

the energy price sensitivity analysis. 

The tables indicate the impact of the 

standards for non-weatherized gas 

furnaces on Southern and Northern 


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households, based on the AEO2006 

energy price forecast, in terms of the 

mean LCC savings and the percent of 

households with a net cost, no impact, 

and a net benefit (i.e., positive savings) 

at each trial standard level. (Values in 

parentheses in the columns for LCC 

savings represent an increase in LCC.) 

The tables also show the mean payback 

period at each trial standard level. 

TABLE V.16.— SUMMARY OF LCC AND PAYBACK PERIOD RESULTS FOR NON-WEATHERIZED GAS FURNACES IN THE

NORTHERN REGION EVALUATED AS PART OF THE ENERGY PRICE SENSITIVITY ANALYSIS

[AEO2006 energy price forecast] 

Trial standard level 

Efficiency 

level 

(AFUE) 

(%) 

LCC Payback 

period 

LCC LCC 

savings Net cost No impact Net benefit 

years 

2004$ 2004$ % % % 

Baseline Unit ............................................ 78 12,835 .................... .................... .................... .................... ....................

1 ............................................................... 80 12,625 2 0 99 1 0.5 

2 ............................................................... 80 12,625 2 0 99 1 0.5 

3 ............................................................... 81 12,588 17 21 48 32 15 

4 ............................................................... 90 12,286 138 20 48 32 13 

5 ............................................................... 96 12,926 (471) 81 6 13 55 

TABLE V.17.— SUMMARY OF LCC AND PAYBACK PERIOD RESULTS FOR NON-WEATHERIZED GAS FURNACES IN THE

SOUTHERN REGION EVALUATED AS PART OF THE ENERGY PRICE SENSITIVITY ANALYSIS

[AEO2006 energy price forecast] 

Trial standard level 

Efficiency 

level 

(AFUE) 

(%) 

LCC Payback 

period 

LCC LCC 

savings Net cost No impact Net benefit 

years 

2004$ 2004$ % % % 

Baseline Unit ............................................ 78 9,274 .................... .................... .................... .................... ....................

1 ............................................................... 80 9,139 1 0 98 2 1.9 

2 ............................................................... 80 9,139 1 0 98 2 1.9 

3 ............................................................... 81 9,137 (2) 42 20 38 28 

4 ............................................................... 90 9,122 (20) 53 19 27 25 

5 ............................................................... 96 9,916 (796) 89 1 10 95 

c. Rebuttable-Presumption Payback. 

As set forth in section 325(o)(2)(B)(iii) of 

EPCA, 42 U.S.C. 6295(o)(2)(B)(iii), there 

is a rebuttable presumption that an 

energy conservation standard is 

economically justified if the increased 

installed cost for a product that meets 

the standard is less than three times the 

value of the first-year energy savings 

resulting from the standard. However, 

while the Department examined the 

rebuttable-presumption criteria, it 

determined economic justification for 

the proposed standard levels through a 

weighting of the benefits and burdens of 

increased efficiency in accordance with 

section 325(o)(2)(B)(i) of EPCA. (42 

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

The Department calculated a 

rebuttable-presumption payback period 

for each trial standard level to 

determine if DOE could presume that a 

standard at that level is economically 

justified. Table V.18 shows the 

rebuttable-presumption payback 

periods. Rather than using distributions 

for input values, DOE used discrete 

values and, as required by EPCA, based 

the calculation on the DOE furnace and 

boiler test procedure assumptions. As a 

result, the Department calculated a 

single rebuttable-presumption payback 

value, and not a distribution of payback 

periods, for each standard level. 

TABLE V.18.—REBUTTABLE-PRESUMPTION PAYBACK PERIOD USING DOE TEST PROCEDURE

Product class 

Payback period (years) 

TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 

Non-weatherized Gas Furnaces ...................................................................................................... 0.9 0.9 na na na 

Weatherized Gas Furnaces ............................................................................................................. 0.8 na na na na 

Mobile Home Gas Furnaces ............................................................................................................ 2.5 2.5 na na na 

Oil-fired Furnaces ............................................................................................................................ 0.1 0.2 0.2 na na 

Gas Boilers ...................................................................................................................................... na na na na na 

Oil-fired Boilers ................................................................................................................................ 0.4 0.4 0.4 na na 


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2. Economic Impacts on Manufacturers 

The Department performed an MIA to 

estimate the impact of higher efficiency 

standards on furnace and boiler 

manufacturers. (See TSD, Chapter 12.) 

a. Industry Cash Flow Analysis 

Results. The Department used the INPV 

in the MIA to compare the financial 

impacts of different trial standard levels 

on furnace and boiler manufacturers. 

The INPV is the sum of all net cash 

flows discounted at the industry’s cost 

of capital, or discount rate. Because the 

INPV applies only to the furnace and 

boiler manufacturing industry, the INPV 

is different from the NPV that the 

Department used to assess the 

cumulative benefit or cost of standards 

to consumers on a national basis. The 

GRIM estimated cash flows between 

2004 and 2038 and found them to be 

consistent with the forecast period used 

in the national impact analysis. 

The Department compared the INPV 

of the base case (no new efficiency 

standard) to that of each trial standard 

level. The difference in INPV is an 

estimate of the economic impacts that 

implementing that particular standard 

would have on the entire industry. To 

evaluate the range of cash flow impacts 

on the industry, the Department 

constructed up to four different GRIM 

scenarios for each product class that 

used different assumptions for markups 

and shipments, as described above. 

i. Non-Weatherized Gas Furnaces. For 

non-weatherized gas furnaces, the 

Department considered four cash flow 

scenarios: 

The flat markup and two-tier markup 

scenarios are each combined with NES 

shipment forecasts and manufacturers’

shipment forecasts. To assess the lower 

end of the range of potential impacts, 

the Department used the flat markup 

and NES shipments scenario, which 

represents an optimistic situation where 

shipments are not greatly affected by 

even a large increase in cost to the 

consumer. In addition, this scenario 

assumes that manufacturers do not 

differentiate their baseline products 

from their premium products, either in 

the base case or the standards case—

thus, the scenario assumes a constant 

markup across all efficiencies. The 

Department did not reduce this profit 

margin to offset some of the price 

burden passed on to the consumer in 

the standards case. Consequently, some 

of the manufacturer impacts on INPV 

are positive. 

To assess the higher end of the range 

of potential impacts, the Department 

used the manufacturers’ shipments 

forecast and modeled a two-tiered 

markup structure. The two-tier scenario 

assumes that the proportion of 

premium-margin sales will be reduced 

by the ‘‘roll-up’’ of lower efficiency 

products to the new standard level. The 

manufacturers’ shipments forecast 

assumes an increased drop in shipments 

for trial standard levels 4 and 5 due to 

equipment switching and an increase in 

repairs of current systems. As can be 

observed from the cash flow results, 

both the shipment scenario and the 

markup scenario have a significant 

impact on the results. Table V.19 shows 

the manufacturer impacts for each of the 

four scenarios. 

TABLE V.19. CHANGES IN INDUSTRY NET PRESENT VALUE, NON-WEATHERIZED GAS FURNACES

TSL 

NES shipments 

Flat markup Two-tier markup 

INPV 

$MM 

Change in INPV 

from base INPV 

$MM 

Change in INPV 

from base 

$MM % 

change $MM % change 

Base case .................................................................................................................... 1,044 .............. ............ 1,010 .............. ............

1 ................................................................................................................................... 1,044 0 0 1,010 0 0 

2 ................................................................................................................................... 1,044 0 0 1,010 0 0 

3 ................................................................................................................................... 974 (69 ) ¥7 938 (72 ) ¥7 

4 ................................................................................................................................... 1,056 13 1 801 (209 ) ¥21 

5 ................................................................................................................................... 1,258 214 21 824 (186 ) ¥18 

TSL 

Manufacturers’ shipments 

Flat markup Two-tier markup 

INPV 

$MM 

Change in INPV 

from base INPV 

$MM 

Change in INPV 

from base 

$MM % 

change $MM % change 

Base case .................................................................................................................... 1,068 .............. ............ 1,073 .............. ............

1 ................................................................................................................................... 1,068 0 0 1,073 0 0 

2 ................................................................................................................................... 1,068 0 0 1,073 0 0 

3 ................................................................................................................................... 998 (71 ) ¥7 1,000 (73 ) ¥7 

4 ................................................................................................................................... 980 (88 ) ¥8 777 (295 ) ¥28 

5 ................................................................................................................................... 807 (261 ) ¥24 575 (498 ) ¥46 

At trial standard levels 1 and 2 (80- 

percent AFUE), the impact on INPV and 

cash flow would be slight, since the 

bulk of the product being sold is already 

at the 80-percent AFUE level; thus, 

industry revenues and costs are not 

significantly negatively impacted. 

Furthermore, little investment is 

required to meet the standard. 

At trial standard level 3 (81-percent 

AFUE), concern over safety and 

reliability associated with corrosion due 

to condensation is the dominant issue 

for manufacturers of non-weatherized 

gas furnaces. Based on information 

submitted by industry, to mitigate 

theses concerns a standard at trial 

standard level 3 would require a 


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complete redesign of furnace heat 

exchangers, entailing $60 million in 

product conversion expenses and a 

$121-million investment in new tooling 

and equipment. Furthermore, 

manufacturers maintain that this capital 

outlay does not fully address their 

safety, reliability, and equipment 

longevity concerns. Finally, 

manufacturers stated that, at trial 

standard level 3, they must address 

additional liability impacts that are not 

illustrated by the quantitative results 

presented here. The impact on INPV at 

trial standard level 3 is ¥7 percent and 

cash flow in the year leading to the 

effective date would be reduced to 

approximately zero from a base case 

value of $67 million. 

Trial standard level 4 requires the 

production of 90-percent-AFUE 

condensing, non-weatherized gas 

furnaces. If manufacturers lose the 

ability to market and sell premium 

products, such as high AFUE 

condensing products, then DOE expects 

the impact on INPV to be larger. 

Another key uncertainty in future 

profitability is the market response to 

the higher price and corresponding 

energy savings of the condensing 

product. Manufacturers predict a much 

greater drop in unit sales than the NES 

analysis forecasted. The INPV impacts 

range from +1-percent to ¥28 percent. 

The required product and capital 

conversion costs are significant and 

estimated to be $82 million and $174.3 

million, respectively, because of the 

need for a secondary heat exchanger. At 

this level, the industry cash flow 

becomes slightly negative, ¥$1 million, 

compared to the base case value of $67 

million in the year leading up to the 

standards. 

At trial standard level 5 (96-percentAFUE), the impact on INPV would 

range between +21 percent and ¥46 

percent, depending on markup and 

shipment assumptions. The industry 

would experience an increase in value 

if it were able to fully pass through to 

consumers the incremental production 

costs and associated markups, and the 

shipments were reduced according to 

the forecasts in the NES shipments 

model. However, there is a risk of very 

large negative impacts if shipments 

were reduced according to 

manufacturers’ expectations and in the 

very likely situation that manufacturers 

were no longer able to offer premium 

products at higher margins. During the 

interviews, manufacturers expressed 

disbelief at the possibility of 

manufacturing an entire product line at 

96-percent AFUE, since there is only 

one model currently being 

manufactured at this efficiency level. 

Most manufacturers did not provide 

DOE with projected product conversion 

costs or capital conversion costs at this 

level, since they could not conceive of 

what designs might reach this efficiency 

level. The Department estimated the 

required product and capital conversion 

costs, based on limited input, to be $144 

million and $705 million, respectively 

for TSL 5. The impact on annual cash 

flow from product conversion and 

capital expenditures prior to the 

standard would be severe. The peak 

negative cash flow would be 

approximately four times the magnitude 

of the base-case positive cash flow. 

ii. Weatherized Gas Furnaces. For 

weatherized gas furnaces, the 

Department considered two cash flow 

scenarios, which include the flatmarkup and the constant-price 

scenario—both using NES shipments 

forecasts. The flat-markup and NESshipments scenario represents a 

situation where shipments are not 

greatly affected, even by a large increase 

in cost to the consumer. In the second 

scenario, the constant-price aspect 

assumes that manufacturers of 

weatherized gas furnaces will not be 

able to recover the incremental product 

costs resulting from increased 

standards. The Department used these 

two markup scenarios because 

manufacturers currently do not 

differentiate between baseline and 

premium products, since condensing 

technologies are not used in 

weatherized gas furnaces and therefore 

are not a differentiating feature that 

requires a premium markup. 

Consequently, the Department did not 

consider a two-tier markup scenario. 

Table V.20 shows the weatherized gas 

furnace industry impacts using the two 

scenarios. 

TABLE V.20.—CHANGES IN INDUSTRY NET PRESENT VALUE, WEATHERIZED GAS FURNACES

TSL 

NES shipments 

Flat markup Constant price markup 

INPV 

$MM 

Change in INPV 

from base INPV 

$MM 

Change in INPV 

from base 

$MM % 

change $MM % change 

Base case ........................................................................................................................ 246 ............ ............ 246 ............ ............

1 ....................................................................................................................................... 220 (27) ¥11 215 (31) ¥13 

2 ....................................................................................................................................... 199 (47) ¥19 167 (79) ¥32 

3 ....................................................................................................................................... 199 (47) ¥19 167 (79) ¥32 

4 ....................................................................................................................................... 199 (47) ¥19 167 (79) ¥32 

5 ....................................................................................................................................... 199 (47) ¥19 167 (79) ¥32 

The impact on INPV for weatherized 

gas furnaces at trial standard level 1 (81- 

percent AFUE) ranges between ¥11 

percent and ¥13 percent. Even with the 

flat-markup assumption and accepting 

the NES-shipments forecast unaltered, 

the industry value drops because of the 

large conversion costs relative to 

industry revenues. To achieve 81- 

percent AFUE, manufacturers estimate 

product conversion costs of $49 million 

and capital conversion expenses of $28 

million. Negative cash flows peak at 

approximately $5 million from a basecase value of $17 million in 2014. 

At 83-percent AFUE, trial standard 

levels 2–5, DOE forecasts that the INPV 

will drop between 19 percent and 32 

percent. At 83-percent AFUE, 

investment in corrosion-resistant 

materials must be made. The 

Department estimates the required 

product-conversion and capitalconversion costs at $70 million and $61 

million, respectively. Manufacturers 

stated that this is primarily due to the 

need for stainless steel heat exchangers. 

