```

[Federal Register Volume 76, Number 123 (Monday, June 27, 2011)]
[Rules and Regulations]
[Pages 37408-37548]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-14557]

[[Page 37407]]

Vol. 76

Monday,

No. 123

June 27, 2011

Part II

Department of Energy

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10 CFR Part 430

Energy Conservation Program: Energy Conservation Standards for 
Residential Furnaces and Residential Central Air Conditioners and Heat 
Pumps; Final Rule and Proposed Rule

Federal Register / Vol. 76, No. 123 / Monday, June 27, 2011 / Rules 
and Regulations

[[Page 37408]]

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DEPARTMENT OF ENERGY

10 CFR Part 430

[Docket Number EERE-2011-BT-STD-0011]
RIN 1904-AC06

Energy Conservation Program: Energy Conservation Standards for 
Residential Furnaces and Residential Central Air Conditioners and Heat 
Pumps

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

ACTION: Direct final rule.

-----------------------------------------------------------------------

SUMMARY: The Energy Policy and Conservation Act of 1975 (EPCA), as 
amended, prescribes energy conservation standards for various consumer 
products and certain commercial and industrial equipment, including 
residential furnaces and residential central air conditioners and heat 
pumps. EPCA also requires the U.S. Department of Energy (DOE) to 
determine whether more-stringent, amended standards for these products 
would be technologically feasible and economically justified, and would 
save a significant amount of energy. In this direct final rule, DOE 
adopts amended energy conservation standards for residential furnaces 
and for residential central air conditioners and heat pumps. A notice 
of proposed rulemaking that proposes identical energy efficiency 
standards is published elsewhere in this issue of the Federal Register. 
If DOE receives adverse comment and determines that such comment may 
provide a reasonable basis for withdrawing the direct final rule, this 
final rule will be withdrawn, and DOE will proceed with the proposed 
rule.

DATES: The direct final rule is effective on October 25, 2011 unless 
adverse comment is received by October 17, 2011. If adverse comments 
are received that DOE determines may provide a reasonable basis for 
withdrawal of the direct final rule, a timely withdrawal of this rule 
will be published in the Federal Register. If no such adverse comments 
are received, compliance with the standards in this final rule will be 
required on May 1, 2013 for non-weatherized gas furnaces, mobile home 
gas furnaces, and non-weatherized oil furnaces; and January 1, 2015 for 
weatherized gas furnaces and all central air conditioner and heat pump 
product classes.

ADDRESSES: Any comments submitted must identify the direct final rule 
for Energy Conservation Standards for Residential Furnaces, Central Air 
Conditioners, and Heat Pumps, and provide the docket number EERE-2011-
BT-STD-0011 and/or regulatory information number (RIN) 1904-AC06. 
Comments may be submitted using any of the following methods:
    1. Federal eRulemaking Portal: http://www.regulations.gov. Follow 
the instructions for submitting comments.
    2. E-mail: ResFurnaceAC-2011-Std-0011@ee.doe.gov. Include Docket 
Numbers EERE-2011-BT-STD-0011 and/or RIN number 1904-AC06 in the 
subject line of the message.
    3. Mail: Ms. Brenda Edwards, U.S. Department of Energy, Building 
Technologies Program, Mailstop EE-2J, 1000 Independence Avenue, SW., 
Washington, DC 20585-0121. If possible, please submit all items on a 
CD, in which case it is not necessary to include printed copies.
    4. Hand Delivery/Courier: Ms. Brenda Edwards, U.S. Department of 
Energy, Building Technologies Program, 950 L'Enfant Plaza, SW., Suite 
600, Washington, DC 20024. Telephone: (202) 586-2945. If possible, 
please submit all items on a CD, in which case it is not necessary to 
include printed copies.
    No telefacsimilies will be accepted. For detailed instructions on 
submitting comments and additional information on the rulemaking 
process, see section VII of this document (Public Participation).
    Docket: The docket is available for review at http://www.regulations.gov, including Federal Register notices, framework 
documents, public meeting attendee lists and transcripts, comments, and 
other supporting documents/materials. All documents in the docket are 
listed in the http://www.regulations.gov index. However, not all 
documents listed in the index may be publicly available, such as 
information that is exempt from public disclosure.
    A link to the docket Web page can be found at: http://www.regulations.gov/#!docketDetail;dct=FR 
+PR+++SR+PS;rpp=50;so=DESC;sb=postedDate;po=0;D=EERE-2011-BT-STD-0011.
    The http://www.regulations.gov Web page contains simple 
instructions on how to access all documents, including public comments, 
in the docket. See section VII for further information on how to submit 
comments through http://www.regulations.gov.
    For further information on how to submit or review public comments, 
or view hard copies of the docket in the Resource Room, contact Ms. 
Brenda Edwards at (202) 586-2945 or by e-mail: 
Brenda.Edwards@ee.doe.gov.

FOR FURTHER INFORMATION CONTACT:
Mr. Mohammed Khan (furnaces) or Mr. Wesley Anderson (central air 
conditioners and heat pumps), U.S. Department of Energy, Office of 
Energy Efficiency and Renewable Energy, Building Technologies Program, 
EE-2J, 1000 Independence Avenue, SW., Washington, DC 20585-0121. 
Telephone: (202) 586-7892 or (202) 586-7335. E-mail: 
Mohammed.Khan@ee.doe.gov or Wes.Anderson@ee.doe.gov.
Mr. Eric Stas or Ms. Jennifer Tiedeman, U.S. Department of Energy, 
Office of the General Counsel, GC-71, 1000 Independence Avenue, SW., 
Washington, DC 20585-0121. Telephone: (202) 586-9507 or (202) 287-6111. 
E-mail: Eric.Stas@hq.doe.gov or Jennifer.Tiedeman@hq.doe.gov.

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Summary of the Direct Final Rule
    A. The Energy Conservation Standard Levels
    B. Benefits and Costs to Consumers
    C. Impact on Manufacturers
    D. National Benefits
    E. Conclusion
II. Introduction
    A. Authority
    B. Background
    1. Current Standards
    a. Furnaces
    b. Central Air Conditioners and Heat Pumps
    2. History of Standards Rulemaking for Residential Furnaces, 
Central Air Conditioners, and Heat Pumps
    a. Furnaces
    b. Central Air Conditioners and Heat Pumps
III. General Discussion
    A. Combined Rulemaking
    B. Consensus Agreement
    1. Background
    2. Recommendations
    a. Regions
    b. Standard Levels
    c. Compliance Dates
    3. Comments on Consensus Agreement
    C. Compliance Dates
    a. Consensus Agreement Compliance Dates
    b. Shift From Peak Season
    c. Standby Mode and Off Mode Compliance Dates
    D. Regional Standards
    1. Furnace Regions for Analysis
    2. Central Air Conditioner and Heat Pump Regions for Analysis
    3. Impacts on Market Participants and Enforcement Issues
    a. Impacts on Additional Market Participants
    b. Enforcement Issues
    E. Standby Mode and Off Mode
    1. Furnaces
    a. Standby Mode and Off Mode for Weatherized Gas and Weatherized 
Oil-Fired Furnaces

[[Page 37409]]

    b. Standby Mode and Off Mode for Electric Furnaces
    c. Standby Mode and Off Mode for Mobile Home Oil-Fired Furnaces
    2. Central Air Conditioners and Heat Pumps
    a. Off Mode for Space-Constrained Air Conditioners and Heat 
Pumps
    F. Test Procedures
    1. Furnaces
    a. AFUE Test Method Comment Discussion
    b. Standby Mode and Off Mode
    2. Central Air Conditioners and Heat Pumps
    a. Proposed Test Procedure Amendments
    G. Technological Feasibility
    1. General
    2. Maximum Technologically Feasible Levels
    a. Weatherized Gas Furnace Max-Tech Efficiency Level
    b. Space-Constrained Central Air Conditioner and Heat Pump Max-
Tech Efficiency Levels
    H. Energy Savings
    1. Determination of Savings
    2. Significance of Savings
    I. 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
    A. Market and Technology Assessment
    1. General
    2. Products Included in this Rulemaking
    a. Furnaces
    b. Central Air Conditioners and Heat Pumps
    3. Product Classes
    a. Furnaces
    b. Central Air Conditioners and Heat Pumps
    4. Technologies That Do Not Impact Rated Efficiency
    B. Screening Analysis
    1. Furnaces
    a. Screened-Out Technology Options
    2. Central Air Conditioners and Heat Pumps
    3. Standby Mode and Off Mode
    4. Technologies Considered
    C. Engineering Analysis
    1. Cost Assessment Methodology
    a. Teardown Analysis
    b. Cost Model
    c. Manufacturing Production Cost
    d. Cost-Efficiency Relationship
    e. Manufacturer Markup
    f. Shipping Costs
    g. Manufacturer Interviews
    2. Representative Products
    a. Furnaces
    b. Central Air Conditioners and Heat Pumps
    3. Efficiency Levels
    a. Furnaces
    b. Central Air Conditioners and Heat Pumps
    4. Results
    5. Scaling to Additional Capacities
    a. Furnaces
    b. Central Air Conditioners and Heat Pumps
    6. Heat Pump SEER/HSPF Relationships
    7. Standby Mode and Off Mode Analysis
    a. Identification and Characterization of Standby Mode and Off 
Mode Components
    b. Baseline Model
    c. Cost-Power Consumption Results
    D. Markup Analysis
    E. Energy Use Analysis
    1. Central Air Conditioners and Heat Pumps
    2. Furnaces
    3. Standby Mode and Off Mode
    a. Central Air Conditioners and Heat Pumps
    b. Furnaces
    F. Life-Cycle Cost and Payback Period Analyses
    1. Product Cost
    2. Installation Cost
    a. Central Air Conditioners and Heat Pumps
    b. Furnaces
    3. Annual Energy Consumption
    4. Energy Prices
    5. Energy Price Projections
    6. Maintenance and Repair Costs
    a. Central Air Conditioners and Heat Pumps
    b. Furnaces
    7. Product Lifetime
    8. Discount Rates
    9. Compliance Date of Amended Standards
    10. Base-Case Efficiency Distribution
    a. Energy Efficiency
    b. Standby Mode and Off Mode Power
    11. Inputs to Payback Period Analysis
    12. Rebuttable Presumption Payback Period
    G. National Impact Analysis-National Energy Savings and Net 
Present Value
    1. Shipments
    a. Impact of Potential Standards on Shipments
    2. Forecasted Efficiency in the Base Case and Standards Cases
    3. Installed Cost per Unit
    4. National Energy Savings
    5. Net Present Value of Consumer Benefit
    6. Benefits From Effects of Standards on Energy Prices
    H. Consumer Subgroup Analysis
    I. Manufacturer Impact Analysis
    1. Overview
    a. Phase 1: Industry Profile
    b. Phase 2: Industry Cash Flow Analysis
    c. Phase 3: Sub-Group Impact Analysis
    2. GRIM Analysis
    a. GRIM Key Inputs
    b. Markup Scenarios
    3. Manufacturer Interviews
    a. Consensus Agreement
    b. Potential for Significant Changes to Manufacturing Facilities
    c. Increase in Product Repair and Migration to Alternative 
Products
    d. HFC Phase-Out Legislation
    e. Physical Constraints
    f. Supply Chain Constraints
    J. Employment Impact Analysis
    K. Utility Impact Analysis
    L. Environmental Assessment
    M. Monetizing Carbon Dioxide and Other Emissions Impacts
    1. Social Cost of Carbon
    a. Monetizing Carbon Dioxide Emissions
    b. Social Cost of Carbon Values Used in Past Regulatory Analyses
    c. Current Approach and Key Assumptions
    2. Valuation of Other Emissions Reductions
V. Analytical Results
    A. Trial Standard Levels
    1. TSLs for Energy Efficiency
    2. TSLs for Standby Mode and Off Mode Power
    B. Economic Justification and Energy Savings
    1. Economic Impacts on Individual 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
    b. Impacts on Employment
    c. Impacts on Manufacturing Capacity
    d. Impacts on Sub-Groups of Small Manufacturers
    e. Cumulative Regulatory Burden
    3. National Impact Analysis
    a. Significance of Energy Savings
    b. Net Present Value of Consumer Costs and Benefits
    c. Indirect 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. Conclusion
    1. Benefits and Burdens of TSLs Considered for Furnace, Central 
Air Conditioner, and Heat Pump Energy Efficiency
    2. Benefits and Burdens of TSLs Considered for Furnace, Central 
Air Conditioner, and Heat Pump Standby Mode and Off Mode Power
    3. Annualized Benefits and Costs of Standards for Furnace, 
Central Air Conditioner, and Heat Pump Energy Efficiency
    4. Annualized Benefits and Costs of Standards for Furnace, 
Central Air Conditioner, and Heat Pump Standby Mode and Off Mode 
Power
    5. Certification Requirements
VI. Procedural Issues and Regulatory Review
    A. Review Under Executive Order 12866 and 13563
    B. Review Under the Regulatory Flexibility Act
    1. Description and Estimated Number of Small Entities Regulated
    2. Description and Estimate of Compliance Requirements
    a. Central Air Conditioning and Heat Pumps
    b. Residential Furnaces
    3. Duplication, Overlap, and Conflict With Other Rules and 
Regulations
    4. Significant Alternatives to the Rule
    C. Review Under the Paperwork Reduction Act of 1995
    D. Review Under the National Environmental Policy Act of 1969

[[Page 37410]]

    E. Review Under Executive Order 13132
    F. Review Under Executive Order 12988
    G. Review Under the Unfunded Mandates Reform Act of 1995
    H. Review Under the Treasury and General Government 
Appropriations Act, 1999
    I. Review Under Executive Order 12630
    J. Review Under the Treasury and General Government 
Appropriations Act, 2001
    K. Review Under Executive Order 13211
    L. Review Under the Information Quality Bulletin for Peer Review
    M. Congressional Notification
VII. Public Participation
    A. Submission of Comments
VIII. Approval of the Office of the Secretary

I. Summary of the Direct Final Rule

A. The Energy Conservation Standard Levels

    Title III, Part B \1\ of the Energy Policy and Conservation Act of 
1975 (EPCA or the Act), Public Law 94-163 (42 U.S.C. 6291-6309, as 
codified), established the Energy Conservation Program for Consumer 
Products Other Than Automobiles. Pursuant to EPCA, any new or amended 
energy conservation standard that DOE prescribes for certain products, 
such as the residential furnaces (furnaces) and residential central air 
conditioners and central air conditioning heat pumps (air conditioners 
and heat pumps) \2\ that are the subject of this rulemaking, 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 provisions discussed in this notice, DOE adopts amended 
energy conservation standards for furnaces and central air conditioners 
and heat pumps. The standards for energy efficiency are shown in Table 
I.1, and the standards for standby mode and off mode \3\ are shown in 
Table I.2. These standards apply to all products listed in Table I.1 
and manufactured in, or imported into, the United States on or after 
May 1, 2013, for non-weatherized gas and oil-fired furnaces and mobile 
home gas furnaces, and on or after January 1, 2015, for weatherized 
furnaces and central air conditioners and heat pumps.
---------------------------------------------------------------------------

    \1\ For editorial reasons, upon codification in the U.S. Code, 
Part B was redesignated Part A.
    \2\ ``Residential central air conditioner'' is a product that 
provides cooling only. It is often paired with a separate electric 
or gas furnace. ``Residential central air conditioning heat pump'' 
is a product that provides both cooling and heating, with the 
cooling provided in the same manner as a residential central air 
conditioner and the heating provided by a heat pump mechanism. In 
this document, ``residential central air conditioners and central 
air conditioning heat pumps'' are referred to collectively as 
``central air conditioners and heat pumps,'' and separately as ``air 
conditioners'' (cooling only) and ``heat pumps'' (both cooling and 
heating), respectively.
    \3\ In this rule, DOE is changing the nomenclature for the 
standby mode and off mode power consumption metrics for furnaces 
from those in the furnace and boiler test procedure final rule 
published on October 20, 2010. 75 FR 64621. DOE is renaming the 
PSB and POFF metrics as PW,SB and 
PW,OFF, respectively. However, the substance of these 
metrics remains unchanged.

  Table I.1--Amended Energy Conservation Standards for Furnace, Central
            Air Conditioner, and Heat Pump Energy Efficiency
------------------------------------------------------------------------
                                                      Northern Region **
          Product class           National standards       standards
------------------------------------------------------------------------
                         Residential Furnaces *
------------------------------------------------------------------------
Non-weatherized gas.............  AFUE = 80%........  AFUE = 90%.
Mobile home gas.................  AFUE = 80%........  AFUE = 90%.
Non-weatherized oil-fired.......  AFUE = 83%........  AFUE = 83%.
Weatherized gas.................  AFUE = 81%........  AFUE = 81%.
Mobile home oil-fired             AFUE = 75%........  AFUE = 75%.
 [Dagger][Dagger].
Weatherized oil-fired             AFUE = 78%........  AFUE = 78%.
 [Dagger][Dagger].
Electric [Dagger][Dagger].......  AFUE = 78%........  AFUE = 78%.
------------------------------------------------------------------------

 
                                                                  Southeastern Region
            Product class                National standards        [dagger][dagger]        Southwestern Region
                                                                       standards            [Dagger] standards
----------------------------------------------------------------------------------------------------------------
                                Central Air Conditioners and Heat Pumps [dagger]
----------------------------------------------------------------------------------------------------------------
Split-system air conditioners.......  SEER = 13..............  SEER = 14...............  SEER = 14.
                                                                                         EER = 12.2 (for units
                                                                                          with a rated cooling
                                                                                          capacity less than
                                                                                          45,000 Btu/h).
                                                                                         EER = 11.7 (for units
                                                                                          with a rated cooling
                                                                                          capacity equal to or
                                                                                          greater than 45,000
                                                                                          Btu/h).
Split-system heat pumps.............  SEER = 14..............  SEER = 14...............  SEER = 14.
                                      HSPF = 8.2.............  HSPF = 8.2..............  HSPF = 8.2.
Single-package air conditioners       SEER = 14..............  SEER = 14...............  SEER = 14.
 [Dagger][Dagger].
                                                                                         EER = 11.0.
Single-package heat pumps...........  SEER = 14..............  SEER = 14...............  SEER = 14.
                                      HSPF = 8.0.............  HSPF = 8.0..............  HSPF = 8.0.
Small-duct, high-velocity systems...  SEER = 13..............  SEER = 13...............  SEER = 13.
                                      HSPF = 7.7.............  HSPF = 7.7..............  HSPF = 7.7.
Space-constrained products--air       SEER = 12..............  SEER = 12...............  SEER = 12.
 conditioners [Dagger][Dagger].
Space-constrained products--heat      SEER = 12..............  SEER = 12...............  SEER = 12.
 pumps [Dagger][Dagger].
                                      HSPF = 7.4.............  HSPF = 7.4..............  HSPF = 7.4.
----------------------------------------------------------------------------------------------------------------
* AFUE is annual fuel utilization efficiency.
** The Northern region for furnaces contains the following States: 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.

[[Page 37411]]

 
[dagger] SEER is Seasonal Energy Efficiency Ratio; EER is Energy Efficiency Ratio; HSPF is Heating Seasonal
  Performance Factor; and Btu/h is British thermal units per hour.
[dagger][dagger] The Southeastern region for central air conditioners and heat pumps contains the following
  States: Alabama,, Arkansas, Delaware, Florida, Georgia, Hawaii, Kentucky, Louisiana, Maryland, Mississippi,
  North Carolina, Oklahoma, South Carolina, Tennessee, Texas, and Virginia, and the District of Columbia.
[Dagger] The Southwestern region for central air conditioners and heat pumps contains the States of Arizona,
  California, Nevada, and New Mexico.
[Dagger][Dagger] DOE is not amending energy conservation standards for these product classes in this rule.

  Table I.2--Amended Energy Conservation Standards for Furnace, Central
        Air Conditioner, and Heat Pump Standby Mode and Off Mode*
------------------------------------------------------------------------
                                     Standby mode and off mode standard
           Product class                           levels
------------------------------------------------------------------------
                          Residential Furnaces*
------------------------------------------------------------------------
Non-weatherized gas...............  PW,SB = 10 watts.
                                    PW,OFF = 10 watts.
Mobile home gas...................  PW,SB = 10 watts.
                                    PW,OFF = 10 watts.
Non-weatherized oil-fired.........  PW,SB = 11 watts.
                                    PW,OFF = 11 watts.
Mobile home oil-fired.............  PW,SB = 11 watts.
                                    PW,OFF = 11 watts.
Electric..........................  PW,SB = 10 watts.
                                    PW,OFF = 10 watts.
------------------------------------------------------------------------
        Central Air Conditioners and Heat Pumps [dagger][dagger]
------------------------------------------------------------------------
           Product class                  Off mode standard levels
                                               [dagger][dagger]
------------------------------------------------------------------------
Split-system air conditioners.....  PW,OFF = 30 watts.
Split-system heat pumps...........  PW,OFF = 33 watts.
Single-package air conditioners...  PW,OFF = 30 watts.
Single-package heat pumps.........  PW,OFF = 33 watts.
Small-duct, high-velocity systems.  PW,OFF = 30 watts.
Space-constrained air conditioners  PW,OFF = 30 watts.
Space-constrained heat pumps......  PW,OFF = 33 watts.
------------------------------------------------------------------------
* PW,SB is standby mode electrical power consumption, and PW,OFF is off
  mode electrical power consumption. For furnaces, DOE is proposing to
  change the nomenclature for the standby mode and off mode power
  consumption metrics for furnaces from those in the furnace and boiler
  test procedure final rule published on October 20, 2010. 75 FR 64621.
  DOE is renaming the PSB and POFF metrics as PW,SB and PW,OFF,
  respectively. However, the substance of these metrics remains
  unchanged.
** Standby mode and off mode energy consumption for weatherized gas and
  oil-fired furnaces is regulated as a part of single-package air
  conditioners and heat pumps, as discussed in section III.E.1.
[dagger] PW,OFF is off mode electrical power consumption for central air
  conditioners and heat pumps.
[dagger][dagger] DOE is not adopting a separate standby mode standard
  level for central air conditioners and heat pumps, because standby
  mode power consumption for these products is already regulated by SEER
  and HSPF.

B. Benefits and Costs to Consumers

    The projected economic impacts of the standards in this rule on 
individual consumers are generally positive. For the standards on 
energy efficiency, the estimated average life-cycle cost (LCC) \4\ 
savings for consumers are $155 for non-weatherized gas furnaces in the 
northern region, $419 for mobile home gas furnaces in the northern 
region, and $15 for non-weatherized oil-fired furnaces at a national 
level. (The standards in this rule on energy efficiency would have no 
impact for consumers of non-weatherized gas furnaces and mobile home 
gas furnaces in the southern region.) The estimated LCC savings for 
consumers are $93 and $107 for split system air conditioners (coil 
only) in the hot-humid and hot-dry regions,\5\ respectively; $89 and 
$101 for split system air conditioners (blower coil) in the hot-humid 
and hot-dry regions, respectively; $102 and $175 for split system heat 
pumps in the hot-humid and hot-dry regions, respectively, and $4 for 
the rest of the country; $37 for single package air conditioners in the 
entire country; and $104 for single package heat pumps in the entire 
country.\6\ For small-duct, high-velocity systems, no consumers would 
be impacted by the standards in this rule.
---------------------------------------------------------------------------

    \4\ The LCC is the total consumer expense over the life of a 
product, consisting of purchase and installation costs plus 
operating costs (expenses for energy use, maintenance, and repair). 
To compute the operating costs, DOE discounts future operating costs 
to the time of purchase and sums them over the lifetime of the 
product.
    \5\ Throughout this notice, the terms ``hot-humid'' and ``hot-
dry'' are used interchangeably with the terms ``southeastern'' and 
``southwestern,'' respectively, when referring to the two southern 
regions for central air conditioners and heat pumps.
    \6\ For single-package air conditioners and single-package heat 
pumps, DOE has analyzed the regional standards on a national basis 
because the standard would be identical in each region. 
Additionally, given the low level of shipments of these products, 
DOE determined that an analysis of regional standards would not 
produce significant differences in comparison to a single national 
standard.
---------------------------------------------------------------------------

    For the national standards in this rule on standby mode and off 
mode power, the estimated average LCC savings for consumers are $2 for 
non-weatherized gas furnaces, $0 for mobile home gas furnaces and 
electric furnaces, $1 for non-weatherized oil-fired furnaces, $84 for 
split system air conditioners (coil only), $40 for split system air 
conditioners (blower coil), $9 for split system heat pumps, $41 for 
single package air conditioners, $9 for single package heat pumps and 
$37 for small-duct, high-velocity (SDHV) systems.

C. Impact on Manufacturers

    The industry net present value (INPV) is the sum of the discounted 
cash flows to the industry from the base year through the end of the 
analysis period (2010 through 2045). Using a real discount rate of 8.0 
percent, DOE

[[Page 37412]]

estimates that the INPV for manufacturers of furnaces, central air 
conditioners, and heat pumps in the base case (without amended 
standards) is $8.50 billion in 2009$. For the standards in this rule on 
energy efficiency, DOE expects that manufacturers may lose 5.6 to 10.6 
percent of their INPV, or approximately $0.48 billion to $0.90 billion. 
For the standards in this rule on standby mode and off mode power, DOE 
expects that manufacturers may lose up to 2.9 percent of their INPV, or 
approximately $0.25 billion.

D. National Benefits

    DOE's analyses indicate that the standards in this rule for energy 
efficiency and standby mode and off mode power would save a significant 
amount of energy--an estimated 3.36 to 4.38 quads of cumulative energy 
in 2013-2045 for furnaces and in 2015-2045 for central air conditioners 
and heat pumps.\7\ This amount is comprised of savings of 3.20 to 4.22 
quads for the standards in this rule on energy efficiency and 0.16 
quads for the standards in this rule on standby mode and off mode 
power. The total amount is approximately one-fifth of the amount of 
total energy used annually by the U.S. residential sector. In addition, 
DOE expects the energy savings from the standards in this rule to 
eliminate the need for approximately 3.80 to 3.92 gigawatts (GW) of 
generating capacity by 2045.
---------------------------------------------------------------------------

    \7\ DOE has calculated the energy savings over a period that 
begins in the year in which compliance with the proposed standards 
would be required (as described in the text preceding Table I.1) and 
continues through 2045. DOE used the same end year (2045) for both 
types of products to be consistent with the end year that it used in 
analyzing other standard levels that it considered. See section IV.G 
of this notice for further discussion.
---------------------------------------------------------------------------

    The cumulative national net present value (NPV) of total consumer 
costs and savings of the standards in this rule for products shipped in 
2013-2045 for furnaces and in 2015-2045 for central air conditioners 
and heat pumps, in 2009$, ranges from $4.30 billion to $4.58 billion 
(at a 7-percent discount rate) to $15.9 billion to $18.7 billion (at a 
3-percent discount rate).\8\ This NPV is the estimated total value of 
future operating-cost savings during the analysis period, minus the 
estimated increased product costs (including installation), discounted 
to 2011.
---------------------------------------------------------------------------

    \8\ DOE uses discount rates of 7 and 3 percent based on guidance 
from the Office of Management and Budget (OMB Circular A-4, section 
E (Sept. 17, 2003)). See section IV.G of this notice for further 
information.
---------------------------------------------------------------------------

    In addition, the standards in this rule would have significant 
environmental benefits. The energy savings would result in cumulative 
greenhouse gas emission reductions of 113 million to 143 million metric 
tons (Mt) \9\ of carbon dioxide (CO2) in 2013-2045 for 
furnaces and in 2015-2045 for central air conditioners and heat pumps. 
During this period, the standards in this rule would also result in 
emissions reductions of 97 to 124 thousand tons of nitrogen oxides 
(NOX) and 0.143 to 0.169 ton of mercury (Hg).\10\ DOE 
estimates the present monetary value of the total CO2 
emissions reductions is between $0.574 billion and $11.8 billion, 
expressed in 2009$ and discounted to 2011 using a range of discount 
rates (see notes to Table I.3). DOE also estimates the present monetary 
value of the NOX emissions reductions, expressed in 2009$ 
and discounted to 2011, is between $12.7 million and $169 million at a 
7-percent discount rate, and between $30.7 million and $403 million at 
a 3-percent discount rate.\11\
---------------------------------------------------------------------------

    \9\ A metric ton is equivalent to 1.1 short tons. Results for 
NOX and Hg are presented in short tons.
    \10\ DOE calculates emissions reductions relative to the most 
recent version of the Annual Energy Outlook (AEO) Reference case 
forecast. As noted in section 15.2.4 of TSD chapter 15, this 
forecast accounts for regulatory emissions reductions through 2008, 
including the Clean Air Interstate Rule (CAIR, 70 FR 25162 (May 12, 
2005)), but not the Clean Air Mercury Rule (CAMR, 70 FR 28606 (May 
18, 2005)). Subsequent regulations, including the currently proposed 
CAIR replacement rule, the Clean Air Transport Rule (75 FR 45210 
(Aug. 2, 2010)), do not appear in the forecast.
    \11\ DOE is aware of multiple agency efforts to determine the 
appropriate range of values used in evaluating the potential 
economic benefits of reduced Hg emissions. DOE has decided to await 
further guidance regarding consistent valuation and reporting of Hg 
emissions before it once again monetizes Hg emissions reductions in 
its rulemakings.
---------------------------------------------------------------------------

    The benefits and costs of the standards in this rule can also be 
expressed in terms of annualized values. The annualized monetary values 
are the sum of: (1) The annualized national economic value, expressed 
in 2009$, of the benefits from operating products that meet the 
standards in this rule (consisting primarily of operating cost savings 
from using less energy, minus increases in equipment purchase costs, 
which is another way of representing consumer NPV), and (2) the 
monetary value of the benefits of emission reductions, including 
CO2 emission reductions.\12\ The value of the CO2 
reductions, otherwise known as the Social Cost of Carbon (SCC), is 
calculated using a range of values per metric ton of CO2 
developed by a recent interagency process. The monetary costs and 
benefits of cumulative emissions reductions are reported in 2009$ to 
permit comparisons with the other costs and benefits in the same dollar 
units. The derivation of the SCC values is discussed in further detail 
in section IV.M.
---------------------------------------------------------------------------

    \12\ DOE used a two-step calculation process to convert the 
time-series of costs and benefits into annualized values. First, DOE 
calculated a present value in 2011, the year used for discounting 
the NPV of total consumer costs and savings, for the time-series of 
costs and benefits using discount rates of three and seven percent 
for all costs and benefits except for the value of CO2 
reductions. For the latter, DOE used a range of discount rates, as 
shown in Table I.3. From the present value, DOE then calculated the 
fixed annual payment over a 32-year period, starting in 2011 that 
yields the same present value. The fixed annual payment is the 
annualized value. Although DOE calculated annualized values, this 
does not imply that the time-series of cost and benefits from which 
the annualized values were determined would be a steady stream of 
payments.
---------------------------------------------------------------------------

    Although combining the values of operating savings and 
CO2 emission reductions provides a useful perspective, two 
issues should be considered. First, the national operating savings are 
domestic U.S. consumer monetary savings that occur as a result of 
market transactions, whereas the value of CO2 reductions is 
based on a global value. Second, the assessments of operating cost 
savings and CO2 savings are performed with different methods 
that use quite different time frames for analysis. The national 
operating cost savings is measured for the lifetime of products shipped 
in 2013-2045 for furnaces and 2015-2045 for central air conditioners 
and heat pumps. The SCC values, on the other hand, reflect the present 
value of future climate-related impacts resulting from the emission of 
one metric ton of carbon dioxide in each year. These impacts continue 
well beyond 2100.
    Estimates of annualized benefits and costs of the standards in this 
rule for furnace, central air conditioner, and heat pump energy 
efficiency are shown in Table I.3. The results under the primary 
estimate are as follows. Using a 7-percent discount rate for consumer 
impacts and the SCC series that has a value of $22.1/ton in 2010 (in 
2009$), the cost of the standards in this rule is $527 million to $773 
million per year in increased equipment costs, while the annualized 
benefits are $837 million to $1106 million per year in reduced 
equipment operating costs, $140 million to $178 million in 
CO2 reductions, and $5.3 million to $6.9 million in reduced 
NOX emissions. In this case, the net benefit amounts to $456 
million to $517 million per year. DOE also calculated annualized net 
benefits using a range of potential electricity and equipment price 
trend forecasts. Given the range of

[[Page 37413]]

modeled price trends, the range of net benefits in this case is from 
$295 million to $623 million per year. The low estimate in Table I.3 
corresponds to a scenario with a low electricity price trend and a 
constant real price trend for equipment, while the high estimate 
reflects a high electricity price trend and a strong declining real 
price trend for equipment.
    Using a 3-percent discount rate for consumer impacts and the SCC 
series that has a value of $22.1/ton in 2010 (in 2009$), the cost of 
the standards in this rule is $566 million to $825 million per year in 
increased equipment costs, while the benefits are $1289 million to 
$1686 million per year in reduced operating costs, $140 million to $178 
million in CO2 reductions, and $7.9 million to $10.2 million 
in reduced NOX emissions. In this case, the net benefit 
amounts to $871 million to $1049 million per year. DOE also calculated 
annualized net benefits using a range of potential electricity and 
equipment price trend forecasts. Given the range of modeled price 
trends, the range of net benefits in this case is from $601 million to 
$1,260 million per year. The low estimate corresponds to a scenario 
with a low electricity price trend and a constant real price trend for 
equipment, while the high estimate reflects a high electricity price 
trend and a strong declining real price trend for equipment.

         Table I.3--Annualized Benefits and Costs of Standards for Furnace and Central Air Conditioner and Heat Pump Energy Efficiency (TSL 4) *
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                               Monetized (million 2009$/year)
                                           Discount rate          --------------------------------------------------------------------------------------
                                                                       Primary estimate **            Low estimate **              High estimate **
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                        Benefits
--------------------------------------------------------------------------------------------------------------------------------------------------------
Operating Cost Savings..........  7%.............................  837 to 1,106...............  723 to 959.................  955 to 1,258.
                                  3%.............................  1,289 to 1,686.............  1,083 to 1,422.............  1,493 to 1,948.
CO2 Reduction at $4.9/t [dagger]  5%.............................  34 to 43...................  34 to 43...................  34 to 43.
CO2 Reduction at $22.1/t          3%.............................  140 to 178.................  141 to 178.................  140 to 178.
 [dagger].
CO2 Reduction at $36.3/t          2.5%...........................  224 to 284.................  225 to 285.................  224 to 284.
 [dagger].
CO2 Reduction at $67.1/t          3%.............................  427 to 541.................  428 to 543.................  427 to 541.
 [dagger].
NOX Reduction at $2,519/ton       7%.............................  5.3 to 6.9.................  5.3 to 7.0.................  5.3 to 6.9.
 [dagger].
                                  3%.............................  7.9 to 10.2................  7.9 to 10.3................  7.9 to 10.2.
    Total [dagger][dagger]......  7% plus CO2 range..............  876 to 1,653...............  762 to 1,509...............  994 to 1,805.
                                  7%.............................  983 to 1,290...............  869 to 1,144...............  1,100 to 1,442.
                                  3%.............................  1,437 to 1,874.............  1,232 to 1,611.............  1,641 to 2,136.
                                  3% plus CO2 range..............  1,330 to 2,237.............  1,125 to 1,975.............  1,535 to 2,499.
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                          Costs
--------------------------------------------------------------------------------------------------------------------------------------------------------
Incremental Product Costs.......  7%.............................  527 to 773.................  574 to 840.................  555 to 819.
                                  3%.............................  566 to 825.................  630 to 916.................  599 to 876.
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                   Net Benefits/Costs
--------------------------------------------------------------------------------------------------------------------------------------------------------
    Total [dagger][dagger]......  7% plus CO2 range..............  349 to 880.................  188 to 669.................  438 to 986.
                                  7%.............................  456 to 517.................  295 to 305.................  545 to 623.
                                  3%.............................  871 to 1,049...............  601 to 695.................  1,042 to 1,260.
                                  3% plus CO2 range..............  764 to 1,412...............  494 to 1,059...............  935 to 1,623.
--------------------------------------------------------------------------------------------------------------------------------------------------------
* The benefits and costs are calculated for products shipped in 2013-2045 for the furnace standards and in 2015-2045 for the central air conditioner and
  heat pump standards.
** The Primary, Low, and High Estimates utilize forecasts of energy prices and housing starts from the AEO2010 Reference case, Low Economic Growth case,
  and High Economic Growth case, respectively. In addition, the Low estimate uses incremental product costs that reflects constant prices (no learning
  rate) for product prices, and the High estimate uses incremental product costs that reflects a declining trend (high learning rate) for product
  prices. The derivation and application of learning rates for product prices is explained in section IV.F.1.
[dagger] The CO2 values represent global monetized values (in 2009$) of the social cost of CO2 emissions in 2010 under several scenarios. The values of
  $4.9, $22.1, and $36.3 per metric ton are the averages of SCC distributions calculated using 5-percent, 3-percent, and 2.5-percent discount rates,
  respectively. The value of $67.1 per ton represents the 95th percentile of the SCC distribution calculated using a 3-percent discount rate. The value
  for NOX (in 2009$) is the average of the low and high values used in DOE's analysis.
[dagger][dagger] Total Benefits for both the 3-percent and 7-percent cases are derived using the SCC value calculated at a 3-percent discount rate,
  which is $22.1/ton in 2010 (in 2009$). In the rows labeled as ``7% plus CO2 range'' and ``3% plus CO2 range,'' the operating cost and NOX benefits are
  calculated using the labeled discount rate, and those values are added to the full range of CO2 values.

    Estimates of annualized benefits and costs of the standards in this 
rule for furnace, central air conditioner, and heat pump standby mode 
and off mode power are shown in Table I.4. The results under the 
primary estimate are as follows. Using a 7-percent discount rate and 
the SCC value of $22.1/ton in 2010 (in 2009$), the cost of the 
standards in this rule is $16.4 million per year in increased equipment 
costs, while the annualized benefits are $46.5 million per year in 
reduced equipment operating costs, $12.4 million in CO2 
reductions, and $0.4 million in reduced NOX emissions. In 
this case, the net benefit amounts to $42.8 million per year. Using a 
3-percent discount rate and the SCC value of $22.10/ton in 2010 (in 
2009$), the cost of the standards in this rule is $19.1 million per 
year in increased equipment costs, while the benefits are $79.3 million 
per year in reduced operating costs, $12.4 million in CO2 
reductions, and $0.6 million in reduced NOX emissions. In 
this case, the net benefit amounts to $73.2 million per year.

[[Page 37414]]

      Table I.4--Annualized Benefits and Costs of Standards for Furnace, Central Air Conditioner, and Heat Pump Standby Mode and Off Mode (TSL 2) *
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                              Monetized (million 2009$/year)
                                          Discount rate          ---------------------------------------------------------------------------------------
                                                                      Primary estimate **            Low estimate **              High estimate **
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                        Benefits
--------------------------------------------------------------------------------------------------------------------------------------------------------
Operating Cost Savings.........  7%.............................  46.5.......................  40.4.......................  52.8.
                                 3%.............................  79.3.......................  67.9.......................  90.8.
CO2 Reduction at $4.9/t          5%.............................  2.9........................  2.9........................  2.9.
 [dagger].
CO2 Reduction at $22.1/t         3%.............................  12.4.......................  12.4.......................  12.4.
 [dagger].
CO2 Reduction at $36.3/t         2.5%...........................  19.9.......................  19.9.......................  19.9.
 [dagger].
CO2 Reduction at $67.1/t         3%.............................  37.6.......................  37.6.......................  37.6.
 [dagger].
NOX Reduction at $2,519/ton      7%.............................  0.4........................  0.4........................  0.4.
 [dagger].
                                 3%.............................  0.6........................  0.6........................  0.6.
    Total [dagger][dagger].....  7% plus CO2 range..............  49.7 to 84.5...............  43.6 to 78.4...............  56.1 to 90.8.
                                 7%.............................  59.2.......................  53.1.......................  65.5.
                                 3%.............................  92.3.......................  80.9.......................  103.8.
                                 3% plus CO2 range..............  82.8 to 117.5..............  71.4 to 106.2..............  94.3 to 129.1.
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                          Costs
--------------------------------------------------------------------------------------------------------------------------------------------------------
Incremental Product Costs......  7%.............................  16.4.......................  15.2.......................  17.7.
                                 3%.............................  19.1.......................  17.6.......................  20.6.
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                   Net Benefits/Costs
--------------------------------------------------------------------------------------------------------------------------------------------------------
    Total [dagger][dagger].....  7% plus CO2 range..............  33.3 to 68.1...............  28.5 to 63.2...............  38.4 to 73.1.
                                 7%.............................  42.8.......................  38.0.......................  47.9.
                                 3%.............................  73.2.......................  63.3.......................  83.2.
                                 3% plus CO2 range..............  63.7 to 98.4...............  53.8 to 88.5...............  73.7 to 108.5.
--------------------------------------------------------------------------------------------------------------------------------------------------------
* The benefits and costs are calculated for products shipped in 2013-2045 for the furnace standards and in 2015-2045 for the central air conditioner and
  heat pump standards.
** The Primary, Low, and High Estimates utilize forecasts of energy prices and housing starts from the AEO2010 Reference case, Low Economic Growth case,
  and High Economic Growth case, respectively. In addition, the low estimate uses incremental product costs that reflects constant prices (no learning
  rate) for product prices, and the high estimate uses incremental product costs that reflects a declining trend (high learning rate) for product
  prices. The derivation and application of learning rates for product prices is explained in section IV.F.1.
[dagger] The CO2 values represent global monetized values (in 2009$) of the social cost of CO2 emissions in 2010 under several scenarios. The values of
  $4.9, $22.1, and $36.3 per metric ton are the averages of SCC distributions calculated using 5-percent, 3-percent, and 2.5-percent discount rates,
  respectively. The value of $67.1 per ton represents the 95th percentile of the SCC distribution calculated using a 3-percent discount rate. The value
  for NOX (in 2009$) is the average of the low and high values used in DOE's analysis.
[dagger][dagger] Total Benefits for both the 3-percent and 7-percent cases are derived using the SCC value calculated at a 3-percent discount rate,
  which is $22.1/ton in 2010 (in 2009$). In the rows labeled as ``7% plus CO2 range'' and ``3% plus CO2 range,'' the operating cost and NOX benefits are
  calculated using the labeled discount rate, and those values are added to the full range of CO2 values.

E. Conclusion

    Based on the analyses culminating in this rule, DOE has concluded 
that the benefits of the standards in this rule (energy savings, 
positive NPV of consumer benefits, consumer LCC savings, and emission 
reductions) would outweigh the burdens (loss of INPV for manufacturers 
and LCC increases for some consumers). DOE has concluded that the 
standards in this rule represent the maximum improvement in energy 
efficiency that is technologically feasible and economically justified, 
and would result in the significant conservation of energy. DOE further 
notes that products achieving these standard levels are already 
commercially available for all of the product classes covered by 
today's proposal.

II. Introduction

    The following sections briefly discuss the statutory authority 
underlying today's direct final rule, as well as some of the relevant 
historical background related to the establishment of standards for 
residential furnaces and residential central air conditioners and heat 
pumps.

A. Authority

    Title III, Part B of the Energy Policy and Conservation Act of 1975 
(EPCA or the Act), Public Law 94-163 (42 U.S.C. 6291-6309, as codified) 
established the Energy Conservation Program for Consumer Products Other 
Than Automobiles,\13\ a program covering most major household 
appliances (collectively referred to as ``covered products''), which 
includes the types of residential central air conditioners and heat 
pumps and furnaces that are the subject of this rulemaking. (42 U.S.C. 
6292(a)(3) and (5)) EPCA prescribed energy conservation standards for 
central air conditioners and heat pumps and directed DOE to conduct two 
cycles of rulemakings to determine whether to amend these standards. 
(42 U.S.C. 6295(d)(1)-(3)) The statute also prescribed standards for 
furnaces, except for ``small'' furnaces (i.e., those units with an 
input capacity less than 45,000 British thermal units per hour (Btu/
h)), for which EPCA directed DOE to prescribe standards. (42 U.S.C. 
6295(f)(1)-(2)) Finally, EPCA directed DOE to conduct rulemakings to 
determine whether to amend the standards for furnaces. (42 U.S.C. 
6295(f)(4)(A)-(C)) As explained in further detail in section II.B, 
``Background,'' this rulemaking represents the second round of 
amendments to both the central air conditioner/heat pump and the 
furnaces standards, under the authority of 42 U.S.C. 6295(d)(3)(B) and 
(f)(4)(C), respectively.
---------------------------------------------------------------------------

    \13\ For editorial reasons, upon codification in the U.S. Code, 
Part B was redesignated Part A.
---------------------------------------------------------------------------

    DOE notes that this rulemaking is one of the required agency 
actions in two court orders. First, pursuant to the

[[Page 37415]]

consolidated Consent Decree in State of New York, et al. v. Bodman, et 
al., 05 Civ. 7807 (LAP), and Natural Resources Defense Council, et al. 
v. Bodman, et al., 05 Civ. 7808 (LAP), DOE is required to complete a 
final rule for amended energy conservation standards for residential 
central air conditioners and heat pumps that must be sent to the 
Federal Register by June 30, 2011. Second, pursuant to the Voluntary 
Remand in State of New York, et al. v. Department of Energy, et al., 
08-0311-ag(L); 08-0312-ag(con), DOE agreed to complete a final rule to 
consider amendments to the energy conservation standards for 
residential furnaces which it anticipated would be sent to the Federal 
Register by May 1, 2011.
    DOE further notes that under 42 U.S.C. 6295(m), the agency must 
periodically review its already established energy conservation 
standards for a covered product. Under this requirement, the next 
review that DOE would need to conduct must occur no later than six 
years from the issuance of a final rule establishing or amending a 
standard for a covered product.
    Pursuant to EPCA, DOE's energy conservation program for covered 
products consists essentially of four parts: (1) Testing; (2) labeling; 
(3) the establishment of Federal energy conservation standards; and (4) 
certification and enforcement procedures. The Federal Trade Commission 
(FTC) is primarily responsible for labeling, and DOE implements the 
remainder of the program. Subject to certain criteria and conditions, 
DOE is required 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) Manufacturers of covered products 
must use the prescribed DOE test procedure as the basis for certifying 
to DOE that their products comply with the applicable energy 
conservation standards adopted under EPCA and when making 
representations to the public regarding the energy use or efficiency of 
those products. (42 U.S.C. 6293(c) and 6295(s)) Similarly, DOE must use 
these test procedures to determine whether the products comply with 
standards adopted pursuant to EPCA. Id. The DOE test procedures for 
central air conditioners and heat pumps, and for furnaces, appear at 
title 10 of the Code of Federal Regulations (CFR) part 430, subpart B, 
appendices M and N, respectively.
    DOE must follow specific statutory criteria for prescribing amended 
standards for covered products. As indicated above, any 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)) Furthermore, DOE may 
not adopt any standard that would not result in the significant 
conservation of energy. (42 U.S.C. 6295(o)(3)) Moreover, DOE may not 
prescribe a standard: (1) For certain products, including both furnaces 
and central air conditioners and heat pumps, if no test procedure has 
been established for the product, or (2) if DOE determines by rule that 
the proposed standard is not technologically feasible or economically 
justified. (42 U.S.C. 6295(o)(3)(A)-(B)) In deciding whether a standard 
is economically justified, DOE must determine whether the benefits of 
the standard exceed its burdens. (42 U.S.C. 6295(o)(2)(B)(i)) DOE must 
make this determination after receiving comments on the proposed 
standard, and by considering, to the greatest extent practicable, the 
following seven factors:
    1. The economic impact of the standard on manufacturers and 
consumers of the products subject to the standard;
    2. The savings in operating costs throughout the estimated average 
life of the covered products in the type (or class) compared to any 
increase in the price, initial charges, or maintenance expenses for the 
covered products that are likely to result from the imposition of the 
standard;
    3. The total projected amount of energy, or as applicable, water, 
savings likely to result directly from the imposition of the standard;
    4. Any lessening of the utility or the performance of the covered 
products likely to result from the imposition of the standard;
    5. The impact of any lessening of competition, as determined in 
writing by the Attorney General, that is likely to result from the 
imposition of the standard;
    6. The need for national energy and water conservation; and
    7. Other factors the Secretary of Energy (the Secretary) considers 
relevant. (42 U.S.C. 6295(o)(2)(B)(i)(I)-(VII))
    The Energy Independence and Security Act of 2007 (EISA 2007; Pub. 
L. 110-140) amended EPCA, in relevant part, to grant DOE authority to 
issue a final rule (hereinafter referred to as a ``direct final rule'') 
establishing an energy conservation standard on receipt of a statement 
submitted jointly by interested persons that are fairly representative 
of relevant points of view (including representatives of manufacturers 
of covered products, States, and efficiency advocates), as determined 
by the Secretary, that contains recommendations with respect to an 
energy or water conservation standard that are in accordance with the 
provisions of 42 U.S.C. 6295(o). A notice of proposed rulemaking (NOPR) 
that proposes an identical energy efficiency standard must be published 
simultaneously with the final rule, and DOE must provide a public 
comment period of at least 110 days on this proposal. 42 U.S.C. 
6295(p)(4). Not later than 120 days after issuance of the direct final 
rule, if one or more adverse comments or an alternative joint 
recommendation are received relating to the direct final rule, the 
Secretary must determine whether the comments or alternative 
recommendation may provide a reasonable basis for withdrawal under 42 
U.S.C. 6295(o) or other applicable law. If the Secretary makes such a 
determination, DOE must withdraw the direct final rule and proceed with 
the simultaneously-published NOPR. DOE must publish in the Federal 
Register the reason why the direct final rule was withdrawn. Id.
    The Consent Decree in State of New York, et al. v. Bodman, et al., 
described above, defines a ``final rule'' to have the same meaning as 
in 42 U.S.C. 6295(p)(4) and defines ``final action'' as a final 
decision by DOE. As this direct final rule is issued under authority at 
42 U.S.C. 6295(p)(4) and constitutes a final decision by DOE which 
becomes legally effective 120 days after issuance, absent an adverse 
comment that leads the Secretary to withdraw the direct final rule, DOE 
asserts that issuance of this direct final rule on or before the date 
required by the court constitutes compliance with the Consent Decree in 
State of New York, et al. v. Bodman, et al.
    EPCA, as codified, also contains what is known as an ``anti-
backsliding'' provision, which prevents the Secretary from prescribing 
any amended standard that either increases the maximum allowable energy 
use or decreases the minimum required energy efficiency of a covered 
product. (42 U.S.C. 6295(o)(1)) Also, the Secretary may not prescribe 
an amended or 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) of performance characteristics (including reliability), 
features, sizes, capacities, and volumes that are substantially the 
same as those generally available in the United States. (42 U.S.C. 
6295(o)(4))

[[Page 37416]]

    Further, EPCA, as codified, 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))
    Additionally, 42 U.S.C. 6295(q)(1) specifies requirements when 
promulgating a standard for a type or class of covered product that has 
two or more subcategories. DOE 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'' than applies or will apply to the other products within that 
type or class. Id. In determining whether a performance-related feature 
justifies a different standard for a group of products, DOE must 
``consider such factors as the utility to the consumer of such a 
feature'' and other factors DOE deems appropriate. Id. Any rule 
prescribing such a standard must include an explanation of the basis on 
which such higher or lower level was established. (42 U.S.C. 
6295(q)(2))
    Under 42 U.S.C. 6295(o)(6), which was added by section 306(a) of 
the Energy Independence and Security Act of 2007 (EISA 2007; Pub. L. 
110-140), DOE may consider the establishment of regional standards for 
furnaces (except boilers) and for central air conditioners and heat 
pumps. Specifically, in addition to a base national standard for a 
product, DOE may establish for furnaces a single more-restrictive 
regional standard, and for central air conditioners and heat pumps, DOE 
may establish one or two more-restrictive regional standards. (42 
U.S.C. 6295(o)(6)(B)) The regions must include only contiguous States 
(with the exception of Alaska and Hawaii, which may be included in 
regions with which they are not contiguous), and each State may be 
placed in only one region (i.e., an entire State cannot simultaneously 
be placed in two regions, nor can it be divided between two regions). 
(42 U.S.C. 6295(o)(6)(C)) Further, DOE can establish the additional 
regional standards only: (1) Where doing so would produce significant 
energy savings in comparison to a single national standard, (2) if the 
regional standards are economically justified, and (3) after 
considering the impact of these standards on consumers, manufacturers, 
and other market participants, including product distributors, dealers, 
contractors, and installers. (42 U.S.C. 6295(o)(6)(D))
    Federal energy conservation requirements generally supersede State 
laws or regulations concerning energy conservation testing, labeling, 
and standards. (42 U.S.C. 6297(a)-(c)) DOE may, however, grant waivers 
of Federal preemption for particular State laws or regulations, in 
accordance with the procedures and other provisions set forth under 42 
U.S.C. 6297(d).
    Finally, pursuant to the amendments contained in section 310(3) of 
EISA 2007, any final rule for new or amended energy conservation 
standards promulgated after July 1, 2010 are required to address 
standby mode and off mode energy use. (42 U.S.C. 6295(gg)(3)) 
Specifically, when DOE adopts a standard for a covered product after 
that date, it must, if justified by the criteria for adoption of 
standards under 42 U.S.C. 6295(o), incorporate standby mode and off 
mode energy use into the standard, if feasible, or, if that is not 
feasible, adopt a separate standard for such energy use for that 
product. (42 U.S.C. 6295(gg)(3)(A)-(B)) DOE's current energy 
conservation standards for furnaces are expressed in terms of minimum 
annual fuel utilization efficiencies (AFUE), and, for central air 
conditioners and heat pumps, they are expressed in terms of minimum 
seasonal energy efficiency ratios (SEER) for the cooling mode and 
heating seasonal performance factors (HSPF) for the heating mode.
    DOE's current test procedures for furnaces have been updated to 
address standby mode and off mode energy use. 75 FR 64621 (Oct. 20, 
2010). DOE is in the process of amending its test procedures for 
central air conditioners and heat pumps to address standby mode and off 
mode energy use. 75 FR 31224 (June 2, 2010). In this rulemaking, DOE is 
adopting provisions to comprehensively address such energy use. In 
addition, DOE is amending the test procedure for furnaces and boilers 
to specify that furnaces manufactured on or after May 1, 2013 (i.e., 
the compliance date of the standard) will be required to be tested for 
standby mode and off mode energy consumption for purposes of certifying 
compliance with the standard. As noted above, for central air 
conditioners and heat pumps, DOE is currently in the process of 
amending the test procedures. Accordingly, DOE is including language to 
specify that off mode testing does not need to be performed until the 
compliance date for the applicable off mode energy conservation 
standards resulting from this rule.
    DOE has also reviewed this regulation pursuant to Executive Order 
13563, issued on January 18, 2011 (76 FR 3281, Jan. 21, 2011). EO 13563 
is supplemental to and explicitly reaffirms the principles, structures, 
and definitions governing regulatory review established in Executive 
Order 12866. To the extent permitted by law, agencies are required by 
Executive Order 13563 to: (1) Propose or adopt a regulation only upon a 
reasoned determination that its benefits justify its costs (recognizing 
that some benefits and costs are difficult to quantify); (2) tailor 
regulations to impose the least burden on society, consistent with 
obtaining regulatory objectives, taking into account, among other 
things, and to the extent practicable, the costs of cumulative 
regulations; (3) select, in choosing among alternative regulatory 
approaches, those approaches that maximize net benefits (including 
potential economic, environmental, public health and safety, and other 
advantages; distributive impacts; and equity); (4) to the extent 
feasible, specify performance objectives, rather than specifying the 
behavior or manner of compliance that regulated entities must adopt; 
and (5) identify and assess available alternatives to direct 
regulation, including providing economic incentives to encourage the 
desired behavior, such as user fees or marketable permits, or providing 
information upon which choices can be made by the public.
    We emphasize as well that Executive Order 13563 requires agencies 
``to use the best available techniques to quantify anticipated present 
and future benefits and costs as accurately as possible.'' In its 
guidance, the Office of Information and Regulatory Affairs has 
emphasized that such techniques may include ``identifying changing 
future compliance costs that might result from technological innovation 
or anticipated behavioral changes.'' For the reasons stated in the 
preamble, DOE believes that today's direct final rule is consistent 
with these principles, including that, to the extent permitted by law, 
agencies adopt a regulation only upon a reasoned determination that its 
benefits justify its costs and select, in choosing among alternative 
regulatory approaches, those approaches that

[[Page 37417]]

maximize net benefits. Consistent with EO 13563, and the range of 
impacts analyzed in this rulemaking, the energy efficiency standard 
adopted herein by DOE achieves maximum net benefits.

B. Background

1. Current Standards
a. Furnaces
    EPCA established the energy conservation standards that apply to 
most residential furnaces currently being manufactured, consisting of a 
minimum AFUE of 75 percent for mobile home furnaces and a minimum AFUE 
of 78 percent for all other furnaces, except ``small'' gas furnaces 
(those having an input rate of less than 45,000 Btu per hour), for 
which DOE was directed to prescribe a separate standard. (42 U.S.C. 
6295(f)(1)-(2); 10 CFR 430.32(e)(1)(i)) The standard for mobile home 
furnaces has applied to products manufactured for sale in the United 
States, or imported into the United States, since September 1, 1990, 
and the standard for most other furnaces has applied to products 
manufactured or imported since January 1, 1992. Id. On November 17, 
1989, DOE published a final rule in the Federal Register adopting the 
current standard for ``small'' gas furnaces, which consists of a 
minimum AFUE of 78 percent that has applied to products manufactured or 
imported since January 1, 1992. 54 FR 47916.
    Pursuant to EPCA, DOE was required to conduct further rulemaking to 
consider amended energy conservation standards for furnaces. (42 U.S.C. 
6295(f)(4)) For furnaces manufactured or imported on or after November 
19, 2015, DOE published a final rule in the Federal Register on 
November 19, 2007 (the November 2007 Rule) that revised these standards 
for most furnaces, but left them in place for two product classes 
(i.e., mobile home oil-fired furnaces and weatherized oil-fired 
furnaces). 72 FR 65136. This rule completed the first of the two 
rulemakings required under 42 U.S.C. 6295(f)(4)(B)-(C) to consider 
amending the standards for furnaces. The energy conservation standards 
in the November 2007 Rule consist of a minimum AFUE level for each of 
the six classes of furnaces (10 CFR 430.32(e)(1)(ii)) and are set forth 
in Table II.1 below.

   Table II.1--Energy Conservation Standards for Residential Furnaces
               Manufactured on or After November 19, 2015
------------------------------------------------------------------------
                                                                 AFUE
                       Product class                          (percent)
------------------------------------------------------------------------
Non-weatherized Gas Furnaces...............................           80
Weatherized Gas Furnaces...................................           81
Mobile Home Oil-Fired Furnaces.............................           75
Non-weatherized Oil-Fired Furnaces.........................           82
Weatherized Oil-Fired Furnaces.............................           78
------------------------------------------------------------------------

b. Central Air Conditioners and Heat Pumps
    Congress initially prescribed statutory standard levels for 
residential central air conditioners and heat pumps. (42 U.S.C. 
6295(d)(1)-(2)) DOE was required to subsequently conduct two rounds of 
rulemaking to consider amended standards for these products. (42 U.S.C. 
6295(d)(3)) In a final rule published in the Federal Register on August 
17, 2004 (the August 2004 Rule), DOE prescribed the current Federal 
energy conservation standards for central air conditioners and heat 
pumps manufactured or imported on or after January 23, 2006. 69 FR 
50997. This rule completed the first of the two rulemakings required 
under 42 U.S.C. 6295(d)(3)(A) to consider amending the standards for 
these products. The standards consist of a minimum SEER for each class 
of air conditioner and a minimum SEER and HSPF for each class of heat 
pump (10 CFR 430.32(c)(2)). These standards are set forth in Table II.2 
below.
---------------------------------------------------------------------------

    \14\ In 2004 and 2005, DOE's Office of Hearings and Appeals 
(OHA) granted exception relief from the standards for this class of 
products, under section 504 of the DOE Organization Act (42 U.S.C. 
7194), to allow three manufacturers to sell such products so long as 
they had a SEER no less than 11 and an HSPF no less than 6.8. See 
Office of Hearings and Appeals case numbers TEE-0010 and TEE-0011, 
which were filed on May 24, 2004.

 Table II.2--Energy Conservation Standards for Central Air Conditioners
        and Heat Pumps Manufactured on or After January 23, 2006
------------------------------------------------------------------------
                     Product class                        SEER     HSPF
------------------------------------------------------------------------
Split-System Air Conditioners.........................       13  .......
Split-System Heat Pumps...............................       13      7.7
Single-Package Air Conditioners.......................       13  .......
Single-Package Heat Pumps.............................       13      7.7
Through-the-wall Air Conditioners and Heat Pumps--         10.9      7.1
 Split System*........................................
Though-the-wall Air Conditioners and Heat Pumps--          10.6      7.0
 Single Package*......................................
Small-Duct, High-Velocity Systems \14\................       13      7.7
Space-Constrained Products--Air Conditioners..........       12  .......
Space-Constrained Products--Heat Pumps................       12      7.4
------------------------------------------------------------------------
* As defined in 10 CFR 430.2, this product class applies to products
  manufactured prior to January 23, 2010.

2. History of Standards Rulemaking for Residential Furnaces, Central 
Air Conditioners, and Heat Pumps
a. Furnaces
    Amendments to EPCA in the National Appliance Energy Conservation 
Act of 1987 (NAECA; Pub. L. 100-12) established EPCA's original energy 
conservation standards for furnaces, which are still in force, 
consisting of the minimum AFUE levels described above for mobile home 
furnaces and for all other furnaces except ``small'' gas furnaces. (42 
U.S.C. 6295(f)(1)-(2)) Pursuant to 42 U.S.C. 6295(f)(1)(B), in November 
1989, DOE adopted a mandatory minimum AFUE level for ``small'' 
furnaces. 54 FR 47916 (Nov. 17, 1989). DOE was required to conduct two 
more cycles of rulemakings to determine whether to amend all of the 
standards for furnaces. (42 U.S.C. 6295(f)(4)(B)-(C)) As discussed 
above, the November 2007 Rule completed the first cycle of required 
rulemaking to consider amendment of the standards for furnaces under 42 
U.S.C. 6295(f)(4)(B).
    Following DOE's adoption of the November 2007 Rule, however, 
several

[[Page 37418]]

parties jointly sued DOE in the United States Court of Appeals for the 
Second Circuit to invalidate the rule. Petition for Review, State of 
New York, et al. v. Department of Energy, et al., Nos. 08-0311-ag(L); 
08-0312-ag(con) (2d Cir. filed Jan. 17, 2008). The petitioners asserted 
that the standards for residential furnaces promulgated in the November 
2007 Rule did not reflect the ``maximum improvement in energy 
efficiency'' that ``is technologically feasible and economically 
justified,'' as required under 42 U.S.C. 6295(o)(2)(A). On April 16, 
2009, DOE filed with the Court a motion for voluntary remand that the 
petitioners did not oppose. The motion did not state that the November 
2007 Rule would be vacated, but indicated that DOE would revisit its 
initial conclusions outlined in the November 2007 Rule in a subsequent 
rulemaking action. Motion for Voluntary Remand, State of New York, et 
al. v. Department of Energy, et al., supra. The Court granted the 
voluntary remand on April 21, 2009. State of New York, et al. v. 
Department of Energy, et al., supra, (order granting motion). Under the 
remand agreement, DOE anticipated that it would issue a revised final 
rule amending the energy conservation standards for furnaces by May 1, 
2011.\15\ DOE also agreed that the final rule would address both 
regional standards for furnaces, as well as the effects of alternate 
standards on natural gas prices. Subsequently, the furnaces rulemaking 
was combined with the central air conditioners and heat pumps 
rulemaking because of the functional and analytical interplay of these 
types of products (see section III.A for more details). The petitioners 
and DOE agreed that the final rule for furnaces should be issued on 
June 30, 2011, to coincide with the date by which the central air 
conditioner and heat pump rulemaking is required to be issued.
---------------------------------------------------------------------------

    \15\ The current rulemaking for furnaces is being conducted 
pursuant to authority under 42 U.S.C. 6295(f)(4)(C) and (o)(6). DOE 
notes that the second round of amended standards rulemaking called 
for under 42 U.S.C. 6295(f)(4)(C) applies to both furnaces and 
boilers. However, given the relatively recently prescribed boiler 
standards under 42 U.S.C. 6295(f)(3), with compliance required for 
products manufactured or imported on or after September 1, 2012, DOE 
has decided to consider amended standards for boilers under 42 
U.S.C. 6295(f)(4)(C) in a future rulemaking.
---------------------------------------------------------------------------

    DOE initiated the portion of this rulemaking that concerns furnaces 
on March 11, 2010, by publishing on the DOE Web site its ``Energy 
Conservation Standards for Residential Furnaces Rulemaking Analysis 
Plan'' (furnaces RAP). (The furnaces RAP is available at: http://www1.eere.energy.gov/buildings/appliance_standards/residential/furnaces_nopm_rulemaking_analysis.html.) The furnaces RAP set forth 
the product classes DOE planned to analyze for purposes of amending the 
energy conservation standards for furnaces, and, as set forth below, 
the approach DOE would use to evaluate such amended standards. DOE also 
published a notice of public meeting (NOPM) announcing the availability 
of the RAP and a public meeting to discuss and receive comments on the 
subjects in that document, and requesting written comment on these 
subjects. 75 FR 12144 (March 15, 2010) (the March 2010 NOPM). In this 
notice, DOE stated its interest in receiving views concerning other 
relevant issues that participants believe would affect energy 
conservation standards for furnaces or that DOE should address. Id. at 
12147-48.
    The RAP provided an overview of the activities DOE planned to 
undertake in developing amended energy conservation standards for 
furnaces. It included discussion of: (1) A consensus agreement \16\ 
that recommended particular standards for DOE adoption for furnaces and 
central air conditioners/heat pumps; (2) DOE's consideration of whether 
to conduct a single rulemaking to address standards either for these 
two products or for these products and furnace fans, and (3) DOE's 
intention to develop regional standards for furnaces. In addition, the 
RAP described the analytical framework that DOE planned to use in any 
rulemaking that considered amended standards for furnaces, including a 
detailed description of the methodology, the analytical tools, the 
analyses DOE would perform, and the relationships among these analyses. 
DOE also summarized in detail all of these points in the March 2010 
NOPM, including the nature and function of the analyses DOE would 
perform. Id. at 12146-47. These analyses are as follows:
---------------------------------------------------------------------------

    \16\ On January 15, 2010, several interested parties submitted a 
joint comment to DOE recommending adoption of minimum energy 
conservation standards for residential central air conditioners, 
heat pumps, and furnaces, as well as associated compliance dates for 
such standards, which represents a negotiated agreement among a 
variety of interested stakeholders including manufacturers and 
environmental and efficiency advocates. The original agreement 
(referred to as the ``consensus agreement'') was completed on 
October 13, 2009, and had 15 signatories. For more information, see 
section III.B of this direct final rule.
---------------------------------------------------------------------------

     A market and technology assessment to address the scope of 
this rulemaking, identify the potential classes for furnaces, 
characterize the market for this product, and review techniques and 
approaches for improving its efficiency;
     A screening analysis to review technology options to 
improve the efficiency of furnaces, and weigh these options against 
DOE's four prescribed screening criteria;
     An engineering analysis to estimate the manufacturer 
selling prices (MSPs) associated with more energy-efficient furnaces;
     An energy use analysis to estimate the annual energy use 
of furnaces;
     A markups analysis to convert estimated MSPs derived from 
the engineering analysis to consumer prices;
     A life-cycle cost analysis to calculate, for individual 
consumers, the discounted savings in operating costs throughout the 
estimated average life of the product, compared to any increase in 
installed costs likely to result directly from the imposition of a 
given standard;
     A payback period (PBP) analysis to estimate the amount of 
time it takes individual consumers to recover the higher purchase price 
expense of more energy-efficient products through lower operating 
costs;
     A shipments analysis to estimate shipments of furnaces 
over the time period examined in the analysis, for use in performing 
the national impact analysis (NIA);
     A national impact analysis to assess the national and 
regional energy savings, and the national and regional net present 
value of total consumer costs and savings, expected to result from 
specific, potential energy conservation standards for furnaces;
     A manufacturer impact analysis to evaluate the effects on 
manufacturers of new efficiency standards.
     A utility impact analysis to estimate specific effects of 
standards for furnaces on the utility industry;
     An employment impacts analysis to assess the indirect 
impacts of standards on employment in the national economy;
     An environmental impact analysis to quantify and consider 
the environmental effects of amended standards for furnaces; and
     A regulatory impact analysis to address the potential for 
non-regulatory approaches to supplant or augment standards to improve 
the efficiency of furnaces.
    The public meeting announced in the March 2010 NOPM took place on 
March 31, 2010 at DOE headquarters in Washington, DC. At this meeting, 
DOE presented the methodologies it intends to use and the analyses it 
intends to perform to consider amended energy conservation standards 
for furnaces. Interested parties that participated in the public 
meeting discussed a variety of topics, but focused on the following

[[Page 37419]]

issues: (1) The consensus agreement; (2) the scope of coverage for the 
rulemaking; (3) a combined rulemaking; (4) regional standards and their 
enforcement; (5) test procedure and rating metrics; (6) product 
classes; (7) efficiency levels and representative products analyzed in 
the engineering analysis; (8) installation, repair, and maintenance 
costs; and (9) product and fuel switching. The comments received since 
publication of the March 2010 NOPM, including those received at the 
March 2010 public meeting, have contributed to DOE's resolution of the 
issues in this rulemaking. This direct final rule quotes and/or 
summarizes these comments, and responds to all the issues they raised. 
(A parenthetical reference at the end of a quotation or paraphrase 
provides the location of the item in the public record.)
b. Central Air Conditioners and Heat Pumps
    As with furnaces, NAECA included amendments to EPCA that 
established EPCA's original energy conservation standards for central 
air conditioners and heat pumps, consisting of two minimum SEER levels 
for air conditioners and for heat pumps when operating in the cooling 
mode and two minimum HSPF levels for heat pumps when operating in the 
heating mode. (42 U.S.C. 6295(d)(1)-(2)) One of the SEER levels and one 
of the HSPF levels applied to split systems, and the other SEER and 
HSPF levels applied to single package systems. Each ``split system'' 
consists of an outdoor unit and an indoor unit which are ``split'' from 
each other and connected via refrigerant tubing. The outdoor unit has a 
compressor, heat exchanger coil, fan, and fan motor. The indoor unit 
has a heat exchanger coil and a blower fan unless it resides within a 
furnace, in which case the furnace contains the blower fan for air 
circulation. In ``single package systems,'' all the components that 
comprise a split system, including the air circulation components, are 
in a single cabinet that resides outdoors. In both types of systems, 
conditioned air is conveyed to the home via ducts.
    EPCA, as amended, also requires DOE to conduct two cycles of 
rulemakings to determine whether to amend the energy conservation 
standards for central air conditioners and heat pumps. (42 U.S.C. 
6295(d)(3)) Pursuant to 42 U.S.C. 6295(d)(3)(A), on January 22, 2001, 
DOE published a final rule in the Federal Register that adopted amended 
standards for split system air conditioners and heat pumps and single 
package air conditioners and heat pumps. 66 FR 7170 (the January 2001 
Rule). However, shortly after publication of the January 2001 Rule, DOE 
postponed the effective date of the rule from February 21, 2001 to 
April 23, 2001 in response to President Bush's Regulatory Review Plan, 
and in order to reconsider the amended standards it contained. 66 FR 
8745 (Feb. 2, 2001). While reviewing the amended standards, DOE further 
postponed the effective date pending the outcome of a petition 
submitted by the Air Conditioning and Refrigeration Institute. 66 FR 
20191 (April 20, 2001). DOE subsequently withdrew the 2001 final rule 
and published another final rule which adopted revisions of these 
amended standards, as well as new amended standards for the product 
classes for which the January 2001 Rule had not prescribed standards. 