Net cash flow would drop to 

approximately ¥$25 million, a drop of 

$40 million from the base case. 

iii. Mobile Home Gas Furnaces. For 

mobile home furnaces, the Department 

considered two cash flow scenarios: the 


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flat-markup and NES-shipments 

scenario, and the flat-markup and 

manufacturers’ shipments scenario. The 

flat-markup and NES-shipments 

scenario represents a situation where 

shipments are not greatly affected by a 

large increase in cost to the consumer. 

The Department used the flat-markup 

because it does not believe there is a 

large variation in gross margin across all 

available efficiency levels. To represent 

the higher range of potential impacts, 

the Department used the flat-markup 

and manufacturers’ shipments scenario. 

The manufacturers’ shipments forecast 

shows a decline in mobile home furnace 

shipments at trial standard levels 4 and 

5. Manufacturers stated that consumers 

are more likely to choose heat pumps, 

combination systems, electric furnaces, 

or electric strip heaters, instead of 

buying the more efficient, more costly 

mobile home furnaces at trial standard 

levels 4 and 5. Table V.21 shows the 

manufacturer impacts for mobile home 

gas furnaces. 

TABLE V.21.—CHANGES IN INDUSTRY NET PRESENT VALUE, MOBILE HOME GAS FURNACES

TSL 

Flat markup 

NES shipments Manufacturers’ shipments 

INPV 

$MM 

Change in INPV 

from base INPV 

$MM 

Change in INPV 

from base 

$MM % 

change $MM % change 

Base case ........................................................................................................................ 21 ............ ............ 21 ............ ............

1 ....................................................................................................................................... 21 0 0 21 0 0 

2 ....................................................................................................................................... 21 0 0 21 0 0 

3 ....................................................................................................................................... 18 (3) ¥14 18 (3) ¥14 

4 ....................................................................................................................................... 12 (9) ¥42 11 (10) ¥49 

5 ....................................................................................................................................... 12 (9) ¥42 11 (10) ¥49 

At 80-percent AFUE, trial standard 

levels 1 and 2, the INPV and cash flow 

impacts are negligible, and little 

investment is required to meet the 

standard. 

At trial standard level 3, DOE 

estimates that the INPV will drop by 14 

percent. It estimates product-conversion 

and capital-conversion costs at $1.7 

million and $6 million, respectively. 

Net cash flow drops precipitously from 

+$1 million to slightly negative values 

in the year 2014. 

At 90-percent AFUE, trial standard 

levels 4 and 5, product-conversion costs 

of $6.7 million and capital expenditures 

of $12 million contribute to lowering 

INPV by 42–49 percent. Net cash flow 

becomes negative by a factor of more 

than seven times the base-case value. 

iv. Oil-Fired Furnaces. For oil-fired 

furnaces, the Department considered 

two cash flow scenarios: The flatmarkup and NES-shipments scenario, 

and the constant-price and NESshipments scenario. The flat-markup 

and NES-shipments scenario represents 

a situation where shipments are not 

greatly affected by increased cost to the 

consumer. For the second scenario, the 

Department also used the NESshipments forecast and applied a 

constant-margin assumption. While the 

Department realizes that there will be a 

drop in shipments at trial standard 

levels 4 and 5 due to equipment 

switching, the Department used the 

NES-shipments forecast because the 

difference between the NES shipments 

and the manufacturers’ shipments was 

small and some manufacturers stated 

that they expected a small drop in 

shipments at higher proposed standard 

levels. Furthermore, the Department 

does not expect a change in shipments 

when applying a constant-price 

assumption, because there will be no 

change in the product costs as a result 

of new efficiency standards. Table V.22 

displays the impacts on INPV for the 

oil-fired furnace industry for both 

scenarios. 

TABLE V.22.—CHANGES IN INDUSTRY NET PRESENT VALUE, OIL-FIRED FURNACES

TSL 

NES shipments 

Flat markup Constant price markup 

INPV 

$MM 

Change in INPV 

from base INPV 

$MM 

Change in INPV 

from base 

$MM % 

change $MM % change 

Base case ........................................................................................................................ 36 ............ ............ 36 ............ ............

1 ....................................................................................................................................... 34 (2) ¥5 34 (2) ¥5 

2 ....................................................................................................................................... 33 (3) ¥8 31 (4) ¥12 

3 ....................................................................................................................................... 33 (3) ¥8 31 (4) ¥12 

4 ....................................................................................................................................... 29 (7) ¥19 26 (10) ¥27 

5 ....................................................................................................................................... 28 (8) ¥21 23 (12) ¥35 

At trial standard level 1 (80-percent 

AFUE), DOE estimates the INPV impacts 

to be ¥5 percent for oil-fired furnaces. 

Cash flow is cut approximately in half, 

from approximately $2 million to $1 

million in 2014. The Department 

estimates product-conversion costs to be 

$3 million and capital requirements to 

total $1 million. 

At 82-percent AFUE, trial standard 

levels 2 and 3, DOE estimates the INPV 


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impacts to range from ¥8 percent to 

¥12 percent for oil-fired furnaces. Cash 

flow would be slightly positive in 2014, 

a drop of $2 million from the base case. 

The Department estimates productconversion costs to be $4.5 million and 

capital requirements to total $3.6 

million. At 82-percent AFUE, one 

manufacturer indicated the firm would 

not invest the necessary capital, since it 

could not justify the investment. 

At trial standard level 4 (84-percent 

AFUE), the INPV impacts range from 

¥19 percent to ¥27 percent, and at trial 

standard level 5 (85-percent AFUE) the 

impacts range from ¥21 percent to ¥35 

percent. Achieving these efficiency 

levels would require new heat 

exchanger designs, which raises the 

product conversion costs to $8.5 million 

at both trial standard level 4 and trial 

standard level 5. Total capital 

requirements rise to $7 million at trial 

standard level 4 and $8 million at trial 

standard level 5. Net cash flow is 

reduced by nearly 200 percent to ¥$3.4 

million at TSL 4. 

Other considerations from the 

standpoint of manufacturers of oil-fired 

furnaces include the possibility of 

implementing a de-rating strategy at 

trial standard levels 1, 2, and 3 to 

reduce capital costs. A de-rating strategy 

aims to achieve higher efficiency levels 

by using a larger capacity furnace 

compensated with a downsized burner. 

This would reduce the span of the 

product line through elimination of 

some higher capacity models. In 

addition, for oil-fired furnaces at 82- 

percent AFUE, some manufacturers 

expressed concerns about increased 

maintenance costs due to sulfur in the 

fuel and exhaust gas. This sulfur can 

form a residue that potentially would 

increase maintenance costs as efficiency 

rises. 

v. Gas Boilers. For gas boilers, the 

Department considered two cash flow 

scenarios: the flat markup and the threetier markup, both using manufacturersupplied shipment estimates. The 

Department did not use NES shipments 

in the GRIM, since they did not 

demonstrate any price responses by 

shipments—even at very high efficiency 

levels. Manufacturers stated that 

shipments would decrease with 

increases in efficiency, particularly at 

the higher levels where consumers 

would repair existing systems rather 

than replace them. 

The Department therefore defines the 

two scenarios by the assumed markup 

strategy—a flat markup or a three-tiered 

markup. The Department learned from 

manufacturers that the pricing of boilers 

is determined on the basis of three 

product tiers. During the MIA interview, 

manufacturers provided information on 

the range of typical AFUE levels for 

each of the three tiers and the change in 

profitability associated with each level 

for gas boilers. Table V.23 displays the 

manufacturer impacts on the gas boiler 

industry for both scenarios. 

TABLE V.23.—CHANGES IN INDUSTRY NET PRESENT VALUE, GAS BOILERS

TSL 

Manufacturers’ shipments 

Flat markup Three-tier markup 

INPV 

$MM 

Change in INPV 

from base INPV 

$MM 

Change in INPV 

from base 

$MM % 

change $MM % change 

Base case ........................................................................................................................ 167 ............ ............ 167 ............ ............

1 ....................................................................................................................................... 166 (1) ¥1 163 (4) ¥3 

2 ....................................................................................................................................... 155 (12) ¥7 148 (20) ¥12 

3 ....................................................................................................................................... 155 (12) ¥7 148 (20) ¥12 

4 ....................................................................................................................................... 155 (12) ¥7 148 (20) ¥12 

5 ....................................................................................................................................... 140 (27) ¥16 83 (84) ¥50 

At trial standard level 1 (82-percent 

AFUE), the impact on INPV ranges from 

¥0.9 percent to ¥3 percent for gas 

boilers. The Department estimates the 

product-conversion costs and capitalconversion costs at $7.5 and $9.5 

million, respectively. Net cash flow is 

reduced from $10 million to $9 million 

in 2014. 

At 84-percent AFUE, trial standard 

levels 2, 3, and 4, the impact on INPV 

for gas boilers ranges from ¥7 percent 

to ¥12 percent. The Department 

estimates product-conversion costs to be 

$8.7 million and capital requirements to 

total $12.5 million. Cash flow is reduced 

from $10 million to $8 million in 2014. 

Several manufacturers stated that, at 

this efficiency level, there is a high risk 

of safety and reliability issues. There is 

also a great likelihood that standingpilot versions of these products would 

be eliminated. 

At trial standard level 5 (99-percent 

AFUE), the impact on INPV for gas 

boilers ranges between ¥16 percent and 

¥50 percent. During the interviews, 

manufacturers stated that this level is 

simply not achievable with current 

technologies and is beyond the 

maximum technologically feasible level. 

Instead, some manufacturers 

recommended that the max tech level 

would more reasonably be 96-percent or 

97-percent AFUE. In addition, some 

manufacturers would not provide 

product-conversion cost or capitalconversion costs at this level, since they 

could not conceive what designs might 

reach this efficiency level. 

Consequently, with limited responses 

from manufacturers, DOE estimated the 

required product and capital conversion 

costs to be $20 million and $150 

million, respectively. The net cash flow 

is reduced to nearly ¥$45 million. 

vi. Oil-Fired Boilers. For oil-fired 

boilers, the Department considered two 

cash flow scenarios: The flat markup 

and the three-tiered markup, both using 

manufacturer-supplied shipment 

estimates. The Department considered 

only manufacturer-supplied shipment 

estimates for the same reasons given for 

gas boilers. Manufacturers stated that 

shipments would decrease for oil-fired 

boilers at higher efficiency levels, 

because the market would move toward 

radiant or electric furnaces and 

consumers would repair rather than 

replace their existing boilers. 

Thus, similarly to the markups 

defined for gas boilers, DOE defines the 

two scenarios by the assumed markup 

strategy—a flat markup or a three-tiered 

markup. The Department learned from 

manufacturers that the pricing of boilers 

is determined on the basis of three 

product tiers. During the MIA 

interviews, manufacturers provided 


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information on the range of typical 

AFUE levels for each of the three tiers 

and the change in profitability 

associated with each level for oil-fired 

boilers. Table V.24 shows the changes in 

INPV as compared to the base case for 

each trial standard level for oil-fired 

boiler manufacturers. 

TABLE V.24.—CHANGES IN INDUSTRY NET PRESENT VALUE, OIL-FIRED BOILERS

TSL 

Manufacturers’ shipments 

Flat markup Three-tier markup 

INPV 

$MM 

Change in INPV 

from base INPV 

$MM 

Change in INPV 

base 

$MM % 

change $MM % change 

Base case ........................................................................................................................ 84 ............ ............ 84 ............ ............

1 ....................................................................................................................................... 82 (3) ¥3 73 (11) ¥13 

2 ....................................................................................................................................... 82 (3) ¥3 73 (11) ¥13 

3 ....................................................................................................................................... 82 (3) ¥3 73 (11) ¥13 

4 ....................................................................................................................................... 82 (2) ¥2.5 72 (12) ¥14 

5 ....................................................................................................................................... 69 (16) ¥19 46 (38) ¥45 

At 83-percent AFUE, trial standard 

levels 1, 2, and 3, the impact on INPV 

ranges from ¥3 percent to ¥13 percent 

for oil-fired boilers. At trial standard 

level 4 (84-percent AFUE), the impact 

on INPV ranges from between ¥2.5 

percent to ¥14 percent. The 

Department estimates productconversion costs and capital-conversion 

costs to be $4 million and $3.2 million, 

respectively, for trial standard levels 1, 

2, and 3. For trial standard level 4, DOE 

estimates product-conversion costs and 

capital-conversion costs to be $4.1 

million and $3.4 million, respectively. 

At these levels, manufacturers would 

likely use a de-rating strategy to reduce 

capital costs. This would reduce the 

span of the product line through 

elimination of some higher capacity 

models. Cash flow is reduced from $5 

million to $4 million in 2014 for trial 

standard levels 1 through 4. 

At trial standard level 5 (95-percent 

AFUE), the impact on INPV ranges from 

¥19 percent to ¥45 percent. Net cash 

flow would be reduced to 

approximately ¥$22 million. The 

Department estimates productconversion and capital-conversion costs 

to be $10.3 and $70.4 million, 

respectively. At this level, 

manufacturers expect complete loss of 

sales to competing products. 

b. Impacts on Manufacturing 

Capacity. To the extent that more 

stringent energy conservation standards 

increase the size of the heat exchanger, 

they could reduce plant throughput, 

particularly for those plants that are 

constrained in their heat exchanger 

fabrication area. The standards thus 

could necessitate that manufacturers 

add floor space to their existing plants 

and warehouses. In addition, assembly 

and fabrication times could increase for 

the larger equipment. In an attempt to 

recoup capacity, manufacturers might 

need to invest in productivity, or 

equipment, or consider outsourcing 

some heat exchanger production. 

It is not clear that all new capacity 

would be added in the United States. 

During the MIA interviews, several 

manufacturers stated that there has been 

a trend in the industry to move 

production facilities to overseas 

locations where labor markets offer cost 

savings. Some of these companies 

commented that new standards could 

speed up this trend. 

For condensing gas boilers, in 

particular, the European market is as 

large as the non-weatherized gas furnace 

market in the United States, with 

attendant high-volume pricing and large 

company suppliers. If standards were to 

require condensing technology, it is 

likely that manufacturers would outsource heat exchangers to European 

countries. 

c. Impacts on Subgroups of 

Manufacturers. Using average cost 

assumptions to develop an industrycash-flow estimate is not adequate for 

assessing differential impacts among 

subgroups of manufacturers. Small 

manufacturers, niche players, or 

manufacturers exhibiting a cost 

structure that differs largely from the 

industry average could be affected 

differently. The Department used the 

results of the industry characterization 

to group manufacturers exhibiting 

similar characteristics. 