67 FR 36368 (May 23, 2002) (the May 2002 Rule). The Natural Resources 
Defense Council (NRDC), along with other public interest groups and 
several State Attorneys General filed suit in the U.S. Court of Appeals 
for the Second Circuit, challenging DOE's withdrawal of the January 
2001 final rule and promulgation of the May 2002 final rule. On January 
13, 2004, the U.S. Court of Appeals for the Second Circuit invalidated 
the May 2002 Rule's revisions of the standards adopted in the January 
2001 Rule, because the May 2002 final rule had lower amended standards 
than the January 2001 Rule and, thus, violated 42 U.S.C. 6295(o)(1) 
(i.e., the ``anti-backsliding clause''). Natural Resources Defense 
Council v. Abraham, 355 F.3d 179 (2d Cir. 2004). However, the Court's 
decision did not affect the standards DOE adopted in the May 2002 Rule 
for products not covered by the standards in the January 2001 Rule. To 
be consistent with the court's ruling, DOE published the August 2004 
Rule, which established the standards currently applicable to central 
air conditioners and heat pumps. 69 FR 50997 (August 17, 2004). As 
stated above, this rule completed the first cycle of rulemaking for 
revised standards for central air conditioners and heat pumps under 42 
U.S.C. 6295(d)(3)(A), and these standards took effect on January 23, 
2006. Id.
    DOE initiated the current rulemaking on June 2, 2008, by publishing 
on its Web site its ``Rulemaking Framework for Residential Central Air 
Conditioners and Heat Pumps.'' (A PDF of the framework document is 
available at http://www1.eere.energy.gov/buildings/appliance_standards/residential/cac_heatpumps_new_rulemaking.html.) DOE also 
published a notice announcing the availability of the framework 
document and a public meeting on the document, and requesting public 
comment on the matters raised in the document. 73 FR 32243 (June 6, 
2008). The framework document described the procedural and analytical 
approaches that DOE anticipated using to evaluate energy conservation 
standards for central air conditioners and heat pumps and identified 
various issues to be resolved in conducting this rulemaking.
    DOE held the public meeting on June 12, 2008, in which it: (1) 
Presented the contents of the framework document; (2) described the 
analyses it planned to conduct during the rulemaking; (3) sought 
comments from interested parties on these subjects; and (4) in general, 
sought to inform interested parties about, and facilitate their 
involvement in, the rulemaking. Interested parties discussed the 
following major issues at the public meeting: (1) The scope of coverage 
for the rulemaking; (2) product classes; (3) test procedure 
modifications; (4) effects on cost and system efficiency of phasing out 
certain refrigerants due to climate and energy legislation such as the 
Waxman-Markey bill (H.R. 2454); (5) regulation of standby mode and off 
mode energy consumption; and (6) regional standards. At the meeting and 
during the comment period on the framework document, DOE received many 
comments that helped it identify and resolve issues pertaining to 
central air conditioners and heat pumps relevant to this rulemaking.
    DOE then gathered additional information and performed preliminary 
analyses to help develop potential energy conservation standards for 
these products. This process culminated in DOE's announcement of 
another public meeting to discuss and receive comments on the following 
matters: (1) The product classes DOE planned to analyze; (2) the 
analytical framework, models, and tools that DOE was using to evaluate 
standards; (3) the results of the preliminary analyses performed by 
DOE; and (4) potential standard levels that DOE could consider. 75 FR 
14368 (March 25, 2010) (the March 2010 Notice). DOE also invited 
written comments on these subjects and announced the availability on 
its Web site of a preliminary technical support document (preliminary 
TSD) it had prepared to inform interested parties and enable them to 
provide comments. Id. (The preliminary TSD is available at: http://www1.eere.energy.gov/buildings/appliance_standards/residential/cac_heatpumps_new_rulemaking.html) Finally, DOE stated its interest in 
receiving views concerning other

[[Page 37420]]

relevant issues that participants believed would affect energy 
conservation standards for central air conditioners and heat pumps, or 
that DOE should address in this direct final rule. Id. at 14372.
    The preliminary TSD provided an overview of the activities DOE 
undertook to develop standards for central air conditioners and heat 
pumps and discussed the comments DOE received in response to the 
framework document. Similar to the RAP for furnaces, it also addressed 
the consensus agreement that recommended particular standards for DOE 
adoption for furnaces and central air conditioners/heat pumps, and it 
addressed DOE's consideration of whether to conduct a single rulemaking 
to address standards either for these two products or for these 
products and furnace fans. The preliminary TSD also described the 
analytical framework that DOE used (and continues to use) in 
considering standards for central air conditioners and heat pumps, 
including a description of the methodology, the analytical tools, and 
the relationships between the various analyses that are part of this 
rulemaking. The preliminary TSD presented and described in detail each 
analysis that DOE had performed for these products up to that point, 
including descriptions of inputs, sources, methodologies, and results, 
and it included DOE's evaluation of potential regional standards for 
central air conditioners and heat pumps. These analyses were as 
follows:
     A market and technology assessment addressed the scope of 
this rulemaking, identified the potential classes for central air 
conditioners and heat pumps, characterized the markets for these 
products, and reviewed techniques and approaches for improving their 
efficiency;
     A screening analysis reviewed technology options to 
improve the efficiency of central air conditioners and heat pumps, and 
weighed these options against DOE's four prescribed screening criteria;
     An engineering analysis estimated the manufacturer selling 
prices (MSPs) associated with more energy-efficient central air 
conditioners and heat pumps;
     An energy use analysis estimated the annual energy use of 
central air conditioners and heat pumps;
     A markups analysis converted estimated MSPs derived from 
the engineering analysis to consumer prices;
     A life-cycle cost analysis calculated, for individual 
consumers, the discounted savings in operating costs throughout the 
estimated average life of central air conditioners and heat pumps, 
compared to any increase in installed costs likely to result directly 
from the imposition of a given standard;
     A payback period analysis estimated the amount of time it 
takes individual consumers to recover the higher purchase price expense 
of more energy-efficient products through lower operating costs;
     A shipments analysis estimated shipments of central air 
conditioners and heat pumps over the time period examined in the 
analysis, and was used in performing the national impact analysis;
     A national impact analysis assessed the national and 
regional energy savings, and the national and regional net present 
value of total consumer costs and savings, expected to result from 
specific, potential energy conservation standards for central air 
conditioners and heat pumps; and
     A preliminary manufacturer impact analysis took the 
initial steps in evaluating the effects on manufacturers of amended 
efficiency standards.
    In the March 2010 Notice, DOE addressed the consensus agreement, 
regional standards, and the possibility of a combined rulemaking. DOE 
also summarized in detail in the notice the nature and function of the 
following analyses: (1) Engineering analysis; (2) energy use analysis; 
(3) markups to determine installed prices; (4) LCC and PBP analyses; 
and (5) national impact analysis. 75 FR 14368, 14370-71 (March 25, 
2010).
    The public meeting announced in the March 2010 Notice took place on 
May 5, 2010 at DOE headquarters in Washington, DC. At this meeting, DOE 
presented the methodologies and results of the analyses set forth in 
the preliminary TSD. Interested parties that participated in the public 
meeting discussed a variety of topics, but centered on the following 
issues: (1) The consensus agreement; (2) a combined rulemaking with 
furnaces and furnace fans; (3) efficiency metrics; (4) technology 
options; (5) product classes; (6) installation, maintenance, and repair 
costs; (7) markups and distributions chains; (8) central air 
conditioner and heat pumps shipments; and (9) electricity prices. The 
comments received since publication of the March 2010 Notice, including 
those received at the May 2010 public meeting, have contributed to 
DOE's resolution of the issues in this rulemaking as they pertain to 
central air conditioners and heat pumps. This direct final rule 
responds to the issues raised by the commenters. (A parenthetical 
reference at the end of a quotation or paraphrase provides the location 
of the item in the public record.)

III. General Discussion

A. Combined Rulemaking

    As discussed in section II.B.2, DOE had been conducting or planning 
separate standards rulemakings for three interrelated products: (1) 
Central air conditioners and heat pumps; (2) gas furnaces; and (3) 
furnace fans. Rather than analyze each set of products separately, DOE 
considered combining the analyses to examine how the interaction 
between the three products impacts the cost to consumers and the energy 
savings resulting from potential amended standards. In both its RAP 
regarding energy conservation standards for residential furnaces and 
preliminary analysis for residential central air conditioners and heat 
pumps, DOE specifically invited comment from interested parties related 
to the potential for combining the rulemakings regarding energy 
conservation standards for residential central air conditioners and 
heat pumps, residential furnaces, and furnace fans.
    NRDC commented that it supports accelerating the furnace fan 
rulemaking to coincide with the rulemakings for furnaces and central 
air conditioners, because a combined rulemaking would potentially 
provide analytical simplification and is consistent with the 
President's request that DOE meet all statutory deadlines and 
accelerate those with large potential energy savings. (FUR: NRDC, No. 
1.3.020 at pp. 9-10) \17\ The California investor-owned utilities (CA 
IOUs, i.e., Pacific Gas & Electric, Southern California Gas Company, 
San Diego Gas and Electric, and Southern California Edison) also 
supported a combined rulemaking, arguing that this approach would allow 
DOE to more accurately analyze the energy-efficiency impacts of various 
standards options. The CA IOUs also stated that a combined rulemaking 
would reduce redundant workload for DOE and minimize the number of 
public meetings. (FUR: CA IOUs, No. 1.3.017 at p. 2) Proctor 
Engineering Group (Proctor) stated support for combining the furnace, 
furnace fan, and central air conditioner and heat pump rulemakings 
because the three products work

[[Page 37421]]

together. Proctor asserted that the standards need to be integrated 
together and that the analysis should be integrated as well. (FUR: 
Proctor, Public Meeting Transcript, No. 1.2.006 at p. 29) In written 
comments, Proctor elaborated that DOE could improve current standards 
by promulgating standards that recognize the interdependence of 
furnaces, air conditioners, heat pumps, and air handler fans within the 
average U.S. household and that are consistent such that they can be 
properly integrated within a system to produce results that are 
representative of a system typically found in a home in the United 
States of America. (FUR, Proctor, FDMS No. 0002 at p. 2)
---------------------------------------------------------------------------

    \17\ In this direct final rule, DOE discusses comments received 
in response to both the furnaces rulemaking analysis plan and the 
central air conditioners and heat pumps preliminary analysis. 
Comments received in response to the furnace rulemaking analysis 
plan are identified by ``FUR'' preceding the comment citation. 
Comments received in response to the central air conditioners and 
heat pump preliminary analysis are identified by ``CAC'' preceding 
the comment citation.
---------------------------------------------------------------------------

    The American Council for an Energy Efficient Economy (ACEEE), 
Heating Air-conditioning & Refrigeration Distributors International 
(HARDI), Ingersoll Rand, Southern Company (Southern), Edison Electric 
Institute (EEI), and Lennox supported a combined rulemaking of furnaces 
and central air conditioners and heat pumps, but did not support a 
combined rulemaking that also covers furnace fans. (FUR: ACEEE, No. 
1.3.009 at p. 4; HARDI, No. 1.3.016 at pp. 2, 5-6; Ingersoll Rand, No. 
1.3.006 at p. 1; Lennox, No. 1.3.018 at p. 2) (CAC: ACEEE, No. 72 at p. 
2; HARDI, No. 56 at p. 2; Lennox No. 65 at p. 2; Ingersoll Rand, No. 66 
at p. 8; Southern, No. 73 at p.2; EEI, No. 75 at p. 4) HARDI commented 
that there would not be time for a thorough analysis of furnace fans if 
that rulemaking is accelerated to include it with furnaces and central 
air conditioners and heat pumps. (FUR: HARDI, No. 1.3.016 at pp. 2, 5-
6) Ingersoll Rand concurred, further stating that furnace fan 
efficiency is a complex topic that needs to be handled separately. 
(FUR: Ingersoll Rand, No. 1.3.006 at p. 1) (CAC: Ingersoll Rand, No. 66 
at p. 8) Lennox stated that the furnace fan rulemaking will be more 
complicated than typical DOE proceedings, and valuable information can 
be obtained by conducting the furnace and central air conditioner and 
heat pump rulemakings in advance of the fan rulemaking. Additionally, 
Lennox stated that the furnace fan rulemaking should not be rushed by 
accelerating the schedule by a year and a half. (FUR: Lennox, No. 
1.3.018 at p. 2) (CAC: Lennox, No. 65 at p. 2)
    The Appliance Standards Awareness Project (ASAP) submitted a joint 
comment on behalf of ACEEE, the Air-conditioning, Heating and 
Refrigeration Institute (AHRI), Alliance to Save Energy (ASE), ASAP, 
California Energy Commission (CEC), National Consumer Law Center (NCLC) 
(on behalf of low-income clients), NRDC, Northeast Energy Efficiency 
Partnerships (NEEP), and Northwest Power and Conservation Council 
(NPCC). Collectively, these organizations are referred to as ``Joint 
Stakeholders,'' when referencing this comment. The Joint Stakeholders 
stated that rules for furnaces and air conditioners can be completed 
much earlier than a final rule for furnace fans, especially if the 
furnace and air conditioner rules are based on the consensus agreement. 
(FUR: Joint Stakeholders, No. 1.3.012 at p. 3) Similarly, AHRI 
supported a separate rulemaking for furnace fans, but it stated that it 
would agree to a combined central air conditioners and heat pumps and 
furnaces rulemaking, if the consensus agreement is adopted by DOE in a 
direct final rule or through an expedited normal rulemaking. In the 
event that DOE decides not to adopt the consensus agreement, AHRI 
recommended separate rulemakings for all three products, and explicitly 
stated that the furnace fan rulemaking should not be combined with 
either of the other two products under any circumstances because AHRI 
believes that shortening the furnace fan rulemaking is unreasonable 
given that DOE has no prior experience with furnace fans. AHRI stated 
that more time is needed to fully analyze the electrical energy 
consumed by furnace fans in order to establish appropriate energy 
conservation standards for those products. (FUR: AHRI, No. 1.3.008 at 
p. 3) (CAC: AHRI, No. 67 at p. 3) Rheem recommended that DOE should 
conduct a separate rulemaking for furnace fans and should only combine 
the rulemakings for furnaces and central air conditioners and heat 
pumps if DOE adopts the consensus agreement. Rheem stated that much 
study and analysis is needed to determine the appropriate energy 
conservation standards for furnace fans, and that shortening the 
timeframe is unreasonable and not imperative. (FUR: Rheem, No. 1.3.022 
at pp. 2-3) The American Public Power Association (APPA) commented that 
it supports an ``across the board'' rulemaking that creates an ``even 
playing field'' for residential space heating technologies (e.g., heat 
pumps and furnaces) so as to avoid a less competitive market that would 
cause market distortions and non-rational purchasing behavior. (FUR: 
APPA, No. 1.3.011 at p. 4)
    The Air Conditioning Contractors of America (ACCA) stated there is 
no added benefit in combining the rulemakings for furnaces, residential 
central air conditioners and heat pumps, and furnaces fans. (FUR: ACCA, 
No. 1.3.007 at p. 3) The American Public Gas Association (APGA) 
commented that it does not support combining the furnace, central air 
conditioner, and furnace fan rulemakings. (FUR: APGA, No. 1.3.004 at p. 
2)
    DOE agrees with the comments supporting a combined rulemaking for 
central air conditioners, heat pumps, and furnaces because these 
products are linked as part of the complete heating, ventilation, and 
air-conditioning (HVAC) system for a home. A residential HVAC system 
often includes a central air conditioner, a furnace, and a furnace fan, 
or in some instances a heat pump, a furnace, and a furnace fan. 
Further, all of the major manufacturers of these products produce 
central air conditioners, heat pumps, and furnaces and use the same 
distribution network for these products. Combining the analyses for 
these products simplified the analyses and allowed for the analyses to 
accurately account for the relations between the different systems.
    However, DOE also believes there are merits to the comments 
suggesting that DOE should not attempt to combine furnace fans with the 
furnace and central air conditioner and heat pump rulemaking. While 
previous rulemakings have been conducted to regulate central air 
conditioners and heat pumps and furnaces, furnace fans are not 
currently regulated. DOE recognizes that the analyses required to 
develop a test procedure and to determine appropriate energy 
conservation standards for furnaces fans are complex and will be 
extensive. Therefore, DOE has determined that the furnace fan analysis 
cannot be accelerated such that it could be completed in the shortened 
timeframe that would be necessary for a combined rule that would also 
include furnace fans, while still generating valid and reliable 
results. Additionally, DOE believes that the furnace fan rulemaking 
would benefit from insights gained during the combined rulemaking of 
central air conditioners and heat pumps and furnaces. Therefore, DOE 
has decided to combine only the central air conditioner and heat pump 
and furnace rulemakings into a single combined rulemaking. The furnace 
fan rulemaking will continue as a separate rulemaking, and DOE will 
publish a final rule to establish energy conservation standards for 
furnace fans by December 31, 2013, as required by 42 U.S.C. 
6295(f)(4)(D).

[[Page 37422]]

B. Consensus Agreement

1. Background
    On January 15, 2010, AHRI, ACEEE, ASE, ASAP, NRDC, and NEEP 
submitted a joint comment to DOE's residential furnaces and central air 
conditioners and heat pumps rulemakings recommending adoption of a 
package of minimum energy conservation standards for residential 
central air conditioners, heat pumps, and furnaces, as well as 
associated compliance dates for such standards, which represents a 
negotiated agreement among a variety of interested stakeholders 
including manufacturers and environmental and efficiency advocates. 
(FUR: Joint Comment, No. 1.3.001; CAC: Joint Comment, No. 47) More 
specifically, the original agreement was completed on October 13, 2009, 
and had 15 signatories, including AHRI, ACEEE, ASE, NRDC, ASAP, NEEP, 
NPCC, CEC, Bard Manufacturing Company Inc., Carrier Residential and 
Light Commercial Systems, Goodman Global Inc., Lennox Residential, 
Mitsubishi Electric & Electronics USA, National Comfort Products, and 
Trane Residential. Numerous interested parties, including signatories 
of the consensus agreement as well as other parties, expressed support 
for DOE adoption of the consensus agreement in both oral and written 
comments on the furnaces and central air conditioners rulemakings, 
which are described in further detail in section III.B.3. In both the 
furnace RAP and the central air conditioner and heat pump preliminary 
analysis, DOE requested comment on all aspects of the consensus 
agreement, including the regional divisions, recommended standard 
levels, and the suggested compliance dates.
    After careful consideration of the joint comment containing a 
consensus recommendation for amended energy conservation standards for 
residential central air conditioners, heat pumps, and furnaces, the 
Secretary has determined that this ``Consensus Agreement'' has been 
submitted by interested persons who are fairly representative of 
relevant points of view on this matter. Congress provided some guidance 
within the statute itself by specifying that representatives of 
manufacturers of covered products, States, and efficiency advocates are 
relevant parties to any consensus recommendation. (42 U.S.C. 
6295(p)(4)(A)) As delineated above, the Consensus Agreement was signed 
and submitted by a broad cross-section of the manufacturers who produce 
the subject products, their trade associations, and environmental and 
energy-efficiency advocacy organizations. Although States were not 
signatories to the Consensus Agreement, they did not express any 
opposition to it. Moreover, DOE does not read the statute as requiring 
absolute agreement among all interested parties before the Department 
may proceed with issuance of a direct final rule. By explicit language 
of the statute, the Secretary has discretion to determine when a joint 
recommendation for an energy or water conservation standard has met the 
requirement for representativeness (i.e., ``as determined by the 
Secretary''). Accordingly, DOE will consider each consensus 
recommendation on a case-by-case basis to determine whether the 
submission has been made by interested persons fairly representative of 
relevant points of view.
    Pursuant to 42 U.S.C. 6295(p)(4), the Secretary must also determine 
whether a jointly-submitted recommendation for an energy or water 
conservation standard is in accordance with 42 U.S.C. 6295(o) or 42 
U.S.C. 6313(a)(6)(B), as applicable. This determination is exactly the 
type of analysis which DOE conducts whenever it considers potential 
energy conservation standards pursuant to EPCA. DOE applies the same 
principles to any consensus recommendations it may receive to satisfy 
its statutory obligation to ensure that any energy conservation 
standard that it adopts achieves the maximum improvement in energy 
efficiency that is technologically feasible and economically justified 
and will result in significant conservation of energy, Upon review, the 
Secretary determined that the Consensus Agreement submitted in the 
instant rulemaking comports with the standard-setting criteria set 
forth under 42 U.S.C. 6295(o). Accordingly, the consensus agreement 
levels were included as TSL 4 in this rule, the details of which are 
discussed at relevant places throughout this document.
    In sum, as the relevant criteria under 42 U.S.C. 6295(p)(4) have 
been satisfied, the Secretary has determined that it is appropriate to 
adopt amended energy conservation standards for residential central air 
conditioners, heat pumps, and furnaces through this direct final rule.
    As required by the same statutory provision, DOE is also 
simultaneously publishing a NOPR which proposes the identical standard 
levels contained in this direct final rule with a 110-day public 
comment period. (While DOE typically provides a comment period of 60 
days on proposed standards, in this case DOE provides a comment period 
of the same length as the comment period on the direct final rule.) DOE 
will consider whether any comment received during this comment period 
is sufficiently ``adverse'' as to provide a reasonable basis for 
withdrawal of the direct final rule and continuation of this rulemaking 
under the NOPR. Typical of other rulemakings, it is the substance, 
rather than the quantity, of comments that will ultimately determine 
whether a direct final rule will be withdrawn. To this end, the 
substance of any adverse comment(s) received will be weighed against 
the anticipated benefits of the Consensus Agreement and the likelihood 
that further consideration of the comment(s) would change the results 
of the rulemaking. DOE notes that to the extent an adverse comment had 
been previously raised and addressed in the rulemaking proceeding, such 
a submission will not typically provide a basis for withdrawal of a 
direct final rule.
2. Recommendations
a. Regions
    The consensus agreement divides the nation into three regions for 
residential central air conditioners and heat pumps, and two regions 
for residential furnaces based on the population-weighted number of 
heating degree days (HDD) of each State and recommends a different 
minimum standard level for products installed in each region. For these 
products generally, States with 5,000 HDD or more are considered as 
part of the northern region, while States with less than 5,000 HDD are 
considered part of the southern region, and these regions (and the 
States that compose them) are discussed further in section III.D. For 
residential central air conditioners and heat pumps, the consensus 
agreement establishes a third region--the ``southwest'' region--
comprised of California, Arizona, New Mexico, and Nevada. For furnaces, 
the southwest region States are included in the southern region. For 
residential central air conditioners and heat pumps, the States in the 
northern region would be subject to the ``National standard'' under 42 
U.S.C. 6295(o)(6)(B)(i), while regional standards would apply for 
States in the two southern regions (i.e., the hot-dry region and hot-
humid region). For furnaces, the States in the southern region would be 
subject to the ``National standard'' under 42 U.S.C. 6295(o)(6)(B)(i), 
while the States in the northern region would be required to meet a 
more-stringent regional standard. DOE received numerous comments from 
interested parties regarding the regional definitions for the analysis, 
some of

[[Page 37423]]

which were related to the regions recommended in the consensus 
agreement. These comments are discussed in detail in section III.D, 
``Regional Standards.''
b. Standard Levels
    The minimum energy conservation standards for furnaces and central 
air conditioners and heat pumps recommended by the consensus agreement 
are contained in Table III.1 and Table III.2. (CAC: Joint Comment, No. 
47 at p. 2) The consensus agreement recommends amended AFUE standards 
for all furnace product classes that are being considered in this 
rulemaking for amended minimum AFUE energy conservation standards. 
However, the agreement does not contain recommendations for amended 
SEER and HSPF standards for the space-constrained or small-duct, high-
velocity (SDHV) product classes of central air conditioners and heat 
pumps, which are also included in this rulemaking. Additionally, the 
consensus agreement does not contain recommendations for energy 
conservation standards for standby mode and off mode energy 
consumption, which DOE is required to consider in this rulemaking 
pursuant to 42 U.S.C. 6295(gg)(3).
    For central air conditioners, the consensus agreement recommends 
that DOE adopt dual metrics (i.e., SEER and EER) for the hot-dry 
region. Generally, DOE notes that EPCA's definition of ``efficiency 
descriptor'' at 42 U.S.C 6291(22) specifies that the efficiency 
descriptor for both central air conditioners and heat pumps shall be 
SEER. Accordingly, DOE used SEER as the sole metric for analyzing most 
of the TSLs considered for today's direct final rule. However, DOE 
believes that the language at 42 U.S.C 6295(p)(4) provides DOE some 
measure of discretion when considering recommended standards in a 
consensus agreement, if the Secretary determines that the recommended 
standards are in accordance with 42 U.S.C. 6295(o).

Table III.1--Consensus Agreement Recommended Minimum Energy Conservation
                   Standards for Residential Furnaces
------------------------------------------------------------------------
                                Recommended AFUE      Recommended AFUE
                                 requirement for       requirement for
         System type          States with >= 5,000   States with HSPF    Recommended SEER/HSPF    Recommended SEER/HSPF
                                           requirements for         requirements for         requirements for
             System Type                  northern ``rest of    southeast ``hot-humid''   southwest ``hot-dry''
                                          country'' region*             region**              region[dagger]
----------------------------------------------------------------------------------------------------------------
Split AC.............................  13 SEER................  14 SEER................  14 SEER/12.2 EER
                                                                                         h.
                                                                                         14 SEER/11.7EER
                                                                                         45,000 Btu/
                                                                                          h.
Split HP.............................  14 SEER/8.2HSPF........  14 SEER/8.2 HSPF.......  14 SEER/8.2 HSPF.
Packaged AC..........................  14 SEER................  14 SEER................  14 SEER/11.0 EER.
Packaged HP..........................  14 SEER/8.0 HSPF.......  14 SEER/8.0 HSPF.......  14 SEER/8.0 HSPF.
Space Constrained AC and HP and SDHV.  No standard recommended  No standard recommended  No standard
                                                                                          recommended.
----------------------------------------------------------------------------------------------------------------
* These States include: 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.
** These States include: Alabama, Arkansas, Delaware, District of Columbia, Florida, Georgia, Hawaii, Kentucky,
  Louisiana, Maryland, Mississippi, North Carolina, Oklahoma, South Carolina, Tennessee, Texas, and Virginia.
[dagger] These States include: Arizona, California, New Mexico, and Nevada.

c. Compliance Dates
    The compliance dates specified in the consensus agreement are May 
1, 2013, for non-weatherized furnaces and January 1, 2015, for 
weatherized furnaces (i.e., ``gas-packs'') and central air conditioners 
and heat pumps. These dates are at least eighteen months earlier than 
the compliance dates for these products as determined under 42 U.S.C. 
6295(d)(3)(B) and (f)(4)(C). DOE received several comments from 
interested parties regarding its consideration of the compliance dates 
specified by the consensus agreement, as well as comments about the 
compliance dates under EPCA. A full discussion of comments related to 
the compliance dates for energy conservation standards for furnaces and 
central air conditioners and heat pumps is contained in section III.C.
3. Comments on Consensus Agreement
    In its RAP for residential furnaces and the preliminary analysis 
for residential central air conditioners and heat pumps, DOE 
specifically invited comment from interested parties on the consensus 
agreement. In particular, DOE was interested in comments relating to 
the recommended AFUE, SEER, and HSPF requirements, the recommended 
regional divisions, and the

[[Page 37424]]

recommended compliance dates for amended standards. As noted above, 
comments on the regional divisions are discussed in section III.D. 
Additionally, DOE discusses compliance dates and the related comments 
in section III.C. DOE received numerous other comments regarding 
whether interested parties support or do not support the consensus 
agreement, whether DOE should adopt the consensus agreement as a direct 
final rule, and additional concerns interested parties have about the 
agreement. These comments are discussed in the paragraphs below.
    Many commenters expressed support for the adoption of the consensus 
agreement. ACEEE stated it is the best available route to the maximum 
savings that are technologically feasible and economically justified. 
(FUR: ACEEE, No.1.3.009 at p. 1) (CAC: ACEEE, No. 72 at p. 1) NRDC 
requested that DOE move expeditiously to adopt the levels and dates 
presented by the agreement. (FUR: NRDC, No.1.3.020 at pp. 1-2) NEEP 
expressed support for the standard levels and procedural improvements 
in the consensus agreement and urged DOE to implement the 
recommendations through a direct final rule. (FUR: NEEP, No.1.3.021 at 
p. 1) ASAP stated its strong support for adoption of the consensus 
agreement, and encouraged DOE to adopt the consensus agreement as a 
direct final rule. (FUR: ASAP, Public Meeting Transcript, No. 1.2.006 
at pp. 38-39)
    AHRI stated that the agreement has several benefits including: (1) 
An accelerated compliance date of May 2013; (2) acceleration of the 
next rulemaking iteration; (3) a significant amount of energy savings; 
(4) economic savings to consumers; and (5) the fact that it would allow 
DOE to focus its resources on completing other rulemakings involving 
new or amended energy conservation standards. In the event that DOE 
cannot promulgate a direct final rule, AHRI recommended that DOE adopt 
the agreement in an expedited rulemaking process. (FUR: AHRI, 
No.1.3.008 at pp. 1-3) (CAC: AHRI, No. 67 at pp. 1-2) Carrier stated 
that DOE should adopt the consensus agreement, because it includes a 
comprehensive, harmonized approach for new regional efficiency 
standards that could be implemented in an accelerated fashion. (FUR: 
Carrier, No.1.3.013 at p. 2) (CAC: Carrier, No. 60 at p. 1) Ingersoll 
Rand and EEI echoed these comments. (FUR: Ingersoll Rand, No.1.3.006 at 
p. 1) (CAC: Ingersoll Rand, No. 66 at p. 1; EEI, No. 75 at p. 2) 
Southern initially stated at the furnaces public meeting that DOE 
should issue a NOPR and have a comment period rather than go directly 
to a final rule because many stakeholder groups were left out of the 
consensus agreement process. (FUR: Southern, Public Meeting Transcript, 
No. 1.2.006 at pp. 258-59) However, in its later comments on the 
central air conditioners and heat pumps rulemaking, Southern clarified 
its position, recommending that DOE accept the consensus agreement and, 
proceed with a direct final rule on central air conditioners, heat 
pumps, and furnace standards, if the necessary minor statutory 
revisions (e.g., changes to building codes) are approved by Congress. 
(CAC: Southern, No. 73 at p. 1)
    Lennox and NPCC supported the adoption of the consensus agreement 
in full, including the AFUE standards, recommended regional divisions, 
and recommended compliance dates. Lennox supported DOE's use of a 
direct final rule to adopt the agreement or, as an alternative, use of 
the standard rulemaking process in an expedited fashion. (FUR: Lennox, 
No.1.3.018 at p. 1) (CAC: Lennox, No. 65 at pp.1-2) (CAC: NPCC, No. 74 
at p.1) Ingersoll Rand commented that DOE should adopt the consensus 
agreement because it would allow DOE to focus its resources on the 
furnace fan rule and on development of regional standards. (CAC: 
Ingersoll Rand, No. 66 at p. 1) Rheem asserted that Congress authorized 
DOE to issue direct final rules upon receipt of joint stakeholder 
proposals and that the agreement satisfies the criteria of the law and 
the Process Improvement Rule.\18\ However, Rheem stated that if DOE 
cannot issue a direct final rule, Rheem would recommend that DOE adopt 
the agreement in an expedited rulemaking process. (FUR: Rheem, 
No.1.3.022 at pp. 1-2) (CAC: Rheem, No. 71 at p. 2) Daikin expressed 
support for the consensus agreement, provided that the SEER level for 
new construction is raised to 15 SEER on January 1, 2013 and to 18 SEER 
on January 1, 2016. (CAC: Daikin, No. 63 at p. 2)
---------------------------------------------------------------------------

    \18\ The Process Improvement Rule was published in the Federal 
Register by DOE on July 15, 1996, and codified in Appendix A to 10 
CFR part 430, subpart C. 61 FR 36974. The Process Improvement Rule 
elaborated on the procedures, interpretations, and policies that 
guide DOE in establishing new or amended energy conservation 
standards for consumer products.
---------------------------------------------------------------------------

    The Joint Stakeholders expressed support for the agreement and 
encouraged DOE to expedite the adoption of the agreement through either 
a direct final rule or through the standard rulemaking process. The 
Joint Stakeholders cited many of the previously mentioned benefits and 
added that the consensus agreement would enable States to incorporate 
more-stringent appliance efficiency standards into their building 
codes, which are limited by Federal appliance efficiency standards. The 
Joint Stakeholders stated that DOE should address the issues of standby 
mode and off mode energy consumption for residential furnaces and 
standards for furnace fans in separate rulemakings without impeding the 
adoption of the consensus agreement in a final rule in the current 
rulemaking. (FUR: Joint Stakeholders, No. 1.3.012 at pp. 1-4)
    APPA stated that it is in favor of the consensus agreement because 
it provides a high degree of regulatory certainty for manufacturers and 
utilities, and increases the minimum efficiency of gas and oil 
furnaces, products for which energy conservation standards have not 
been updated since 1992. APPA argued that DOE has the authority to 
adopt the consensus agreement in a direct final rule. (FUR: APPA, No. 
1.3.011 at pp. 2-3) EEI expressed support for the consensus agreement 
for many of the reasons outlined above, adding that the consensus 
agreement would have the added benefit of increasing standards for 
furnaces at nearly the same time as the efficiency standards for 
residential boilers are increasing. (FUR: EEI, No. 1.3.015 at p. 2) CA 
IOUs supported the consensus agreement as a balanced package that would 
achieve significant energy, economic, and environmental benefits, while 
providing regulatory certainty. They urged DOE to adopt as efficiently 
as possible the regulatory aspects of the agreement, either through a 
direct final rule or the normal rulemaking process. However, the CA 
IOUs recognized that not all stakeholders supported the consensus 
agreement, and encouraged DOE to choose a rulemaking path that will 
produce a robust, defensible, and enforceable final standard. (FUR: CA 
IOUs, No. 1.3.017 at p. 1)
    On behalf of Texas Client Services Center, Massachusetts Union of 
Public Housing Tenants, Texas Ratepayers Organization to Save Energy 
(collectively referred to hereafter as Low Income Groups), the National 
Consumer Law Center encouraged DOE to accept and implement the 
recommendations contained in the Joint Comment as soon as possible. The 
Low Income Groups are particularly interested in having DOE adopt the 
standards for furnaces, heat pumps, and central air conditioners 
included in the consensus agreement, along with the associated 
effective dates and regional boundaries. (FUR: Low Income Groups, No. 
1.3.019 at pp. 5-6)

[[Page 37425]]

    In contrast to the above viewpoints, some commenters expressed 
opposition to, or reservations about, adoption of the consensus 
agreement. The American Gas Association (AGA) stated that DOE should 
not adopt the consensus agreement and should continue refining the 
November 2007 Rule. AGA strongly recommended that DOE should not issue 
a direct final rule requiring a 90-percent AFUE minimum efficiency for 
furnaces in the northern States and should, instead, proceed with an 
analysis of the technological feasibility and economic justification of 
the proposal, consistent with governing statutory requirements. It 
added that the signatories of the agreement do not represent consumer 
interests in the affected States, and that DOE needs to more fully 
account for potential consumer impacts. (FUR: AGA, No. 1.3.010 at p. 2) 
In the public meeting, AGA expressed concerns about replacing a non-
condensing furnace with a condensing furnace due to potential problems 
with venting systems. (FUR: AGA, Public Meeting Transcript, No. 1.2.006 
at pp. 40-41) APGA expressed similar comments, further stating that DOE 
should consider non-regulatory mechanisms to encourage market 
transformation to condensing non-weatherized furnaces, including 
through building codes. (FUR: APGA, No. 1.3.004 at pp. 3-4) The 
National Propane Gas Association (NPGA) also opposed requiring 90-
percent AFUE furnaces in northern States, because of concerns related 
to venting issues in replacement installations (particularly when a 
furnace that has a common vent with a water heater is being replaced). 
(FUR: NPGA, No. 1.3.005 at p. 4)
    HARDI stated that it supports the consensus agreement only to the 
extent that DOE is confident it can justify increases to residential 
HVAC minimum efficiency standards and regionalization of standards. 
HARDI is not convinced such justification is possible given its 
experiences since the last amendments to the central air conditioners 
and heat pumps standards in 2006. (FUR: HARDI, No. 1.3.016 at p. 4) 
(CAC: HARDI, No. 56 at p. 4) HARDI believes DOE will have difficulty 
justifying a higher heating standard in a northern region that includes 
both North Dakota and Kentucky, which have vastly different heating 
demands. HARDI also stated that a southeastern regional standard that 
applies to both Florida and Maryland, or a southwestern regional 
standard that includes cities with significantly different climates 
appears to significantly threaten consumer choice and product 
availability. (FUR: HARDI, No. 1.3.016 at p. 5) HARDI is also concerned 
that: (1) The standards in the consensus agreement will encourage 
utilities to exit the energy-efficiency business as it pertains to HVAC 
systems, because they might no longer see value in providing an 
incentive for 95-percent AFUE premium furnaces if a standard is set at 
90-percent AFUE; and (2) the loss of such incentives would make 
purchases of higher-than-minimum-efficiency furnaces highly unlikely. 
(FUR: HARDI, No. 1.3.016 at p. 8)
    ACCA expressed concern over the requirement for condensing furnaces 
in the northern region, noting that the cost of replacing a non-
condensing furnace with a condensing furnace (which might require 
venting retrofit measures) could be prohibitive in some cases. (FUR: 
ACCA, No. 1.3.007 at pp. 2-3)
    DOE also received comments that, while not specifically addressing 
the consensus agreement, concern the standard-level recommendations for 
central air conditioners and heat pumps. Specifically, Southern 
remarked that standards should have equal cooling efficiency 
requirements for central air conditioners and heat pumps, and Ingersoll 
Rand, Rheem, and EEI provided similar statements. (CAC: Southern, No. 
73 at p. 3) (CAC: Ingersoll Rand, No. 66 at p. 1) (CAC: EEI, No. 75 at 
p. 5) (CAC: Rheem, No. 76 at p. 2)
    In considering the proposed standard levels in the consensus 
agreement, DOE reviewed 42 U.S.C. 6295(p)(4)(C), which states that if 
DOE issues a direct final rule (as suggested by the signatories to the 
consensus agreement) and receives any adverse public comments within 
120 days of publication of the rule, then DOE would be forced to 
withdraw the final rule. Interested parties have already submitted 
comments expressing opposition to the consensus agreement, which 
indicates there is a possibility that DOE may receive adverse comments 
to the adoption of the consensus agreement as part of this direct final 
rule.
    DOE recognizes the substantial effort and analysis that resulted in 
the consensus agreement and analyzed it as a separate TSL, in 
conjunction with other TSLs for this direct final rule. As described 
above, the interested parties opposing the consensus agreement were 
primarily concerned with the requirement that non-weatherized gas 
furnaces and mobile home furnaces in the northern region achieve a 
minimum of 90-percent AFUE. In its analysis for today's direct final 
rule, DOE addressed the issues raised by the parties with respect to 
replacement installations of 90-percent AFUE non-weatherized gas 
furnaces or mobile home furnaces. DOE believes that, although in some 
instances it may be costly, consumers can replace non-condensing 
furnace with condensing furnaces in virtually all installations.
    As suggested by AGA, DOE performed an analysis of the technological 
feasibility and economic justification of the consensus agreement 
recommendations, consistent with statutory requirements in EPCA. DOE 
fully considered all costs of replacing non-condensing furnaces with 
condensing furnaces in the northern region. DOE's results indicate that 
some consumers would be negatively impacted by a northern region 
standard at 90-percent AFUE for non-weatherized gas furnaces or mobile 
home furnaces, but that on balance, the benefits of such a standard 
would outweigh the costs. Section V.C of this notice discusses the 
results of DOE's analyses and the weighting of benefits and burdens 
when considering the consensus agreement standard levels and compliance 
dates (i.e., TSL 4).

C. Compliance Dates

    EPCA establishes a lead time between the publication of amended 
energy conservation standards and the date by which manufacturers must 
comply with the amended standards for both furnaces and central air 
conditioners and heat pumps. For furnaces, EPCA dictates an eight-year 
period between the rulemaking publication date and compliance date for 
the first round of amended residential furnace standards, and a five-
year period for the second round of amended residential furnace 
standards. (42 U.S.C. 6295(f)(4)(B)-(C)) DOE has concluded that the 
remand agreement for furnaces does not vacate the November 2007 Rule 
for furnaces and boilers. Therefore, the November 2007 Rule completed 
the first round of rulemaking for amended energy conservation standards 
for furnaces, thereby satisfying the requirements of 42 U.S.C. 
6295(f)(4)(B). As a result, the current rulemaking constitutes the 
second round of rulemaking for amended energy conservation standards 
for furnaces, as required under 42 U.S.C. 6295(f)(4)(C), a provision 
which prescribes a five-year period between the standard's publication 
date and compliance date. For central air conditioners and heat pumps, 
the statutory provision at 42 U.S.C. 6295(d)(3)(B) establishes a 
similar five-year time period between the standard's publication date 
and compliance date.
    Therefore, in its analysis of amended energy conservation standards 
for

[[Page 37426]]

furnaces and central air conditioners and heat pumps, DOE used a five-
year lead time between the publication of the standard and the 
compliance date for all TSLs, except for the TSL which analyzed the 
consensus agreement. Because the accelerated compliance dates were a 
negotiated aspect of the consensus agreement which amounts to an 
important benefit, DOE used the accelerated compliance dates when 
analyzing the consensus agreement TSL. (See section V.A for a 
description of the TSLs considered for this direct final rule.)
    In response to the RAP for furnaces and the preliminary analysis 
for central air conditioners and heat pumps, DOE received comments from 
interested parties regarding the required lead time between the 
publication of amended energy conservation standards and the date by 
which manufacturers must comply with the amended standards. These 
comments are discussed in the section immediately below.
a. Consensus Agreement Compliance Dates
    Several interested parties commented on the issue of the compliance 
dates for amended energy conservation standards for furnaces and 
central air conditioners and heat pumps in the context of the dates 
specified in the consensus agreement. AHRI argued that DOE has the 
authority to adopt the accelerated standards compliance dates in the 
consensus agreement whether DOE proceeds via a conventional rulemaking 
process or via direct final rule. AHRI asserted that 42 U.S.C. 
6295(p)(4), ``Direct final rules,'' which delineates procedures for 
when DOE receives a joint recommendation for amended standards by 
interested parties that are fairly representative of relevant points of 
view (including manufacturers, States, and efficiency advocates), 
trumps 42 U.S.C. 6295(m), ``Amendment of standards,'' which contains 
specific provisions pertaining to compliance dates and lead time. 
Further, AHRI commented that DOE has itself previously recognized that 
in circumstances where the manufacturers who must comply with a 
standard support acceleration of the compliance date of the standard, 
DOE has the flexibility to adopt the earlier compliance date (see 67 FR 
36368, 36394 (May 23, 2002) and 69 FR 50997, 50998 (August 17, 2004)). 
(FUR: AHRI, No. 1.3.008 at pp. 3-4) (CAC: AHRI, No. 67 at pp. 3-4) NRDC 
and Rheem expressed similar views. (FUR: NRDC, No. 1.3.020 at p. 2; 
Rheem, No. 1.3.022 at p. 3) (CAC: Rheem, No. 71 at p. 3) However, AHRI 
further clarified its position that if DOE decides in a final rule to 
adopt levels that are different from those in the consensus agreement, 
then AHRI would maintain that the compliance date (for furnaces) 
specified by the law would be eight years after publication of the 
final rule. (FUR: AHRI, Public Meeting Transcript, No. 1.2.006 at p. 
126)
    EarthJustice asserted that DOE must either adopt the compliance 
dates specified in the consensus agreement, or adopt an expedited 
compliance deadline of its own design. EarthJustice asserted that the 
provisions of EPCA relevant here do not require an eight-year lead time 
for furnaces, but instead require a hard-date deadline, which has 
passed. Therefore, EarthJustice believes DOE has discretion in setting 
a compliance date. EarthJustice added that there is no basis to the 
argument that maintaining an eight-year lead time is necessary to ease 
manufacturers' compliance burdens since manufacturers have indicated 
via the consensus agreement that they can meet the levels in the 
consensus agreement in a much shorter timeframe than eight years. (FUR: 
EarthJustice, No. 1.3.014 at pp. 2-4)
    Similarly, ACEEE stated that DOE should seriously consider adopting 
the compliance dates in the consensus agreement because the compliance 
dates in the statute are intended to provide manufacturers time to 
reengineer their products and production facilities, but in this case, 
manufacturers have agreed to the compliance dates specified in the 
consensus agreement. (FUR: ACEEE, Public Meeting Transcript, No. 
1.2.006 at pp. 112-113) ACEEE acknowledged that while having the same 
compliance dates for all products is desirable for implementation and 
enforcement purposes, limited engineering resources led to different 
compliance dates for non-weatherized gas and weatherized gas furnaces 
in the consensus agreement (of 2013 and 2015, respectively). (FUR: 
ACEEE, Public Meeting Transcript, No. 1.2.006 at pp. 109-110)
    EEI suggested that if DOE rejects the consensus agreement, DOE 
should establish a compliance date for all covered furnaces that is no 
later than November 19, 2015 (i.e., the compliance date for the 
standards promulgated in the November 2007 Rule). This date is shortly 
before the compliance date for the new efficiency standards for heat 
pumps in June 2016, and according to EEI, it would avoid potential 
market distortions for space heating equipment that might result from 
increasing efficiency standards for one product type but not for a 
competing product. (FUR: EEI, No. 1.3.015 at p. 4) (CAC: EEI, No. 75 at 
p. 4) APPA reiterated EEI's comments on these points. (FUR: APPA, No. 
1.3.011 at pp. 3-4)
    After careful consideration of these comments, DOE has concluded 
that it is bound by EPCA in terms of setting the lead time between the 
publication of amended energy conservation standards and the date by 
which manufacturers must comply with those amended standards. DOE has 
consistently interpreted the statutory time period between publication 
of a final rule and the compliance date for amended standards to 
reflect Congress's determination as to adequate lead time for 
manufacturers to retool their operations to ensure that the product in 
question meets the new or amended standards, even in those instances 
where the statutory deadline has passed. However, DOE agrees with AHRI, 
Rheem, and NRDC that in circumstances where the manufacturers who must 
comply with the standard support acceleration of the compliance date of 
the standard (such as in the case of the consensus agreement where 
compliance dates were an integral part of the agreement), DOE has some 
flexibility in establishing the compliance dates for amended energy 
conservation standards. For the other levels, DOE believes the 
statutory provisions pertaining to lead time should continue to govern, 
particularly for levels more stringent than the consensus agreement 
(i.e., levels to which manufacturers never agreed, particularly on an 
accelerated basis). Therefore, as noted in the preceding section, DOE 
has determined that for all TSLs analyzed--except for the consensus 
agreement TSL--DOE is bound by the lead time requirements in EPCA when 
determining compliance dates. For those other TSLs, the analysis 
accounts for a five-year lead time between the publication of the final 
rule for furnaces and central air conditioners and heat pumps and the 
date by which manufacturers would have to comply with the amended 
standard. However, for the consensus agreement TSL, DOE's analyses 
utilized the compliance dates specified in the consensus agreement.
b. Shift From Peak Season
    Several interested parties noted that if DOE follows a typical 
rulemaking schedule and publishes a final rule on June 30, 2011, then 
the compliance date (June 2016) would fall during the peak of the air 
conditioner shipment season in 2016. Interested parties expressed 
concern that a compliance date during peak season could potentially 
lead to costly disruptions in the distribution chain, as well as 
consumer confusion.

[[Page 37427]]

HARDI, Southern, ACEEE, and Ingersoll Rand stated that the compliance 
date should not be set during the peak cooling season. (CAC: HARDI, No. 
70 at p. 2; ACEEE, No. 72 at p. 3; SCS, No. 73 at p. 2; Ingersoll Rand, 
No. 66 at p. 3). HARDI, ACEEE, and Southern went further and 
recommended that January 1 be used as the compliance date instead for 
central air conditioners and heat pumps. (CAC: HARDI, No. 70 at p. 2; 
ACEEE, No. 72 at p. 3; SCS, No. 73 at p. 2) EEI also noted that if 
compliance dates are moved for central air conditioners and heat pumps, 
then the compliance dates for furnaces should be moved as well to avoid 
the same issue for the heating season. (CAC: EEI, No. 75 at p. 3)
    As discussed above in this section, DOE believes that the 
applicable statutory provisions (i.e., 42 U.S.C. 6295(f)(4)(C) for 
furnaces and 42 U.S.C. 6295(d)(3)(B) for central air conditioners and 
heat pumps) necessitate a five-year time period between the final rule 
publication date and the compliance date. The only exception would be 
in the case of the adoption of the consensus agreement, because of the 
importance of accelerated compliance dates to the energy savings 
provided by this agreement. If DOE adopts any standards besides those 
in the consensus agreement, DOE believes that it is constrained by EPCA 
and does not have the authority to shift the compliance dates away from 
the peak cooling season (either earlier or later). However, this 
constraint does not prevent manufacturers from voluntarily complying at 
an earlier non-peak season date to ease the transition to amended 
energy conservation standards.
c. Standby Mode and Off Mode Compliance Dates
    EPCA, as amended, does direct DOE to incorporate standby mode and 
off mode energy consumption into a single amended or new standard, if 
feasible. (42 U.S.C. 6295(gg)(3)(A)) Under such a circumstance where 
standby mode and off mode energy consumption is integrated into the 
existing regulatory metric, the standby mode and off mode standards 
would have the same compliance dates as the amended or new active mode 
standards. Therefore, DOE believes that, when feasible, the compliance 
dates for standby mode and off mode should be the same as the 
compliance dates for amended active mode energy conservation standards. 
Although DOE has determined that it is technically infeasible to 
integrate the standby mode and off mode energy consumption into a 
single standard for furnaces and central air conditioners/heat pumps, 
DOE believes it is still sensible to keep the timeline for compliance 
with standby mode and off mode standards the same so that manufacturers 
of furnaces, central air conditioners, and heat pumps can bring all of 
their compliance-related modifications forward at the same time. DOE 
further believes that this approach would provide adequate lead time 
for manufacturers to make the changes necessary to comply with the 
standby mode and off mode standards. As a result, DOE is adopting 
standby mode and off mode standards with compliance dates that match 
the compliance dates for amended AFUE, SEER, and HSPF minimum energy 
conservation standards.

D. Regional Standards

    As described in section II.A, EISA 2007 amended EPCA to allow for 
the establishment of a single more-restrictive regional standard in 
addition to the base national standard for furnaces, and up to two 
more-restrictive regional standards in addition to the base national 
standard for residential central air conditioners and heat pumps. (42 
U.S.C. 6295(o)(6)(B)) The regions must include only contiguous States 
(with the exception of Alaska and Hawaii, which can be included in 
regions with which they are not contiguous), and each State may be 
placed in only one region (i.e., a State cannot be divided among or 
otherwise included in two regions). (42 U.S.C. 6295(o)(6)(C))
    Further, EPCA mandates that a regional standard must produce 
significant energy savings in comparison to a single national standard, 
and provides that DOE must determine that the additional standards are 
economically justified and consider the impact of the additional 
regional standards on consumers, manufacturers, and other market 
participants, including product distributors, dealers, contractors, and 
installers. (42 U.S.C. 6295(o)(6)(D)) For this rulemaking, DOE has 
considered the above-delineated impacts of regional standards in 
addition to national standards for both furnaces and central air 
conditioners and heat pumps.
    For single-package air conditioners and single-package heat pumps, 
DOE has analyzed the standards on a national basis where the standard 
would be effectively the same in each region. For consistency with the 
consensus agreement and ease of presentation, DOE specifies the 
requirements of the standard by region, but for all practical purposes 
the standard is a national one. DOE evaluated whether regional 
standards with different requirements in certain regions satisfied the 
statutory criteria for regional standards. Given the low level of 
shipments of these products, DOE determined that enforcement of 
regionally distinct standards would be difficult for these product 
categories. DOE believes that it is likely that given a less stringent 
requirement in some regions there would be leakage effects (i.e. 
installers purchasing product in less stringent regions and shipping 
them to regions with more stringent requirements). Such leakage effects 
would decrease the energy savings of regionally distinct standards 
requirements relative to a national standard with the same stringency 
in each region. DOE has therefore determined that regional standards 
would not produce significant energy savings in comparison to a single 
national standard for these products. DOE made a similar determination 
for oil-fired furnaces.
    Where appropriate, DOE has addressed the potential impacts from 
regional standards in the relevant direct final rule analyses, 
including the mark-ups to determine product price, the LCC and payback 
period analysis, the national impact analysis (NIA), and the 
manufacturer impact analysis (MIA). DOE's approach for addressing 
regional standards is included in the methodology section corresponding 
to each individual analysis, in section IV of this notice. For certain 
phases of the analysis, additional regional analysis is not required. 
For example, technologies for improving product efficiency generally do 
not vary by region, and thus, DOE did not perform any additional 
regional analysis for the technology assessment and screening analysis. 
Similarly, DOE did not examine the impacts of having two regions in the 
engineering analysis, since the technologies and manufacturer processes 
are the same under both a national and regional standard.
1. Furnace Regions for Analysis
    To evaluate regional standards for residential furnaces, in the 
RAP, DOE stated its intention to use the regions shown in Table III.3 
and Figure III.1. The allocation of individual States to the regions is 
similar to the evaluation methodology DOE used in exploring regional 
standards in the November 2007 Rule, although DOE ultimately decided 
that it could not adopt such an approach because it lacked statutory 
authority, a situation which changed with enactment of EISA 2007. The 
allocation considered in the November 2007 Rule was largely based on 
whether a State's annual heating HDD average is

[[Page 37428]]

above or below 5,000. 72 FR 65136, 65146-47 (Nov. 19, 2007). This level 
offers a rough threshold point at which space heating demands are 
significant enough to require longer operation of heating systems, 
which provides a basis for utilization of higher-efficiency systems. In 
the RAP, DOE proposed two changes from the November 2007 Rule 
methodology to establish regions for furnaces. The first was moving 
Nevada from the Northern region to the Southern region, and the second 
was moving West Virginia from the Southern region to the Northern 
region. These changes better reflect the climate characteristics of 
these two States--West Virginia has on average more than 5,000 HDD, and 
Nevada's major population areas have fewer than 5,000 HDD. DOE notes 
that the changes resulted in a regional allocation of States that is 
the same as the regions defined in the consensus agreement.

         Table III.3--Regions for Analysis of Furnace Standards
------------------------------------------------------------------------
  Northern region states  (rest of
              country)                      Southern region States
------------------------------------------------------------------------
Alaska                               Alabama
Colorado                             Arizona
Connecticut                          Arkansas
Idaho                                California
Illinois                             Delaware
Indiana                              District of Columbia
Iowa                                 Florida
Kansas                               Georgia
Maine                                Hawaii
Massachusetts                        Kentucky
Michigan                             Louisiana
Minnesota                            Maryland
Missouri                             Mississippi
Montana                              Nevada
Nebraska                             New Mexico
New Hampshire                        North Carolina
New Jersey                           Oklahoma
New York                             South Carolina
North Dakota                         Tennessee
Ohio                                 Texas
Oregon                               Virginia
Pennsylvania
Rhode Island
South Dakota
Utah
Vermont
Washington
West Virginia
Wisconsin
Wyoming
------------------------------------------------------------------------

[GRAPHIC] [TIFF OMITTED] TR27JN11.000

    Commenting on the furnaces RAP, Ingersoll Rand stated that the 
regions proposed for the regional analysis are appropriate. (FUR: 
Ingersoll Rand, No. 1.3.006 at p. 1) Lennox expressed a similar view, 
noting that the regional definitions outlined in the furnaces RAP are 
consistent with the consensus agreement. (FUR: Lennox, No. 1.3.018 at 
p. 2) NCLC commented that the Low Income Groups support the regions 
defined as north and south in the agreement. (FUR: NCLC, No. 1.3.019 at 
p. 6) HARDI stated that the 5,000 HDD demarcation makes the most sense. 
(FUR: HARDI, No. 1.3.016 at p. 5) ACEEE expressed a similar view, but 
added that if the consensus agreement is not adopted, DOE needs to 
examine the economics and other impacts of high-efficiency furnaces at 
other possible regional boundaries, such as 4,500 and 4,000 HDD. (FUR: 
ACEEE, No. 1.3.009 at p. 4) ASAP expressed support for the regions 
proposed for the furnaces regional analysis and stated that having 
consistent regional borders for furnaces and central air conditioners 
is important to help reduce issues associated with implementing and 
enforcing regional standards. (FUR: ASAP, Public Meeting Transcript, 
No. 1.2.006 at pp. 64-65) APPA stated that if DOE rejects the climate 
zones specified in the consensus agreement, DOE should modify its 
definition of the northern region in such a way that, in effect, it 
would include ``southwestern'' States, such as Arizona, Nevada, and New 
Mexico, in the

[[Page 37429]]

northern region, because the majority of these States have a climate 
that is similar to some other States that DOE has classified in the 
northern region. (FUR: APPA, No. 1.3.011 at p. 3) EEI stated that DOE 
should consider establishing California, Nevada, Arizona, and New 
Mexico as northern States for purposes of regional standards, in order 
to be more consistent with DOE's classification of northern States, and 
to avoid leaving energy savings on the table when establishing new 
heating efficiency standards. (FUR: EEI, No. 1.3.015 at pp. 3-4)
    After evaluating these comments, DOE has concluded that using a 
5,000 HDD threshold as the basis for assigning States to northern or 
southern regions, as proposed in the furnaces RAP, is appropriate. DOE 
does not believe that the States mentioned by APPA and EEI should be 
classified as northern States for the analysis of furnaces. On average, 
these States have significantly lower heating loads than the other 
States that DOE has classified as northern States. Therefore, for the 
direct final rule analysis of furnaces, DOE used the regions as defined 
in Table III.3 and Figure III.1. Regarding ACEEE's suggestion that DOE 
consider additional analysis using other possible regional boundaries 
if the consensus agreement is not adopted, because DOE is adopting 
standards consistent with the consensus agreement in this rule, DOE 
does not see a compelling reason to conduct such analyses. DOE notes 
that the 5,000 HDD threshold is supported by most of the interested 
parties, including ACEEE. DOE further notes that the 5,000 HDD 
threshold would provide benefits in terms of minimizing the difference 
between the regional boundaries for central air conditioners/heat pumps 
and furnaces. Harmonizing boundaries, to the extent possible, may also 
facilitate subsequent compliance and enforcement efforts.
2. Central Air Conditioner and Heat Pump Regions for Analysis
    To evaluate regional standards for residential central air 
conditioners and heat pumps in the preliminary analysis, DOE used the 
regions listed in Table III.4 and Figure III.2. For cooling equipment 
performance, the annual number of operating hours and relative humidity 
during those operating hours are the most important regional 
variations. DOE established two regions (i.e., a ``hot-dry'' region and 
a ``hot-humid'' region) in the south based upon these factors, in 
addition to a ``rest of country'' region (i.e., northern region), 
composed of the remaining States. The southern limit of the northern 
region was approximately based on whether a State's annual HDD average 
was above or below 4,500 HDD, and the division between the hot-humid 
and hot-dry regions was determined from analysis of typical 
meteorological year (TMY3) weather data.\19\ TMY3 weather data are sets 
of typical hourly values of solar radiation and meteorological elements 
developed for a one-year span for selected locations based on long-term 
historical data. The selection of regions for the preliminary analysis 
was discussed in detail in Appendix 7C of the preliminary TSD.
---------------------------------------------------------------------------

    \19\ S. Wilcox and W. Marion, Users Manual for TMY3 Data Sets, 
NREL/TP-581-43156 (May 2008).

   Table III.4--Preliminary Analysis Proposed Regions for Central Air
                   Conditioner and Heat Pump Standards
------------------------------------------------------------------------
 Northern region states   Southern region states    Southwestern region
   (rest of country)           (hot-humid)           states (hot-dry)
------------------------------------------------------------------------
Alaska                   Alabama                  Arizona
Colorado                 Arkansas                 California
Connecticut              Florida                  Nevada
Delaware                 Georgia                  New Mexico
District of Columbia     Hawaii
Idaho                    Louisiana
Illinois                 Mississippi
Indiana                  North Carolina
Iowa                     Oklahoma
Kansas                   South Carolina
Kentucky                 Tennessee
Maine                    Texas
Maryland
Massachusetts
Michigan
Minnesota
Missouri
Montana
Nebraska
New Hampshire
New Jersey
New York
North Dakota
Ohio
Oregon
Pennsylvania
Rhode Island
South Dakota
Utah
Vermont
Virginia
Washington
West Virginia
Wisconsin
Wyoming
------------------------------------------------------------------------

[[Page 37430]]

[GRAPHIC] [TIFF OMITTED] TR27JN11.001

    In response to DOE's request for comment on the regions used in the 
preliminary analysis for central air conditioners and heat pumps, 
several stakeholders submitted comments. HARDI, Southern, and Ingersoll 
Rand stated that the regions defined in the consensus agreement should 
be used instead of those in Table III.4. This suggested change would 
necessitate moving Delaware, the District of Columbia, Maryland, 
Kentucky, and Virginia into the southern hot-humid region. (CAC: HARDI, 
No. 56 at p. 4; Ingersoll Rand, No. 66 at p.4; Southern, Public Meeting 
Transcript at p. 33; HARDI, No. 56 at p. 4) Southern also remarked that 
the regional boundaries for central air conditioners and heat pumps and 
furnaces should be the same to avoid unnecessary complexity for 
manufacturers and public confusion. (CAC: Southern, No. 73 at p. 2) 
ACEEE expressed views similar to those of HARDI, Southern, and 
Ingersoll Rand and further warned that the confusion and complexity 
associated with differing regional boundaries could lead to inadvertent 
non-compliance. (CAC: ACEEE, No. 72 at p. 3) Conversely, EEI commented 
that Nevada should be moved to the ``rest of country'' region for 
heating efficiency requirements and the hot-dry region for cooling 
efficiency requirements because 90 percent of the State is located in 
climate zone 5, as specified in Figure 2 of 10 CFR 430, subpart B, 
appendix M . (CAC: EEI, No. 75 at p. 3)
    In response to these comments, DOE agrees that a unified regional 
allocation of States for both central air conditioners and heat pumps 
and furnaces would provide key benefits. As mentioned in section III.A, 
similar manufacturers produce these products and use the same 
distribution network. Using the same regional allocation of States, as 
compared to the ``rest of country'' national standard, would be easier 
for manufacturers and distributors to implement and would also help to 
minimize consumer confusion. Additionally, regional standards may shift 
enforcement from the manufacturer to the point of sale or place of 
installation, and a single boundary between regions would reduce the 
motivation for non-compliance as well as simplify the overall 
enforcement of regional standards. Of course, there would be some 
differentiation, given that there is only one regional standard for 
furnaces, but two regional standards for central air conditioners and 
heat pumps. Nevertheless, DOE believes that there would still be 
benefits with harmonizing the States included in the northern region 
across these products.
    To this end, DOE agrees with the comments recommending use of the 
regions in the consensus agreement for central air conditioners and 
heat pumps and furnaces. Doing so would also align the boundary of the 
northern region for the central air conditioners and furnaces. The 
regions selected for the direct final rule analyses for central air 
conditioners and heat pumps are shown in Table III.5 and Figure III.3.

  Table III.5--Regions for Analysis of Central Air Conditioner and Heat
                             Pump Standards
------------------------------------------------------------------------
 Northern region states    Southeastern region      Southwestern region
   (rest of country)       states (hot-humid)*       states (hot-dry)*
------------------------------------------------------------------------
Alaska                   Alabama                  Arizona

[[Page 37431]]

 
Colorado                 Arkansas                 California
Connecticut              Delaware                 Nevada
Idaho                    District of Columbia     New Mexico
Illinois                 Florida
Indiana                  Georgia
Iowa                     Hawaii
Kansas                   Kentucky
Maine                    Louisiana
Massachusetts            Maryland
Michigan                 Mississippi
Minnesota                North Carolina
Missouri                 Oklahoma
Montana                  South Carolina           ......................
Nebraska                 Tennessee                ......................
New Hampshire            Texas                    ......................
New Jersey               Virginia                 ......................
New York
North Dakota
Ohio
Oregon
Pennsylvania
Rhode Island
South Dakota
Utah
Vermont
Washington
West Virginia
Wisconsin
Wyoming
------------------------------------------------------------------------
* The combined southeastern and southwestern regions for central air
  conditioners and heat pumps correspond to the southern region for
  furnaces.

  [GRAPHIC] [TIFF OMITTED] TR27JN11.002
  

[[Page 37432]]

3. Impacts on Market Participants and Enforcement Issues
    As described in section II.A of this notice, DOE is required to 
evaluate the impact of introducing regional standards on consumers, 
manufacturers, and other market participants, including product 
distributors, dealers, contractors, and installers. (42 U.S.C. 
6295(o)(6)(D)) Chapter 17 of the preliminary TSD for central air 
conditioners and heat pumps details DOE's preliminary analysis on the 
potential impacts of regional standards on market participants other 
than manufacturers and consumers for residential central air 
conditioners and heat pumps and residential furnaces. (However, impacts 
on manufacturers and consumers were fully addressed in a manner 
consistent with any other energy conservation standards rulemaking.) 
The analysis focuses on the unique burdens associated with introducing 
differentiated energy conservation standards based on geography. The 
analysis does not incorporate the impact of more-stringent energy 
conservation standards on market participants, only the impact of 
multiple geographic standards, because the impacts of more-stringent 
standards would occur regardless of whether differentiated regional 
standards are promulgated.
a. Impacts on Additional Market Participants
    Chapter 17 of the preliminary TSD began by identifying the primary 
market participants, identified as distributors, contractors, and 
general contractors. It described their basic business models and 
assesses how additional regional standards may impact those models. The 
chapter then investigated potential non-enforcement impacts on 
distributors, contractors, and general contractors. Finally, the 
chapter provided two quantitative analyses looking at the key changes 
that distributors may face as a result of regional standards: (1) A 
distributor inventory impact analysis, and (2) a distributor markup 
impact analysis.
    HARDI voiced concern about DOE's preliminary distributor inventory 
impact analysis, citing its belief that distributors located within 
border regions would have to carry two lines of stock. As a result, 
HARDI predicts at least a 5-percent stock increase for these 
distributors. (CAC: HARDI, No. 56 at p. 7) In response, DOE's inventory 
analysis does assume that distributors located along border regions 
will need to carry two lines of stock, as indicated by HARDI, and, 
thus, requires some additional safety stock. In the absence of 
additional data supporting more or less severe inventory impacts, for 
the direct final rule, DOE has not revised its estimate of a 2-percent 
inventory impact for the reference case. However, the impacts of 
inventory changes ranging from 0 percent to 10 percent are considered 
in Chapter 17 of the direct final rule TSD as a sensitivity analysis.
    Regarding the inventory change analysis, ACEEE stated that 
distributors located along a border region may find it more cost-
effective to stock fewer product models and meet customer demand by 
shipping the next higher-efficiency model at the same price as the 
lower-efficiency model under regional standards. (FUR: ACEEE, No. 
1.2.006 at p. 103) ACEEE suggested that this hypothetical substitution 
effect would reduce the additional inventory necessary for distributors 
to meet customer demand under regional standards. Based on interviews 
with distributors and DOE's understanding of the HVAC industry, DOE 
considers such a scenario unlikely. Such a substitution would remove 
upsell opportunities for distributors and potentially commoditize 
higher-margin products. Furthermore, not having the units desired by 
some contractors may jeopardize relationships with at least some 
customers. DOE does not expect such a strategy to be the lowest-cost 
option for distributors along the border region.
    HARDI contested the four shipment scenarios detailed in the 
distribution inventory impact analysis discussed in chapter 17 of the 
preliminary TSD. Citing the experience following the change in central 
air conditioner energy conservation standards from 10 SEER to 13 SEER 
in 2006, HARDI asserted that an impact of increasing standards is a 
decrease in shipments due to substitution effects. (FUR: HARDI, No. 
1.3.016 at p. 7) In chapter 17 of the TSD, DOE analyzed the impact of 
differentiated regional standards rather than the impacts of higher 
standards. The analysis is intended to model changes in distributor 
inventory resulting from bimodal product demand, and not the impacts 
resulting from higher standards. However, DOE notes that the impacts of 
higher standards on replacement rates and product orders for the 
industry are accounted for and modeled in DOE's shipments analysis 
conducted for this direct final rule. A reduction in product 
replacement is reflected in the NIA and in the industry net present 
value analysis presented in the MIA.
    Additional comments were received regarding the analysis of 
distributor markup impact analysis. These comments are addressed in 
markups portion of this document in section IV.D.
b. Enforcement Issues
    Although the preliminary TSD for central air conditioners and heat 
pumps did not analyze enforcement issues, it did discuss potential 
enforcement impacts on market participants in chapter 17, section 17.4, 
of the preliminary TSD. In addition, in section II.A of the RAP for 
furnaces, DOE described a number of enforcement options and requested 
data on how, if at all, the enforcement options would increase 
compliance or other costs.
    Multiple manufacturers and trade associations commented on 
enforcement issues discussed in either the preliminary TSD for central 
air conditioners and heat pumps or the RAP for furnaces. ACCA, AHRI, 
and HARDI all emphasized the need for strong enforcement to ensure fair 
competition in the marketplace and to mitigate risk of diluting 
intended energy savings. (FUR: ACCA, No. 1.3.007 at p. 2) (CAC: AHRI, 
No. 67 at p. 4; HARDI, No. 70 at p. 2) HARDI emphasized the complexity 
of enforcing regional standards and explained that their members (i.e., 
the industry's distributors) are not equipped to bear the burden of 
ensuring that product installations are occurring within the boundaries 
of regional standards. (FUR: HARDI, No. 1.3.016 at pp. 4-7) 
Manufacturers, including Lennox, Rheem, and Ingersoll Rand; trade 
groups, including ACCA, AGA, ARI, EEI, and HARDI; advocacy groups, 
including ACEEE, NCLC, and NRDC; and utilities, including Pacific Gas 
and Electric, Southern California Gas Company, San Diego Gas and 
Electric, and Southern California Edison, all commented on the 
effectiveness, viability, and complexity of various enforcement 
mechanisms. (FUR: Lennox, No. 1.3.018 at pp. 2-4; Rheem, Public Meeting 
Transcript No. 1.2.006 at p. 80; AGA, No. 1.3.010 at pp. 2-3; EEI, No. 
1.3.015 at p. 4; ACEEE, No. 1.3.009 at pp. 4-5; NCLC, 1.3.019 at p. 9; 
NRDC, No. 1.3.020 at pp. 7-8) (CAC: Ingersoll Rand, No. 66 at pp. 7-8; 
ACCA, No. 7 at p. 3; HARDI, No. 56 at p. 6; PG&E, No. 17 at pp. 3-4)
    DOE recognizes the challenges of regional standards enforcement and 
continues to investigate the most effective means of meeting those 
challenges. DOE will incorporate all feedback into the enforcement 
rulemaking it will conduct within 90 days of the issuance of this 
direct final

[[Page 37433]]

rule establishing regional standards, as required by 42 U.S.C. 
6295(o)(6)(G)(ii).

E. Standby Mode and Off Mode

    As noted in section II.A of this direct final rule, any final rule 
for amended or new energy conservation standards that is published on 
or after July 1, 2010 must address standby mode and off mode energy 
use. (42 U.S.C. 6295(gg)) As a result, DOE has analyzed and is 
regulating the standby mode and off mode electrical energy consumption 
for furnaces and off mode energy consumption for central air 
conditioners and heat pumps. These provisions are addressed in further 
detail immediately below.
1. Furnaces
    AFUE, the statutory metric for furnaces, does not incorporate 
standby mode or off mode use of electricity, although it already fully 
addresses use in these modes of fossil fuels by gas and oil-fired 
furnaces. In the October 2010 test procedure final rule for furnaces, 
DOE determined that incorporating standby mode and off mode electricity 
consumption into a single standard for residential furnaces is not 
feasible. 75 FR 64621, 64626-27 (Oct. 20, 2010). DOE concluded that a 
metric that integrates standby mode and off mode electricity 
consumption into AFUE is not technically feasible, because the standby 
mode and off mode energy usage, when measured, is essentially lost in 
practical terms due to rounding conventions for certifying furnace 
compliance with Federal energy conservation standards. Id. Therefore, 
in this notice, DOE is adopting amended furnace standards that are AFUE 
levels, which exclude standby mode and off mode electricity use, and 
DOE is also adopting separate standards that are maximum wattage (W) 
levels to address the standby mode and off mode electrical energy use 
of furnaces. DOE also presents corresponding TSLs for energy 
consumption in standby mode and off mode. DOE has decided to use a 
maximum wattage requirement to regulate standby mode and off mode for 
furnaces. DOE believes using an annualized metric could add unnecessary 
complexities, such as trying to estimate an assumed number of hours 
that a furnace typically spends in standby mode. Instead, DOE believes 
that a maximum wattage standard is the most straightforward metric for 
regulating standby mode and off mode energy consumption of furnaces and 
will result in the least amount of industry and consumer confusion.
    DOE is using the metrics just described--AFUE and W--in the amended 
energy conservation standards it adopts in this rulemaking for 
furnaces. This approach satisfies the mandate of 42 U.S.C. 6295(gg) 
that amended standards address standby mode and off mode energy use. 