The Department evaluated the impact 

of new energy conservation standards 

on small businesses, as defined by the 

SBA for the furnace and boiler 

manufacturing industry as 

manufacturing enterprises with 750 or 

fewer employees. The Department 

created a more tailored version of the 

interview guide for small furnace and 

boiler manufacturers, and contacted 

small businesses to determine if they 

were interested in discussing 

differential impacts that standards 

would have on their companies. The 

Department received feedback from five 

manufacturers, which suggested that 

impacts on them would not differ from 

impacts on larger companies within the 

industry. (See TSD, Chapter 12.) 

During the manufacturer interviews, 

the Department also identified several 

types of residential furnaces and boilers 

that are used in particular or unusual 

applications, have features that differ 

from those of the vast majority of 

products available on the marketplace, 

and have some unique utility. The 

Department refers to these as ‘‘niche 

products.’’ In the TSD, DOE presents 

niche product classes that the 

Department identified and further 

considered. During the manufacturer 

interviews, several manufacturers 

claimed that certain niche products 

would not be viable if required to meet 

higher efficiency standards. All of these 

products serve relatively small niche 

markets and, as such, the efficiency 

standards established for these products 

will have little effect on national energy 

savings. Some of the niche products 

have very similar characteristics to the 

product class they belong to, and will 

not be disproportionately affected or 

threatened by new standards. (See TSD, 

Chapter 12.) 

d. Cumulative Regulatory Burden. 

One aspect of the assessment of 

manufacturer burden is the cumulative 

impact of multiple DOE standards and 

the regulatory actions of other Federal 

agencies and States that affect the 

manufacture of a covered product. The 

Department believes that a standard 

level is not economically justified if it 

contributes to an unacceptable 


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cumulative regulatory burden. While 

any one regulation may not impose a 

significant burden on manufacturers, 

the combined effects of several 

impending regulations may have serious 

consequences for some manufacturers, 

groups of manufacturers, or an entire 

industry. Assessing the impact of a 

single regulation may overlook this 

cumulative regulatory burden. 

Companies that produce a wider 

range of regulated products may be 

faced with more capital and product 

development expenditures than their 

competitors. This can prompt those 

companies to exit the market or reduce 

their product offerings, potentially 

reducing competition. Smaller 

companies can be especially affected, 

since they have lower sales volumes 

over which to amortize the costs of 

meeting new regulations. 

The most significant regulatory 

actions affecting the furnace and boiler 

industries are compliance with more 

stringent Federal energy conservation 

standards for residential and 

commercial air conditioners, and the 

EPA-mandated phase out of 

hydrofluorocarbon (HFC) and 

hydrochlorofluorocarbon (HCFC) 

refrigerants. Manufacturers of 

residential furnaces and boilers also 

manufacturer approximately 82 percent 

of the residential central air 

conditioners and heat pumps and many 

of these manufacturers also manufacture 

commercial unitary air conditioners and 

heat pumps. The effective date for the 

residential AC rulemaking was January 

23, 2006. Manufacturers were working 

to redesign all of the product lines and 

have allocated most of their capital 

resources for redesigning and retooling 

of their production lines to meet the 

new minimum efficiency standard. The 

effective date for the new commercial 

unitary air conditioner and heat pump 

standards is January 1, 2010, as 

specified in EPACT 2005. 

Manufacturers are now re-designing 

their product offerings and will need to 

retool to meet those standards. In 

addition, the EPA-mandated refrigerant 

phase out comes into effect on January 

1, 2010, and is expected to have the 

biggest cumulative impact on residential 

furnace and boiler manufacturers. 

Chapter 12 of the TSD quantifies the 

anticipated level of investments needed 

to meet each of these regulatory 

burdens. 

3. National Impact Analysis 

a. Significance of Energy Savings. To 

estimate the energy savings through 

2038 due to amended energy 

conservation standards, the Department 

compared the energy consumption of 

furnaces and boilers under the base case 

to energy consumption of furnaces and 

boilers under the five trial standard 

levels. As discussed in section III.D.1, 

the results account for a rebound effect 

of 15 percent (i.e., 15 percent of the total 

savings from higher equipment 

efficiency are ‘‘taken back’’ by 

consumers to provide more heating 

service). Table V.25 shows the 

forecasted national energy savings at 

each of the trial standard levels 

calculated using the AEO2005 energy 

price forecast. The table also shows the 

magnitude of the energy savings if the 

savings are discounted at rates of seven 

and three percent. Each trial standard 

level considered in this rulemaking 

would result in significant energy 

savings, and the amount of savings 

increases with higher efficiency 

standards. (See TSD, Chapter 10.) 

TABLE V.25.—SUMMARY OF CUMULATIVE NATIONAL ENERGY SAVINGS FOR RESIDENTIAL FURNACES AND BOILERS

(ENERGY SAVINGS FOR UNITS SOLD FROM 2015 TO 2038) 

[AEO2005 energy price forecast] 

Trial standard level 

National energy savings 

(quads) 

Primary 3% 

discounted 

7% 

discounted 

1 ............................................................................................................................................................... 0.18 0.09 0.03 

2 ............................................................................................................................................................... 0.41 0.19 0.08 

3 ............................................................................................................................................................... 0.69 0.33 0.13 

4 ............................................................................................................................................................... 3.19 1.52 0.61 

5 ............................................................................................................................................................... 6.22 2.95 1.18 

For the energy price sensitivity 

analysis, the Department also estimated 

the energy savings through 2038 due to 

amended energy conservation standards 

based on the AEO2006 energy price 

forecasts. Table V.26 shows the results 

for the national energy savings in the 

energy price sensitivity analysis, which 

are slightly different for trial standard 

levels 3, 4, and 5. 

TABLE V.26.—SUMMARY OF CUMULATIVE NATIONAL ENERGY SAVINGS FOR RESIDENTIAL FURNACES AND BOILERS

(ENERGY SAVINGS FOR UNITS SOLD FROM 2015 TO 2038) 

[AEO2006 energy price forecast] 

Trial standard level 

National energy savings 

(quads) 

Primary 3% 

discounted 

7% 

discounted 

1 ............................................................................................................................................................... 0.18 0.09 0.03 

2 ............................................................................................................................................................... 0.41 0.2 0.08 

3 ............................................................................................................................................................... 0.7 0.33 0.13 

4 ............................................................................................................................................................... 3.2 1.52 0.61 

5 ............................................................................................................................................................... 6.31 3 1.2 


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59246 Federal Register / Vol. 71, No. 194 / Friday, October 6, 2006 / Proposed Rules 

In addition to examining cumulative 

energy savings as a nation for residential 

furnaces and boilers, the Department 

looked at the cumulative energy savings 

by region. The Department defined the 

same two regions for the regional energy 

savings analysis as it used in the 

Consumer Subgroup analysis. Table 

V.27 shows the forecasted energy 

savings at each of the trial standard 

levels for the Northern and Southern 

regions based on the AEO2005. In 

addition, the Department also examined 

the cumulative energy savings by region 

in the energy price sensitivity analysis. 

Table V.28 shows the forecasted energy 

savings at each of the trial standard 

levels for the Northern and Southern 

regions based on the AEO2006. 

TABLE V.27.—SUMMARY OF CUMULATIVE ENERGY SAVINGS BY REGION

FOR RESIDENTIAL NON-WEATHERIZED GAS FURNACES (ENERGY SAVINGS FOR UNITS SOLD FROM 2015 

TO 2038) 

[AEO2005 energy price forecast] 

Trial standard 

level 

Primary energy savings 

(quads) 

Northern 

region 

Southern 

region 

1 ........................ 0.01 0.004 

2 ........................ 0.01 0.004 

3 ........................ 0.2 0.12 

4 ........................ 1.72 1.04 

5 ........................ 3.16 1.71 

TABLE V.28.—SUMMARY OF CUMULATIVE ENERGY SAVINGS BY REGION

FOR RESIDENTIAL NON-WEATHERIZED GAS FURNACES IN THE ENERGY

PRICE SENSITIVITY ANALYSIS (ENERGY SAVINGS FOR UNITS SOLD

FROM 2015 TO 2038) 

[AEO2006 energy price forecast] 

Trial standard 

level 

Primary energy savings 

(quads) 

Northern 

region 

Southern 

region 

1 ........................ 0.01 0.004 

2 ........................ 0.01 0.004 

3 ........................ 0.19 0.13 

4 ........................ 1.64 1.12 

5 ........................ 3 1.78 

b. Net Present Value. The NPV 

analysis is a measure of the cumulative 

benefit or cost of standards to the 

Nation. In accordance with OMB’s 

guidelines on regulatory analysis (OMB 

Circular A–4, section E, September 17, 

2003), DOE calculated NPV using both 

a seven-percent and a three-percent real 

discount rate. The seven-percent rate is 

an estimate of the average before-tax rate 

of return to private capital in the U.S. 

economy, and reflects the returns to real 

estate and small business capital as well 

as corporate capital. The Department 

used this discount rate to approximate 

the opportunity cost of capital in the 

private sector, since recent OMB 

analysis has found the average rate of 

return to capital to be near this rate. In 

addition, DOE used the three-percent 

rate to capture the potential effects of 

standards on private consumption (e.g., 

through higher prices for equipment and 

the purchase of reduced amounts of 

energy). This rate represents the rate at 

which ‘‘society’’ discounts future 

consumption flows to their present 

value. This rate can be approximated by 

the real rate of return on long-term 

government debt (i.e., yield on Treasury 

notes minus annual rate of change in the 

Consumer Price Index), which has 

averaged about three-percent on a pretax basis for the last 30 years. 

Table V.29 shows the forecasted NPV 

at each of the trial standard levels, based 

on the AEO2005 energy price forecasts. 

Use of a three-percent discount rate 

increases the present value of future 

equipment-purchase costs and 

operating-cost savings. However, 

because annual operating-cost savings 

in later years grow at a faster rate than 

annual equipment-purchase costs, use 

of a three-percent discount rate 

increases the NPV at most trial standard 

levels. (See TSD, Chapter 10.) Similarly, 

the Department also calculated the 

forecasted NPV in the energy price 

sensitivity analysis based on the 

AEO2006. Table V.30 exhibits the 

forecasted NPV at each trial standard 

level, based on the AEO2006 energy 

price forecasts. 

TABLE V.29.—SUMMARY OF CUMULATIVE NET PRESENT VALUE FOR

RESIDENTIAL FURNACES AND BOILERS (IMPACTS FOR UNITS SOLD

FROM 2015 TO 2038) 

[AEO2005 energy price forecast] 

Trial standard 

level 

NPV (billion 2004$) 

7% 

discount 

rate 

3% 

discount 

rate 

1 ........................ 0.33 1.24 

2 ........................ 0.65 2.48 

3 ........................ 0.53 3.00 

4 ........................ 0.06 8.37 

5 ........................ ¥17.53 ¥22.42 

TABLE V.30.—SUMMARY OF CUMULATIVE NET PRESENT VALUE FOR

RESIDENTIAL FURNACES AND BOILERS IN THE ENERGY PRICE SENSITIVITY ANALYSIS (IMPACTS FOR

UNITS SOLD FROM 2015 TO 2038) 

[AEO2006 energy price forecast] 

Trial standard 

level 

NPV (billion 2004$) 

7% 

discount 

rate 

3% 

discount 

rate 

1 ........................ 0.43 1.53 

2 ........................ 0.82 3.02 

3 ........................ 0.90 4.12 

4 ........................ 1.83 13.64 

5 ........................ ¥13.49 ¥10.34 

In addition to national net present 

value, the Department examined the 

regional effects of standards on the net 

present value. Table V.31 shows the 

forecasted NPV at each of the trial 

standard levels for the Northern and 

Southern regions based on the AEO2005 

energy price forecasts. In addition, the 

Department examined the NPV by 

region in the energy price sensitivity 

analysis. Table V.32 shows the NPV at 

each of the trial standard levels for the 

Northern and Southern regions based on 

the AEO2006 energy price forecasts. 


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TABLE V.31.—SUMMARY OF CUMULATIVE NET PRESENT VALUE BY REGION FOR RESIDENTIAL NON-WEATHERIZED GAS

FURNACES (IMPACTS FOR UNITS SOLD FROM 2015 TO 2038) 

[AEO2005 energy price forecast] 

Trial standard level 

NPV (billion 2004$) 

Northern region Southern region 

7% 

discount 

rate 

3% 

discount 

rate 

7% 

discount 

rate 

3% 

discount 

rate 

1 ....................................................................................................................................... 0.02 0.07 0.01 0.03 

2 ....................................................................................................................................... 0.02 0.07 0.01 0.03 

3 ....................................................................................................................................... 0.11 0.72 ¥0.1 0.11 

4 ....................................................................................................................................... 0.79 5.99 ¥0.82 1.10 

5 ....................................................................................................................................... ¥6.85 ¥7.77 ¥8.29 ¥13.90 

TABLE V.32.—SUMMARY OF CUMULATIVE NET PRESENT VALUE BY REGION FOR RESIDENTIAL NON-WEATHERIZED GAS

FURNACES IN THE ENERGY PRICE SENSITIVITY ANALYSIS (IMPACTS FOR UNITS SOLD FROM 2015 TO 2038) 

[AEO2006 energy price forecast] 

Trial standard level 

NPV (billion 2004$) 

Northern region Southern region 

7% 

discount 

rate 

3% 

discount 

rate 

7% 

discount 

rate 

3% 

discount 

rate 

1 ....................................................................................................................................... 0.02 0.07 0.01 0.04 

2 ....................................................................................................................................... 0.02 0.07 0.01 0.04 

3 ....................................................................................................................................... 0.18 0.92 ¥0.01 0.38 

4 ....................................................................................................................................... 1.41 7.70 ¥0.08 3.51 

5 ....................................................................................................................................... ¥5.07 ¥3.00 ¥7.74 ¥11.8 

c. Impacts on Employment. In 

accordance with the Process Rule, 

section 4(d)(7)(vi), the Department 

estimated the employment impacts of 

the proposed standard on the economy 

in general. 61 FR 36983. As discussed 

above, the Department expects energy 

conservation standards for residential 

furnaces and boilers to reduce energy 

bills for consumers, and the resulting 

net savings to be redirected to other 

forms of economic activity. The 

Department also realizes that these 

shifts in spending and economic activity 

could affect the demand for labor. To 

estimate these effects, the Department 

used an input/output model of the U.S. 

economy using BLS data (as described 

in section IV.G). (See TSD, Chapter 14.) 

This input/output model suggests the 

proposed furnace and boiler standards 

are likely to slightly increase the net 

demand for labor in the economy. 

Neither the BLS data nor the input/ 

output model used by DOE includes the 

quality or wage level of the jobs. As 

shown in Table V.33, the Department 

estimates that net indirect employment 

impacts from a proposed furnace and 

boiler energy-efficiency standard are 

positive. 

TABLE V.33.—NET NATIONAL CHANGE IN INDIRECT EMPLOYMENT, THOUSANDS OF JOBS IN 2038 

Trial standard level 

(thousands of jobs) 

TSL1 TSL2 TSL3 TSL4 TSL5 

1.3 2.9 9.7 18 20.1 

4. Impact on Utility or Performance of 

Products 

As presented in section III.E.1.d, of 

this notice, DOE concluded that none of 

the efficiency levels considered in this 

notice reduce the utility or performance 

of residential furnaces and boilers. 

Furthermore, furnace and boiler 

manufacturers currently offer products 

that meet or exceed the proposed 

standards. (42 U.S.C. 

6295(o)(2)(B)(i)(IV)) 

5. Impact of Any Lessening of 

Competition 

The Department considers any 

lessening of competition that is likely to 

result from standards. The Attorney 

General determines the impact, if any, 

of any lessening of competition likely to 

result from a proposed standard, and 

transmits such determination to the 

Secretary together with an analysis of 

the nature and extent of such impact. 

(See 42 U.S.C. 6295(o)(2)(B)(i)(V) and 

(B)(ii)) 

To assist the Attorney General in 

making such a determination, the 

Department has provided the 

Department of Justice (DOJ) with copies 

of this notice and the TSD for review. 

The Department will consider DOJ’s 

comments on the proposed rule in 

preparing the final rule. 


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6. Need of the Nation To Conserve 

Energy 

Enhanced energy efficiency also 

produces environmental benefits. The 

expected energy savings from higher 

furnace and boiler standards will reduce 

the emissions of air pollutants and 

greenhouse gases associated with energy 

production and household use of fossil 

fuels. Table V.34 shows cumulative CO2,

SO2, and NOX emissions reductions over 

the analysis period. As discussed in 

section III.D.1, the results account for a 

rebound effect of 15 percent. The 

cumulative CO2, NOX, and SO2

emissions reductions range up to 341.0 

Mt, 203.4 kt, and 69.0 t, respectively. 

The Department reports annual CO2,

SO2, and NOX emissions reductions for 

each trial standard level in the 

environmental assessment, a separate 

report in the TSD. 

As discussed in section IV.I, DOE 

reports SO2 emissions reductions at the 

household level instead of reporting 

these emissions from power plants. The 

reported NOX emissions reductions do 

include the impacts of each trial 

standard level at power plants. If NOX

emissions are subject to emissions caps 

in the evaluation period, the 

Department assumes that the reported 

emissions reductions correspond to the 

production of emissions allowance 

credits. 

TABLE V.34.—SUMMARY OF EMISSIONS REDUCTIONS FOR RESIDENTIAL FURNACES AND BOILERS

[Cumulative reductions for units sold from 2015 to 2038] 

Emissions TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 

CO2 (Mt) ................................................................................................................................. 9 19 .6 37 171 .1 341 

NOX (kt) ................................................................................................................................. 6 13 24 .5 113 203 .4 

SO2 (kt) .................................................................................................................................. 0 .7 1 .5 2 .7 12 .7 69 

The Department also presents its 

results for discounted emissions of CO2,

NOX, and SO2. The Department used the 

same discount rates that it used in 

calculating the NPV (seven percent and 

three percent real) to calculate 

discounted cumulative emission 

reductions. Table V.35 shows the 

discounted cumulative emissions 

impacts for residential furnaces and 

boilers. The Department intends the 

seven-percent and three-percent real 

discount rate values to capture the 

present value of costs and benefits 

associated with projects facing an 

average degree of risk. Other discount 

rates may be more applicable to 

discount costs and benefits associated 

with projects facing different risks and 

uncertainties. The Department seeks 

input from interested parties on the 

appropriateness of using other discount 

rates in addition to seven percent and 

three percent real to discount future 

emissions reductions. 

TABLE V.35.—SUMMARY OF DISCOUNTED EMISSIONS REDUCTIONS FOR RESIDENTIAL FURNACES AND BOILERS

[Cumulative reductions for units sold from 2015 to 2038] 

Emissions TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 

7% Discount Rate: 

CO2 (Mt) ................................................................................................................................ 1 .7 3.6 6.9 31 .8 63.2 

NOX (kt) ................................................................................................................................ 1 2.2 4.1 18 .9 33.5 

SO2 (kt) ................................................................................................................................. 0 .1 0.3 0.5 2 .4 12.5 

3% Discount Rate: 

CO2 (Mt) ................................................................................................................................ 4 .1 8.9 16.9 78 .1 155.3 

NOX (kt) ................................................................................................................................ 2 .6 5.6 10.6 49 87.2 

SO2 (kt) ................................................................................................................................. 0 .3 0.7 1.3 5 .8 31.2 

7. Other Factors 

The Secretary of Energy, in 

determining whether a standard is 

economically justified, may consider 

any other factors that the Secretary 

deems to be relevant. (42 U.S.C. 

6295(o)(2)(B)(i)(VII)) The Department 

recognizes the importance of 

incorporating safe venting systems with 

the use of residential furnace and 

boilers. Consequently, safety was one of 

the factors DOE identified for 

consideration in weighing the benefits 

and burdens of the trial standards. 

C. Proposed Standard 

The Act, at 42 U.S.C. 6295(o)(2)(A), 

specifies that any new or amended 

energy conservation standard for any 

type (or class) of covered product shall 

be designed to achieve the maximum 

improvement in energy efficiency that 

the Secretary determines is 

technologically feasible and 

economically justified. In determining 

whether a standard is economically 

justified, the Secretary must determine 

whether the benefits of the standard 

exceed its burdens. (42 U.S.C. 

6295(o)(2)(B)(i)) The new or amended 

standard also must ‘‘result in significant 

conservation of energy.’’ (42 U.S.C. 

6295(o)(3)(B)) 

The Department considers the 

impacts of standards beginning with the 

maximum technologically feasible level, 

i.e., trial standard level 5, to determine 

whether that level was economically 

justified. The Department then 

considers less efficient levels until it 

reaches the level which is 

technologically feasible and 

economically justified and saves a 

significant amount of energy. 

To aid the reader as the Department 

discusses the benefits and/or burdens of 

each trial standard level, Table V.36 

presents a summary of quantitative 

analysis results for each trial standard 

level based on the assumptions and 

methodology discussed above. These 

include manufacturing cost estimates, 

equipment lifetimes, and energy prices 

based on the reference case from the 

AEO2005 energy price forecast. 

Additional quantitative results, 

including regional impacts and the 

results of the energy price sensitivity 

analysis, including the life-cycle-cost, 

national energy savings, and regional 

analyses based on the AEO2006 energy 

price forecast, are provided in sections 


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19For all of the TSLs, CO2 emissions impacts 

include physical reductions at power plants and 

households. 

20For all of the TSLs, NOX emissions impacts 

include physical reductions at power plants and 

households as well as production of emissions 

allowance credits where NOX emissions are subject 

to emissions caps. 

21For all of the TSLs, SO2 emissions impacts 

include physical reductions at households only. 

22Non-weatherized gas furnaces are the most 

prominent class of residential furnaces and boilers 

accounting for approximately 72 percent of the total 

industry sales and approximately 81 percent of 

residential furnace sales. Gas-fired boilers are the 

most prominent class of residential boilers 

accounting for 6 percent of the total industry sales 

and 61 percent of residential boiler sales. 

V.B.1.a., V.B.1.b., V.B.3.a., and V.B.3.b., 

above. 

In addition to the quantitative results, 

the Department also considers other 

burdens and benefits that affect 

economic justification. This includes 

the potential impacts on safety, 

reliability and consumers’ utility (i.e., 

the ability to replace a furnace or boiler 

with a new, more efficient product, 

without having to make any significant 

modifications to the existing dwelling). 

TABLE V.36.—SUMMARY OF RESULTS BASED UPON THE AEO2005 ENERGY PRICE FORECAST* 

TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 

Primary energy saved (quads) .................................................... 0.18 0.41 0.69 3.19 6.22 

7% Discount rate ......................................................................... 0.03 0.08 0.13 0.61 1.18 

3% Discount rate ......................................................................... 0.09 0.19 0.33 1.52 2.95 

Generation capacity change (GW)** ........................................... 0 0 0 0.1 4 

NPV (2004$billion): 

7% Discount rate .................................................................. 0.33 0.65 0.53 0.06 ¥17.5 

3% Discount rate .................................................................. 1.24 2.48 3 8.37 ¥22.4 

Industry impacts: 

Industry NPV (2004$million) ................................................ (33) to (48) (65) to (114) (137) to (190) (64) to (425) 107 to (720) 

Industry NPV (% Change) .................................................... (2%) to (3%) (4%) to (7%) (9%) to (12%) (4%) to (26%) 7% to (44%) 

Cumulative emissions impacts***: 

CO2 (Mt) ............................................................................... 9 19.6 37 171 341 

NOX (kt) ................................................................................ 6 13 24.5 113 203 

SO2 (kt) ................................................................................ 0.7 1.5 2.7 12.7 69 

Mean life-cycle cost savings (2004$): 

Non-Weatherized Gas Furnaces .......................................... 2 2 2 5 ¥731 

Weatherized Gas Furnaces ................................................. 2 73 73 73 73 

Oil-Fired Furnaces ................................................................ 7 113 113 ¥23 ¥109 

Gas Boilers ........................................................................... 158 232 232 232 ¥795 

Oil-Fired Boilers .................................................................... 40 40 40 1 ¥1070 

Mobile Home Gas Furnaces ................................................ 51 51 18 124 124 

Mean Payback Period (years): 

Non-Weatherized Gas Furnaces .......................................... 1.5 1.5 26 23 88 

Weatherized Gas Furnaces ................................................. 1.6 4.6 4.6 4.6 4.6 

Oil-Fired Furnaces ................................................................ 0.3 0.8 0.8 18 22 

Gas Boilers ........................................................................... 12 12 12 12 40 

Oil-Fired Boilers .................................................................... 1.2 1.2 1.2 27 36 

Mobile Home Gas Furnaces ................................................ 5 5 31 25 25 

* Parentheses indicate negative (¥) values. 

** Reductions in installed generation capacity by the year 2030 based on AEO2005 Reference Case. 

*** CO2 emissions impacts include physical reductions at power plants and households. NOX emissions impacts include physical reductions at 

power plants and households as well as production of emissions allowance credits where NOX emissions are subject to emissions caps. SO2

emissions impacts include physical reductions at households only. 

First, the Department considered trial 

standard level 5, the maximum 

technologically feasible level, for each 

product class. Trial standard level 5 will 

likely save 6.22 quads of energy through 

2038, an amount the Department 

considers significant. Discounted at 7 

percent, the energy savings through 

2038 would be 1.18 quads. For the 

Nation as a whole, trial standard level 

5 would result in a net cost of $17.5 

billion in NPV. The emissions impacts 

are 341 Mt of CO2,19 203 kt of NOX,20

and 69.0 kt of SO2.21 Total generating 

capacity in 2030 increases by 4.0 

gigawatts (GW) under trial standard 

level 5, due to projected switching from 

gas furnaces to electric heating 

equipment. 

At trial standard level 5, the average 

consumer would experience a 

significant increase in life-cycle costs 

for most product classes. Purchasers of 

non-weatherized gas furnaces would 

lose on average $731 over the life of the 

product in present value terms and 

purchasers of gas-fired boilers would 

lose on average $795 in present value 

terms.22 The Department found at trial 

standard level 5 that 91 percent of 

households in the South have a lifecycle net cost. The Department’s lifecycle cost analysis shows that over 80 

percent of all non-weatherized gas 

furnace consumers in the southern 

region (approximately 16 million 

households) would experience net 

increases in their life-cycle costs of 

more than $500 and a small (fourpercent), but significant percentage of 

these households might experience net 

increases in life-cycle costs of over 

$1700. Furthermore, the life-cycle cost 

analysis indicates that on average, the 

mean LCC savings would be negative for 

88 percent of households in the Nation 

with non-weatherized gas furnaces at 

TSL 5. Reinforcing the primary LCC 

result, the Department estimates that the 

mean payback period of all product 

classes except for weatherized gas 

furnaces would be substantially longer 

than the mean lifetime of these furnaces. 

The change in industry value (INPV) 

ranges from an increase of $107 million 

to a decrease of $720 million. The 

magnitude of the impacts is largely 

determined by the cashflow results for 

the non-weatherized gas furnaces. For 

this product class, the impacts are 

driven primarily by the assumptions 

regarding future product shipments and 

the ability to offer differentiated 

products that command a premium 

mark-up. The Department recognizes 

the significant difference between the 


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shipments forecasted by the NES and 

those anticipated by manufacturers. The 

Department is concerned with an 

increase in total installed cost of $1519 

for non-weatherized gas furnaces, or 82 

percent. With an increase of that size, 

there is a significant risk of consumers 

switching to other heating systems, 

including heat pumps and electric 

resistance heating. The Department also 

recognizes that the ability to maintain a 

full product line is more difficult at 

higher standard levels. Therefore, the 

Department places more weight on the 

two-tiered markup scenario for nonweatherized gas furnaces at trial 

standard level 5. In particular, if the 

high range of impacts is reached as DOE 

expects, trial standard level 5 could 

result in a net loss of $498 million to the 

non-weatherized gas furnace industry. 

After carefully considering the 

analysis, comments on the ANOPR, and 

the benefits versus burdens, the 

Secretary concludes that at trial 

standard level 5 the benefits of energy 

savings and emissions impacts would be 

outweighed by the potential multibillion dollar negative net economic 

cost to the Nation, the economic burden 

on consumers, and the large capitalconversion costs that could result in the 

large reduction in INPV for 

manufacturers. Consequently, the 

Secretary has concluded that trial 

standard level 5, the maximum 

technologically feasible level, is not 

economically justified. 

Next, the Department considered trial 

standard level 4, which specifies a 90- 

percent AFUE for non-weatherized gas 

furnaces and 85-percent AFUE for gasfired boilers. Primary energy savings 

would likely be 3.19 quads of energy 

through 2038, which the Department 

considers significant. Discounted at 7 

percent, the energy savings through 

2038 would be 0.61 quad. For the 

Nation as a whole, trial standard level 

4 would result in a net savings of $0.06 

billion in NPV. The emissions impacts 

are 171 Mt of CO2, 113 kt of NOX, and 

12.7 kt of SO2. Total generating capacity 

in 2030 under trial standard level 4 

would increase by 0.1 GW. This would 

be due to the projected switching from 

gas furnaces to electric heating 

equipment. 