The various analyses performed by DOE to evaluate minimum standards for 
standby mode and off mode electrical energy consumption for furnaces 
are discussed further in section IV.E of this direct final rule.
a. Standby Mode and Off Mode for Weatherized Gas and Weatherized Oil-
Fired Furnaces
    DOE did not find any weatherized furnaces (both gas and oil-fired) 
available on the market that are not sold as part of a single package 
air conditioner or a ``dual fuel'' single package heat pump and furnace 
system. In this direct final rule, DOE is adopting new energy 
conservation standards for the maximum allowable average off mode power 
consumption (PW,OFF) for single package air conditioners and 
single package heat pumps to account for the power consumed in off 
mode, and DOE has already determined that the existing test procedures 
for central air conditioners and heat pumps account for standby mode 
power consumption within the SEER rating. DOE notes that the proposed 
test procedure provisions for measuring off mode power consumption of 
central air conditioners and heat pumps and the existing test procedure 
provisions for calculating SEER do not provide instructions for 
disconnecting certain components (e.g., igniter, gas valve) that are 
only used for furnace operation in single package units. As a result, 
DOE believes that because weatherized furnaces on the market are 
manufactured and sold as part of single package air conditioners and 
heat pumps, and because all standby mode and off mode energy 
consumption for single package air conditioners and heat pumps is 
accounted for by PW,OFF and SEER, there is no need to adopt 
separate standby mode and off mode standards for weatherized gas or 
weatherized oil-fired furnaces.
b. Standby Mode and Off Mode for Electric Furnaces
    As discussed in detail in section IV.A.2.a of this direct final 
rule, DOE believes that any improvements to electric furnaces to 
improve the AFUE of these products would have a de minimis energy-
savings potential because the efficiency of electric furnaces already 
approaches 100-percent AFUE. However, DOE notes that the AFUE rating 
for electric furnaces does not include the electrical power used in 
standby mode and off mode. As a result, DOE performed an analysis of 
potential standby mode and off mode energy conservation standards for 
electric furnaces, and is adopting standards for these products in this 
direct final rule. The approach for analyzing standby mode and off mode 
energy conservation standards for electric furnaces is described 
throughout section IV of this direct final rule.
c. Standby Mode and Off Mode for Mobile Home Oil-Fired Furnaces
    DOE is not considering amended AFUE standards for mobile home oil-
fired furnaces due to a de minimis potential for energy savings, as 
discussed in detail in section IV.A.2.a of this notice. However, in 
order to satisfy the statutory provision in EPCA for establishing 
standby mode and off mode standards, and to keep a level playing field 
for all products, DOE examined potential standby mode and off mode 
standards for mobile home oil-fired furnaces.
    To analyze potential standby mode and off mode standards for mobile 
home oil-fired furnaces, DOE examined specification sheets and 
manufacturer literature to identify components that are present and 
would consume standby power (e.g., transformer, burner). DOE determined 
that these components in mobile home oil-fired furnaces are largely the 
same as the standby mode and off mode energy-consuming components found 
in non-weatherized oil-fired furnaces. Therefore, DOE estimated that a 
mobile home oil-fired furnace would have the same standby mode and off 
mode energy consumption as a non-weatherized oil-fired furnace, and it 
did not conduct separate analysis for this product. Accordingly, DOE is 
adopting standards for non-weatherized oil-fired furnaces and mobile 
home oil-fired furnaces at the same level in today's direct final rule. 
The standby mode and off mode analysis for non-weatherized oil-fired 
furnaces (which is also applicable to mobile home oil-fired furnaces) 
is discussed throughout section IV of this direct final rule.
2. Central Air Conditioners and Heat Pumps
    For central air conditioners and heat pumps, the standby mode is in 
effect when the system is on but the compressor is not running (i.e., 
when the system is not actively heating or cooling but the compressor 
is primed to be activated by the thermostat). Thus, the standby mode 
for central air conditioners functions during the

[[Page 37434]]

cooling season and for heat pumps during both the cooling and heating 
seasons. Correspondingly, the off mode generally occurs for air 
conditioners during all non-cooling seasons and for heat pumps during 
the ``shoulder seasons'' (i.e., fall and spring) when consumers neither 
heat nor cool their homes. The SEER and HSPF metrics already account 
for standby mode but not off mode energy use, because off mode energy 
use occurs outside of the seasons to which these descriptors apply. 
However, incorporation of off mode into these descriptors would mean 
that they would no longer be seasonal descriptors. Thus, because EPCA 
requires use of these descriptors for central air conditioners and heat 
pumps (see 42 U.S.C. 6291(22) and 6295(d)), it would not be feasible 
for DOE to incorporate off mode energy use into a single set of 
standards for both central air conditioners and heat pumps. 
Additionally, DOE has concluded that a metric that integrates off mode 
electricity consumption into SEER is not technically feasible because 
the off mode energy usage is significantly lower than active mode 
operation and, when measured, it is essentially lost in practical terms 
due to the fact that manufacturers' ratings of SEER are typically 
presented to consumers with one or zero decimal places. Therefore, in 
this notice, DOE is adopting for central air conditioners and heat 
pumps standards that are SEER and HSPF levels (which exclude off mode 
energy use), and DOE is also adopting separate standards that are 
maximum wattage (W) levels to address the off mode energy use of 
central air conditioners and heat pumps. DOE also presents 
corresponding TSLs for energy consumption in off mode. DOE has 
determined that a wattage requirement is appropriate, because it avoids 
unnecessary complexities and assumptions that may be created by using 
an annualized metric. The use of a wattage requirement is consistent 
with the approach used to regulate standby mode and off mode energy 
consumption in furnaces.
    DOE is using the metrics just described--SEER, HSPF, and W--in the 
amended energy conservation standards it adopts in this rulemaking for 
central air conditioners and heat pumps. This approach satisfies the 
mandate of 42 U.S.C. 6295(gg) that amended standards address standby 
mode and off mode energy use. The various analyses performed by DOE to 
evaluate minimum standards for off mode electrical energy consumption 
for central air conditioners and heat pumps are discussed further 
throughout section IV of this direct final rule.
a. Off Mode for Space-Constrained Air Conditioners and Heat Pumps
    As discussed in section III.G.2.b, DOE decided not to amend the 
existing SEER or HSPF standards for the space-constrained product 
classes of central air conditioners and heat pumps, because the 
existing standard is both the baseline and max-tech efficiency level. 
However, DOE analyzed these products to determine appropriate off mode 
energy conservation standards. Based on teardowns and manufacturer 
literature, DOE determined that the space-constrained product classes 
have the same components contributing to off mode power consumption as 
split-system air conditioners and heat pumps. Consequently, DOE assumed 
that the off mode power consumption for the space-constrained products 
classes is the same as for the split-system product classes, and DOE 
believes that the off mode analysis for the split-system product 
classes is representative of the space-constrained products. Therefore, 
DOE adopted its engineering analysis of off mode energy consumption for 
split-system air conditioners and heat pumps for use in its engineering 
analysis of the off mode electrical energy consumption of space-
constrained air conditioners and heat pumps. As with all other product 
classes, the off mode analysis for space-constrained products is 
described in further detail throughout section IV of this direct final 
rule.

F. Test Procedures

    As noted above, DOE's current test procedures for central air 
conditioners and heat pumps, and for furnaces, appear at 10 CFR part 
430, subpart B, appendices M and N, respectively. Moreover, EPCA, as 
amended by EISA 2007, requires DOE to amend its test procedures for all 
covered products, including those for furnaces and central air 
conditioners and heat pumps, to include measurement of standby mode and 
off mode energy consumption, except where current test procedures 
already fully address such energy consumption. (42 U.S.C. 6295(gg)(2)) 
Because test procedure rulemakings were ongoing to address this 
statutory mandate regarding standby mode and off mode energy 
consumption during the course of the current standards rulemaking, a 
number of test procedure issues were raised in this rulemaking, 
particularly in terms of how test procedure amendments could impact 
standard levels. The following discussion addresses these comments and 
explains developments related to amended test procedures for 
residential furnaces, central air conditioners, and heat pumps.
1. Furnaces
    DOE's existing test procedure for gas and oil-fired furnaces 
accounted for fossil fuel consumption in the active, standby, and off 
modes, and for electrical consumption in the active mode (although 
active mode electrical consumption is not included in the AFUE rating 
for gas and oil-fired products). For electric furnaces, DOE's existing 
test procedure accounted for active mode electrical energy consumption. 
However, the test procedures for gas, oil-fired, and electric furnaces 
did not address standby mode and off mode electrical energy 
consumption. Therefore, DOE issued a NOPR in which it proposed 
modifications to its existing furnace test procedures to include the 
measurement of standby mode and off mode electricity use. 74 FR 36959 
(July 27, 2009) (hereafter referred to as the ``July 2009 test 
procedure NOPR''). DOE held a public meeting at DOE headquarters in 
Washington, DC on August 18, 2009, to receive oral comments on the July 
2009 test procedure NOPR. DOE also sought and received written comments 
from interested parties.
    Subsequent to the July 2009 test procedure NOPR, DOE issued a 
supplemental notice of proposed rulemaking (SNOPR) for the purpose of 
adding an integrated metric that incorporates standby mode and off mode 
energy consumption into the statutorily-identified efficiency 
descriptor, AFUE. The SNOPR was published in the Federal Register on 
April 5, 2010. 75 FR 17075. In response to the April 2010 test 
procedure SNOPR, DOE received a number of comments that opposed both 
the need for an integrated metric and the possibility of regulating by 
such a metric. In sum, these comments suggested that DOE misinterpreted 
the statute in terms of requiring the integration of standby mode and 
off mode energy consumption into the AFUE metric. Commenters further 
suggested that regulating by an integrated metric would be counter to 
the intent of EISA 2007; instead, these commenters urged DOE to 
regulate standby mode and off mode for these products by using a 
separate standard, as contemplated by EISA 2007, in situations where an 
integrated metric would not be technically feasible. DOE also received 
similar comments regarding incorporating standby mode and off mode 
electrical consumption into AFUE in response to the RAP for residential 
furnaces, which are

[[Page 37435]]

summarized below. In addition, DOE received comments relating to the 
AFUE test procedure in general (i.e., not specifically about the 
incorporation of standby mode and off mode electrical energy 
consumption into AFUE), which are also discussed in the sections that 
follow.
    After considering the comments in response the April 2010 test 
procedure SNOPR and RAP (discussed below), DOE published a final rule 
in the Federal Register on October 20, 2010 that amended the test 
procedures for furnaces and boilers to address standby mode and off 
mode energy use of these products. 75 FR 64621. In light of the 
comments on the April 2010 test procedure SNOPR and RAP, DOE 
reconsidered the feasibility of an integrated AFUE metric in the final 
rule and abandoned its proposal in the April 2010 test procedure SNOPR 
that would have integrated the standby mode and off mode electrical 
energy consumption into the existing AFUE test metric. Accordingly, the 
final rule amended the test procedure for residential furnaces and 
boilers to include provisions for separately measuring standby mode and 
off mode. Id. at 64626-27.
a. AFUE Test Method Comment Discussion
    In response to the RAP for residential furnaces, DOE received 
several comments related to DOE's test procedure for determining the 
AFUE of residential furnaces. ACEEE commented that AFUE is an imperfect 
metric, because for weatherized furnaces,\20\ a unit operating at part 
load (i.e., at a reduced input capacity less than the full capacity) 
might deliver the same comfort as it would at full load, but using less 
energy (i.e., more efficiently). However, since weatherized furnaces 
must be kept non-condensing during peak load operation, ACEEE stated 
that the AFUE metric may not reflect the efficiency benefit from part 
load operation. (FUR: ACEEE, Public Meeting Transcript, No. 1.2.006 at 
p. 159) Ingersoll Rand stated that weatherized furnaces have to be non-
condensing regardless of whether the furnace is running at a lower 
input or at the peak input [because these units are not designed to 
handle corrosive condensate]. (FUR: Ingersoll Rand, Public Meeting 
Transcript, No. 1.2.006 at pp. 159-160) In response, DOE believes that 
two-stage and modulating furnaces meet heating load requirements more 
precisely by operating at a reduced input rate for an extended period 
of burner on-time, which might deliver the same comfort using less 
energy as ACEEE asserts. However, DOE also notes that due to issues 
with condensate freezing in weatherized gas furnaces, products that are 
currently on the market are typically designed so that they will not 
condense during part-load or full-load operation, as Ingersoll Rand 
states. Even if a weatherized furnace were designed with materials and 
components to handle the corrosive condensate, if that condensate 
freezes while being drained, it will have a significant adverse impact 
the performance and reliability of the unit. DOE notes that DOE's 
existing AFUE test procedure contains provisions for two-stage and 
modulating operation in furnaces, and DOE believes these provisions are 
adequate for rating the performance of weatherized furnaces. It may be 
possible for DOE to consider revisiting the provisions for testing the 
AFUE of two-stage and modulating weatherized furnaces in a future test 
procedures rulemaking.
---------------------------------------------------------------------------

    \20\ Weatherized furnaces, unlike non-weatherized furnaces, are 
designed to be installed outdoors. As such, weatherized furnaces are 
often subjected to harsh weather, including below freezing 
temperatures, rain, snow, etc.
---------------------------------------------------------------------------

    Proctor stated that in California, non-weatherized furnaces are 
installed in attics, which get hot in the summer and cold in the 
winter. As a result, AFUE may not properly represent what happens in 
the field, because jacket losses (i.e., heat losses through the outer 
covering of the furnace) may not be accounted for in the AFUE test 
procedure for non-weatherized furnaces. (FUR: Proctor, Public Meeting 
Transcript, No. 1.2.006 at pp. 163-64) In contrast, Ingersoll Rand 
commented that the AFUE test for non-weatherized furnaces does measure 
jacket losses, because these furnaces are tested as isolated combustion 
systems (meaning they are assumed to be installed indoors, but outside 
of the conditioned space, such as in a garage or unheated basement) 
with an assumed 45 degree ambient temperature. Ingersoll Rand noted 
that jacket losses in non-weatherized furnaces are accounted for and 
multiplied by 1.7 in the AFUE calculation. Ingersoll Rand further 
stated that weatherized furnaces have a 3.3 multiplier for jacket 
losses, which accounts for the effects of wind, rain, and other factors 
affecting the performance of an outdoor furnace. (FUR: Ingersoll Rand, 
Public Meeting Transcript, No. 1.2.006 at p. 164) In response, DOE 
agrees with Ingersoll Rand, and notes that the DOE test procedure 
requires jacket losses to be adjusted by a 1.7 multiplier and a 3.3 
multiplier for all non-weatherized furnaces and weatherized furnaces, 
respectively, in order to account for jacket losses that may occur in 
the field.
    Proctor also remarked that the current standards (which are set in 
terms of AFUE) are unrepresentative of actual system performance in the 
home and produce contrary results, by assigning efficiency ratings 
which are not representative of ratings achieved in the field. Proctor 
stated that in certain rare situations, the current rating system is 
such that products' tested efficiency ratings may be reversed in 
comparison to their actual field performance (i.e., a product with a 
higher AFUE rating may actually perform less efficiently than a product 
with a lower AFUE rating in certain situations). (FUR: Proctor, FDMS 
No. 0002 at p. 2) The energy efficiency ratings for furnaces are 
developed using DOE's test procedure and sampling plans at the point of 
manufacture. For residential furnaces, DOE believes that requiring 
certification at the point of manufacture is the best way to capture 
the energy use information and variability of the installations that 
can be experienced in the field. Given the expense of performing tests 
on the products and the breadth of the installation network for these 
products, testing and certification based on field installations could 
be significantly more difficult. DOE believes that its test methods 
represent product performance in the field; however, DOE agrees with 
Proctor in that many factors experienced in the field can alter the 
performance of the furnace (e.g., installation location, external 
static pressure). Consequently, DOE's analysis takes into account many 
of the variations experienced in the field on the energy use of the 
product in the life-cycle cost analysis.
    Proctor argued that heating performance and heating fan performance 
are rated at external static pressures that are a function of furnace 
heating capacity and are significantly lower than those found in 
typical residential duct systems, resulting in the furnace blower 
moving less air or having higher watt draw, or both, when installed. 
Proctor claimed that these effects reduce the field efficiency of the 
furnace and that the type of fan motor believed by consumers and HVAC 
contractors to be the highest efficiency model performs significantly 
worse at typical field static pressures than at the rating condition. 
(FUR: Proctor, FDMS No. 0002 at p. 3) The current DOE test procedure 
assumes a given value for the external static pressure. While DOE 
acknowledges that the external static pressure of an HVAC system is, in 
part, a function of the ductwork, DOE believes variations in external 
static pressures experienced in the field that

[[Page 37436]]

impact the efficiency of the furnace fan are outside the scope of 
coverage of this rulemaking. This issue will be considered in DOE's 
separate rulemaking for furnace fans. Additionally, DOE acknowledges 
that the blower motor responds to the differences in external static 
pressure between the ductwork in the field and the pressure specified 
by the DOE test procedure by increasing or decreasing power draw as 
needed to maintain consistent airflow. However, the DOE test procedure 
to calculate AFUE does not account for the type or performance of the 
blower, and therefore, the rated AFUE is not impacted by the blower 
power draw. As noted above, there is a separate rulemaking under way to 
address the efficiency of furnace fans. DOE is also developing a test 
procedure for furnace fans in a separate rulemaking, in which DOE will 
examine the appropriate external static pressure at which to rate the 
air handling performance of the furnace.
    Proctor also commented that the furnace heating performance and air 
handling performance should be rated separately because some furnace 
components are related to heating, while others are related to moving 
household air. Further, Proctor stated that the furnace rating standard 
should include the energy use of heating-related components, such as 
the igniter, while components that are not directly related to heating 
should be included in the air handling rating. (FUR: Proctor, FDMS No. 
0002 at p. 4) In response, DOE first notes that this rulemaking to 
examine amending the minimum AFUE standards addresses the heating 
performance of furnaces, and the air handling performance will be 
addressed separately in a furnace fans rulemaking, as Proctor 
recommends. In response to Proctor's assertion that the furnace heating 
performance standard should include the use of heating-related 
components such as the igniter, DOE notes that it is required under 42 
U.S.C. 6291(22) to use AFUE as the rating metric for the fuel 
performance of furnaces. DOE incorporates by reference the definition 
in section 3 of ANSI/ASHRAE 103-1993 of ``annual fuel utilization 
efficiency'' as ``the ratio of annual output energy to annual input 
energy, which includes any non-heating-season pilot input loss and, for 
gas or oil-fired furnaces or boilers, does not include electric 
energy.'' 10 CFR 430 subpart B, appendix N, section 2.0. Under this 
definition, which captures how efficiently the fuel is converted to 
useful heat, electrical components such as electronic ignition and the 
blower motor are outside of the AFUE rating metric coverage. Components 
in the blower assembly will be covered in DOE's current energy 
conservation standards rulemaking for residential furnace fans.
b. Standby Mode and Off Mode
    As noted above, DOE received numerous comments from interested 
parties regarding the approach to regulating standby mode and off mode 
energy consumption proposed in the furnaces RAP. In particular, the 
comments received pertained to the metric that would be adopted for 
such regulation.
    ACEEE, the CA IOUs, EEI, HARDI, Lennox, AHRI, NRDC, APPA, Ingersoll 
Rand, and the Joint Stakeholders opposed the proposal to integrate 
standby mode and off mode electrical power into a new metric and 
instead supported a separate metric for regulating standby mode and off 
mode electrical energy consumption in furnaces. (FUR: ACEEE, Public 
Meeting Transcript, No. 1.2.006 at pp. 130-131; ACEEE, No. 1.3.009 at 
pp. 1-2; CA IOUs, No. 1.3.017 at p. 3; EEI, No. 1.3.015 at pp. 4-5; 
HARDI, No. 1.3.016 at p. 8; Lennox, No. 1.3.018 at p. 3; NRDC, No. 
1.3.020 at p. 7; APPA, No. 1.3.011 at p. 4; AHRI, Public Meeting 
Transcript, No. 1.2.006 at pp. 132-133; Ingersoll Rand, No. 1.3.006 at 
p. 2; Joint Stakeholders, No. 1.3.012 at pp. 3-4) EEI qualified its 
support for a separate descriptor for standby mode and off mode 
electrical energy consumption, stating that it supports a separate 
descriptor for standby mode and off mode efficiency as long as furnaces 
would be required to provide information about standby mode and off 
mode fossil fuel consumption as well. EEI asserted that if DOE looks at 
electric energy attributable to standby mode, it should also look at 
fossil fuel energy consumption attributable to standby mode just as 
rigorously. (FUR: EEI, No. 1.3.015 at pp. 4-5) In response, DOE notes 
that in the final rule for residential furnaces and boilers test 
procedures, published in the Federal Register on October 20, 2010, DOE 
concluded that the AFUE metric comprehensively accounts for fossil fuel 
energy consumption over a full-year cycle, thereby satisfying the 
fossil fuel portion of the EISA 2007 requirement to regulate standby 
mode and off mode energy consumption. 75 FR 64621. Lennox supported the 
use of the ESO value that DOE proposed in the July 27, 2009 
test procedures NOPR (74 FR 36959) as the metric for setting standby 
mode and off mode standards. (FUR: Lennox, No. 1.3.018 at p. 3) In 
today's direct final rule, DOE is using the standby mode and off mode 
power consumption metrics (PW,SB and PW,OFF, 
respectively), as defined in the October 2010 test procedure final rule 
\21\ (74 FR 64621, 64632 (Oct. 20, 2010)), as the test metric for 
regulating standby mode and off mode power consumption. As noted in 
section III.E of today's notice, DOE believes this metric will provide 
a more straightforward approach for comparing the standby mode and off 
mode energy consumption of furnaces, because it does not include 
assumptions related to the amount of time spent in standby mode or off 
mode, as an annual metric, such as ESO, would require.
---------------------------------------------------------------------------

    \21\ In this direct final rule, DOE is changing the nomenclature 
for the standby mode and off mode power consumption metrics for 
furnaces from those in the furnace and boiler test procedure final 
rule published on October 20, 2010. 75 FR 64621. DOE is renaming the 
PSB and POFF metrics as PW,SB and 
PW,OFF, respectively. However, the substance of these 
metrics remains unchanged.
---------------------------------------------------------------------------

    ACEEE, EEI, HARDI, and Lennox stated that DOE should not use an 
integrated AFUE metric (one which includes standby mode and off mode 
electrical energy consumption, along with active mode energy 
consumption) to regulate standby mode and off mode electrical energy 
consumption because doing so would require rerating existing furnaces, 
which could cause existing ratings to decrease and could lead to 
confusion in the marketplace. (FUR: ACEEE, No. 1.3.009 at pp. 1-2; EEI, 
Public Meeting Transcript, No. 1.2.006 at pp. 134-135; EEI, No. 1.3.015 
at pp. 4-5; HARDI, Public Meeting Transcript, No. 1.2.006 at p. 138; 
HARDI, No. 1.3.016 at p. 8; Lennox, No. 1.3.018 at p. 3) Further, AHRI 
noted that every program that provides incentives for people to buy 
more-efficient furnaces would have to change its descriptor to avoid 
widespread confusion in the marketplace, and therefore, AHRI argued 
that combining metrics is not feasible. (FUR: AHRI, Public Meeting 
Transcript, No. 1.2.006 at pp. 136-137) Ingersoll Rand added that 
adoption of an integrated metric would lead to confusion in the 
marketplace by making higher-capacity furnaces appear more efficient, 
because standby power is not a function of heating capacity. (FUR: 
Ingersoll Rand, No. 1.3.006 at p. 2) DOE believes these points are 
valid. Ultimately, in the test procedure rulemaking, DOE concluded in 
the final rule that it would not be technically feasible to integrate 
standby mode and off mode electrical energy consumption into AFUE, 
because ``the standby mode and off mode energy usage, when measured, is 
essentially lost in practical terms due to the fact that manufacturers'

[[Page 37437]]

ratings of AFUE are presented to the nearest whole number.'' 75 FR 
64621, 64627 (Oct. 20, 2010). For further details on DOE's reasoning 
for not integrating standby mode and off mode electrical energy 
consumption into AFUE, please consult the October 2010 test procedure 
final rule. Id. at 64626-27.
    ACEEE, NRDC, APPA, and the Joint Stakeholders observed that, due to 
the rounding provisions specified for the AFUE descriptor, standby mode 
and off mode electrical energy consumption would effectively be lost in 
an integrated metric. More specifically, these parties reasoned that 
the magnitude of active mode fuel consumption would obscure the standby 
mode and off mode electrical energy consumption, thereby providing 
manufacturers with little or no incentive to reduce standby energy 
consumption. (FUR: ACEEE, Public Meeting Transcript, No. 1.2.006 at pp. 
130-131; ACEEE, No. 1.3.009 at pp. 1-2; NRDC, No. 1.3.020 at p. 7; 
APPA, No. 1.3.011 at p. 4; Joint Stakeholders, No. 1.3.012 at pp. 3-4) 
The CA IOUs further asserted that it is not feasible from a testing and 
enforcement perspective to regulate standby mode and off mode 
electrical energy consumption when it may be less than the rounding 
error of the regulated metric, and suggested that DOE would need to 
regulate an integrated AFUE metric to a hundredth of a percent in order 
to accurately capture differences in standby mode and off mode energy 
use. (FUR: CA IOUs, No. 1.3.017 at p. 3) Additionally, according to 
Ingersoll Rand, the homeowner would not be able to determine how much 
power is used in standby mode, and an integrated metric would be 
unlikely to focus furnace redesigns on providing actual reduction in 
electrical power usage, because the standby power usage could be masked 
with small improvements in heating efficiency. (FUR: Ingersoll Rand, 
No. 1.3.006 at p. 2) DOE considered these observations to be valid 
points, and they played a role in the Department's decision to abandon 
an integrated AFUE metric in favor of a separate descriptor for standby 
mode and off mode electrical energy consumption. Again, for further 
details on DOE test procedures for measuring standby mode and off mode 
energy consumption, please consult the October 2010 test procedure 
final rule. 75 FR 64621 (Oct. 20, 2010).
2. Central Air Conditioners and Heat Pumps
    DOE has determined that its existing test procedures for central 
air conditioners and heat pumps address energy use in standby mode, but 
not in off mode. As explained above in section II.B, off mode occurs 
for air conditioners during the non-cooling seasons and for heat pumps 
during the ``shoulder seasons'' (i.e., fall and spring). Therefore, in 
a test procedure NOPR published in the Federal Register on June 2, 
2010, DOE proposed to modify to its existing test procedures for 
central air conditioners and heat pumps by adding provisions to 
determine off mode energy use. 75 FR 31224 (hereafter referred to as 
``the June 2010 test procedure NOPR''). In the June 2010 test procedure 
NOPR, DOE also proposed to alter its existing test procedures by 
adopting: (1) New testing and calculation methods relevant to regional 
standards for these products, specifically SEER Hot-Dry; (2) a limited 
number of other new testing methods; (3) a new calculation for the 
determination of sensible heat ratio,\22\ which could be used to assess 
the dehumidification performance of an air conditioner or heat pump; 
and (4) modifications and clarifications of certain calculations, 
testing methods, test conditions and other provisions currently in the 
test procedure. Id. Similar to off mode for furnaces, DOE concluded 
that it would not be technically feasible to integrate off mode 
electrical energy consumption into SEER or HSPF, because SEER and HSPF 
are seasonal descriptors, not annualized descriptors, and the off mode 
energy usage, when measured, is essentially lost in practical terms due 
to the fact that it is a very small portion of overall electrical 
energy consumption. DOE held a public meeting on June 11, 2010 at DOE 
headquarters in Washington, DC, to receive oral comments on its 
proposal, and it also sought and received numerous written comments.
---------------------------------------------------------------------------

    \22\ ``Sensible heat ratio'' is the relative contribution of an 
air conditioner or heat pump which reduces the dry bulb temperature 
of the ambient air to the cooling output which reduces the moisture 
content of the ambient air.
---------------------------------------------------------------------------

    Given the interrelated and tandem nature of these two rulemaking 
proceedings, during the public meeting for the preliminary TSD and in 
subsequent written comments, interested parties also commented on the 
revision of the central air conditioner and heat pump test procedure. 
Several comments were related to standby mode and off mode energy 
consumption. ACEEE commented that DOE must determine whether any 
products use crankcase heaters and whether such use is standby mode or 
off mode. (CAC: ACEEE, No. 72 at p. 3) In response, DOE believes that 
off mode power exists for central air conditioners and heat pumps in 
the form of controls, certain types of fan motors, and refrigerant 
crankcase heaters, so DOE worked to develop appropriate standards for 
off mode power for each class of equipment based on how the components 
that contribute to a unit's off mode power consumption are treated in 
the test procedure. Ingersoll Rand and EEI commented that a standard 
for off mode energy consumption is not needed, because the existing 
ratings (SEER and HSPF) already account for off mode power. (CAC: 
Ingersoll Rand, No. 66 at p. 8; CAC: EEI, No. 75 at p. 3) DOE agrees 
that SEER and HSPF already account for off mode and standby mode energy 
consumption of an air conditioning system during the cooling season 
and, for heat pumps, during the heating season. However, the energy 
consumed by an air conditioner during the heating and shoulder seasons, 
while the unit sits idle but powered, is not currently accounted for 
within the DOE test procedure. Similarly, the energy consumed by a heat 
pump during the shoulder season, while the unit sits idle but powered, 
is not currently accounted for within the DOE test procedure.
    A number of interested parties commented during the public meeting 
that DOE should use the combination of SEER and energy efficiency ratio 
(EER) rather than SEER Hot-Dry as a metric for hot-dry climates because 
EER is more indicative of performance than SEER Hot-Dry and also more 
straightforward to calculate and understand. (CAC: ACEEE, Public 
Meeting Transcript at pp. 93, 95, 103; CAC: AHRI, Public Meeting 
Transcript at p. 94; CAC: PGE, Public Meeting Transcript at p. 97; CAC: 
Southern, Public Meeting Transcript at p. 100; CAC: Rheem, No. 76 at p. 
6) EEI expressed concern that incorporating a SEER Hot-Dry metric would 
significantly change the results of the preliminary TSD because a new 
efficiency metric would result in different energy and cost savings to 
the consumer. (CAC: EEI, No. 75 at p. 5) DOE agrees that using a SEER 
Hot-Dry metric is unnecessary because the combination of SEER and EER 
is more representative of system performance. As discussed in section 
III.B.2, DOE has determined that it can consider dual metrics (i.e., 
SEER and EER) when considering recommendations arising out of a 
consensus agreement. For its analysis of potential standards apart from 
those recommended in the consensus agreement, DOE chose not to use the 
SEER Hot-Dry metric, which it had been considering, to characterize

[[Page 37438]]

equipment performance in the hot-dry region, because DOE did not have 
sufficient information on how product costs and overall system 
performance might change if a SEER Hot-Dry metric were used. Therefore, 
DOE continued to use the current SEER rating metric for analysis of 
those potential amended standards.
a. Proposed Test Procedure Amendments
    As mentioned above, DOE proposed amendments to its test procedure 
for central air conditioners and heat pumps to measure off mode power 
consumption during the heating and shoulder seasons for central air 
conditioners and the shoulder season for heat pumps. 75 FR 31224, 
31238-39 (June 2, 2010). For central air conditioners and heat pumps, 
these changes included a measurement of the off mode power consumption 
during the shoulder season, P1, in watts. For central air 
conditioners only, the test procedure also provides a method to measure 
the off mode power consumption during the heating season, 
P2, also in watts. Id. at 31269. P2 does not 
apply to heat pumps, because heat pumps are used during both the 
heating and cooling seasons, and, therefore, off mode power consumption 
only occurs during the shoulder seasons.
    However, the June 2010 test procedure NOPR did not contain an off 
mode metric which combined P1 and P2. In general, 
issues concerning test procedure provisions for standby mode and off 
mode power consumption are being addressed in a separate SNOPR for the 
Residential CAC test procedure. However, in that SNOPR, DOE is 
proposing the following off mode metric, PW,OFF, to regulate 
off mode power consumption for central air conditioners and heat pumps. 
PW,OFF is calculated for air conditioners using an equation 
involving P1 and P2 based on the national average 
relative lengths of each season (739 hours for P1 and 5,216 
hours for P2). For heat pumps, PW,OFF equals 
P1 because the heat pump is in active mode during the 
heating season. The equations used to calculate PW,OFF are 
as follows:

For air conditioners: PW,OFF = 0.124 * P1 + 0.876 
* P2
For heat pumps: PW,OFF = P1

    As noted above, these equations were not included in the June 2010 
test procedure NOPR, but are being addressed in an SNOPR.

G. Technological Feasibility

1. General
    In each standards rulemaking, DOE conducts a screening analysis, 
which it bases on information it has gathered on all current technology 
options and prototype designs that could improve the efficiency of the 
products or equipment that are the subject of the rulemaking. As the 
first step in such analysis, DOE develops a list of design options for 
consideration in consultation with manufacturers, design engineers, and 
other interested parties. DOE then determines which of these means for 
improving efficiency are technologically feasible. DOE considers a 
design option to be technologically feasible if it is in use by the 
relevant industry or if research has progressed to the development of a 
working prototype. ``Technologies incorporated in commercial products 
or in working prototypes will be considered technologically feasible.'' 
10 CFR 430, subpart C, appendix A, section 4(a)(4)(i). Further, 
although DOE does consider technologies that are proprietary, it will 
not consider efficiency levels that can only be reached through the use 
of proprietary technologies (i.e., a unique pathway), which could allow 
a single manufacturer to monopolize the market.
    Once DOE has determined that particular design options are 
technologically feasible, it further evaluates each of these design 
options in light of the following additional screening criteria: (1) 
Practicability to manufacture, install, or service; (2) adverse impacts 
on product utility or availability; and (3) adverse impacts on health 
or safety. 10 CFR part 430, subpart C, appendix A, section 4(a)(4)(ii)-
(iv). Section IV.B of this notice discusses the results of the 
screening analyses for furnaces and central air conditioners and heat 
pumps. Specifically, it presents the designs DOE considered, those it 
screened out, and those that are the basis for the TSLs in this 
rulemaking. For further details on the screening analysis for this 
rulemaking, see chapter 4 of the direct final rule TSD.
2. Maximum Technologically Feasible Levels
    When DOE proposes to adopt (or not adopt) an amended or new energy 
conservation standard for a type or class of covered product, it must 
``determine the maximum improvement in energy efficiency or maximum 
reduction in energy use that is technologically feasible'' for such 
product. (42 U.S.C. 6295(p)(1)) Accordingly, DOE determined the maximum 
technologically feasible (``max-tech'') improvements in energy 
efficiency for furnaces and central air conditioners and heat pumps in 
the engineering analysis using the design parameters that passed the 
screening analysis and that lead to the creation of the most efficient 
products available. (See chapter 5 of the direct final rule TSD.)
    The max-tech efficiency levels are set forth in TSL 7 for 
residential furnaces and again in TSL 7 for central air conditioners 
and heat pumps and represent the most efficient products available on 
the market in the given product class. Products at the max-tech 
efficiency levels for both furnaces and central air conditioners and 
heat pumps are either currently offered for sale or have previously 
been offered for sale. However, no products at higher efficiencies are 
available or have been in the past, and DOE is not aware of any working 
prototype designs that would allow manufacturers to achieve higher 
efficiencies. For central air conditioners and heat pumps, the max-tech 
levels are listed at various cooling capacities within the each product 
class, because they vary depending on the cooling capacity of the 
product. Table III.6 and Table III.7 list the max-tech levels that DOE 
determined for the products that are the subjects of this rulemaking.

  Table III.6--Max-Tech AFUE Levels Considered in the Furnaces Analyses
------------------------------------------------------------------------
                                                               Max-Tech
                       Product class                          AFUE Level
                                                                  %
------------------------------------------------------------------------
Non-weatherized Gas........................................           98
Mobile Home Gas............................................           96
Non-weatherized Oil-Fired..................................           97
Weatherized Gas............................................           81
------------------------------------------------------------------------

[[Page 37439]]

   Table III.7--Max-Tech SEER and HSPF Levels Considered in the Central Air Conditioner and Heat Pump Analyses
----------------------------------------------------------------------------------------------------------------
 
----------------------------------------------------------------------------------------------------------------
                         Product class                              Cooling capacity       Max-Tech efficiency
                                                                                                   level
----------------------------------------------------------------------------------------------------------------
Split Systems........................  Air Conditioners Blower- 2 Ton..................  24.5 SEER
                                        Coil*.                  3 Ton..................  22 SEER
                                                                5 Ton..................  18 SEER
                                       Air Conditioners Coil-   2 Ton..................  18 SEER
                                        Only*.                  3 Ton..................  17 SEER
                                                                5 Ton..................  16 SEER
                                       Heat Pumps.............  2 Ton..................  22 SEER
                                                                3 Ton..................  21 SEER
                                                                5 Ton..................  18 SEER
----------------------------------------------------------------------------------------------------------------
Single-Package Systems...............  Air Conditioners.......  3 Ton..................  16.6 SEER
                                       Heat Pumps.............  3 Ton..................  16.4 SEER
----------------------------------------------------------------------------------------------------------------
Niche Products.......................  SDHV...................  3 Ton..................  14.3 SEER
                                       Space-Constrained Air    2.5 Ton................  12 SEER
                                        Conditioners.