At trial standard level 4, consumers 

would experience an increase in lifecycle costs for oil-fired furnaces and a 

decrease in life-cycle costs for the other 

five product classes. Purchasers of nonweatherized gas furnaces would save, 

on average, $5 over the life of the 

product in present value terms, and 

purchasers of gas-fired boilers would 

save, on average, $232 over the life of 

the boiler in present value terms. The 

Department found that 39 percent of 

households with non-weatherized gas 

furnaces would experience a net cost, 

and 25 percent of households with nonweatherized gas furnaces would 

experience a net gain. 

The Department also examined the 

regional impacts to consumers of nonweatherized gas furnaces in Northern 

and Southern climates separately. 

Because TSL 4 requires the use of 

condensing technology for nonweatherized gas furnaces, a majority of 

the affected consumers in the South 

would experience a significant increase 

in total installed cost. Sixty-three 

percent of consumers in the South with 

non-weatherized gas furnaces would 

experience an increase in total installed 

cost greater than $500, while a small, 

but significant (approximately 2 

percent) of these consumers would 

experience an increase in total installed 

cost of more than $900. In the Southern 

region, where the operating cost savings 

of condensing technology are less 

important, these substantial increases in 

total installed costs lead to increased 

life-cycle costs. The Department found 

that the majority, 57 percent, of 

households in the South with a nonweatherized gas furnace would 

experience a life-cycle net cost, while 23 

percent would experience a net gain. At 

trial standard level 4, the average net 

LCC increase to the Southern consumer 

with a non-weatherized gas furnace is 

$79, while the average net decrease to 

the Northern consumer with a nonweatherized gas furnace is $79. Almost 

half of the consumers in the northern 

region with a non-weatherized gas 

furnace would not be affected by the 

standard because the equipment the 

household currently uses already meets 

or exceeds the trial standard level 4 

efficiency level (i.e., 90-percent AFUE). 

However, 81 percent of Southern 

consumers with a non-weatherized gas 

furnace would be impacted by the 

standard. Seventy percent of those 

Southern consumers with nonweatherized gas furnace impacted by 

the standard would experience an 

increase in life-cycle cost. The 

Department’s life-cycle cost analysis 

shows that ten percent of all nonweatherized gas furnace consumers in 

the southern region (approximately 2 

million households) would experience 

net increases in their life-cycle costs of 

more than $500 and a small (seven 

percent), but significant percentage of 

these households would experience net 

increases in life-cycle costs of over 

$700. Reinforcing this primary LCC 

result, the Department estimates that the 

mean payback period of nonweatherized gas furnaces in the 

Southern climate would be substantially 

longer than the mean lifetime of these 

furnaces. 

The Department also considers the 

impact of proposed standard level TSL 

4 on industry. The change in industry 

value ranges from a loss of $64 million 

to a loss of $425 million, which could 

potentially cause up to a 26 percent 

drop in total industry value. The 

magnitude of impacts is still largely 

determined by the cashflow results for 

the non-weatherized gas furnaces. For 

this product class, the impacts continue 

to be driven primarily by the 

assumptions regarding future product 

shipments and the ability to offer 

differentiated products. Although the 

impacts will not be as severe as 

expected for TSL 5 for the nonweatherized gas furnace industry, the 

magnitude of the impacts would still be 

determined primarily by the 

assumptions regarding future product 

shipments and the ability to offer 

differentiated products that command a 

premium markup. Although the range of 

possible impacts is not as large as TSL 

5, the Department still recognizes the 

significant differences between the 

shipments forecast by the NES analysis 

and those anticipated by manufacturers. 

Furthermore, the Department believes 

that with an increase in total installed 

cost of $571 for non-weatherized gas 

furnaces, or 31 percent, for example, 

there is a significant risk of consumers 

switching to other heating systems, 

including heat pumps and electric 

resistance heating. Additionally, some 

product classes would require large, 

product-conversion costs because the 

products would require new heatexchanger designs to meet the efficiency 

requirements established in trial 

standard level 4. Even though the ability 

for manufacturers to differentiate 

products is greater at TSL 4 than at TSL 

5, it will still be harder for 

manufacturers to differentiate products 

because all of the products offered in 

TSL 4 for non-weatherized gas furnaces 

use condensing technology. In 

particular, if the high range of impacts 

is reached as DOE expects, trial 

standard level 4 could result in a net 

loss of $295 million to the nonweatherized gas furnace industry. 

After carefully considering the results 

of the analysis, comments on the 

ANOPR, and the benefits versus 

burdens, the Secretary concludes that at 

trial standard level 4, the benefits of 

energy savings and emissions impacts 

would still be outweighed by the 

economic burden on consumers as 

indicated by large increase in total 

installed cost, the high percentage of, 


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23The Department further examined its decision 

to reject TSL 4 in the energy price sensitivity 

analysis using AEO2006. A discussion of the results 

for the energy price sensitivity analysis and the 

rationale for rejection based on these results are 

presented at the end of this section. 

and disproportionate negative life-cycle 

cost impacts to Southern households, 

and the large capital conversion costs 

that could result in the large reduction 

in INPV for manufacturers. 

Consequently, the Secretary has 

concluded that trial standard level 4 is 

not economically justified.23

Next, the Department considered trial 

standard level 3. Trial standard level 3 

will likely save 0.69 quad of energy 

through 2038, an amount the 

Department considers significant. 

Discounted at 7 percent, the energy 

savings through 2038 would be 0.13 

quads. For the Nation as a whole, trial 

standard level 3 would result in a net 

benefit in NPV of $0.53 billion. The 

emissions impacts are 37.0 Mt of CO2, 

24.5 kt of NOX, and 2.7 kt of SO2. Total 

generating capacity in 2030 under trial 

standard level 3 is unchanged compared 

to the base case. 

At trial standard level 3, purchasers of 

non-weatherized gas furnaces would 

save, on average, $2 over the life of the 

product and purchasers of gas-fired 

boilers would save, on average, $232. At 

trial standard level 3, the Department 

found that 44 percent of households in 

the South with a non-weatherized gas 

furnace would experience a net lifecycle cost. Nationwide, the Department 

estimates that 32 percent of households 

with non-weatherized gas furnaces 

would experience a net cost. Of these 

affected households, the increase in net 

cost is a result of the increased unit 

installation costs, which account for 

equipment redesign to adequately 

address the safety of these products at 

81-percent AFUE for non-weatherized 

gas furnaces and mobile home furnaces. 

Reinforcing the primary LCC result, the 

Department estimates that the mean 

payback period for two of the product 

classes to be substantially longer than 

the mean lifetime of these products. 

Additionally, trial standard level 3 

includes a standard for non-weatherized 

gas furnaces and for mobile home gas 

furnaces at 81-percent AFUE. The 

Department is concerned that at this 

level, there may be an increased risk of 

safety concerns with this equipment due 

to venting issues. Some manufacturers 

believe that the margin of safety is 

diminished in many instances at 81- 

percent AFUE, and some manufacturers 

commented that they would not be 

willing to accept the risk and/or cost 

involved in producing a full line or 

family of products at 81-percent AFUE. 

This potential safety concern is a factor 

that the Secretary considers relevant. 

Based on the Department’s evaluation of 

all the information considered during 

the rulemaking, the Department believes 

that a standard at 81-percent AFUE 

could pose a potential for safety 

problems for some consumers as 

discussed in section IV.B.3. 

The change in INPV ranges between a 

loss of $190 million and a loss of $137 

million. Furthermore, some 

manufacturers stated they would likely 

use a de-rating strategy to reduce the 

increased capital costs associated with 

trial standard level 3. Consequently, the 

variety of products offered by the 

manufacturers would be reduced by 

eliminating some of the higher-capacity 

models to reduce the negative impacts. 

Consumers would experience an 

increase in total installed cost of $77 for 

non-weatherized gas furnaces, or 4 

percent, as provided in Chapter 8 of the 

TSD. Consequently, based on the 

information provided by manufacturers, 

there could be a risk of consumers 

switching to other heating systems, 

including heat pumps and electric 

resistance heating, as further detailed in 

the shipments forecast discussion in 

section IV.F.6. For the furnace industry 

alone, the industry value would 

decrease from 9.1 percent to 11.6 

percent. 

After carefully considering the 

analysis, comments on the ANOPR, and 

the benefits versus burdens, the 

Secretary concludes that, at trial 

standard level 3, the benefits of energy 

savings and emissions impacts would be 

outweighed by the burdens of negative 

economic impacts to some consumers 

and to the manufacturers, and in 

particular, the potential for safety 

problems for some consumers. 

Consequently, the Secretary has 

concluded that trial standard level 3 is 

not economically justified. 

Next, DOE considered trial standard 

level 2. Primary energy savings at this 

level would likely be 0.41 quad of 

energy through 2038, which the 

Department considers significant. 

Discounted at 7 percent, the energy 

savings through 2038 would be 0.08 

quad. For the Nation as a whole, trial 

standard level 2 would result in a net 

savings of $0.65 billion in NPV. The 

emissions impacts are 19.6 Mt of CO2, 

13.0 kt of NOX, and 1.5 kt of SO2. Total 

generating capacity in 2030 under trial 

standard level 2 is unchanged compared 

to the base case. 

At trial standard level 2, purchasers of 

non-weatherized gas furnaces would 

save, on average, $2 over the life of the 

product and purchasers of gas-fired 

boilers would save, on average, $232. 

The Department’s analysis indicates that 

no households with non-weatherized 

gas furnaces would experience a net 

life-cycle cost at TSL 2, including 

Southern households. The mean 

payback periods are less than the 

average equipment lifetime for all 

product classes at trial standard level 2. 

For example, the mean payback period 

for non-weatherized gas furnaces at trial 

standard level 2 is 1.5 years. 

The change in industry value ranges 

from a loss of INPV of $114 to a loss of 

$65 million. Trial standard level 2 could 

cause up to a 6-percent loss in INPV for 

the furnace industry and up to a 12- 

percent loss in INPV for the boiler 

industry. Furthermore, the Department 

believes manufacturers of nonweatherized gas furnaces would still be 

able to differentiate their premium 

products and retain profitability 

margins. 

Trial standard level 2 includes a 

standard for non-weatherized gas 

furnaces and for mobile home gas 

furnaces at 80-percent AFUE. Based on 

its evaluation of all the information 

considered during the rulemaking, the 

Department believes that a standard at 

80-percent AFUE would not result in 

safety problems for consumers. 

However, trial standard level 2 also 

includes a standard for weatherized gas 

furnaces at 83-percent AFUE. The 

Department is concerned with the safety 

and cost of ensuring the safety of 

weatherized gas furnaces at this level, 

due to possible condensation in the heat 

exchanger, and is seeking comment on 

this issue. 

After carefully considering the 

analysis, comments on the ANOPR, and 

the benefits and burdens, the Secretary 

concludes that this standard saves a 

significant amount of energy and is 

technologically feasible and 

economically justified. Therefore, the 

Department today proposes to adopt the 

energy conservation standards for 

residential furnaces and boilers at trial 

standard level 2. 


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TABLE V.37.—SUMMARY OF RESULTS BASED ON THE AEO2006 ENERGY PRICE FORECAST * 

TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 

Primary energy saved (quads) ............................................................................................ 0 .18 0 .41 0 .7 3 .2 6 .31 

7% Discount rate ................................................................................................................. 0 .03 0 .08 0 .13 0 .61 1 .2 

3% Discount rate ................................................................................................................. 0 .09 0 .2 0 .33 1 .52 3 

NPV (2004$billion): 

7% Discount rate .......................................................................................................... 0 .43 0 .82 0 .9 1 .83 ¥13 .5 

3% Discount rate .......................................................................................................... 1 .53 3 .02 4 .12 13 .6 ¥10 .3 

Mean life-cycle cost savings (2004$): 

Non-Weatherized Gas Furnaces .................................................................................. 2 2 8 63 ¥626 

Weatherized Gas Furnaces .......................................................................................... 2 86 86 86 86

Oil-Fired Furnaces ........................................................................................................ 10 167 167 90 37 

Gas Boilers ................................................................................................................... 196 299 299 299 ¥508 

Oil-Fired Boilers ............................................................................................................ 61 61 61 47 ¥471 

Mobile Home Gas Furnaces ......................................................................................... 71 71 49 240 240 

Mean Payback Period (years): 

Non-Weatherized Gas Furnaces .................................................................................. 1 .6 1 .6 22 20 75 

Weatherized Gas Furnaces .......................................................................................... 1 .4 4 4 4 4 

Oil-Fired Furnaces ........................................................................................................ 0 .2 0 .6 0 .6 13 15 

Gas Boilers ................................................................................................................... 10 10 10 10 35 

Oil-Fired Boilers ............................................................................................................ 0 .8 0 .8 0 .8 19 26 

Mobile Home Gas Furnaces ......................................................................................... 3 .6 3 .6 28 21 21 

* Parentheses indicate negative (¥) values. 

** Reductions in installed generation capacity by the year 2030 based on AEO2005 Reference Case. 

In addition to the Department’s NOPR 

analyses based on the AEO2005 energy 

price forecast, the Department analyzed 

the impact of the AEO2006 energy price 

forecasts on the LCC and PBP analysis 

and the national impact analysis. Table 

V.37 presents a summary of the results 

using AEO2006. As explained in section 

IV.C.4., AEO2006 provides a 

significantly higher price forecast for 

natural gas and fuel oil over the analysis 

period. The Department took into 

consideration the effect that these 

increased energy prices would have on 

the analysis at each trial standard level 

through an energy price sensitivity 

analysis and presented the results in 

sections V.B.1.a., V.B.1.b., V.B.3.a., and 

V.B.3.b. In particular, the Department 

was interested in seeing whether the 

results from the energy price sensitivity 

analysis would change the Department’s 

proposed standard level (TSL 2) as 

presented above. The Department 

believes that the results from the energy 

price sensitivity analysis warrant the 

most discussion in its rejection of TSL 

4. Based on the AEO2006 energy price 

forecast, the consumer economics at 

TSL 5 are still unattractive, especially 

for non-weatherized gas furnaces and 

gas boilers (the prominent product 

classes). At TSL 3, although the 

consumer economics are attractive 

based on the energy price sensitivity 

analysis using the AEO2006 energy 

price forecast, the Department is 

unwilling to impose the associated 

safety risk on consumers as explained 

above. 