                                       Space-Constrained Heat   2.5 Ton................  12 SEER
                                        Pumps.
----------------------------------------------------------------------------------------------------------------
*Although analyzed separately, DOE is setting the same standard level for split-system blower-coil air
  conditioners and split-system coil-only air conditioners. DOE analyzed these products separately for greater
  accuracy in its analyses, but is adopting the same standard level. The difference between the two types of
  split-system air conditioners is that a blower-coil unit is matched with an indoor fan, while a coil-only unit
  is not. The rating method for a coil-only unit uses a default fan power consumption (limiting the SEER that
  can be achieved), while a blower-coil unit uses the measured fan power consumption of its matched indoor fan.
  For additional discussion of DOE's treatment of blower-coil and coil-only products, see section IV.A.3.b of
  this direct final rule.

    For the weatherized gas furnace product class and the space-
constrained central air conditioner and heat pumps product classes, the 
max-tech levels identified are the same level as the existing minimum 
standards for each respective product. The max-tech levels for these 
products are further discussed in the subsections immediately below.
a. Weatherized Gas Furnace Max-Tech Efficiency Level
    For the RAP, DOE examined the efficiencies of weatherized gas 
furnaces available on the market and determined that 81-percent AFUE is 
the highest efficiency available for weatherized gas furnaces. In the 
RAP, DOE proposed to analyze several efficiency levels for weatherized 
gas furnaces, including an 81-percent max-tech level, and received 
feedback from several interested parties, described below.
    ACEEE suggested that DOE should use a condensing furnace at 90-
percent AFUE for the max-tech level for weatherized gas furnaces, 
because limited numbers of commercial packaged units are available with 
condensing gas sections, and this technology may be feasible for use 
with condensate drains to the house interior. (FUR: ACEEE, No. 1.3.009 
at p. 6) In contrast, Lennox stated that it supports the 81-percent 
AFUE max-tech efficiency levels shown for weatherized gas furnaces only 
for the purposes of undertaking required analysis; Lennox does not 
support DOE's setting max-tech as the minimum required efficiency level 
in a standard, and stated that DOE should avoid doing so. (FUR: Lennox, 
No. 1.3.018 at p. 3)
    During the screening analysis (see section IV.B of this direct 
final rule), DOE considered technologies to improve the AFUE of 
weatherized gas furnaces, but determined that no weatherized gas 
furnace technologies satisfied all four screening criteria. As a 
result, 81-percent AFUE is the maximum technologically feasible 
efficiency level for these products. At efficiencies above 81-percent 
AFUE, the potential for the formation of condensate increases, causing 
concerns about condensate freezing in weatherized furnaces, which are 
installed outdoors. When condensate freezes, the performance of the 
unit is impacted, and failure rates increase, while reliability 
decreases. As suggested by ACEEE, DOE examined a condensing design for 
weatherized gas furnaces. In researching weatherized gas furnace 
designs currently on the market as well as prototype designs, DOE did 
not discover any designs that have been or are currently being used in 
commercially-available designs or working prototypes for residential 
condensing weatherized gas furnaces. Therefore, DOE is not aware of any 
designs that have reliably overcome issues associated with condensate 
freezing in weatherized gas furnaces, and this direct final rule does 
not include efficiency levels where condensate formation is possible 
for this product class. However, DOE recognizes that if the issues 
associated with condensate freezing in weatherized gas furnaces can be 
reliably overcome, there may be potential for developing products at 
condensing efficiency levels in the future.
    The minimum energy conservation standard for weatherized gas 
furnaces that was promulgated by the November 2007 Rule is 81-percent 
AFUE. 72 FR 65136, 65169 (Nov. 19, 2007); 10 CFR 430.32(e)(1)(ii). 
Because DOE has concluded that the November 2007 Rule was not vacated 
by the remand agreement, 81-perecent AFUE was used as the baseline for 
this rulemaking. As a result, DOE has determined that 81-percent AFUE 
is both the baseline and max-tech level for weatherized gas furnaces. 
DOE concluded that there is no need to perform additional analyses for 
these products, since the de facto minimum standard will be 81-percent 
AFUE.
b. Space-Constrained Central Air Conditioner and Heat Pump Max-Tech 
Efficiency Levels
    In conducting its analyses, DOE determined that the max-tech levels 
for both the space-constrained air conditioner and heat pump product 
classes are 12 SEER, which is equivalent to the baseline level. DOE has 
concluded that unique factors may prevent through-the-wall products 
from realizing the full potential of energy saving design options 
available to other product classes. Typically, increased condenser coil 
surface area is the most cost-effective energy saving measure available 
for air conditioners and heat pumps. However, manufacturers of

[[Page 37440]]

space-constrained products are limited in their ability to implement 
this option by the apparent constraints upon coil size inherently 
present in this product class, and some manufacturers have expressed 
concern that the available condenser coil surface area may have already 
been maximized in order to reach the 10.9 SEER standard, which was set 
forth in the previous rulemaking for through-the-wall products. 69 FR 
50997, 51001 (August 17, 2004). Similarly, manufacturers have claimed 
that the number of coil rows has also been maximized to the point at 
which the addition of further rows would not provide a noticeable 
improvement in performance. Other coil improvements, such as micro-
channel tubing \23\, were proven technologically infeasible during 
research and development testing because manufacturers have been unable 
to solve defrosting issues, calling into question the technological 
feasibility of this technology option for all types of heat pumps. If 
coil improvements are insufficient to increase product efficiency, 
through-the-wall manufacturers must explore more-costly design options, 
such as high-efficiency compressors and fan motors and controls. 
According to certain manufacturers, higher-efficiency compressors were 
incorporated into products on the market to meet the 10.9 SEER 
standard, and variable speed fan motors and advanced controls were 
incorporated into product designs when the through-the-wall product 
class expired and those products were required to meet the 12 SEER 
standard as part of the space-constrained product classes. The 
expiration of this product class and inclusion of the through-the-wall 
units in the space-constrained product class is discussed in greater 
detail in section IV.A.3.b. The implementation of these technologies to 
meet the 12 SEER requirement of the space-constrained product class 
suggests that manufacturers have few, if any, technology options left 
to improve efficiency level beyond 12 SEER.
---------------------------------------------------------------------------

    \23\ Microchannel heat exchangers have a rectangular cross-
section containing several small channels through which refrigerant 
passes. Fins pass between the tubes and are brazed to the tubes. 
These heat exchangers are capable of transferring more heat per unit 
of face area than a round-tube plate-fin coil of comparable 
capacity.
---------------------------------------------------------------------------

    DOE conducted teardowns and further market research to confirm this 
hypothesis and found the space-constrained max-tech efficiency level to 
be 12 SEER for both the space-constrained air conditioner and heat pump 
product classes. This level matches the baseline, and therefore, DOE 
would be unable to raise the energy conservation standards. Therefore, 
DOE concluded that there is no need to perform additional analyses for 
these products, since the de facto minimum standard will be 12 SEER. 
However, during its investigation, DOE found that space-constrained 
products have the potential to achieve higher offmode efficiency 
levels, and, therefore, considered these products in the off mode 
analysis, which is discussed in section III.E.2.a.

H. Energy Savings

1. Determination of Savings
    DOE used its NIA spreadsheet to estimate energy savings from 
amended standards for residential furnaces and central air conditioners 
and heat pumps. (The NIA spreadsheet model is described in section IV.G 
of this notice and chapter 10 of the direct final rule TSD.) For most 
of the considered TSLs, DOE forecasted cumulative energy savings 
beginning in the year in which compliance with amended standards would 
be required, and ending 30 years afterward. For TSL 4, which matches 
the recommendations in the consensus agreement, DOE forecasted the 
energy savings from 2015 through 2045 for central air conditioners and 
heat pumps, and from 2013 through 2045 for furnaces.\24\ DOE quantified 
the energy savings attributable to each TSL 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 new or 
amended mandatory efficiency standards, and considers market demand for 
more-efficient products.
---------------------------------------------------------------------------

    \24\ TSL 4 incorporates the recommendations of the consensus 
agreement, which include compliance dates in 2015 for central air 
conditioners and heat pumps and in 2013 for furnaces.
---------------------------------------------------------------------------

    The NIA spreadsheet model calculates the energy savings in ``site 
energy,'' which is the energy directly consumed by products at the 
locations where they are used. DOE reports national energy savings on 
an annual basis in terms of the source (primary) energy savings, which 
is the savings in the energy that is used to generate and transmit 
energy to the site. To convert site energy to source energy, DOE 
derived annual conversion factors from the model used to prepare the 
Energy Information Administration's (EIA) Annual Energy Outlook 2010 
(AEO2010), which presents long-term projections of energy supply, 
demand, and prices.\25\
---------------------------------------------------------------------------

    \25\ For more information on AEO2010, see: http://www.eia.doe.gov/oiaf/aeo/.
---------------------------------------------------------------------------

2. Significance of Savings
    As noted above, under 42 U.S.C. 6295(o)(3)(B), EPCA prohibits DOE 
from adopting a standard for a covered product if such standard would 
not result in ``significant'' energy savings. While the term 
``significant'' is not defined in the Act, the U.S. Court of Appeals 
for the D.C. Circuit, in Natural Resources Defense Council v. 
Herrington, 768 F.2d 1355, 1373 (D.C. Cir. 1985), indicated that 
Congress intended ``significant'' energy savings in this context to be 
savings that were not ``genuinely trivial.'' The energy savings for all 
of the TSLs considered in this rulemaking are nontrivial, and, 
therefore, DOE considers them ``significant'' within the meaning of 42 
U.S.C. 6295(o)(3)(B).

I. Economic Justification

1. Specific Criteria
    As discussed in section II.B, EPCA provides seven factors to be 
evaluated in determining whether a potential energy conservation 
standard is economically justified. (42 U.S.C. 6295(o)(2)(B)(i)) The 
following sections generally discuss how DOE is addressing each of 
those seven factors in this rulemaking. For further details and the 
results of DOE's analyses pertaining to economic justification, see 
sections IV and V of today's notice.
a. Economic Impact on Manufacturers and Consumers
    In determining the impacts of a new or amended standard on 
manufacturers, DOE first determines the quantitative impacts using an 
annual cash-flow approach. This includes both a short-term assessment 
(based on the cost and capital requirements associated with new or 
amended standards during the period between the announcement of a 
regulation and when the regulation comes into effect) and a long-term 
assessment (based on the costs and margin impacts over the 30-year 
analysis period). The impacts analyzed include INPV (which values the 
industry on the basis of expected future cash flows), cash flows by 
year, changes in revenue and income, and other measures of impact, as 
appropriate. Second, DOE analyzes and reports the impacts on different 
types of manufacturers, paying particular attention to impacts on small 
manufacturers. Third, DOE considers the impact of standards on domestic 
manufacturer employment and manufacturing capacity, as well as the 
potential for standards to result in plant closures and loss of capital 
investment. Finally, DOE takes into account

[[Page 37441]]

cumulative impacts of different DOE regulations and other regulatory 
requirements on manufacturers.
    For individual consumers, measures of economic impact include the 
changes in LCC and the PBP associated with new or amended standards. 
The LCC, which is also separately specified as one of the seven factors 
to be considered in determining the economic justification for a new or 
amended standard (42 U.S.C. 6295(o)(2)(B)(i)(II)), is discussed in the 
following section. For consumers in the aggregate, DOE also calculates 
the net present value from a national perspective of the economic 
impacts on consumers over the forecast period used in a particular 
rulemaking.
b. Life-Cycle Costs
    The LCC is the sum of the purchase price of a product (including 
the cost of its installation) and the operating expense (including 
energy and maintenance and repair expenditures) discounted over the 
lifetime of the product. The LCC savings for the considered efficiency 
levels are calculated relative to a base case that reflects likely 
trends in the absence of amended standards. The LCC analysis requires a 
variety of inputs, such as product prices, product energy consumption, 
energy prices, maintenance and repair costs, product lifetime, and 
consumer discount rates. DOE assumes in its analysis that consumers 
purchase the product in the year in which compliance with the amended 
standard is required.
    To account for uncertainty and variability in specific inputs, such 
as product lifetime and discount rate, DOE uses a distribution of 
values with probabilities attached to each value. A distinct advantage 
of this approach is that DOE can identify the percentage of consumers 
estimated to achieve LCC savings or experiencing an LCC increase, in 
addition to the average LCC savings associated with a particular 
standard level. In addition to identifying ranges of impacts, DOE 
evaluates the LCC impacts of potential standards on identifiable 
subgroups of consumers that may be disproportionately affected by an 
amended national standard.
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)) 
DOE uses the NIA 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, DOE seeks to 
develop standards that would not lessen the utility or performance of 
the products under consideration. None of the TSLs presented in today's 
direct final rule would reduce the utility or performance of the 
products considered in the rulemaking. (42 U.S.C. 6295(o)(2)(B)(i)(IV)) 
During the screening analysis, DOE eliminated from consideration any 
technology that would adversely impact consumer utility. For the 
results of DOE's analyses related to the potential impact of amended 
standards on product utility and performance, see section IV.B of this 
notice and chapter 4 of the direct final rule TSD.
e. Impact of Any Lessening of Competition
    EPCA directs DOE to consider any lessening of competition that is 
likely to result from standards. Specifically, it directs the U.S. 
Attorney General (Attorney General) to determine in writing 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 (ii)) DOE is simultaneously publishing a 
NOPR containing energy conservation standards identical to those set 
forth in today's direct final rule and has transmitted a copy of 
today's direct final rule and the accompanying TSD to the Attorney 
General, requesting that the U.S. Department of Justice (DOJ) provide 
its determination on this issue. DOE will consider DOJ's comments on 
the rule in determining whether to proceed with the direct final rule. 
DOE will also publish and respond to the DOJ's comments in the Federal 
Register in a separate notice.
f. Need of the Nation To Conserve Energy
    Another factor which DOE must consider in determining whether a new 
or amended standard is economically justified is the need for national 
energy and water conservation. (42 U.S.C. 6295(o)(2)(B)(i)(VI)) The 
energy savings from new or amended standards are likely to provide 
improvements to the security and reliability of the Nation's energy 
system. Reductions in the demand for electricity may also result in 
reduced costs for maintaining the reliability of the Nation's 
electricity system. DOE conducts a utility impact analysis to estimate 
how new or amended standards may affect the Nation's needed power 
generation capacity.
    Energy savings from the standards in this rule are also likely to 
result in environmental benefits in the form of reduced emissions of 
air pollutants and greenhouse gases associated with energy production 
(i.e., from power plants), and through reduced use of fossil fuels at 
the homes where gas and oil furnaces are used. DOE reports the 
environmental effects from the standards in this rule, as well as from 
each TSL it considered for furnaces and central air conditioners and 
heat pumps, in the environmental assessment contained in chapter 15 in 
the direct final rule TSD. DOE also reports estimates of the economic 
value of emissions reductions resulting from the considered TSLs.
g. Other Factors
    The Act allows the Secretary, in determining whether a standard is 
economically justified, to consider any other factors that the 
Secretary deems to be relevant. (42 U.S.C. 6295(o)(2)(B)(i)(VII)) In 
developing the standards set forth in this notice, DOE has also 
considered the comments submitted by interested parties, including the 
recommendations in the consensus agreement, which DOE believes provides 
a reasoned statement by interested persons that are fairly 
representative of relevant points of view (including representatives of 
manufacturers of covered products, States, and efficiency advocates) 
and contains recommendations with respect to energy conservation 
standards that are in accordance with 42 U.S.C. 6295(o). DOE has 
encouraged the submission of consensus agreements as a way to get 
diverse stakeholders together, to develop an independent and probative 
analysis useful in DOE standard setting, and to expedite the rulemaking 
process. In the present case, one outcome of the consensus agreement 
was a recommendation to accelerate the compliance dates for these 
products, which would have the effect of producing additional energy 
savings at an earlier date. DOE also believes that standard levels 
recommended in the consensus agreement may increase the likelihood for 
regulatory compliance, while decreasing the risk of litigation.

[[Page 37442]]

2. Rebuttable Presumption
    As set forth in 42 U.S.C. 6295(o)(2)(B)(iii), EPCA provides for a 
rebuttable presumption that an energy conservation standard is 
economically justified if the additional cost to the consumer of a 
product that meets the standard level is less than three times the 
value of the first-year energy (and, as applicable, water) savings 
resulting from the standard, as calculated under the applicable DOE 
test procedure. DOE's LCC and PBP analyses generate values that 
calculate the payback period for consumers of potential new and amended 
energy conservation standards. These analyses include, but are not 
limited to, the three-year payback period contemplated under the 
rebuttable presumption test. However, DOE routinely conducts a full 
economic analysis that considers the full range of impacts to the 
consumer, manufacturer, Nation, and environment, as required under 42 
U.S.C. 6295(o)(2)(B)(i). The results of this analysis serve as the 
basis for DOE to evaluate the economic justification for a potential 
standard level definitively (thereby supporting or rebutting the 
results of any preliminary determination of economic justification). 
The rebuttable presumption payback calculation is discussed in section 
IV.F.12 of this direct final rule and chapter 8 of the direct final 
rule TSD.

IV. Methodology and Discussion

    DOE used two spreadsheet tools, which are available online,\26\ to 
estimate the impact of all the considered standard levels, including 
the standards in this rule. The first spreadsheet calculates LCCs and 
payback periods of potential amended energy conservation standards. The 
second provides shipments forecasts and then calculates national energy 
savings and net present value impacts of potential energy conservation 
standards. The Department also assessed manufacturer impacts, largely 
through use of the Government Regulatory Impact Model (GRIM), which is 
an industry cash-flow model that is described in detail in section 
IV.I.
---------------------------------------------------------------------------

    \26\ http://www1.eere.energy.gov/buildings/appliance_standards/residential/furnaces_boilers.html and http://www1.eere.energy.gov/buildings/appliance_standards/residential/central_ac_hp.html.
---------------------------------------------------------------------------

    Additionally, DOE estimated the impacts on utilities and the 
environment of potential amended energy efficiency standards for 
furnaces and central air conditioners and heat pumps. DOE used a 
version of EIA's National Energy Modeling System (NEMS) for the utility 
and environmental analyses. The NEMS model simulates the energy sector 
of the U.S. economy. EIA uses NEMS to prepare its Annual Energy 
Outlook. For more information on NEMS, refer to The National Energy 
Modeling System: An Overview, DOE/EIA-0581 (98) (Feb. 1998) (available 
at: http://tonto.eia.doe.gov/FTPROOT/forecasting/058198.pdf).
    The version of NEMS used for appliance standards analysis is called 
NEMS-BT, which is based on the AEO version but with minor 
modifications.\27\ NEMS-BT offers a sophisticated picture of the effect 
of standards, because it accounts for the interactions between the 
various energy supply and demand sectors and the economy as a whole.
---------------------------------------------------------------------------

    \27\ 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 (to allow modeling of the impact of energy 
conservation standards on the appropriate energy end uses) and uses 
the model under various policy scenarios that deviate from AEO 
assumptions, the name ``NEMS-BT'' refers to the model as used here. 
(``BT'' stands for DOE's Building Technologies Program.)
---------------------------------------------------------------------------

A. Market and Technology Assessment

1. General
    When beginning an energy conservation standards rulemaking, DOE 
develops information that provides an overall picture of the market for 
the products concerned, including the purpose of the products, the 
industry structure, and market characteristics. This activity includes 
both quantitative and qualitative assessments based primarily on 
publicly-available information (e.g., manufacturer specification 
sheets, industry publications, and data from trade organization Web 
sites, such as AHRI at http://www.ahrinet.org/). The subjects addressed 
in the market and technology assessment for this rulemaking include: 
(1) Quantities and types of products sold and offered for sale; (2) 
retail market trends; (3) products covered by the rulemaking; (4) 
product classes; (5) manufacturers; (6) regulatory requirements and 
non-regulatory programs (such as rebate programs and tax credits); and 
(7) technologies that could improve the energy efficiency of the 
products under examination. See chapter 3 of the direct final rule TSD 
for further discussion of the market and technology assessment.
2. Products Included in This Rulemaking
    This subsection addresses the scope of coverage for this energy 
conservation standards rulemaking for furnaces, central air 
conditioners, and heat pumps. It will also address whether EPCA covers 
certain other products and authorizes DOE to adopt standards for them.
a. Furnaces
    EPCA defines a residential ``furnace'' as a product that: (1) 
Either uses only single-phase electric current, or uses single-phase 
electric current or direct current (DC) in conjunction with natural 
gas, propane, or home heating oil; (2) is designed to be the principal 
heating source for the living space of a residence; (3) is not 
contained within the same cabinet with a central air conditioner whose 
rated cooling capacity is above 65,000 Btu per hour; (4) is an electric 
central furnace, electric boiler, forced-air central furnace, gravity 
central furnace, or low pressure steam or hot water boiler; and (5) has 
a heat input rate of less than 300,000 Btu per hour for electric 
boilers and low pressure steam or hot water boilers and less than 
225,000 Btu per hour for forced-air central furnaces, gravity central 
furnaces, and electric central furnaces. (42 U.S.C. 6291(23)) This 
definition covers the following types of products: (1) Gas furnaces 
(non-weatherized and weatherized); (2) oil-fired furnaces (non-
weatherized and weatherized); (3) mobile home furnaces (gas and oil-
fired); (4) electric resistance furnaces; (5) hot water boilers (gas 
and oil-fired); (6) steam boilers (gas and oil-fired); and (7) 
combination space/water heating appliances (water-heater/fancoil 
combination units and boiler/tankless coil combination units).
    Residential boilers are outside the scope of this rulemaking. EISA 
2007 included amendments to EPCA that established amended standards for 
these boilers (42 U.S.C. 6295(f)(3)), and DOE subsequently incorporated 
these standards into its regulations at 10 CFR 430.32(e)(2)(ii). 73 FR 
43611 (July 28, 2008). Compliance with the new statutory boilers 
standards is required for covered products manufactured or imported on 
or after September 1, 2012. As discussed in section II.B.2.a above, 
under the voluntary remand, DOE agreed to undertake analyses to 
determine whether it should establish regional energy conservation 
standards for residential furnaces. As part of this analysis, DOE 
agreed to consider the effect of alternate standards on natural gas 
prices. The current rulemaking for furnaces is the second amended 
energy conservation standards rulemaking which is being conducted 
pursuant to authority under 42 U.S.C. 6295(f)(4)(C) and (o)(6). Given 
the relatively recent enactment of statutorily-prescribed

[[Page 37443]]

boiler standards in EISA 2007, DOE has decided to consider amended 
energy conservation standards for boilers under 42 U.S.C. 6295(f)(4)(C) 
in a future rulemaking.
    For furnaces, this rulemaking covers the same products as those 
covered by the November 2007 Rule, consisting of the following types of 
furnaces: (1) Non-weatherized gas; (2) weatherized gas; (3) mobile home 
gas; and (4) non-weatherized oil-fired. However, DOE did not perform an 
AFUE analysis for weatherized gas furnaces because the November 2007 
Rule promulgated standards at the max-tech AFUE level. As described in 
section III.G, DOE has concluded that 81-percent AFUE is still the max-
tech efficiency achievable for weatherized gas furnaces. Therefore, 
because EPCA's anti-backsliding clause would not allow DOE to consider 
adoption of a minimum standard below 81-percent AFUE, and because there 
are no viable efficiency levels above 81-percent AFUE, DOE did not 
perform an AFUE analysis for weatherized gas furnaces.
    Although DOE did not consider amended AFUE standards for electric 
furnaces, mobile home oil-fired furnaces, and weatherized oil-fired 
furnaces in this rulemaking for the reasons discussed in the following 
sections, DOE did consider standby mode and off mode standards for 
these products. Additionally, DOE did not analyze energy conservation 
standards for combination space/water heating appliances for reasons 
discussed below.
(i) Mobile Home Oil-Fired and Weatherized Oil-Fired Furnaces
    DOE is not proposing amended AFUE standards for mobile home oil-
fired furnaces and weatherized oil-fired furnaces because DOE 
understands that only a very small number of these products are shipped 
(as these products combine to make up less than one percent of all 
furnace models in the AHRI directory) and that the few models that are 
shipped exceed the currently applicable standards (i.e., 75-percent 
AFUE for mobile home oil-fired furnaces and 78-percent AFUE for 
weatherized oil-fired furnaces). As a result, DOE believes that 
promulgating higher standards for these products would result in de 
minimis energy savings. DOE initially made these determinations in the 
proposed rule leading to the development of the November 2007 Rule (71 
FR 59204, 59214 (Oct. 6, 2006)), and based on a more recent review of 
products on the market and feedback from manufacturers, DOE believes 
the market for all of these furnaces has not changed. DOE initially 
made this proposal in the RAP and did not receive any related comments.
(ii) Electric Furnaces
    EPCA initially prescribed standards at 78-percent AFUE for 
``furnaces,'' which did not exclude electric furnaces. (42 U.S.C. 
6295(f)(1)) The definition of a ``furnace'' in EPCA (42 U.S.C. 
6291(23)) explicitly includes ``electric furnaces,'' and, therefore, 
the 78-percent AFUE standard set by EPCA applies to electric furnaces. 
In the November 2007 final rule, DOE stated that it was not adopting 
amended standards for electric furnaces. 72 FR 65136, 65154 (Nov. 19, 
2007). However, when outlining the minimum AFUE requirements for the 
other furnace product classes, DOE did not restate the requirement for 
electric furnaces that was originally established by EPCA. To clarify 
the existing standards for electric furnaces, DOE is reaffirming the 
78-percent minimum AFUE level for electric furnaces that was originally 
established by EPCA in today's direct final rule. As noted previously, 
DOE is not adopting amended AFUE standards for electric furnaces 
because it understands that their efficiency already approaches 100-
percent AFUE. The AFUE ratings for electric furnace products currently 
on the market range from 96-percent (for outdoor units due to jacket 
losses) to 100-percent, and as discussed below, the test procedures for 
these products effectively limit them from having AFUE ratings any 
lower than this. Therefore, for the reasons explained below, DOE 
believes that any improvements to electric furnaces would have a de 
minimis energy-savings potential and did not consider amending the AFUE 
standards for these products. (However, as noted in section III.E.1.b 
of this direct final rule, DOE analyzed new energy conservation 
standards for standby mode and off mode energy consumption of these 
products.)
    The test procedure for residential furnaces specifies that AFUE for 
electric furnaces is calculated as 100 percent minus jacket losses, and 
gives the option of assigning jacket losses equal to 1 percent.\28\ The 
AFUE is calculated in this manner because the electric heating elements 
convert all of the electrical input energy into heat energy, and the 
only losses at the point of operation are through the jacket. The 
jacket losses are then multiplied by a factor of 1.7 for indoor 
furnaces (which must be tested as isolated combustion systems) and 3.3 
for outdoor furnaces, and subtracted from 100 percent to get the AFUE 
rating. Therefore, the lowest possible AFUE rating for an electric 
furnace, according to DOE's test procedure and assuming a default value 
of 1 percent jacket losses, is 98.3 percent AFUE for non-weatherized 
(indoor) electric furnaces and 96.7 percent AFUE for weatherized 
(outdoor) electric furnaces. Further, a significant portion of electric 
furnaces are installed in the conditioned space, and any heat lost 
through the jacket in such installations would contribute to the heated 
space, effectively making the electric furnace completely efficient at 
the point of use.
---------------------------------------------------------------------------

    \28\ For the rulemaking analysis in support of the 2007 Final 
Rule for residential furnaces and boilers, DOE gathered test data on 
the jacket losses for furnaces. This data is summarized in a 
presentation available at: http://www1.eere.energy.gov/buildings/appliance_standards/residential/pdfs/support_material.pdf. The 
actual jacket loss values based on testing ranged from 0.11 percent 
to 0.75 percent. Thus, DOE believes one percent jacket losses to be 
representative of a conservative estimate of the actual jacket 
losses of furnaces.
---------------------------------------------------------------------------

    The jacket losses of furnaces currently on the market are low, as 
jacket losses are already assumed by the test procedure to be a default 
of 1 percent, and it is unlikely that further improvements will have 
much impact on efficiency. Because reducing jacket losses are the only 
means for improving the efficiency of these products as rated by DOE's 
test procedure, they have an extremely limited potential for additional 
energy savings. Any efficiency levels analyzed would be very unlikely 
to result in significant energy savings.
    In response to DOE's planned approach for considering amended AFUE 
standards for electric furnaces, which was outlined in the RAP, DOE 
received several comments.
    NRDC stated that DOE should include electric furnaces in the scope 
of this rulemaking because these products represent a low-cost option 
that could grow in market penetration as the efficiency (and as a 
result, cost) of competing products that provide the exact same 
consumer utility (i.e., heat pumps, which in most cases have electric 
furnaces as back up and would use the same duct system) may potentially 
increase with upcoming standards. Further, NRDC stated that unless the 
energy savings potential of amended standards for electric furnaces is 
less than 0.032 quads (an amount deemed significant by DOE in the 
packaged terminal air conditioners (PTACs) rulemaking\29\), DOE should 
include them in the scope of this rulemaking. (FUR: NRDC, No. 1.3.020 
at pp. 8) ACEEE recommended including

[[Page 37444]]

electric furnaces and requiring a minimum AFUE of greater than 100-
percent for all ducted electric furnaces, given the substantial energy 
losses in transmission from source to site. (FUR: ACEEE, No. 1.3.009 at 
p. 3-4) AGA stated that excluding electric furnaces from consideration 
in the rulemaking is counterproductive to reducing energy consumption, 
so the commenter urged DOE to look at the number of electric furnaces 
on the market and to use that number in a comparative analysis to 
determine the potential impact of inclusion of such products in this 
rulemaking. (FUR: AGA, Public Meeting Transcript, No. 1.2.006 at p. 42)
---------------------------------------------------------------------------

    \29\ DOE published the final rule for PTACs on October 7, 2008. 
73 FR 58772.
---------------------------------------------------------------------------

    Conversely, EEI stated that it supports the scope of the current 
rulemaking and agreed with DOE's conclusions in the RAP regarding 
electric resistance furnaces and boilers. (FUR: EEI, No. 1.3.015 at p. 
3) The American Public Power Association (APPA) commented that if DOE 
decides to reject the use of the consensus agreement and proceed with a 
rulemaking, APPA would support the scope as outlined by DOE. More 
specifically, APPA supported the finding that the rulemaking should not 
cover electric resistance furnaces because their efficiency is already 
very high. (FUR: APPA, No. 1.3.011 at p. 3)
    In response, DOE notes that it cannot promulgate a standard that 
would lead to the elimination of any product class. (42 U.S.C. 
6295(o)(4)) Because it is currently impossible for manufacturers to 
achieve an AFUE standard of greater than 100 percent for electric 
furnaces, and because such a standard would effectively eliminate 
electric furnaces from the market, DOE does not believe ACEEE's 
suggestion is a valid opportunity for energy savings under EPCA. 
Additionally, as noted above, DOE reviewed the market for electric 
furnaces and determined that because the efficiency of these products 
approaches 100-percent AFUE, the energy-savings potential is de 
minimis. As a result, DOE does not believe there is reason to consider 
amended standards for electric furnaces in this rulemaking.
    EarthJustice stated that DOE has the statutory authority to 
consider heat pump technology as a design option to improve the 
efficiency of electric furnaces. EarthJustice asserted that because 
heat pumps use the same kind of energy and provide the same 
functionality as electric resistance furnaces, there is no basis for 
treating the products differently, and separate standards for these 
products are inconsistent with EPCA's mandate to save energy. Further, 
EarthJustice stated that the definition of a ``furnace'' is broad 
enough to cover heat pumps even though they are already defined under 
42 U.S.C. 6291(24) and argued that a heat pump meets all of the 
requirements of the furnace definition. (FUR: EarthJustice, No. 1.3.014 
at pp. 3-6) Similarly, NRDC stated that electric furnaces should be 
added to the heat pump product class and be required to achieve the 
same performance. NRDC suggested rating both types of products using 
the same metric--testing the furnaces for HSPF if possible, or 
exploring an AFUE rating for a heat pump. (FUR: NRDC, No. 1.3.020 at 
pp. 8-9)
    DOE notes that EPCA defines a ``furnace'' as ``an electric central 
furnace, electric boiler, forced-air central furnace, gravity central 
furnace, or low pressure steam or hot water boiler.'' (42 U.S.C. 
6291(23)(C)) Further, DOE's definitions in the Code of Federal 
Regulations define an ``electric central furnace'' as ``a furnace 
designed to supply heat through a system of ducts with air as the 
heating medium, in which heat is generated by one or more electric 
resistance heating elements and the heated air is circulated by means 
of a fan or blower.'' 10 CFR 430.2. Separately, EPCA defines a ``heat 
pump'' as a product that (1) consists of one or more assemblies; (2) is 
powered by single phase electric current; (3) is rated below 65,000 Btu 
per hour; (4) utilizes an indoor conditioning coil, compressors, and 
refrigerant-to-outdoor-air heat exchanger to provide air heating; and 
(5) may also provide air cooling, dehumidifying, humidifying 
circulating, and air cleaning. (42 U.S.C. 6291(24)) DOE believes that 
the definition of ``heat pump'' in EPCA does not include electric 
furnaces, because electric furnaces do not meet all of the criteria of 
the ``heat pump'' definition (such as utilizing a compressor and 
refrigerant). (42 U.S.C. 6291(24)(D)) Further, DOE believes that 
because ``heat pumps'' are defined separately by EPCA, they are not 
included under the definition of a ``furnace'' under 42 U.S.C. 
6291(23)(C), which states that a furnace is an electric central 
furnace, electric boiler, forced-air central furnace, gravity central 
furnace, or low pressure steam or hot water boiler. Because an electric 
central furnace utilizes heat ``generated by one or more electric 
resistance elements,'' a heat pump would not be covered under the 
definition of an ``electric central furnace.'' Once heat pump 
technology is added to an electric furnace, the product would no longer 
generate heat using an electric resistance element, but instead would 
use a refrigerant-to-outdoor-air heat exchanger to provide air heating. 
Such a change in the mechanism for generating heat would exclude the 
product from being covered as a furnace (as it would no longer be an 
``electric furnace'' under the definition of a ``furnace'' in 42 U.S.C. 
6291(23)(C)), and would instead cause it to be classified it as a heat 
pump, under EPCA's definitions. Therefore, DOE has concluded that it 
will not consider heat pump technology as a design option for electric 
furnaces in the analysis.
(iii) Combination Space/Water Heating Appliances
    DOE excluded combination space/water heating appliances from 
consideration in this rulemaking, as was done in the NOPR leading to 
the November 2007 Rule for furnaces and boilers. 69 FR 45420, 45429 
(July 29, 2004). An adequate test procedure does not exist that would 
allow DOE to set standards for these products.
    ACEEE urged DOE to develop a test method and energy conservation 
standard for combination hot water/space heating units. (FUR: ACEEE, 
No. 1.3.009 at p. 3) EEI stated that if combination space/water heating 
appliances obtain greater market share, then DOE should create a test 
procedure and efficiency standards in a future rulemaking because they 
are a competitive product. (FUR: EEI, No. 1.3.015 at p.3)
    DOE has not yet initiated a test procedure rulemaking to establish 
a test procedure for combination space/water heating appliances. DOE 
believes that doing so as a part of this rulemaking would cause delays 
that could prevent DOE from issuing amended standards for residential 
furnaces and central air conditioners and heat pumps in a timely 
manner, and thus, may reduce energy savings to the Nation from amended 
standards (if the compliance date must be delayed). Therefore, DOE may 
consider a test procedure and energy conservation standards for 
combination space/water heating appliances in future rulemakings, but 
will not do so as a part of this rulemaking for residential furnaces 
and central air conditioners and heat pumps.
b. Central Air Conditioners and Heat Pumps
    EPCA defines a residential ``central air conditioner'' as a 
product, other than a packaged terminal air conditioner, which is: (1) 
Powered by single-phase electric current, (2) air cooled, (3) rated 
below 65,000 Btu per hour, (4) not contained within the same cabinet as 
a furnace the rated capacity of which is above 225,000 Btu per hour, 
and (5) a heat pump or a cooling only unit. (42

[[Page 37445]]

U.S.C. 6291(21)) Furthermore, EPCA defines a ``heat pump'' as a 
product, other than a packaged terminal heat pump, which: (1) Consists 
of one or more assemblies, (2) is powered by single-phase electric 
current, (3) is rated below 65,000 Btu per hour, (4) uses an indoor 
conditioning coil, compressors, and refrigerant-to-outdoor air heat 
exchanger to provide air heating, and (5) may also provide air cooling, 
dehumidifying, humidifying circulating, and air cleaning. (42 U.S.C. 
6291 (24))
    For this rulemaking, DOE is evaluating amended energy conservation 
standards for the products covered by DOE's current standards for 
central air conditioners and heat pumps, specified at 10 CFR 
430.32(c)(2), which DOE adopted in the August 2004 Rule. These products 
consist of: (1) Split-system air conditioners; (2) split-system heat 
pumps; (3) single package air conditioners; (4) single package heat 
pumps; (5) small-duct high-velocity (SDHV) air conditioners and heat 
pumps; (6) space-constrained air conditioners; and (7) space-
constrained heat pumps. The August 2004 Rule also prescribed standards 
for through-the-wall air conditioners and heat pumps, but those 
products are now considered space-constrained products because the 
through-the-wall product class expired on January 23, 2010. 69 FR 
51001.
(i) Evaporative Coolers
    In response to the preliminary analysis, ACEEE indicated that DOE 
should consider evaporative pre-cooled air conditioner condensers 
(i.e., the evaporative pre-cooler is an add-on to a conventional 
condenser) as a technology that could improve the efficiency of air 
conditioners. (CAC: ACEEE, No. 72 at p. 4) As a result of this input, 
DOE reexamined its treatment of evaporative coolers both as stand-alone 
products and as add-ons to air conditioners. Evaporative coolers, also 
sometimes referred to as swamp coolers, can be used as stand-alone 
residential cooling systems. This type of system is generally found in 
hot, dry regions such as the southwestern United States. Evaporative 
coolers operate by passing dry outdoor air over a water-saturated 
medium, which cools the air as the water evaporates. The cooled air is 
then directed into the home by a circulating fan. As mentioned above, 
EPCA defines a residential ``central air conditioner,'' in part, as 
``air-cooled.'' (42 U.S.C. 6291(21)) Because residential evaporative 
coolers are ``evaporatively-cooled'' (instead of ``air-cooled''), DOE 
has determined that they do not meet this definition and are, 
therefore, outside the scope of this rulemaking.
    In some instances, however, evaporative coolers can be added on to 
air conditioners, and the combined system is referred to as an 
evaporative pre-cooled air conditioner. In this application, the add-on 
evaporative cooler functions in the same manner as the stand-alone 
system, except that its output air is blown over the air conditioner 
condenser coils, instead of directly into the conditioned space. The 
increased temperature gradient between the condenser coil and the air 
improves heat transfer and increases the efficiency of the condenser 
coil. DOE is unaware of either any evaporative pre-cooled central air 
conditioning systems offered as a complete package by any air 
conditioner manufacturer, or of any prototype of such a system. 
Consequently, without cost or performance data, DOE cannot give this 
combined system full consideration in the analysis. Therefore, the 
assumed cost of meeting each TSL is based on other technologies, which 
may be more or less costly than evaporative pre-cooling.
3. Product Classes
    In evaluating and establishing energy conservation standards, DOE 
generally divides covered products into classes by the type of energy 
used, or by capacity or other performance-related feature that 
justifies a different standard for products having such feature. (42 
U.S.C. 6295(q)) In deciding whether a feature justifies a different 
standard, DOE must consider factors such as the utility of the feature 
to users. Id. DOE normally establishes different energy conservation 
standards for different product classes based on these criteria.
a. Furnaces
    The existing Federal energy conservation standards for residential 
furnaces are codified at 10 CFR 430.32(e)(1)(i). The November 2007 Rule 
amended energy conservation standards for residential furnaces and 
established six residential furnace product classes. 72 FR 65136, 65169 
(Nov. 19, 2007). In the furnaces RAP, DOE stated that it intends to 
maintain these product classes. Ingersoll Rand commented that the 
planned product classes seem appropriate. (FUR: Ingersoll Rand, No. 
1.3.006 at p. 2) Lennox stated that it supports DOE's planned product 
classes to the extent they mirror those in the consensus agreement. 
(FUR: Lennox, No. 1.3.018 at p. 3)
    For today's direct final rule, DOE reviewed the market for 
residential furnaces, and determined that it is appropriate to consider 
the same six product classes established for the November 2007 Rule for 
this analysis. In addition, DOE also considered electric furnaces for 
standby mode and off mode standards only. Therefore, the furnace 
product classes are:
     Non-weatherized gas;
     Weatherized gas;
     Mobile home gas;
     Mobile home oil-fired;
     Non-weatherized oil-fired;
     Weatherized oil-fired; and
     Electric.
    As stated in section IV.A.2.a above, DOE only performed an AFUE 
analysis for non-weatherized gas, mobile home gas, and non-weatherized 
oil-fired furnaces. Additionally, DOE conducted a standby mode and off 
mode analysis for non-weatherized gas, mobile home gas, non-weatherized 
oil-fired (including mobile home oil-fired), and electric furnaces. DOE 
did not perform a standby mode and off mode analysis for weatherized 
gas and weatherized oil-fired furnaces, as discussed in section 
III.E.1.a.
    In response to the RAP for furnaces, DOE received several comments 
related to setting different standards for new construction and 
replacement installations for furnaces. AGA recommended that DOE should 
adopt a condensing standard at 90-percent AFUE for new construction, 
but allow non-condensing 80-percent furnaces to be installed in 
replacement applications. (FUR: AGA, Public Meeting Transcript, No. 
1.2.006 at p. 41) NEEP stated that it does not support limiting a 
revised standard to new construction, because approximately 70 percent 
of furnace sales are into the replacement market, and such a limitation 
would undermine too much of the amended standard's projected energy 
savings. (FUR: NEEP, No. 1.3.021 at p. 3) ACEEE stated that the 
expected life of a house is roughly 100 years, and that exempting 
existing houses from a standard sets a precedent for the following 
rounds of rulemakings. Further, ACEEE stated that at some point, DOE 
would have to set standards that force consumers to retrofit their 
homes to accommodate more-efficient products, and the cost to do this 
will not go down with time. Therefore, ACEEE reasoned that the sooner 
this is done, the longer the benefits will be recognized in an existing 
house. (FUR: ACEEE, Public Meeting Transcript, No. 1.2.006 at pp. 51-
52)
    EEI stated strong opposition to setting new efficiency standards 
for new construction for only gas heating products (and not other types 
of heating products). EEI asserted that if new efficiency standards for 
gas furnaces are to only apply to new construction, then

[[Page 37446]]

new efficiency standards for all other competitive products covered by 
DOE should also apply only to new construction. EEI stated that 
otherwise, standards in each product class should apply to both new 
construction and retrofit situations to maximize energy savings and 
economies of scale (as has been done in the past). (FUR: EEI, No. 
1.3.015 at p. 3)
    In response, DOE notes that setting different standards for 
products intended for replacement installations and products intended 
for new construction would effectively create separate product classes 
for each of these types of products. As stated above, EPCA directs DOE 
to divide covered products into classes based on the type of energy 
used, capacity, or other performance-related feature that justifies a 
different standard for products having such feature. (42 U.S.C. 
6295(q)) DOE does not believe that the intended installation type 
(i.e., new construction or replacement) falls under any of the 
qualifications listed above. As a result, DOE has determined that it 
does not have the authority to establish differentiated standards for 
product installed in new construction and products installed in 
replacement of an existing unit. Therefore, DOE did not consider such 
standards for this direct final rule.
b. Central Air Conditioners and Heat Pumps
    The existing Federal energy conservation standards for residential 
central air conditioners and heat pumps went into effect on January 23, 
2006. 69 FR 50997 (Aug. 17, 2004). At 10 CFR 430.32(c)(2), there is a 
list of the nine product classes of residential central air 
conditioners and heat pumps and their corresponding energy conservation 
standards. However, because the through-the-wall air conditioner and 
heat pump product classes expired on January 23, 2010, DOE examined 
only seven product classes for this residential central air conditioner 
and heat pump rulemaking. 69 FR 50997, 51001 (Aug. 17, 2004). The seven 
product classes DOE examined are:
     Split-system air conditioners;
     Split-system heat pumps;
     Single-package air conditioners;
     Single-package heat pumps;
     Small-duct, high-velocity systems;
     Space-constrained air conditioners; and
     Space-constrained heat pumps.
    The subsections below provide additional detail and discussion of 
stakeholder comments relating to these seven product classes.
(i) Expiration of Through-the-Wall Product Class
    Through-the-wall systems were established as a separate product 
class, and were required by the August 2004 Rule to meet a 10.9 SEER 
standard. As previously mentioned, when the through-the-wall product 
class was created, DOE included a provision that the product class 
would expire on January 23, 2010, after which time units in the 
through-the-wall product class could be considered part of the space-
constrained product class. 69 FR 50997, 50998 (August 17, 2004). In the 
August 2004 Rule, DOE also established a separate product class for 
space-constrained systems, requiring them to meet a 12 SEER standard. 
For this direct final rule, because the through-the-wall product class 
has expired, DOE reclassified through-the-wall products. The product 
class assignment of any product depends on that product's 
characteristics, but DOE believes that most (if not all) of the 
historically-characterized ``through-the-wall'' products would now be 
assigned to one of the space-constrained product classes. As a result, 
DOE considered through-the-wall products to be part of the space-
constrained product class for its analyses. In addition, DOE is 
updating the footnote to the table in 10 CFR 430.32(c)(2) to clarify 
the classification of through-the-wall products.
    In the preliminary analysis, DOE sought feedback on this 
classification and potential market shifts which may result from 
considering the former through-the-wall products to be space-
constrained products. Ingersoll Rand commented that replacement units 
of all types have to contend with the space constraints of the existing 
installation, and the intended benefit of minimum efficiency standards 
would be severely diminished if special treatment of the space-
constrained products is continued. (CAC: Ingersoll Rand, No. 66 at p. 
2)
    Federal law does not allow DOE to promulgate efficiency standards 
that would result in the unavailability in the United States in any 
covered product type (or class) of performance characteristics 
(including reliability), features, sizes, capacities, and volumes that 
are substantially the same as those currently on the market. (42 U.S.C. 
6295(o)(4)) The space-constrained product class acts as a safe harbor 
for product types available before 2001 whose efficiency is limited by 
physical dimensions that are rigidly constrained by the intended 
application. DOE believes that through-the-wall equipment intended for 
replacement applications can meet the definition of space-constrained 
products because they must fit into a pre-existing hole in the wall, 
and a larger through-the-wall unit would trigger a considerable 
increase in the installation cost to accommodate the larger unit. On 
the other hand, while split system and single package air conditioners 
and heat pumps have certain size limitations mainly associated with 
installation and consumer preferences, these units typically have a 
component installed outdoors. Because part of the unit is outdoors, 
there is more flexibility to allow for increases in the overall unit 
size. This greater flexibility with regard to product size provides 
these products with an advantage in achieving an increased efficiency 
because a larger coil can be used. Because physical size constraints 
for through-the-wall products continue to exist, DOE determined that 
continuation of the space-constrained product class is warranted.
(ii) Large-Tonnage Products
    For the preliminary analysis of conventional central air 
conditioner and heat pump product classes, DOE selected 36,000 Btu/hour 
(i.e., three-tons) as the representative capacity for analysis because 
units at this capacity are ubiquitous across manufacturers, have high 
sales volumes, and span a relatively large range of efficiencies. 
However, large-tonnage products (i.e., products with cooling capacities 
of approximately five tons) have additional constraints that three-ton 
products do not have, such as added installation costs and space 
requirements, which could potentially lead to different incremental 
costs between efficiency levels for three-ton units as compared to 
larger-capacity units. In its preliminary analysis, DOE determined that 
these incremental cost differences between three-ton units and large-
tonnage units were not large enough to necessitate a large-tonnage 
product class, but sought comment on the treatment of larger-tonnage 
products in the analysis.
    Ingersoll Rand stated that in the past there have not been 
sufficient differences to justify a separate large-tonnage product 
class. However, when considering the EER metric, Ingersoll Rand 
asserted that the marketability, serviceability, and installation cost 
differences are substantial enough to warrant a separate product class. 
(CAC: Ingersoll Rand, No. 66 at p. 2) Rheem noted that achieving higher 
efficiency in large-tonnage products is more difficult because of size 
limitations in the coils and the air handler, and that there are

[[Page 37447]]

other issues such as additional refrigerant charge and handling issues 
associated with the larger size. (CAC: Rheem, No. 76 at p. 3)
    For this direct final rule, DOE only considered an EER minimum 
conservation standard for the consensus agreement TSL (see section V.A 
for more details about the TSLs analyzed). The consensus agreement TSL 
has separate EER levels for large-tonnage products to account for the 
unique characteristics of those products that lead to increased costs. 
DOE believes that the impacts of unit size on EER are enough to justify 
a separate product class for large tonnage units, but does not believe 
these impacts on SEER are enough to justify a separate product class. 
Therefore, DOE believes a large tonnage product class is applicable for 
the consensus agreement TSL due to the EER standard. Because DOE is not 
considering minimum EER standards for the other TSLs, DOE did not 
establish a separate product class for large-tonnage products for other 
TSLs. However, DOE has determined that the differences among products 
with different cooling capacities are substantial enough to justify an 
expansion of the engineering analysis to two, three, and five tons for 
split systems. See section IV.C.5.b of today's direct final rule for 
further information on DOE's approach to scaling the analysis at the 
representative cooling capacity to additional cooling capacities.
(iii) Blower-Coil and Coil-Only Designation for Split System Air 
Conditioners
    In replacement applications for split-system air conditioners, 
consumers are presented with two options: (1) Replace a portion of 
their system, or (2) replace the entire system. For the first option, 
if a consumer has a furnace installed, and a portion of the air 
conditioning system (i.e., condensing unit or evaporator coil) fails, 
the consumer may choose to only replace the air conditioning portion of 
the system. This scenario involves the replacement of a condensing unit 
and an evaporator coil used with the existing blower fan in the 
furnace. In these applications, manufacturers are constrained by the 
efficiency of the fan in the installed furnace, and they only have the 
ability to modify the condensing unit or evaporator coil to achieve the 
desired efficiency. These systems are referred to as ``coil-only'' 
systems and are tested and rated using the combination of a specific 
condensing unit and evaporator coil with a default indoor fan energy 
consumption specified in the DOE test procedure. Because the default 
indoor fan energy consumption value specified in the test procedure is 
not for a high-efficiency furnace fan, these types of units are limited 
in the SEER levels that they can achieve.
    For the second option, if a consumer's entire system is replaced or 
installed as one complete system (as in new construction), the consumer 
has the ability to select a combination of indoor and outdoor units 
that can achieve any efficiency within the commercially-available range 
of efficiencies for split-system air conditioners because the indoor 
fan efficiency no longer limits the achievable SEER. Because the 
systems are sold as specific combinations of indoor and outdoor units, 
manufacturers have the ability to modify all portions of the system 
(i.e., condensing unit, evaporator coil, and indoor fan blower) to 
achieve the desired efficiency. These systems are referred to as 
``blower-coil'' systems and are tested and rated using the combination 
of a specific condensing unit, evaporator coil, and indoor fan blower. 
Because manufacturers have the option to improve the efficiency of the 
indoor blower fan in blower-coil systems, the cost-efficiency 
relationship is inherently different than for coil-only systems. Both 
types of systems are prevalent in the marketplace, and for the 
preliminary analysis, DOE characterized split-system air conditioners 
with separate cost-efficiency curves for blower-coil and coil-only 
systems within a single product class.
    In response to DOE's request for comment on establishing a single 
product class for blower-coil and coil-only systems, Ingersoll Rand 
noted that the distinction between coil-only and blower-coil systems is 
artificial because all systems have some means for moving indoor air, 
even when rated coil-only. (CAC: Ingersoll Rand, No. 66 at p. 5) In 
this direct final rule, DOE is not establishing separate product 
classes for coil-only and blower-coil split system air conditioners, 
and, therefore, DOE continued to analyze them separately within the 
split system air conditioner product class for the direct final rule 
analysis.
(iv) ``Dual-Fuel'' Systems
    In the preliminary analysis, DOE found that the majority of split-
system heat pumps are sold as a matched set of indoor and outdoor units 
for both the new construction and replacement markets. However, DOE 
recognized that in some instances heat pumps are used in conjunction 
with gas or oil-fired furnaces, providing a ``dual-fuel'' heating 
capability. Consequently, DOE sought input on the characterization of 
the heat pump replacement market and whether installations of matched 
sets of indoor and outdoor products should be the basis for DOE's 
analysis for all heat pumps.
    Ingersoll Rand commented that DOE should consider installations of 
matched sets of indoor and outdoor products for all heat pumps, and 
that the few heat pumps in ``dual-fuel'' systems are found primarily in 
the northern region of the United States. (CAC: Ingersoll Rand, No. 66 
at 6) Rheem supported this statement and stated that heat pump 
installations should be considered as matched sets. (CAC: Rheem, No. 76 
at p. 8) In response, DOE believes the large majority of heat pump 
shipments consists of matched sets (i.e., pairing an outdoor and indoor 
unit) and has assumed that all heat pumps are installed with matched 
indoor air handlers for purposes of the direct final rule analyses.
4. Technologies That Do Not Impact Rated Efficiency
    As part of the market and technology assessment performed for the 
direct final rule analysis, DOE developed a comprehensive list of 
technologies that would be expected to improve the energy efficiency of 
furnaces and central air conditioners and heat pumps, including those 
that do not impact the efficiency as rated by AFUE (for furnaces), SEER 
(for central air conditioners and heat pumps), and HSPF (for heat 
pumps). For example, certain technologies have the potential to reduce 
the electrical energy consumption of furnaces, but the AFUE metric does 
not capture the electrical energy use, and, therefore, such 
technologies would not be used to improve AFUE. Chapter 3 of the direct 
final rule TSD contains a detailed description of each technology that 
DOE identified. Although DOE identified a complete list of technologies 
that improve efficiency, DOE only considered in its analysis 
technologies that would impact the efficiency rating of the appliance 
as tested under the applicable DOE test procedure. Therefore, DOE 
excluded several technologies from the analysis during the technology 
assessment because they do not improve the rated efficiency of furnaces 
or central air conditioners and heat pumps. Technologies that DOE 
determined have an impact on the rated efficiency were carried through 
to the screening analysis and are discussed in section IV.B, which also 
contains the technologies that were considered as

[[Page 37448]]

part of the standby mode and off mode analyses.
    In response to DOE's preliminary analysis for central air 
conditioners and heat pumps, ACEEE remarked that DOE eliminated 
technologies that save energy in real-world conditions or would require 
an additional performance metric, but do not improve the SEER or HSPF 
rating according to the current DOE test procedure. ACEEE stated that 
as a result, DOE screened out many important technologies in the 
central air conditioners and heat pumps preliminary analysis. (CAC: 
ACEEE, No. 72 at p. 4) Similarly, during the public meeting to discuss 
the furnaces RAP, ACEEE commented that the initial screening-out of 
technologies based on their impact on AFUE, as opposed to end-use 
efficiency, is unnecessarily restrictive to DOE's consideration of 
options. (FUR: ACEEE, Public Meeting Transcript, No. 1.2.006 at p. 149)
    A product's efficiency rating under the applicable Federal test 
procedure determines whether it meets a particular minimum efficiency 
standard. An individual technology is relevant in the rulemaking 
process only to the extent that the technology has the potential to 
raise the efficiency rating of a product as measured under the test 
procedure. Therefore, DOE removes from consideration technologies that 
have no impact on a product's rating. Major changes to the DOE test 
procedures would be required to update the test procedures to include 
provisions that account for the impact of certain technologies on 
product efficiency, which would significantly delay the standards 
rulemaking such that DOE would not be able to meet its deadline of June 
30, 2011, for publishing the final rule for these products. However, 
potential changes in the test procedures could be considered during the 
next round of test procedure rulemakings for these products. DOE 
believes that such delays may reduce energy savings to the Nation from 
amended standards (if the compliance date must be delayed). Therefore, 
in this rulemaking, DOE will continue to exclude technologies that do 
not improve the energy efficiency ratings of residential furnaces and 
central air conditioners and heat pumps, as tested by the applicable 
DOE test procedures.
    For residential furnaces, DOE has determined that the following 
technologies would not impact AFUE as it is rated using the DOE test 
procedure: (1) Infrared burners; (2) positive shut-off valves for oil 
burner nozzles; (3) improved blower efficiency; and (4) micro combined 
heat and power. DOE did not analyze these technologies further because 
the technology either does not improve AFUE or there are insufficient 
data available to demonstrate an AFUE benefit of the technology.
    For central air conditioners and heat pumps, DOE has determined 
that the following technologies would not impact the SEER and HSPF as 
calculated using the DOE test procedure: (1) Condenser fan motor 
controllers; (2) liquid-suction heat exchangers; and (3) heat pump 
defrost mechanisms. DOE did not analyze these technologies further 
because the technology either does not increase the SEER or HSPF 
ratings, or there are insufficient data available to demonstrate a SEER 
or HSPF benefit of the technology.
    In response to the technology assessment performed for the 
preliminary analysis, DOE received feedback from several interested 
parties. ACEEE noted that in the preliminary analysis, DOE excluded 
advanced defrost controls for heat pumps that can save significant 
amounts of energy at low relative humidity outdoors. (CAC: ACEEE, No. 
72 at p. 4) Regarding solar-assist products, EEI stated that this 
technology has no influence on units in terms of cooling efficiency as 
measured by SEER or EER. (CAC: EEI, No. 75 at p. 5) Ingersoll Rand 
commented that solar-assist technology should be excluded because it 
does not improve the operating efficiency of the refrigeration cycle. 
(CAC: Ingersoll Rand, No. 66 at p. 9) Southern remarked that there 
would need to be significant changes made to the test procedure to 
measure the solar-assist contribution. Additionally, a solar-assist 
component could potentially be used to qualify a unit at a minimum SEER 
level and then removed later, resulting in unit operation at levels 
below the minimum standard. (CAC: Southern, No. 73 at p. 3) Rheem 
commented that technological feasibility of high-volume manufacture, 
installation, and servicing of both solar-assist and three-stage heat 
pumps has not been established (CAC: Rheem, No. 76 at p. 11) Regarding 
three-stage heat pumps, Ingersoll Rand stated that the HSPF values for 
these products are not higher than conventional single-stage systems, 
because compressor capacity is not the only limiting factor on low-
temperature heating capacity. (CAC: Ingersoll Rand, No. 66 at p. 9)
    In response to these comments, DOE reassessed its preliminary views 
on the technologies in question. DOE revisited its conclusion regarding 
advanced defrost controls in the preliminary analysis, and found that 
advanced defrost controls can increase the HSPF of heat pumps according 
to the DOE test procedure. Accordingly, DOE has considered advanced 
defrost controls in the analyses for the direct final rule.
    Regarding solar-assist technology, DOE has determined that this 
technology has no impact on SEER or HSPF using the DOE test procedure, 
and, therefore, DOE did not consider it as a technology option for the 
screening and engineering analyses. Similarly, three-stage heat pumps 
appear to have no impact on SEER or HSPF using the DOE test procedure, 
and therefore, DOE decided not to consider it as a technology option 
for analysis.

B. Screening Analysis

    DOE uses the following four screening criteria to determine which 
design options are suitable for further consideration in a standards 
rulemaking:
    1. Technological feasibility. DOE will consider technologies 
incorporated in commercial products or in working prototypes to be 
technologically feasible.
    2. Practicability to manufacture, install, and service. If mass 
production and reliable installation and servicing of a technology in 
commercial products could be achieved on the scale necessary to serve 
the relevant market at the time the standard comes into effect, then 
DOE will consider that technology practicable to manufacture, install, 
and service.
    3. Adverse impacts on product utility or product availability. If 
DOE determines a technology would have significant adverse impact on 
the utility of the product to significant subgroups of consumers, or 
would result in the unavailability of any covered product type with 
performance characteristics (including reliability), features, sizes, 
capacities, and volumes that are substantially the same as products 
generally available in the United States at the time, it will not 
consider this technology further.
    4. Adverse impacts on health or safety. If DOE determines that a 
technology will have significant adverse impacts on health or safety, 
it will not consider this technology further.

10 CFR part 430, subpart C, appendix A, sections (4)(a)(4) and (5)(b).

    In response to the screening criteria outlined in the furnace RAP, 
ACEEE argued that, although it is inappropriate to preclude from 
initial consideration technologies that are not widely used in the 
U.S., it may be appropriate to eliminate them in the screening analysis 
after adequate consideration if DOE finds the labor force to be 
insufficient to

[[Page 37449]]

adequately manufacture, sell, and service products on the scale 
necessary to serve the relevant market by the compliance date of the 
amended standard. (FUR: ACEEE, Public Meeting Transcript, No. 1.2.006 
at pp. 148-151) ACEEE also commented that DOE should screen in 
technology options that are not used in the United States, but that are 
used internationally. (FUR: ACEEE, No. 1.3.009 at p.2)
    In response, DOE considers a complete list of technology options in 
the market and technology assessment, including those used on the 
international market, and then examines each technology that impacts 
the rated efficiency to determine if the four screening criteria are 
met. International technology options are treated no differently than 
those that are domestic and must meet all four screening criteria, 
including practicability to manufacture, install, and service on the 
scale necessary to serve the U.S. market by the compliance date. If DOE 
determines that a technology option does not meet all of the relevant 
criteria, it will eliminate that technology option from further 
consideration.
1. Furnaces
    DOE identified the following technology options that could improve 
the AFUE rating of residential furnaces: (1) Condensing secondary heat 
exchanger for non-weatherized furnaces; (2) heat exchanger improvements 
for non-weatherized furnaces; (3) condensing and near-condensing 
technologies for weatherized gas furnaces; (4) two-stage or modulating 
combustion; (5) pulse combustion; (6) low NOX premix 
burners; (7) burner derating; (8) insulation improvements; (9) off-
cycle dampers; (10) concentric venting; (11) low-pressure, air-atomized 
oil burner; (12) high-static oil burner; and (13) delayed-action oil 
pump solenoid valve.
    In response to DOE's request for comments on technologies in the 
furnaces RAP, Ingersoll Rand commented that all of the technology 
options that are technologically feasible and economically justified 
for furnaces are already incorporated by manufacturers into their 
current products, and that there are no new efficiency-benefitting 
technologies on the horizon. (FUR: Ingersoll Rand, No. 1.3.006 at p. 2)
    DOE notes that a large amount of research regarding technology 
options for improving the efficiency of furnaces has already been 
conducted by industry and others. However, DOE's initial list of 
technology options identified in the market and technology assessment 
includes all technology options that could improve rated efficiency, 
without regard to technological feasibility or economic justification 
(a matter considered in other downstream analyses). Each technology 
option is reviewed during the screening analysis according to the four 
screening criteria. If a prototype or other technology option is 
``screened in,'' DOE further considers it in the engineering analysis 
regardless of whether it is already widely used in the market.
a. Screened-Out Technology Options
    DOE excluded six of the technologies listed above from 
consideration in this rulemaking based on one or more of the four 
screening criteria. The technology options that DOE ``screened out'' 
include: (1) Condensing and near-condensing technologies for 
weatherized gas furnaces; (2) pulse combustion; (3) low NOX 
premix burners; (4) burner derating; (5) advanced forms of insulation; 
and (6) low-pressure, air-atomized oil burner. The following discussion 
explains DOE's rationale for screening out these technologies.
    Due to lack of evidence of technological feasibility, DOE screened 
out: Condensing and near-condensing technologies for weatherized 
furnaces; low NOX premix burners; advanced forms of 
insulation (including foam insulation, vacuum insulation panels, gas-
filled panels, aerogel insulation, and evacuated panels); and low-
pressure, air-atomizing oil burners. To the best of DOE's knowledge, 
none of these technologies have been successfully demonstrated in the 
design of a commercially-available furnace model or a working 
prototype. Therefore, they were eliminated from further consideration.
    Pulse combustion was screened out due to concerns about adverse 
impacts on safety. Although products with this technology are generally 
safe, discussions with manufacturers indicated that the same or similar 
efficiencies could be achieved using other technologies that do not 
operate with positive pressure in the heat exchanger. In pulse 
combustion systems, the positive pressure in the heat exchanger could 
cause hazardous combustion products (e.g., carbon monoxide) to leak 
into the home if fatigue caused the heat exchanger to breach. DOE 
concluded that the efficiency-related benefits of these products in 
terms of AFUE do not outweigh the possible adverse impacts on health or 
safety, especially given that manufacturers already achieve high 
efficiencies without the use of pulse combustion.
    Finally, burner derating (i.e., reducing the burner firing rate) 
lessens heat output from the furnace. As such, burner derating was 
eliminated from further consideration due to its significant adverse 
impacts on product utility to the consumer.
    For more detail regarding each technology option and the screening 
process, see chapters 3 and 4 of the TSD accompanying today's notice.
2. Central Air Conditioners and Heat Pumps
    DOE identified the following technologies that could improve the 
SEER and/or HSPF efficiency ratings of central air conditioners and 
heat pumps: (1) Higher-efficiency compressors; (2) higher-efficiency 
fan motors; (3) higher-efficiency fan blades; (4) improvements to 
baseline coils; (5) micro-channel heat exchangers; (6) flat-tube heat 
exchangers; (7) heat pump defrost controls; (8) inverter technology; 
and (9) high-efficiency expansion valves.
    After eliminating those technologies which did not increase the 
SEER or HSPF ratings (as described in section IV.A.4), DOE subjected 
the remaining technologies listed above to the four screening criteria. 
DOE determined that each of the technologies listed above passed all 
four of the screening criteria, and thus, DOE considered those 
technologies further in the downstream analyses.
    In response to the central air conditioner and heat pump 
preliminary analysis, DOE received comments from interested parties 
suggesting the inclusion of inverter-driven components as a technology 
option in the analysis. Daikin noted that inverter technology can 
substantially increase the energy efficiency of central air 
conditioners and should be considered as a technology option. (CAC: 
Daikin, No. 63 at p. 2) Further, Daikin also commented that inverter 
technology is in widespread use outside of the United States, which 
demonstrates that it is not cost-prohibitive, and the technology is not 
proprietary. (CAC: Daikin, No. 63 at p. 4) Northwest Power and 
Conservation Council (NPCC) remarked that inverter technology is 
already used domestically in ductless mini-splits, and the technology 
is applicable to both conventional split system and packaged central 
air conditioners and heat pumps. (CAC: NPCC, No. 74 at 5)
    After considering these comments, DOE believes that inverter 
technology is a non-proprietary method of improving the SEER and HSPF 
ratings of central air conditioners and heat pumps.

[[Page 37450]]

Accordingly, DOE included inverter technology as a technology option in 
its analysis.
    In response to DOE's request for comment on the preliminary 
screening analysis, ACEEE questioned DOE's decision to screen out 
several important technologies, including modulating compressors and 
condenser fans. (CAC: ACEEE, No. 72 at p. 4) However, DOE believes that 
the higher-efficiency fan motors and higher-efficiency compressors 
technology options encompass the technologies that ACEEE identified. 
Therefore, DOE did not identify those technologies as separate 
technologies in the preliminary analysis, but both modulating 
compressors and modulating condenser fans were considered in the 
engineering analysis.
3. Standby Mode and Off Mode
    As discussed above, DOE is required by EPCA, as amended by EISA 
2007, to amend its test procedures for furnaces and central air 
conditioners and heat pumps in order to address standby mode and off 
mode energy consumption of these products. (42 U.S.C. 6295(gg)(2)) As 
explained in the October 20, 2010 test procedure final rule for 
furnaces and boilers, DOE determined that it was not technically 
feasible to set an integrated metric encompassing active mode, standby 
mode, and off mode, so the Department adopted a separate metric to 
address standby mode and off mode energy consumption. 75 FR 64621, 
64626-27. Accordingly, DOE conducted a separate screening analysis for 
standby mode and off mode technologies. DOE identified the following 
technology options that could improve the standby mode and off mode 
efficiency rating of residential furnaces: (1) Switching mode power 
supplies; (2) toroidal transformers; and (3) a relay that disconnects 
power to the blower's electronically-commutated motor (ECM) while in 
standby mode.
    DOE identified the following technology options that could improve 
the off mode efficiency rating of central air conditioners and heat 
pumps: (1) Thermostatically-controlled crankcase heaters; (2) toroidal 
transformers; (3) self-regulating (i.e., variable resistance) crankcase 
heaters; (4) compressor covers; and (5) a relay that disconnects power 
to the ECM blower while in off mode.
    After applying the four screening criteria to these technology 
options for furnaces and central air conditioners and heat pumps, DOE 
screened out the technology option of a control relay for disconnecting 
power to the ECM blower because of the potential for adverse impacts to 
product utility for all product classes. DOE believes that such a 
design would cause failure rates of blower motors to increase 
significantly, which would severely degrade reliability and consumer 
utility of the product. Furthermore, DOE is not aware of any 
commercially-available models or working prototypes of an ECM that 
completely depowers between uses, making the design option 
technologically infeasible in the context of this rulemaking. The 
remaining two design options for furnaces were screened in and carried 
forward in the analyses. For central air conditioners and heat pumps, 
the remaining four design options were screened in and were considered 
in the downstream analyses.
4. Technologies Considered
    Based upon the totality of the available information, DOE has 
concluded that: (1) All of the efficiency levels discussed in today's 
notice are technologically feasible; (2) products at these efficiency 
levels could be manufactured, installed, and serviced on a scale needed 
to serve the relevant markets; (3) these efficiency levels would not 
force manufacturers to use technologies that would adversely affect 
product utility or availability; and (4) these efficiency levels would 
not adversely affect consumer health or safety. Thus, the efficiency 
levels that DOE analyzed and discusses in this notice are all 
achievable through technology options that were ``screened in'' during 
the screening analysis.

C. Engineering Analysis

    The engineering analysis develops cost-efficiency relationships to 
determine the manufacturing costs of achieving increased efficiency. 
DOE has identified the following three methodologies to generate the 
manufacturing costs needed for the engineering analysis: (1) The 
design-option approach, which provides the incremental costs of adding 
to a baseline model design options that will improve its efficiency; 
(2) the efficiency-level approach, which provides the relative costs of 
achieving increases in energy efficiency levels, without regard to the 
particular design options used to achieve such increases; and (3) the 
cost-assessment (or reverse engineering) approach, which provides 
``bottom-up'' manufacturing cost assessments for achieving various 
levels of increased efficiency, based on detailed data as to costs for 
parts and material, labor, shipping/packaging, and investment for 
models that operate at particular efficiency levels.
    The Department conducted the engineering analyses for this 
rulemaking using a combination of the efficiency level and cost-
assessment approaches for analysis of the minimum AFUE standards for 
furnaces and minimum SEER and HSPF standards for central air 
conditioners and heat pumps. More specifically, DOE identified 
efficiency levels for analysis, and then used the cost-assessment 
approach to determine the manufacturing costs at those levels. For 
analyzing standby mode and off mode electrical energy consumption 
standards, DOE used the design-option approach to develop the cost-
efficiency relationship, as explained in greater detail in section 
IV.C.7. Additional details of the engineering analysis are in chapter 5 
in the direct final rule TSD.
1. Cost Assessment Methodology
    At the start of the engineering analysis, DOE identified the energy 
efficiency levels associated with residential furnaces and central air 
conditioners and heat pumps on the market, as determined in the market 
assessment. DOE also identified the technologies and features that are 
typically incorporated into products at the baseline level and at the 
various energy efficiency levels analyzed above the baseline. Next, DOE 
selected products for the physical teardown analysis having 
characteristics of typical products on the market at the representative 
input capacity for furnaces and representative cooling capacity for 
central air conditioners and heat pumps. DOE gathered information from 
performing a physical teardown analysis (see section IV.C.1.a) to 
create detailed bills of materials that included all components and 
processes used to manufacture the products. DOE used the bills of 
materials (BOMs) from the teardowns as an input to a cost model, which 
was used to calculate the manufacturing production cost (MPC) for 
products at various efficiency levels spanning the full range of 
efficiencies from the baseline to the maximum technology available. For 
the central air conditioners and heat pumps, DOE reexamined and revised 
its cost assessment performed for the preliminary analysis based on 
additional teardowns and in response to comments received on the 
preliminary analysis. Additionally, DOE decided to expand the analyses 
for split system air conditioners to include capacities beyond the 
representative capacities, as described in section IV.C.5.