At TSL 4, the Department found that 

the nation as a whole would experience 

a net savings of $1.83 billion in NPV 

using the energy price sensitivity 

analysis (compared to $0.06 billion in 

NPV based on AEO2005). This is a 

significant increase in national savings 

as a result of increased energy prices. In 

addition, the consumer, on average, 

would save $58 more in life-cycle 

savings as compared to the AEO2005 

analysis. Purchasers of non-weatherized 

gas furnaces would save, on average, 

$63 over the life of the product and 

purchasers of gas-fired boilers would 

save, on average, $299 over the life of 

the boiler. However, the Department 

found that 35 percent of households 

with non-weatherized gas furnaces 

across the nation would still experience 

a net cost. 

The Department also examined the 

regional impacts to consumers of nonweatherized gas furnaces in the 

Northern and Southern climate zones 

separately for the energy price 

sensitivity analysis using the AEO2006 

energy price forecast. Just as the 

AEO2005 regional analysis showed, the 

Department found differential impacts 

between Northern and Southern 

consumers using non-weatherized gas 

furnaces in the energy price sensitivity 

analysis. While only 20 percent of 

households with non-weatherized gas 

furnaces in the Northern region would 

be negatively impacted by TSL 4, a 

majority of households in the Southern 

region with non-weatherized gas 

furnaces (53 percent) would be 

negatively impacted by a condensing 

standard. The consumer in the South 

with a non-weatherized gas furnace, on 

average, would experience an increase 

in LCC of $20, while the Northern 

consumer with a non-weatherized gas 

furnace, on average, would experience a 

decrease in LCC of $138. Almost half of 

the consumers in the North with a nonweatherized gas furnace (48 percent) 

would not be affected by the standard 

because the equipment that the 

household currently uses already meets 

or exceeds the trial standard level 4 

efficiency level (i.e., 90-percent AFUE), 

just as the AEO2005 analysis showed. In 

contrast, 81 percent of Southern 

consumers with a non-weatherized gas 

furnace would be impacted by the 

standard. Of those 81 percent impacted 

consumers with a non-weatherized gas 

furnace in the Southern region, 65 

percent would experience an increase in 

LCC and 33 percent would experience a 

decrease in LCC. This is only a five 

percentage point decrease in the number 

of adversely impacted Southern 

consumers as compared to the AEO2005 

analysis results. Most consumers in the 

South with a non-weatherized gas 

furnace would experience an increase in 

total installed cost of at least $500, as 

the AEO2005 and AEO2006 analysis 

results showed. Even though DOE 

forecasts the price of energy to increase 

significantly in the energy price 

sensitivity analysis using AEO2006, 

many consumers in the South will still 

experience an increase in life-cycle-cost. 

Consequently, the Department’s lifecycle cost analysis shows that 8 percent 

of all non-weatherized gas furnace 

consumers in the southern climate zone 

(approximately 1.6 million consumers) 

would experience net increases in their 

life-cycle costs of more than $500 and 


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Federal Register / Vol. 71, No. 194 / Friday, October 6, 2006 / Proposed Rules 59253 

7 percent of these consumers 

(approximately 100,000 households) 

would experience a significant net 

increase in life-cycle-costs over $700. 

Reinforcing its primary LCC result and 

the AEO2005 analysis, the Department 

estimates, using the AEO2006 energy 

price forecast, that the mean payback 

period of non-weatherized gas furnaces 

in the Southern climate would still 

exceed the mean lifetime of these 

furnaces. 

While the Secretary recognizes the 

increased economic benefits to the 

nation as a result of TSL 4 under the 

increased energy price forecast, 

AEO2006, as captured by the energy 

price sensitivity analysis, the Secretary 

still concludes that the benefits of a 

federal standard at TSL 4 would still be 

outweighed by the economic burden 

that would be placed upon consumers 

in the South. Consequently, the 

Secretary has concluded that the energy 

price sensitivity analysis which 

addresses the effects of the AEO2006 

energy price forecast does not change 

the Department’s rejection of TSL 4, and 

its choice of TSL 2 as the proposed 

standard level. 

VI. Procedural Issues and Regulatory 

Review 

A. Review Under Executive Order 12866 

The Department has determined 

today’s regulatory action is an 

‘‘economically significant’’ action’’

under section 3(f)(1) of Executive Order 

12866, ‘‘Regulatory Planning and 

Review.’’ 58 FR 51735 (October 4, 1993). 

Accordingly, today’s action required a 

regulatory impact analysis (RIA) and, 

under the Executive Order, was subject 

to review by the Office of Information 

and Regulatory Affairs (OIRA) in the 

OMB. The Department presented to 

OIRA for review the draft proposed rule 

and other documents prepared for this 

rulemaking, including the RIA, and has 

included these documents in the 

rulemaking record. They are available 

for public review in the Resource Room 

of DOE’s Building Technologies 

Program, Room 1J–018, 1000 

Independence Avenue, SW., 

Washington, DC, (202) 586–9127, 

between 9 a.m and 4 p.m., Monday 

through Friday, except Federal holidays. 

The RIA is contained in the TSD 

prepared for the rulemaking. The RIA 

consists of: (1) A statement of the 

problem addressed by this regulation, 

and the mandate for government action; 

(2) a description and analysis of the 

feasible policy alternatives to this 

regulation; (3) a quantitative comparison 

of the impacts of the alternatives; and 

(4) the national economic impacts of the 

proposed standard. 

The RIA calculates the effects of 

feasible policy alternatives to residential 

furnace and boiler standards, and 

provides a quantitative comparison of 

the impacts of the alternatives. The 

Department evaluated each alternative 

in terms of its ability to achieve 

significant energy savings at reasonable 

costs, and compared it to the 

effectiveness of the proposed rule. The 

Department analyzed these alternatives 

using a series of regulatory scenarios as 

input to the NES/Shipments Model for 

furnaces and boilers, which it modified 

to allow inputs for these measures. 

The Department identified the 

following major policy alternatives for 

achieving increased furnace and boiler 

energy efficiency: 

• No new regulatory action; 

• Consumer rebates; 

• Consumer tax credits; 

• Manufacturer tax credits; 

• Voluntary energy-efficiency targets; 

• Bulk government purchases; 

• Early replacement incentives; and 

• Regional performance standards 

(climates ≥5000 heating degree days and 

climates ≥6000 heating degree days). 

The Department evaluated each 

alternative in terms of its ability to 

achieve significant energy savings at 

reasonable costs, and compared it to the 

effectiveness of the proposed rule. 

TABLE VI.1.—NON-REGULATORY ALTERNATIVES TO STANDARDS

Policy alternatives 

Energy 

savings* 

(quads) 

Net present value** 

(billion $) 

7% 

discount 

rate 

3% 

discount 

rate 

No new regulatory action ........................................................................................................................... 0 0 0 

Consumer Rebates .................................................................................................................................... 0.078 0 .086 0 .37 

Consumer Tax Credits ............................................................................................................................... 0.047 0 .052 0 .22 

Manufacturer Tax Credits .......................................................................................................................... 0.023 0 .026 0 .11 

Voluntary Energy-Efficiency Targets ......................................................................................................... 0.046 0 .074 0 .3 

Early Replacement Incentives ................................................................................................................... 0.025 0 .059 0 .16 

Bulk Government Purchases ..................................................................................................................... 0.005 0 .006 0 .026 

Regional Performance Standards for NWGF***: 

Cold States (≥5000 HDD) (TSL 4) ..................................................................................................... 1.72 0 .79 5 .99 

Warm States (<5000 HDD) (TSL 2) ................................................................................................... 0.004 0 .01 0 .03 

Regional Performance Standards for NWGF***: 

Cold States (≥6000 HDD) (TSL 4) ..................................................................................................... 0.2 0 .04 0 .59 

Warm States (<6000 HDD) (TSL 2) ................................................................................................... 0.01 0 .02 0 .07 

* Energy savings are in source quads. 

** Net present value is the value in the present of a time series of costs and savings. The Department determined the net present value from 

2015 to 2038 in billions of 2004 dollars. 

*** For non-weatherized gas furnaces (NWGF) only with national performance standard set at TSL 2, the energy savings is 0.01 quads. The 

net present value is $0.03 billion with a 7-percent discount rate and $0.10 billion with a 3-percent discount rate. The Department analyzed two 

scenarios, the first with cold states having 5000 heating degree days (HDD) or more and the second with 6000 HDD or more. 

The net present value amounts shown 

in Table VI.1 refer to the NPV for 

residential consumers. The costs to the 

government of each policy (such as 

rebates or tax credits) are not included 

in the costs for the NPV since, on 

balance, consumers are both paying for 

(through taxes) and receiving the 

benefits of the payments. The following 

paragraphs discuss each of the policy 

alternatives listed in Table VI.1. (See 

TSD, RIA.) 


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No new regulatory action. The case in 

which no regulatory action is taken with 

regard to furnaces and boilers 

constitutes the ‘‘base case’’ (or ‘‘No 

Action’’) scenario. In this case, between 

the years 2015 and 2038, furnaces and 

boilers are expected to use 101 quads of 

primary energy. Since this is the base 

case, energy savings and NPV are zero 

by definition. 

Rebates. If consumers were offered a 

rebate that covered a portion of the 

incremental price difference between 

products meeting baseline efficiency 

levels and those meeting the energy 

efficiency levels in trial standard level 

2, the Department estimates that the 

percentage of consumers purchasing the 

more-efficient products would increase 

by 2 percent to 34 percent, depending 

on the product class. The Department 

assumed the impact of this policy 

would be to permanently transform the 

market so that the shipment-weighted 

efficiency gain seen in the first year of 

the program would be maintained 

throughout the forecast period. At the 

estimated participation rates, the rebates 

would provide 0.078 quads of national 

energy savings and an NPV of $0.086 

billion (at a seven-percent discount 

rate). Although DOE estimates that 

rebates will provide national benefits, 

they are much smaller than the benefits 

resulting from national performance 

standards. Thus, the Department 

rejected rebates as a policy alternative to 

national performance standards. 

Consumer Tax Credits. If consumers 

were offered a tax credit equivalent to 

the amount mentioned above for 

rebates, the Department’s research 

suggests that the number of consumers 

buying a furnace or boiler that would 

take advantage of the tax credit would 

be approximately 60 percent of the 

number that would take advantage of 

rebates. Thus, as a result of the tax 

credit, the percentage of consumers 

purchasing the more-efficient products 

would increase by 1 percent to 20 

percent, depending on the product 

class. The Department assumed the 

impact of this policy would be to 

permanently transform the market so 

that the shipment-weighted efficiency 

gain seen in the first year of the program 

would be maintained throughout the 

forecast period. The Department 

estimated that tax credits would yield a 

fraction of the benefits that rebates 

would provide. The Department rejected 

rebates, as a policy alternative to 

national performance standards, 

because the benefits that rebates provide 

are much smaller than those resulting 

from performance standards. Thus, 

because consumer tax credits provide 

even smaller benefits than rebates, the 

Department also rejected consumer tax 

credits as a policy alternative to national 

performance standards. 

The Energy Policy Act of 2005 

includes tax credits for very high 

efficiency furnaces and boilers with 

AFUE of 95 percent or higher. Although 

the Department recognizes this 

requirement, this RIA focuses only on 

non-regulatory approaches to promoting 

the proposed standard, which is well 

below 95-percent AFUE. Thus, the 

Department’s action to promote 95- 

percent-AFUE products does not affect 

this RIA. 

Manufacturer Tax Credits. The 

Department believes even smaller 

benefits would result from availability 

of a manufacturer tax credit program 

that would effectively result in a lower 

price to the consumer by an amount that 

covers part of the incremental price 

difference between products meeting 

baseline efficiency levels and those 

meeting trial standard level 2. Because 

these tax credits would go to 

manufacturers instead of consumers, the 

Department believes that fewer 

consumers would be aware of this 

program relative to a consumer tax 

credit program. The Department 

assumes that 50 percent of the 

consumers who would take advantage of 

consumer tax credits would buy moreefficient products offered through a 

manufacturer tax credit program. Thus, 

as a result of the manufacturer tax 

credit, the percentage of consumers 

purchasing the more-efficient products 

would increase by 0.6 percent to 10 

percent (i.e., 50 percent of the impact of 

consumer tax credits), depending on the 

product class. 

The Department assumed the impact 

of this policy would be to permanently 

transform the market so that the 

shipment-weighted efficiency gain seen 

in the first year of the program will be 

maintained throughout the forecast 

period. The Department estimated that 

manufacturer tax credits would yield a 

fraction of the benefits that consumer 

tax credits would provide. The 

Department rejected consumer tax 

credits as a policy alternative to national 

performance standards because the 

benefits that consumer tax credits 

provide are much smaller than those 

resulting from performance standards. 

Thus, because manufacturer tax credits 

provide even smaller benefits than 

consumer tax credits, the Department 

also rejected manufacturer tax credits as 

a policy alternative to national 

performance standards. 

Voluntary Energy-Efficiency Targets. 

The Federal government’s Energy Star 

program currently has voluntary energyefficiency targets for non-weatherized 

gas furnaces and gas boilers. Equipment 

purchases that result from the Energy 

Star program, and hence the impact of 

that program, already are reflected in 

the Department’s ‘‘base case’’ scenario. 

The Department evaluated the potential 

impacts of increased marketing efforts 

within the Energy Star program that 

would encourage purchase of products 

meeting the trial standard level 2 

efficiency levels. The Department 

modeled the voluntary efficiency 

program based on this scenario and 

assumed that the resulting shipmentweighted efficiency gain would be 

maintained throughout the forecast 

period. The Department estimated that 

the enhanced effectiveness of voluntary 

energy-efficiency targets would provide 

0.046 quads of national energy savings 

and an NPV of $0.074 billion (at a 

seven-percent discount rate). Although 

this would provide national benefits, 

they are much smaller than the benefits 

resulting from national performance 

standards. Thus, the Department 

rejected use of voluntary energyefficiency targets as a policy alternative 

to national performance standards. 

GAMA commented that, when DOE 

considers voluntary programs, it should 

survey the types of the programs used 

in various States, and extrapolate those 

results to other States and regions that 

do not avail themselves of voluntary 

programs or whose programs are less 

successful. (GAMA, No. 67 at p. 8) The 

Department considered State voluntary 

programs in the RIA. 

Early Replacement Incentives. This 

policy alternative envisions a program 

to replace old, inefficient furnaces and 

boilers with models meeting the 

efficiency levels in trial standard level 

2. The Department modeled this policy 

by projecting an increase in the number 

of such replacements equal to 20 

percent of the number of replacements 

for failed equipment. It assumed the 

program would last as long as it takes 

to completely replace all of the eligible 

existing stock in the year that the 

program begins (2015). The Department 

estimated that such an early 

replacement program would provide 

0.025 quads of national energy savings 

and an NPV of $0.059 billion (at a 

seven-percent discount rate). Although 

DOE estimates that this early 

replacement program will provide 

national benefits, they are much smaller 

than the benefits resulting from national 

performance standards. Thus, the 

Department rejected early replacement 

incentives as a policy alternative to 

national performance standards. 

Bulk Government Purchases. Under 

this policy alternative, the government 

sector would be encouraged to purchase 


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increased amounts of equipment that 

meet the efficiency levels in trial 

standard level 2. Federal, State, and 

local government agencies could 

administer such a program. At the 

Federal level, this would be an 

enhancement to the existing Federal 

Energy Management Program (FEMP). 

The Department modeled this program 

by assuming an increase in installation 

of equipment meeting the efficiency 

levels of trial standard level 2 among 

those households for whom government 

agencies purchase or influence the 

purchase of furnaces and boilers. The 

Department estimated that bulk 

government purchases would provide 

0.005 quads of national energy savings 

and an NPV of $0.006 billion (at a 

seven-percent discount rate), benefits 

which are much smaller than those 

estimated for national performance 

standards. The Department rejected bulk 

government purchases as a policy 

alternative to national performance 

standards. 

Regional Performance Standards. The 

Department considered two alternatives 

based on heating degree days. These 

alternatives contemplate efficiency 

standards for non-weatherized gas 

furnaces only, depending on the region 

of the country. The Department 

modeled the policy of regional 

performance standards by aggregating 

States into two broad geographic regions 

based on climate (i.e., based on heating 

degree days). In the first alternative, 

DOE defines the cold climate as having 

5,000 or more heating degree days and 

would include the cold-climate States, 

including the New England, Middle 

Atlantic, East North Central, West North 

Central, Mountain (northern part only 

including Colorado, Idaho, Montana, 

Utah, Wyoming), and Pacific Census 

divisions (northern part only including 

Alaska, Oregon and Washington), and 

West Virginia; and warm-climate States 

would include the South Atlantic (with 

the exception of West Virginia), East 

South Central, Mountain (southern part 

only including Arizona, Nevada and 

New Mexico), West South Central, and 

Pacific (southern part only including 

California and Hawaii) Census 

divisions. For the second alternative, 

greater than 6000 heating degree days, 

the cold-climate States do not align 

closely with the Census divisions and 

include the states of Alaska, Colorado, 

Connecticut, Idaho, Illinois, Iowa, 

Maine, Massachusetts, Michigan, 

Minnesota, Montana, Nebraska, New 

Hampshire, New York, North Dakota, 

South Dakota, Utah, Vermont, 

Wisconsin, Wyoming; the warm-climate 

States would include the rest of U.S. 

States. 

The Department selected the 

efficiency level for this alternative based 

on maximizing consumer NPV. The 

standard that yields the maximum 

consumer NPV at a seven-percent 

discount rate for the cold-climates (i.e., 

≥5,000 heating degree days and ≥6,000 

heating degree days) is trial standard 

level 4, with trial standard level 2 for 

the warm climates. Both alternatives 

yield greater energy savings and 

national NPVs than the standards 

proposed today. However, as discussed 

above, the Department lacks authority to 

adopt regional standards, so it must 

reject these alternatives. (42 U.S.C. 

6291(6)(A)) 

However, DOE does have authority to 

grant State petitions for an exemption 

from Federal preemption of higher State 

standards, if the State filing the petition 

demonstrates that its higher standards 

are needed to meet State or local energy 

interests that (1) are substantially 

different from those in the U.S. 

generally and (2) are such that the costs, 

benefits, burdens, and energy savings 

resulting from the State’s standards, 

considered in light of the State’s energy 

plan, would outweigh the costs, 

benefits, burdens, and energy savings of 

alternative approaches. (42 U.S.C. 

6297(d)) In addition, the Department 

must reject the petition if ‘‘interested 

persons’’ establish that the State 

regulation would ‘‘significantly burden 

manufacturing, marketing, distribution, 

sale or servicing’’ of the covered 

equipment on a national basis. (42 

U.S.C. 6297(d)) Each of the regional 

standards alternatives evaluated, DOE 

believes, is representative of the energy 

and national NPV impacts that would 

occur if States in the cold-climate 

regions were to make a case that 

unusual and compelling State or local 

energy interests exist and DOE were to 

grant State petitions for exemption from 

Federal standards. In the first case—

cold climate greater or equal to 5,000 

heating degree days—the regional 

standards would save 1.72 quads of 

energy for non-weatherized gas furnaces 

only, which compares to 0.01 quads 

forecasted to be saved by today’s 

proposed rule. In the second case—cold 

climate greater or equal to 6,000 heating 

degree days—DOE found that the 

regional standards would save 0.20 

quads of energy. 

National Performance Standards (TSL 

2). The Department proposes to adopt 

the efficiency levels listed in section 

V.C. As indicated in the paragraphs 

above, with the exception of regional 

performance standards which the 

Department has determined it cannot 

promulgate, none of the alternatives 

DOE examined would save as much 

energy as the proposed standards. Also, 

several of the alternatives would require 

new enabling legislation, such as 

consumer or manufacturer tax credits, 

since authority to carry out those 

alternatives does not presently exist. 

B. Review Under the Regulatory 

Flexibility Act 

The Regulatory Flexibility Act (5 

U.S.C. 601 et seq.) requires preparation 

of an initial regulatory flexibility 

analysis for any rule that by law must 

be proposed for public comment, unless 

the agency certifies that the rule, if 

promulgated, will not have a significant 

economic impact on a substantial 

number of small entities. As required by 

Executive Order 13272, Proper 

Consideration of Small Entities in 

Agency Rulemaking, 67 FR 53461 

(August 16, 2002), DOE published 

procedures and policies on February 19, 

2003 to ensure that the potential 

impacts of its rules on small entities are 

properly considered during the 

rulemaking process. 68 FR 7990. The 

Department has made its procedures 

and policies available on the Office of 

General Counsel’s Web site: http:// 

www.gc.doe.gov. 

The Department reviewed today’s 

proposed rule under the provisions of 

the Regulatory Flexibility Act and the 

procedures and policies published on 

February 19, 2003. 68 FR 7990. A 

regulatory flexibility analysis examines 

the impact of the rule on small entities 

and considers alternative ways of 

reducing negative impacts. 

The Department used the small 

business size standards published on 

January 31, 1996, as amended, by the 

Small Business Administration to 

determine whether any small entities 

would be required to comply with the 

rule. 61 FR 3286 and codified at 13 CFR 

part 121. The size standards are listed 

by North American Industry 

Classification System (NAICS) code and 

industry description. Residential 

furnace manufacturing is classified 

under NAICS 333415 and residential 

boiler manufacturing is classified under 

NAICS 333414. To be categorized as a 

small business, a manufacturer of 

residential furnaces and/or boilers and 

its affiliates may employ a maximum of 

750 employees. The residential furnace 

and boiler industry is characterized by 

many different domestic manufacturers. 

However, consolidation within the 

industry has reduced the number of 

parent companies that manufacture 

similar equipment under different 

affiliates and labels. 


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The Department surveyed GAMA’s 

Consumers’ Directory of Certified 

Efficiency Ratings for Heating and 

Water Heating Equipment (2005) and 

created a list of every manufacturer that 

had certified product ratings in the 

directory. The Department also asked 

stakeholders and GAMA representatives 

within the residential furnace and boiler 

industry if they were aware of any other 

small manufacturers. The Department 

then looked at publicly available data 

and contacted manufacturers, where 

needed, to determine if they meet the 

SBA’s definition of a small 

manufacturing facility and have their 

manufacturing facilities located within 

the U.S. Based on this analysis, the 

Department estimates that there are 11 

small manufacturers of residential 

furnaces and boilers. The Department 

then contacted all 11 small 

manufacturers. It subsequently 

conducted two on-site interviews and 

three phone interviews with small 

manufacturers to determine if there are 

differential impacts on these companies 

that may result from the standard. 

The Department found that, in 

general, small manufacturers have the 

same concerns as large manufacturers 

regarding energy conservation 

standards. In addition, the Department 

found no significant differences in the 

R&D emphasis or marketing strategies 

between small business manufacturers 

and large manufacturers. Therefore, for 

the classes comprised primarily of small 

businesses, the Department believes the 

GRIM analysis, which models each 

product class separately, is 

representative of the small businesses 

affected by standards. 

On the basis of the foregoing, DOE 

certifies that this proposed rule, if 

promulgated, will have no significant 

economic impact on a substantial 

number of small entities. Accordingly, 

DOE has not prepared a regulatory 

flexibility analysis for this rulemaking. 

The Department will transmit the 

certification and supporting statement 

of factual basis to the Chief Counsel for 

Advocacy of the Small Business 

Administration for review under 5 

U.S.C. 605(b). 

C. Review Under the Paperwork 

Reduction Act 

This rulemaking will impose no new 

information or record keeping 

requirements. Accordingly, Office of 

Management and Budget clearance is 

not required under the Paperwork 

Reduction Act. (44 U.S.C. 3501 et seq.) 

D. Review Under the National 

Environmental Policy Act 

The Department is preparing an 

environmental assessment of the 

impacts of the proposed rule and DOE 

anticipates completing a Finding of No 

Significant Impact (FONSI) before 

publishing the final rule on residential 

furnaces and boilers, pursuant to the 

National Environmental Policy Act of 

1969 (42 U.S.C. 4321 et seq.), the 

regulations of the Council on 

Environmental Quality (40 CFR parts 

1500–1508), and the Department’s 

regulations for compliance with the 

National Environmental Policy Act (10 

CFR part 1021). 

E. Review Under Executive Order 13132 

Executive Order 13132, ‘‘Federalism,’’

64 FR 43255 (August 4, 1999), imposes 

certain requirements on agencies 

formulating and implementing policies 

or regulations that preempt State law or 

that have federalism implications. The 

Executive Order requires agencies to 

examine the constitutional and statutory 

authority supporting any action that 

would limit the policymaking discretion 

of the States and to carefully assess the 

necessity for such actions. The 

Executive Order also requires agencies 

to have an accountable process to 

ensure meaningful and timely input by 

State and local officials in the 

development of regulatory policies that 

have federalism implications. On March 

14, 2000, DOE published a statement of 

policy describing the intergovernmental 

consultation process it will follow in the 

development of such regulations. 65 FR 

13735. The Department has examined 

today’s proposed rule and has 

determined that it would not have a 

substantial direct effect on the States, on 

the relationship between the national 

government and the States, or on the 

distribution of power and 

responsibilities among the various 

levels of government. EPCA governs and 

prescribes Federal preemption of State 

regulations as to energy conservation for 

the products that are the subject of 

today’s proposed rule. States can 

petition the Department for exemption 

from such preemption to the extent, and 

based on criteria, set forth in EPCA. (42 

U.S.C. 6297) No further action is 

required by Executive Order 13132. 

F. Review Under Executive Order 12988 

With respect to the review of existing 

regulations and the promulgation of 

new regulations, section 3(a) of 

Executive Order 12988, ‘‘Civil Justice 

Reform’’ (61 FR 4729, February 7, 1996) 

imposes on Federal agencies the general 

duty to adhere to the following 

requirements: (1) Eliminate drafting 

errors and ambiguity; (2) write 

regulations to minimize litigation; and 

(3) provide a clear legal standard for 

affected conduct rather than a general 

standard and promote simplification 

and burden reduction. Section 3(b) of 

Executive Order 12988 specifically 

requires that Executive agencies make 

every reasonable effort to ensure that the 

regulation: (1) Clearly specifies the 

preemptive effect, if any; (2) clearly 

specifies any effect on existing Federal 

law or regulation; (3) provides a clear 

legal standard for affected conduct 

while promoting simplification and 

burden reduction; (4) specifies the 

retroactive effect, if any; (5) adequately 

defines key terms; and (6) addresses 

other important issues affecting clarity 

and general draftsmanship under any 

guidelines issued by the Attorney 

General. Section 3(c) of Executive Order 

12988 requires Executive agencies to 

review regulations in light of applicable 

standards in section 3(a) and section 

3(b) to determine whether they are met 

or it is unreasonable to meet one or 

more of them. The Department has 

completed the required review and 

determined that, to the extent permitted 

by law, this proposed rule meets the 

relevant standards of Executive Order 

12988. 

G. Review Under the Unfunded 

Mandates Reform Act of 1995 

Title II of the Unfunded Mandates 

Reform Act of 1995 (Pub. L. 104–4) 

(UMRA) requires each Federal agency to 

assess the effects of Federal regulatory 

actions on State, local, and Tribal 

governments and the private sector. For 

a proposed regulatory action likely to 

result in a rule that may cause the 

expenditure by State, local, and Tribal 

governments, in the aggregate, or by the 

private sector of $100 million or more 

in any one year (adjusted annually for 

inflation), section 202 of UMRA requires 

a Federal agency to publish a written 

statement that estimates the resulting 

costs, benefits, and other effects on the 

national economy. (2 U.S.C. 1532(a),(b)) 

The UMRA also requires a Federal 

agency to develop an effective process 

to permit timely input by elected 

officers of State, local, and Tribal 

governments on a proposed ‘‘significant 

intergovernmental mandate,’’ and 

requires an agency plan for giving notice 

and opportunity for timely input to 

potentially affected small governments 

before establishing any requirements 

that might significantly or uniquely 

affect small governments. On March 18, 

1997, DOE published a statement of 

policy on its process for 

intergovernmental consultation under 


sroberts on PROD1PC70 with PROPOSALS
Federal Register / Vol. 71, No. 194 / Friday, October 6, 2006 / Proposed Rules 59257 

UMRA. 62 FR 12820. (Also available at 

http://www.gc.doe.gov.) 

Today’s proposed rule will not likely 

result in a final rule that could impose 

expenditures of $100 million or more in 

a given year in the furnace and boiler 

manufacturing industry before or after 

the effective date of the proposed 

standard. The proposed rule also does 

not contain a Federal intergovernmental 

mandate. Thus, DOE is not required by 

UMRA to prepare a written statement 

assessing the costs, benefits and other 

effects of the proposed rule on the 

national economy. 

Although not required by UMRA, 

DOE has estimated the costs, benefits, 

and other effects of the proposed 

standards on manufacturers, consumers, 

and the nation, and it has considered 

regulatory alternatives (see section 

VI.A.). As required by section 325(o) of 

EPCA (42 U.S.C. 6295(o)), today’s 

proposed energy conservation standards 

for residential furnaces and boilers 

would achieve the maximum 

improvement in energy efficiency that 

DOE has determined to be both 

technologically feasible and 

economically justified. DOE may not 

select a regulatory alternative that does 

not meet this statutory standard. 

H. Review Under the Treasury and 

General Government Appropriations 

Act of 1999 

Section 654 of the Treasury and 

General Government Appropriations 

Act, 1999 (Pub. L. 105–277) requires 

Federal agencies to issue a Family 

Policymaking Assessment for any rule 

that may affect family well-being. This 

rule would not have any impact on the 

autonomy or integrity of the family as 

an institution. Accordingly, DOE has 

concluded that it is not necessary to 

prepare a Family Policymaking 

Assessment. 

I. Review Under Executive Order 12630 

The Department has determined, 

under Executive Order 12630, 

‘‘Governmental Actions and Interference 

with Constitutionally Protected Property 

Rights,’’ 53 FR 8859 (March 18, 1988), 

that this regulation would not result in 

any takings which might require 

compensation under the Fifth 

Amendment to the United States 

Constitution. 

J. Review Under the Treasury and 

General Government Appropriations 

Act of 2001 

Section 515 of the Treasury and 

General Government Appropriations 

Act, 2001 (44 U.S.C. 3516, note) 

provides for agencies to review most 

disseminations of information to the 

public under guidelines established by 

each agency pursuant to general 

guidelines issued by OMB. The OMB’s 

guidelines were published at 67 FR 

8452 (February 22, 2002), and DOE’s 

guidelines were published at 67 FR 

62446 (October 7, 2002). The 

Department has reviewed this notice 

under the OMB and DOE guidelines and 

has concluded that it is consistent with 

applicable policies in those guidelines. 

K. Review Under Executive Order 13211 

Executive Order 13211, ‘‘Actions 

Concerning Regulations That 

Significantly Affect Energy Supply, 

Distribution, or Use,’’ 66 FR 28355 (May 

22, 2001), requires Federal agencies to 

prepare and submit to the Office of 

Information and Regulatory Affairs 

(OIRA), Office of Management and 

Budget, a Statement of Energy Effects for 

any proposed significant energy action. 

A ‘‘significant energy action’’ is defined 

as any action by an agency that 

promulgated or is expected to lead to 

promulgation of a final rule, and that: 

(1) Is a significant regulatory action 

under Executive Order 12866, or any 

successor order; and (2) is likely to have 

a significant adverse effect on the 

supply, distribution, or use of energy, or 

(3) is designated by the Administrator of 

OIRA as a significant energy action. For 

any proposed significant energy action, 

the agency must give a detailed 

statement of any adverse effects on 

energy supply, distribution, or use 

should the proposal be implemented, 

and of reasonable alternatives to the 

action and their expected benefits on 

energy supply, distribution, and use. 

Today’s regulatory action would not 

have a significant adverse effect on the 

supply, distribution, or use of energy 

and, therefore, is not a significant 

energy action. Accordingly, DOE has not 

prepared a Statement of Energy Effects. 

L. Review Under the Information 

Quality Bulletin for Peer Review 

On December 16, 2004, the Office of 

Management and Budget (OMB), in 

consultation with the Office of Science 

and Technology (OSTP), issued its Final 

Information Quality Bulletin for Peer 

Review (the Bulletin). (70 FR 2664, 

January 14, 2005) The Bulletin 

establishes that certain scientific 

information shall be peer reviewed by 

qualified specialists before it is 

disseminated by the Federal 

government, including influential 

scientific information related to agency 

regulatory actions. The purpose of the 

bulletin is to enhance the quality and 

credibility of the Government’s 

scientific information. 

The Department’s Office of Energy 

Efficiency and Renewable Energy, 

Building Technologies Program, held 

formal in-progress peer reviews 

covering the analyses (e.g., screening/ 

engineering analysis, life-cycle cost 

analysis, manufacturing impact 

analysis, and utility impact analysis) 

used in conducting the energy efficiency 

standards development process on June 

28–29, 2005. The in-progress review is 

a rigorous, formal and documented 

evaluation process using objective 

criteria and qualified and independent 

reviewers to make a judgment of the 

technical/scientific/business merit, the 

actual or anticipated results, and the 

productivity and management 

effectiveness of programs and/or 

projects. The Building Technologies 

Program staff is preparing a peer review 

report which, upon completion, will be 

disseminated on the Office of Energy 

Efficiency and Renewable Energy’s Web 

site and included in the administrative 

record for this rulemaking. 

M. Review Under Executive Order 12898 

The Department considers 

environmental justice under Executive 

Order 12898, ‘‘Federal Actions to 

Address Environmental Justice in 

Minority Populations and Low-Income 

Populations,’’ 59 FR 7629 (February 16, 

1994). The Executive Order requires 

Federal agencies to assess whether a 

proposed Federal action causes any 

disproportionately high and adverse 

human health or environmental effects 

on low-income or minority populations. 

The Department evaluated the 

socioeconomic effects of standards on 

low-income households. 

VII. Public Participation 

A. Attendance at Public Meeting 

The time and date of the public 

meeting are listed in the DATES section 

at the beginning of this notice of 

proposed rulemaking. The public 

meeting will be held at the U.S. 

Department of Energy, Forrestal 

Building, Room E–245, 1000 

Independence Avenue, SW., 

Washington, DC 20585–0121. To attend 

the public meeting, please notify Ms. 

Brenda Edwards-Jones at (202) 586–

2945. Foreign nationals visiting DOE 

Headquarters are subject to advance 

security screening procedures, requiring 

a 30-day advance notice. Any foreign 

national wishing to participate in the 

meeting should advise DOE of this fact 

as soon as possible by contacting Ms. 

Brenda Edwards-Jones to initiate the 

necessary procedures. 


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59258 Federal Register / Vol. 71, No. 194 / Friday, October 6, 2006 / Proposed Rules 

B. Procedure for Submitting Requests To 

Speak 

Any person who has an interest in 

this notice, or who is a representative of 

a group or class of persons that has an 

interest in these issues, may request an 

opportunity to make an oral 

presentation. Such persons may handdeliver requests to speak, along with a 

compact disc (CD) in WordPerfect, 

Microsoft Word, PDF, or text (ASCII) file 

format to the address shown in the 

ADDRESSES section at the beginning of 

this notice of proposed rulemaking 

between the hours of 9 a.m. and 4 p.m., 

Monday through Friday, except Federal 

holidays. Requests may also be sent by 

mail or e-mail to: Brenda.EdwardsJones@ee.doe.gov. 

Persons requesting to speak should 

briefly describe the nature of their 

interest in this rulemaking and provide 

a telephone number for contact. The 

Department requests persons selected to 

be heard to submit an advance copy of 

their statements at least two weeks 

before the public meeting. At its 

discretion, DOE may permit any person 

who cannot supply an advance copy of 

their statement to participate, if that 

person has made advance alternative 

arrangements with the Building 

Technologies Program. The request to 

give an oral presentation should ask for 

such alternative arrangements. 

C. Conduct of Public Meeting 

The Department will designate a DOE 

official to preside at the public meeting 

and may also use a professional 

facilitator to aid discussion. The 

meeting will not be a judicial or 

evidentiary-type public hearing, but 

DOE will conduct it in accordance with 

5 U.S.C. 553 and section 336 of EPCA, 

42 U.S.C. 6306. A court reporter will be 

present to record the proceedings and 

prepare a transcript. The Department 

reserves the right to schedule the order 

of presentations and to establish the 

procedures governing the conduct of the 

public meeting. After the public 

meeting, interested parties may submit 

further comments on the proceedings as 

well as on any aspect of the rulemaking 

until the end of the comment period. 

The public meeting will be conducted 

in an informal, conference style. The 

Department will present summaries of 

comments received before the public 

meeting, allow time for presentations by 

participants, and encourage all 

interested parties to share their views on 

issues affecting this rulemaking. Each 

participant will be allowed to make a 

prepared general statement (within time 

limits determined by DOE), before the 

discussion of specific topics. The 

Department will permit other 

participants to comment briefly on any 

general statements. 

At the end of all prepared statements 

on a topic, DOE will permit participants 

to clarify their statements briefly and 

comment on statements made by others. 

Participants should be prepared to 

answer questions by DOE and by other 

participants concerning these issues. 

Department representatives also may 

ask questions of participants concerning 

other matters relevant to this 

rulemaking. The official conducting the 

public meeting will accept additional 

comments or questions from those 

attending, as time permits. The 

presiding official will announce any 

further procedural rules or modification 

of the above procedures that may be 

needed for the proper conduct of the 

public meeting. 

The Department will make the entire 

record of this proposed rulemaking, 

including the transcript from the public 

meeting, available for inspection at the 

U.S. Department of Energy, Forrestal 

Building, Room 1J–018 (Resource Room 

of the Building Technologies Program), 

1000 Independence Avenue, SW., 

Washington, DC, (202) 586–9127, 

between 9 a.m. and 4 p.m., Monday 

through Friday, except Federal holidays. 

Any person may buy a copy of the 

transcript from the transcribing reporter. 

D. Submission of Comments 

The Department will accept 

comments, data, and information 

regarding the proposed rule before or 

after the public meeting, but no later 

than the date provided at the beginning 

of this notice of proposed rulemaking. 

Please submit comments, data, and 

information electronically. Send them to 

the following e-mail address: 

ResidentialFBNOPR

Comments@ee.doe.gov. Submit 

electronic comments in WordPerfect, 

Microsoft Word, PDF, or text (ASCII) file 

format and avoid the use of special 

characters or any form of encryption. 

Comments in electronic format should 

be identified by the docket number EE–

RM/STD–01–350 and/or RIN number 

1904–AA78, and wherever possible 

carry the electronic signature of the 

author. Absent an electronic signature, 

comments submitted electronically 

must be followed and authenticated by 

submitting the signed original paper 

document. No telefacsimiles (faxes) will 

be accepted. 

According to 10 CFR 1004.11, any 

person submitting information that he 

or she believes to be confidential and 

exempt by law from public disclosure 

should submit two copies: One copy of 

the document including all the 

information believed to be confidential, 

and one copy of the document with the 

information believed to be confidential 

deleted. The Department of Energy will 

make its own determination about the 

confidential status of the information 

and treat it according to its 

determination. 

Factors of interest to the Department 

when evaluating requests to treat 

submitted information as confidential 

include: (1) A description of the items; 

(2) whether and why such items are 

customarily treated as confidential 

within the industry; (3) whether the 

information is generally known by or 

available from other sources; (4) 

whether the information has previously 

been made available to others without 

obligation concerning its 

confidentiality; (5) an explanation of the 

competitive injury to the submitting 

person which would result from public 

disclosure; (6) when such information 

might lose its confidential character due 

to the passage of time; and (7) why 

disclosure of the information would be 

contrary to the public interest. 

E. Issues on Which DOE Seeks Comment 

The Department is particularly 

interested in receiving comments and 

views of interested parties concerning: 

(1) The number of consumers that 

may be affected by structural changes 

for installing a condensing furnace and 

the cost magnitude of any structural 

changes; 

(2) The assumption of constant heat 

pump and electric resistance furnace 

market shares over the analysis period 

in order to calculate the possible market 

shift effects of non-weatherized gas 

furnace energy conservation standards 

on NES and NPV; 

(3) The assumption of constant 

condensing furnace market share over 

the analysis period in the base case 

forecast in order to calculate the annual 

unit energy consumption of nonweatherized gas furnaces; 

(4) The feasibility and safety of 

weatherized gas furnaces at trial 

standard level 2 (83-percent AFUE), due 

to possible condensation in the heat 

exchanger; and 

(5) Information that would allow the 

Department to monetize changes in 

warranty costs resulting from the 

installation of products at nearcondensing levels. 

VIII. Approval of the Office of the 

Secretary 

The Secretary of Energy has approved 

publication of this proposed rule. 


sroberts on PROD1PC70 with PROPOSALS
Federal Register / Vol. 71, No. 194 / Friday, October 6, 2006 / Proposed Rules 59259 

List of Subjects in 10 CFR Part 430 

Administrative practice and 

procedure, Energy conservation, 

Household appliances. 

Issued in Washington, DC, on September 

25, 2006. 

Alexander A. Karsner, 

Assistant Secretary, Energy Efficiency and 

Renewable Energy. 

For the reasons set forth in the 

preamble, Part 430 of Title 10, Code of 

Federal Regulations, is proposed to be 

amended as set forth below. 

PART 430—ENERGY CONSERVATION 

PROGRAM FOR CONSUMER 

PRODUCTS 

1. The authority citation for Part 430 

continues to read as follows: 

Authority: 42 U.S.C. 6291–6309, 28 U.S.C. 

2461 note. 

2. Section 430.32(e) of subpart C is 

amended by adding new paragraphs 

(e)(1) and (2) and revising the table to 

read as follows: 

§ 430.32 Energy conservation standards 

and effective dates. 

* * * * * 

(e) * * * 

(1) The annual fuel utilization 

efficiency of furnaces and boilers shall 

not be less than the following for 

products manufactured on or after the 

indicated dates. 

(2) The annual fuel utilization 

efficiency of furnaces and boilers, 

except mobile home oil-fired furnaces, 

weatherized oil-fired furnaces, and gas 

steam boilers, and oil-fired steam 

boilers, shall not be less than the 

following for products manufactured on 

or after the indicated dates. Standards 

for mobile home oil-fired furnaces, 

weatherized oil-fired furnaces, gas 

steam boilers, and oil-fired steam 

boilers, remain as in paragraph (e)(1) of 

this section. 

Product class AFUE1 

(percent) 

Effective 

date 

1. Non-weatherized gas furnaces .................................................................................................................................... 80 XX/XX/2015 

2. Weatherized gas furnaces ........................................................................................................................................... 83 XX/XX/2015 

3. Mobile home gas furnaces .......................................................................................................................................... 80 XX/XX/2015 

4. Oil-fired furnaces ......................................................................................................................................................... 82 XX/XX/2015 

5. Gas hot-water boilers .................................................................................................................................................. 84 XX/XX/2015 

6. Oil-fired hot-water boilers ............................................................................................................................................ 83 XX/XX/2015 

1Annual Fuel Utilization Efficiency, as determined in section 430.22(n)(2) of this part. 

* * * * * 

[FR Doc. 06–8431 Filed 10–5–06; 8:45 am] 

BILLING CODE 6450–01–P 


sroberts on PROD1PC70 with PROPOSALS