    During the development of the engineering analysis for the direct 
final rule, DOE held interviews with manufacturers to gain insight into 
the

[[Page 37451]]

heating, ventilation, and air conditioning (HVAC) industry, and to 
request feedback on the engineering analysis and assumptions that DOE 
used. DOE used the information gathered from these interviews, along 
with the information obtained through the teardown analysis and public 
comments, to refine the assumptions and data in the cost model. Next, 
DOE derived manufacturer markups using publicly-available furnace and 
central air conditioner and heat pump industry financial data, in 
conjunction with manufacturers' feedback. The markups were used to 
convert the MPCs into manufacturer selling prices (MSPs). Further 
information on comments received and the analytical methodology is 
presented in the subsections below. For additional detail, see chapter 
5 of the direct final rule TSD.
a. Teardown Analysis
    To assemble BOMs and to calculate the manufacturing costs of the 
different components in residential furnaces and central air 
conditioners and heat pumps, DOE disassembled multiple units of each 
product into their base components and estimated the materials, 
processes, and labor required for the manufacture of each individual 
component, a process referred to as a ``physical teardown.'' Using the 
data gathered from the physical teardowns, DOE characterized each 
component according to its weight, dimensions, material, quantity, and 
the manufacturing processes used to fabricate and assemble it.
    DOE also used a supplementary method, called a ``virtual 
teardown,'' which examines published manufacturer catalogs and 
supplementary component data to estimate the major physical differences 
between a product that was physically disassembled and a similar 
product that was not. For supplementary virtual teardowns, DOE gathered 
product data such as dimensions, weight, and design features from 
publicly-available information, such as manufacturer catalogs. DOE also 
obtained information and data not typically found in catalogs and 
brochures, such as fan motor details, gas manifold specifications, or 
assembly details, from the physical teardowns of a similar product or 
through estimates based on industry knowledge. The teardown analysis 
included over 40 physical and virtual teardowns of furnaces for the 
direct final rule analysis, 31 physical and virtual teardowns of 
central air conditioners and heat pumps during the preliminary 
analysis, and one additional central air conditioner and heat pump 
teardown for the direct final rule analysis. The additional teardowns 
performed for the direct final rule analysis allowed DOE to further 
refine the assumptions used to develop the MPCs.
    The teardown analysis allowed DOE to identify the technologies that 
manufacturers typically incorporate into their products, along with the 
efficiency levels associated with each technology or combination of 
technologies. The end result of each teardown is a structured BOM, 
which DOE developed for each of the physical and virtual teardowns. The 
BOMs incorporate all materials, components, and fasteners, classified 
as either raw materials or purchased parts and assemblies, and 
characterize the materials and components by weight, manufacturing 
processes used, dimensions, material, and quantity. The BOMs from the 
teardown analysis were then used as inputs to the cost model to 
calculate the MPC for each product that was torn down. The MPCs 
resulting from the teardowns were then used to develop an industry 
average MPC for each product class analyzed. See chapter 5 of the 
direct final rule TSD for more details on the teardown analysis.
b. Cost Model
    The cost model is a spreadsheet that converts the materials and 
components in the BOMs into dollar values based on the price of 
materials, average labor rates associated with manufacturing and 
assembling, and the cost of overhead and depreciation, as determined 
based on manufacturer interviews and DOE expertise. To convert the 
information in the BOMs to dollar values, DOE collected information on 
labor rates, tooling costs, raw material prices, and other factors. For 
purchased parts, the cost model estimates the purchase price based on 
volume-variable price quotations and detailed discussions with 
manufacturers and component suppliers. For fabricated parts, the prices 
of raw metal materials (e.g., tube, sheet metal) are estimated on the 
basis of 5-year averages (from 2005 to 2010). The cost of transforming 
the intermediate materials into finished parts is estimated based on 
current industry pricing. For the central air conditioners and heat 
pumps analysis, DOE updated all of the labor rates, tooling costs, raw 
material prices, the costs of resins, and the purchased parts costs 
used in the preliminary analysis when developing costs for the direct 
final rule analysis. For furnaces, there was no preliminary analysis, 
and DOE used the updated rates and costs described in the preceding 
sentence when conducting the direct final rule analysis. Chapter 5 of 
the direct final rule TSD describes DOE's cost model and definitions, 
assumptions, data sources, and estimates.
    Ingersoll Rand commented on the material prices collected for use 
in the cost model, noting that due to the volatility and overall 
increasing trend of material prices, 5-year average material prices 
will potentially be an underestimation of current material prices, 
which could lead to significant errors. (FUR: Ingersoll Rand, No. 
1.3.006 at p. 5)
    DOE acknowledges Ingersoll Rand's concerns about the material costs 
used in the engineering analysis because a large portion of the 
manufacturer production cost can typically be attributed to raw 
materials, the price of which can fluctuate greatly from year to year. 
However, DOE uses a 5-year span to attempt to normalize the fluctuating 
prices experienced in the metal commodities markets and screen out 
temporary dips or spikes. DOE believes a 5-year span is the longest 
span that would still provide appropriate weighting to current prices 
experienced in the market. DOE updates the 5-year span for metal prices 
based on a review of updated commodity pricing data, which point to 
continued increases. Consequently, DOE calculated a new 5-year average 
materials price using the U.S. Department of Labor's Bureau of Labor 
Statistics (BLS) Producer Price Indices (PPIs) \30\ for various raw 
metal materials from 2005 to 2010 for use in this rulemaking. The 
updated material prices incorporate the changes within each material 
industry and account for inflation. DOE also used BLS PPI data to 
update current market pricing for other input materials such as plastic 
resins and purchased parts. Finally, DOE adjusted all averages to 2009$ 
using the gross domestic product (GDP) implicit price deflator.\31\ See 
chapter 5 of the direct final rule TSD for additional details.
---------------------------------------------------------------------------

    \30\ For more information, visit the BLS Web site at http://www.bls.gov/ppi/.
    \31\ The GDP implicit price deflator is an economic metric that 
accounts for inflation by converting output measured at current 
prices into constant-dollar GDP. For more information, visit the 
Bureau of Economic Analysis Web site at http://www.bea.gov.
---------------------------------------------------------------------------

c. Manufacturing Production Cost
    Once the cost estimates for all the components in each teardown 
unit were finalized, DOE totaled the cost of materials, labor, and 
direct overhead used to manufacture a product in order to calculate the 
manufacturer production cost. The total cost of the product was broken 
down into two

[[Page 37452]]

main costs: (1) The full manufacturer production cost, referred to as 
MPC; and (2) the non-production cost, which includes selling, general, 
and administration (SG&A) costs; the cost of research and development; 
and interest from borrowing for operations or capital expenditures. DOE 
estimated the MPC at each efficiency level considered for each product 
class, from the baseline through the max-tech. After incorporating all 
of the assumptions into the cost model, DOE calculated the percentages 
attributable to each element of total production cost (i.e., materials, 
labor, depreciation, and overhead). These percentages are used to 
validate the assumptions by comparing them to manufacturers' actual 
financial data published in annual reports, along with feedback 
obtained from manufacturers during interviews. DOE uses these 
production cost percentages in the MIA (see section IV.I).
    DOE revised the cost model assumptions used for the central air 
conditioner and heat pumps preliminary analysis based on additional 
teardown analysis, updated pricing, and additional manufacturer 
feedback, which resulted in refined MPCs and production cost 
percentages. For furnaces, DOE made cost model assumptions based on 
teardown analysis, publicly-available information, and manufacturer 
feedback. DOE calculated the average product cost percentages by 
product type (i.e., furnace, central air conditioner, heat pump) as 
well as by product class (e.g., non-weatherized gas furnace, split-
system air conditioner) due to the large variations in production 
volumes, fabrication and assembly costs, and other assumptions that 
affect the calculation of the product's total MPC. Chapter 5 of the 
direct final rule TSD presents DOE's estimates of the MPCs for this 
rulemaking, along with the different percentages attributable to each 
element of the production costs that comprise the total product MPC.
d. Cost-Efficiency Relationship
    The result of the engineering analysis is a cost-efficiency 
relationship. DOE created a separate relationship for each input 
capacity analyzed for each residential furnace product class examined 
for this direct final rule. DOE also created 12 cost-efficiency curves 
representing the cost-efficiency relationship for each central air 
conditioner and heat pump product class (except for the space-
constrained product classes), as well as products having different 
capacities within the split air conditioner and split heat pump product 
classes. A cost-efficiency relationship was not developed for the space 
constrained product classes because the max-tech efficiency level is 
the same as the baseline efficiency level.
    In order to develop the cost-efficiency relationships for furnaces 
and central air conditioners and heat pumps, DOE examined the cost 
differential to move from one efficiency level to the next for each 
manufacturer. DOE used the results of teardowns on a market share 
weighted-average basis to determine the industry average cost increase 
to move from one efficiency level to the next. Additional details on 
how DOE developed the cost-efficiency relationships and related results 
are available in the chapter 5 of the direct final rule TSD. Chapter 5 
of the direct final rule TSD also presents these cost-efficiency curves 
in the form of energy efficiency versus MPC. Cost-efficiency curves 
relating HSPF to MPC can be created by using the relationship between 
SEER and HSPF that DOE derived (see section IV.C.6).
    The results indicate that, for both furnaces and central air 
conditioners/heat pumps, cost-efficiency relationships are nonlinear. 
In other words, as efficiency increases, manufacturing becomes more 
difficult and more costly. For furnaces, a large cost increase is 
evident between non-condensing and condensing efficiency levels due to 
the requirement for a secondary heat exchanger, and another large 
increase is evident at the max-tech efficiency level which employs 
continuously-modulating operation. For central air conditioners and 
heat pumps, large increases in cost are evident at efficiency levels 
requiring high-efficiency compressors and fan motors.
    In response to the furnace RAP, ACEEE stated at the public meeting 
that DOE's depiction of the cost-efficiency relationship is a static 
one that does not reflect the time-variability of the MPCs subsequent 
to adoption of amended energy conservation standards. The commenter 
argued that DOE's depiction does not reflect the consistent decline in 
the cost of manufactured products relative to the consumer price index 
(CPI). ACEEE requested that DOE complement the static cost-efficiency 
depiction with a more thorough retrospective analysis. (FUR: ACEEE, 
Public Meeting Transcript, No. 1.2.006 at p. 153) In response, HARDI 
cautioned that a time-variable analysis of the cost-efficiency 
relationship could neglect the effect on the marketplace of peak price 
points that result from adoption and implementation of amended AFUE 
standards. (FUR: HARDI, Public Meeting Transcript, No. 1.2.006 at p. 
155) In other words, HARDI believes that such an analysis suggested by 
ACEEE would not account for the peak prices that occur shortly after a 
new standard is implemented.
    In response, DOE notes that trends in the CPI reflect changes in 
consumer price that arise from a host of factors, including a change in 
market mix, market structure, profitability and manufacturing cost 
(including labor, capital, and energy costs), the cost of raw 
materials, and technological change. Historical averages of some of 
these factors are already used in DOE's analysis. A more sophisticated 
projection of consumer price depends on the availability of credible, 
publicly-vetted tools for making such projections, as well as an 
expectation that such tools will enhance the robustness, accuracy, or 
usefulness of the analysis. Such a tool does not currently exist, and 
DOE is not convinced that development of such a tool would 
significantly benefit energy conservation standard rulemakings, when it 
is already possible to conduct a straightforward calculation of the 
effect of different product cost assumptions on consumer payback. In 
the absence of a suitable tool, DOE believes that holding current 
manufacturing costs steady into the future provides the best balance 
between analytical transparency, credibility, and expected accuracy.
    DOE's decision not to perform a historical analysis of the cost-
efficiency relationship allays HARDI's concern that a retrospective 
analysis would ignore one-time peak price points that would create the 
most significant burden on the marketplace.
e. Manufacturer Markup
    To account for manufacturers' non-production costs and profit 
margin, DOE applies a non-production cost multiplier (the manufacturer 
markup) to the full MPC. The resulting manufacturer selling price (MSP) 
is the price at which the manufacturer can recover all production and 
non-production costs and earn a profit. To meet new or amended energy 
conservation standards, manufacturers often introduce design changes to 
their product lines that result in increased manufacturer production 
costs. Depending on the competitive environment for these particular 
products, some or all of the increased production costs may be passed 
from manufacturers to retailers and eventually to customers in the form 
of higher purchase prices. As production costs increase, manufacturers 
typically incur additional overhead. The MSP should be high enough to 
recover the full cost of the product (i.e., full production and non-
production costs)

[[Page 37453]]

and yield a profit. The manufacturer markup has an important bearing on 
profitability. A high markup under a standards scenario suggests 
manufacturers can readily pass along the increased variable costs and 
some of the capital and product conversion costs (the one-time 
expenditures) to consumers. A low markup suggests that manufacturers 
will not be able to recover as much of the necessary investment in 
plant and equipment.
    To calculate the manufacturer markups, DOE used 10-K reports 
submitted to the U.S. Securities and Exchange Commission (SEC) by the 
six publicly-owned HVAC companies. (SEC 10-K reports can be found using 
the search database available at: http://www.sec.gov/edgar/searchedgar/webusers.htm.) The financial figures necessary for calculating the 
manufacturer markup are net sales, costs of sales, and gross profit. 
For furnaces, DOE averaged the financial figures spanning the years 
2004 to 2008 in order to calculate the markups. For central air 
conditioners and heat pumps, DOE updated the financial figures used in 
the preliminary analysis (which spanned 2003 to 2007) by using 10-K 
reports spanning from 2004 to 2008. To calculate the average gross 
profit margin for the periods analyzed for each firm, DOE summed the 
gross profit for all of the aforementioned years and then divided the 
result by the sum of the net sales for those years. DOE presented the 
calculated markups to manufacturers during the interviews for the 
direct final rule (see section IV.C.1.g). DOE considered the feedback 
from manufacturers in order to supplement the calculated markup and 
refined the markup to better reflect the residential furnace and 
central air conditioner and heat pump markets. DOE developed the 
manufacturer markup by weighting the feedback from manufacturers on a 
market share basis, since manufacturers with larger market shares more 
significantly affect the market average. DOE used a constant markup to 
reflect the MSPs of both the baseline products and higher-efficiency 
products. DOE used this approach because amended standards may 
transform high-efficiency products, which currently are considered 
premium products, into baselines. See chapter 5 of the direct final 
rule TSD for more details about the manufacturer markup calculation.
    In response to the markup calculation methodology outlined in the 
furnaces RAP, and to the markup multiplier of 1.32 used in the central 
air conditioner and heat pump preliminary analysis, Ingersoll Rand 
argued that DOE has consistently underestimated manufacturer markup in 
past rulemakings. According to Ingersoll Rand, DOE has a tendency to 
underestimate unapplied labor that is involved in a wide range of 
support activities that are not associated with production, including 
research and development, engineering, field service, marketing, 
training, human resources, finance, legal, and business management. 
(FUR: Ingersoll Rand, No. 1.3.006 at p. 6; CAC: Ingersoll Rand, No. 66 
at p. 5)
    In response, DOE's manufacturer markups include all non-production 
costs (with the exception of shipping, which is calculated separately 
as described below) and profit. As noted above, as part of the process 
for developing manufacturer markups, DOE solicits manufacturer feedback 
during MIA interviews and incorporates that feedback on a market-share 
weighted average basis to refine the markups that are derived from 
financial data. Although DOE recognizes that the manufacturer markup 
will vary from one manufacturer to another, DOE believes this process 
allows for the development of a manufacturer markup that reflects the 
typical manufacturer markup in the industry. As a result, for the 
direct final rule analysis, DOE modified the markups for central air 
conditioners and heat pumps based upon additional manufacturer input. 
The markup used in the direct final rule analysis for split system air 
conditioners and heat pumps was 1.30, while the markup for packaged 
systems was 1.28. For SDHV systems, the markup remained 1.32. Because 
no additional data were provided to support a change, DOE developed a 
markup for furnaces for the direct final rule based on the methodology 
outlined in the furnaces RAP.
f. Shipping Costs
    Manufacturers of HVAC products typically pay for freight to the 
first step in the distribution chain. Freight is not a manufacturing 
cost, but because it is a substantial cost incurred by the 
manufacturer, DOE is accounting for shipping costs of furnaces and 
central air conditioners and heat pumps separately from the other non-
production costs that comprise the manufacturer markup. To calculate 
MSP for furnaces and central air conditioners and heat pumps, DOE 
multiplied the MPC determined from the cost model by the manufacturer 
markup and added shipping costs. More specifically, DOE calculated 
shipping costs based on use of a typical 53-foot straight frame trailer 
with a storage volume of 4,240 cubic feet.
    In the central air conditioners and heat pumps preliminary 
analysis, shipping costs were preliminarily determined on a weight 
basis at $0.20 per pound, based on quotes from freight shipping 
services. However, ACEEE suggested that shipping costs would be more 
accurately estimated if calculations were based on product volume, 
rather than weight. (CAC: ACEEE, No. 72 at p.7)
    DOE reexamined of the physical attributes of the products (e.g., 
the outer shipping dimensions, the shipping weight) and consulted with 
manufacturers regarding their shipping practices, and as a result of 
this additional inquiry, DOE determined that manufacturers were likely 
to ``cube-out'' a truck (i.e., run out of space inside the truck) 
before reaching the maximum weight capacity for the truckload. 
Therefore, the limiting factor for transporting these products would be 
the size of the products rather than their weight. Accordingly, as 
noted above, DOE revised its methodology for the direct final rule in 
terms of shipping costs by determining a product's shipping cost as a 
function of its volume for both central air conditioners and heat pumps 
and residential furnaces. To do so, DOE first calculated the cost per 
cubic foot of space on a trailer, based on a cost of $2,500 per 
shipping load and the standard dimensions of a 53-foot trailer. DOE 
examined the average sizes of products in each product class at each 
efficiency and capacity combination analyzed. DOE then estimated the 
shipping costs by multiplying the product volume by the cost per cubic 
foot of space on the trailer. For central air conditioners and heat 
pumps, where product size greatly depends on efficiency, DOE calculated 
a separate volumetric cost for each efficiency level. However, 
furnaces, which typically do not vary in size based on efficiency, had 
the same shipping cost across the range of efficiencies for a given 
capacity. In determining volumetric shipping costs, DOE also revised 
its estimates based on manufacturer feedback regarding product mix on 
each trailer, packing efficiency, and methods and equipment used to 
load the trailers. Chapter 5 of the direct final rule TSD contains 
additional details about DOE's shipping cost assumptions and DOE's 
shipping cost estimates.
g. Manufacturer Interviews
    Throughout the rulemaking process, DOE has sought and continues to 
seek feedback and insight from interested parties that would improve 
the information used in its analyses. DOE

[[Page 37454]]

interviewed manufacturers as a part of the direct final rule 
manufacturer impact analysis (see section IV.I.4). During the 
interviews, DOE sought feedback on all aspects of its analyses for 
residential furnaces and central air conditioners and heat pumps. For 
the engineering analysis, DOE discussed the analytical assumptions and 
estimates, cost model, and cost-efficiency curves with HVAC 
manufacturers. DOE considered all the information manufacturers 
provided when refining the cost model and assumptions. However, DOE 
incorporated equipment and manufacturing process figures into the 
analysis as averages in order to avoid disclosing sensitive information 
about individual manufacturers' products or manufacturing processes. 
More details about the manufacturer interviews are contained in chapter 
12 of the direct final rule TSD.
2. Representative Products
a. Furnaces
    DOE based its engineering analysis on teardown analysis of a 
representative sample of products from the furnace market. DOE selected 
units for teardown that have characteristics that are representative of 
most furnaces available on today's market. In the rulemaking analysis 
plan, DOE identified several characteristics common to baseline 
furnaces in each product class, including a representative capacity for 
analysis, and focused the teardown selection for furnaces on products 
that exhibited those representative characteristics. (However, DOE also 
scaled its analysis to products outside the representative capacity, as 
described in section IV.C.5.)
    DOE received several comments about the representative input 
capacity proposed in the furnaces RAP. AHRI remarked that each 
manufacturer offers their products in different input capacities, and, 
as such, DOE should not lock its analysis into discrete input 
capacities. (FUR: AHRI, Public Meeting Transcript, No. 1.2.006 at pp. 
176-177) Likewise, Ingersoll Rand cautioned against comparing 
dissimilar products (with respect to number of burners and heat 
exchangers) chosen simply because their input capacities are close. 
Instead, the commenter suggested surveying the furnace market across 
efficiencies and capacities to characterize the number of heat 
exchangers and burners for each capacity and efficiency. Then, based on 
the results of this survey, DOE should select teardown units and 
determine the limits of interpolation. Ingersoll Rand further suggested 
that the sample selection should include products from a broad cross-
section of manufacturers, concentrating on those with market shares 
greater than 10 percent, a representative spread of installation 
configurations, and a bias towards the most common heating and cooling 
air flow capacities. (FUR: Ingersoll Rand, Public Meeting Transcript, 
No. 1.2.006 at pp. 156-157; FUR: Ingersoll Rand, No. 1.3.006 at p. 4) 
ACEEE stated that many furnaces with the same input capacities are 
shipped with differing blower motor power and fan diameter, 
considerations to which DOE should be sensitive in its analysis. (FUR: 
ACEEE, Public Meeting Transcript, No. 1.2.006 at p. 178)
    In response, for its direct final rule analysis, DOE attempted to 
compare similar furnace products made by a broad cross-section of 
manufacturers when choosing models for teardowns. DOE included factors 
such as blower characteristics and the number of burners and heat 
exchangers when choosing models for teardown. DOE modified the 
representative characteristics to include an airflow rate of 1,200 
cubic feet per minute for a typical furnace (which corresponds to the 
three-ton representative capacity for central air conditioners and heat 
pumps). In addition, DOE recognizes that manufacturers may offer 
products at varying input capacities, and as a result, DOE did not 
restrict its analysis to discrete representative input capacities, but 
rather considered all models that were capable of satisfying a similar 
heating load. While DOE focused its analysis for furnaces around the 
representative 80,000 Btu/h input capacity, DOE also considered other 
units at input capacities near the representative capacity for 
manufacturers that do not manufacture products at the representative 
capacity.
    DOE also received feedback from Ingersoll Rand that two of the 
input capacities identified in the RAP to represent the furnace market 
are not common in the market. The company suggested that input 
capacities of 80,000 Btu/h and 90,000 Btu/h are more appropriate than 
75,000 Btu/h for non-weatherized gas furnaces and weatherized gas 
furnaces, respectively. (FUR: Ingersoll Rand, No. 1.3.006 at p. 2)
    DOE reexamined the availability of input capacities on the furnace 
market and determined that 80,000 Btu/h is a very common and 
representative input capacity for non-weatherized gas furnaces. Thus, 
for the direct final rule analysis, DOE considered 80,000 Btu/h as the 
representative capacity for non-weatherized gas furnaces. As described 
in section III.G, DOE did not perform an analysis for weatherized gas 
furnaces.
    In the furnaces RAP, DOE proposed retaining the representative 
characteristics identified in the 2007 rulemaking, including the 
baseline efficiency of 78-percent AFUE.\32\ Ingersoll Rand commented 
that a baseline non-weatherized gas furnace would have the following 
characteristics: 80-percent AFUE; 80,000 Btu/h input capacity; induced 
draft; single-stage burner; permanent split capacitor (PSC) motor-
driven, direct-drive, forward curved blower, sized for use with a 
three-ton air conditioner; multi-poise configuration; builder model; 
and hot surface igniter. (FUR: Ingersoll Rand, No. 1.3.006 at p. 3)
---------------------------------------------------------------------------

    \32\ In the furnaces RAP, DOE took the position that the 
baseline for non-weatherized gas furnaces was 78-percent AFUE, which 
is the current energy conservation standard for non-weatherized gas 
furnaces. However, DOE subsequently determined that because the 
November 2007 Rule was not vacated by the remand agreement, it will 
use 80-percent AFUE as the baseline for the direct final rule 
analyses in order to avoid violating the ``anti-backsliding 
provision'' in 42 U.S.C. 6295(o)(1).
---------------------------------------------------------------------------

    After reviewing the current furnaces market, DOE agrees that the 
baseline characteristics identified by Ingersoll Rand are 
representative of many furnaces on the market. Although it is true that 
the majority of furnaces are manufactured and shipped as multi-poise 
units, the specific configuration in which the unit operates is 
determined by the configuration in the field. Therefore, DOE based its 
analysis on furnaces that could be installed in the representative 
configuration, whether multi-poise or not, and used the AFUE rating 
associated with the representative configuration.
    With respect to the standby mode energy use analysis, Lennox 
cautioned that DOE should not exclude ``premium'' controls and features 
that that do not improve AFUE from its analysis, as these features 
could increase the standby power consumption of the furnace. (FUR: 
Lennox, Public Meeting Transcript, No. 1.2.006 at pp. 164-165; FUR: 
Lennox, No. 1.3.018 at p.4)
    For the direct final rule analysis, DOE performed a large number of 
furnace teardowns, including some teardowns on products with premium 
features that consume electricity in standby mode and off mode. 
Although the products with premium features were included for the 
standby mode and off mode analysis, DOE did not include these premium 
(non-AFUE efficiency related) features in its engineering analysis for 
analyzing amended AFUE standards, as

[[Page 37455]]

they could distort DOE's estimates of MPC at each efficiency level.
    Accordingly, the baseline furnace characteristics that DOE used in 
the direct final rule analysis are presented in Table IV.1.

                       Table IV.1--Characteristics of Representative Residential Furnaces
----------------------------------------------------------------------------------------------------------------
                                         Non-Weatherized gas        Mobile home gas        Non-Weatherized oil-
                                               furnaces                 furnaces              fired furnaces
----------------------------------------------------------------------------------------------------------------
Input Capacity Btu/h.................  80,000.................  80,000.................  105,000.
Configuration........................  Upflow.................  Downflow...............  Upflow.
Heat Exchanger Type..................  Clamshell or Tubular...  Clamshell or Tubular...  Drum.
Ignition Type........................  Hot Surface............  Hot Surface............  Intermittent Ignition.
Draft................................  Induced................  Induced................  Forced.
Blower Size..........................  1200 cfm...............  1200 cfm...............  1200 cfm.
Transformer..........................  40 VA Laminated Core...  40 VA Laminated Core...  40 VA Laminated Core.
Power Supply Type....................  Linear.................  Linear.................  Linear.
----------------------------------------------------------------------------------------------------------------

b. Central Air Conditioners and Heat Pumps
    DOE reviewed all of the product classes of residential central air 
conditioners and heat pumps and chose units for analysis that represent 
a cross-section of the residential central air conditioning and heat 
pump market within each product type. For the conventional split system 
and single package central air conditioner and heat pump product 
classes, as well as for the SDHV product classes, DOE selected 36,000 
Btu/h (three tons of cooling capacity) as the representative capacity 
for analysis because units at this capacity are common across 
manufacturers, with high sales volumes spanning a relatively large 
range of efficiencies.
    DOE acknowledges that manufacturers tend to optimize residential 
central air conditioner and heat pump split systems around the three-
ton capacity. Therefore, DOE expanded the engineering analysis to 
include additional cooling capacities for split system central air 
conditioners and heat pumps based upon the analysis at the 
representative capacity. (See section IV.C.5.b for further information 
about the scaling of the engineering analysis to different cooling 
capacities.)
    In the preliminary analysis, DOE was unaware of any suitable 
alternative refrigerant which could be used as a replacement for R410a, 
and therefore, considered R410a to be the only available refrigerant 
option. During manufacturer interviews, the viability of HFO-1234YF as 
an alternative was discussed. However, manufacturer feedback indicated 
that this refrigerant is still in the early phases of development and 
is a more likely replacement for R134a in automotive applications than 
R410a in central air conditioners and heat pumps. This conclusion leads 
to questions about the technological feasibility of HFO-1234YF as a 
replacement. Further, because it is still in development, the 
requirements for large scale production of this refrigerant and the 
ability to service units charged with it on a national scale are 
undetermined.
    DOE received comments regarding the need for analysis on 
alternative refrigerants because of a possible hydrofluorocarbon (HFC) 
refrigerant cap and subsequent phase-out, which would force the 
industry to find a replacement refrigerant for R410a. Carrier did not 
mention specific climate policies but commented generally that there 
are climate policies which are going to restrict the use of HFC. 
However, higher SEER equipment requires more refrigerant charge, and, 
thus, it is critical to understand the impact on cost of refrigerant 
for this rulemaking. (CAC: Public Meeting Transcript at p. 152) Emerson 
noted that the cost of the additional refrigerant could be much higher 
than what is paid today due to a possible leverage effect from a 
potential ``cap-and-trade'' regime.\33\ (CAC: Public Meeting Transcript 
at p. 153) DOE does not conduct analyses based on potential legislation 
because doing so would be highly speculative, and the lack of a 
suitable alternative refrigerant adds another speculative layer of 
uncertainty. Therefore, DOE decided not to alter its analyses and did 
not consider alternative refrigerants in the direct final rule 
analyses.
---------------------------------------------------------------------------

    \33\ ``Cap-and-trade'' is a market-based emissions trading 
program in which the government sets a limit on the amount of 
emissions and allocates permits to emit a specified amount. 
Companies with higher emissions are able to buy permits from 
companies which emit less.
---------------------------------------------------------------------------

    DOE did not receive any comments on the other representative 
characteristics chosen for the baseline unit for preliminary analysis 
and continued to use the same representative traits for the direct 
final rule. These characteristics of a typical baseline unit are:
     36,000 Btu/h cooling capacity;
     Rifled copper tubes;
     Lanced aluminum fins;
     Single-speed, single-capacity compressor;
     Single-speed permanent split capacitor (PSC) fan and 
blower motor;
     Expansion orifice; and
     R410a refrigerant.
3. Efficiency Levels
    For each of the representative products, DOE analyzed multiple 
efficiency levels and estimated manufacturer production costs at each 
efficiency level. The following subsections provide a description of 
the full range of efficiency levels DOE analyzed for each product 
class, from the baseline efficiency level to the maximum 
technologically feasible (max-tech) efficiency level.
    For each product class, DOE selected baseline units as reference 
points, against which DOE measured changes resulting from potential 
amended energy conservation standards. Generally, the baseline unit in 
each product class: (1) Represents the basic characteristics of 
equipment in that class; (2) just meets current Federal energy 
conservation standards, if any; and (3) provides basic consumer 
utility.
    DOE conducted a survey of the residential furnace and central air 
conditioner and heat pump markets to determine what types of products 
are available to consumers and to identify the efficiency levels 
corresponding to the greatest number of models. Then, DOE established 
intermediate energy efficiency levels for each of the product classes 
that are representative of efficiencies that are typically available on 
the market. DOE reviewed AHRI's product certification directory, 
manufacturer catalogs, and other publicly-available literature to 
determine which efficiency levels are the most prevalent for each 
representative product class.
    DOE also determined the maximum improvement in energy efficiency 
that is technologically feasible (max-tech) for furnaces and central 
air conditioners

[[Page 37456]]

and heat pumps, as required under 42 U.S.C. 6295(p)(1). For the 
representative product within a given product class, DOE could not 
identify any working products or prototypes at higher efficiency levels 
that were currently available beyond the identified max-tech level at 
the time the analysis was performed.
a. Furnaces
(i) Baseline Efficiency Level
    As discussed above, the energy conservation standards for 
residential furnaces are codified at 10 CFR 430.32(e)(1)(i), which sets 
forth the existing standard levels for residential furnaces, as well as 
the amended minimum standards codified at 10 CFR 430.32(e)(1)(ii), 
which were set by the November 2007 Rule (72 FR 65136 (Nov. 19, 2007)), 
which will require compliance starting on November 19, 2015. At the 
time of publication of the furnaces RAP, DOE believed that its 
voluntary remand of the November 2007 Rule in response to a joint 
lawsuit voided the furnace standards set forth by that rule. Under this 
interpretation, DOE proposed setting the baseline for the current 
analysis at 78-percent AFUE for non-weatherized gas furnaces, 
weatherized gas furnaces, and oil-fired furnaces, and at 75-percent 
AFUE for mobile home gas furnaces.\34\ However, since the publication 
of the furnaces RAP, DOE has reevaluated its interpretation of the 
effect of the voluntary remand and determined that because the November 
2007 Rule was not vacated, the standards promulgated in that rule will 
still require compliance for products manufactured on or after November 
19, 2015. Due to EPCA's anti-backsliding clause (42 U.S.C. 6295(o)(1)), 
DOE cannot set minimum standards below the levels promulgated in the 
November 2007 Rule. As a result, DOE considered the levels set in the 
November 2007 Rule to represent the baseline efficiency in each product 
class for the direct final rule analysis. Therefore, the baseline 
levels for the direct final rule analysis were set at 80-percent AFUE 
for non-weatherized gas furnaces and mobile home furnaces, 81-percent 
AFUE for weatherized gas furnaces, and 82-percent AFUE for non-
weatherized oil furnaces. (Note that, as described in section 
III.G.2.a, DOE did not perform an analysis for weatherized gas 
furnaces, because the standards adopted for this product are already 
set at the max-tech level.)
---------------------------------------------------------------------------

    \34\ Energy Conservation Standards for Residential Furnaces 
Rulemaking Analysis Plan, March 11, 2010, p. 31. Available at: 
http://www1.eere.energy.gov/buildings/appliance_standards/residential/pdfs/furnaces_framework_rap.pdf.
---------------------------------------------------------------------------

(ii) Max-Tech Efficiency Level
    The ``max-tech'' efficiency levels are the maximum technologically 
feasible efficiency levels possible for each product class. As required 
under 42 U.S.C. 6295(p)(1), DOE determined the max-tech efficiency 
level for each residential furnace product class. DOE has identified 
the max-tech efficiency levels as being the highest efficiencies on the 
market at the representative capacities. In the furnaces RAP, for 
purposes of its analyses, DOE proposed using max-tech efficiency levels 
of 97.7-percent AFUE for non-weatherized gas furnaces, 95.5-percent 
AFUE for mobile home furnaces, and 97-percent AFUE for oil-fired 
furnaces. In addition, DOE proposed to use 81-percent AFUE as the max-
tech for weatherized gas furnaces in the furnaces RAP, which DOE used 
for the direct final rule analysis. Consequently, no analysis was 
needed for weatherized gas furnaces because the standard was already 
set at the max-tech level, as discussed further in section III.G.2.a.
    DOE received several comments related to the max-tech levels 
proposed in the furnaces RAP. Ingersoll Rand stated that the max-tech 
level for non-weatherized gas furnaces should be 98-percent AFUE. (FUR: 
Ingersoll Rand, No. 1.3.006 at p. 3) Lennox stated support for DOE's 
proposed max-tech levels for the non-weatherized gas furnace and mobile 
home gas furnace product classes for the purpose of undertaking the 
required analysis, although Lennox noted that it does not believe that 
DOE should establish minimum efficiency standards at max-tech levels. 
(FUR: Lennox, No. 1.3.018 at p. 3)
    In response, DOE notes that the AFUE requirements for furnaces 
established in EPCA are specified as whole number percentages. 
Additionally, in previous rulemakings to amend standards for furnaces, 
DOE has specified amended minimum standards in terms of the nearest 
whole percentage point. To remain consistent with the original 
standards in EPCA, DOE rounded the efficiency levels being analyzed in 
today's direct final rule (including max-tech AFUE) to the nearest 
whole percentages. For non-weatherized gas furnaces and mobile home 
furnaces, this results in max-tech levels of 98-percent and 96-percent 
AFUE, respectively. DOE also notes that the DOE residential furnaces 
test procedure currently provides instructions for rounding annual 
operating cost and estimated regional annual operating cost to the 
nearest dollar per year. 10 CFR 430.23(n)(1); 10 CFR 430.23(n)(3). 
However, the test procedure does not provide instructions for rounding 
AFUE. This lack of specificity for rounding may lead to uncertainty in 
terms of how to complete calculations using the reported metrics or to 
discrepancies among results generated by test laboratories for the same 
product. Overall, DOE is concerned that unless the applicable portion 
of DOE's furnace test procedures are modified, there may be 
difficulties associated with ascertaining, certifying, and reporting 
compliance with the existing standards. Therefore, to remedy this 
situation, DOE is adding instructions to 10 CFR 430.23(n)(2) requiring 
that AFUE be rounded to the nearest whole percentage point.
    Additionally, EEI stated that DOE should analyze gas-fired air 
source heat pumps with coefficient of performance (COP) ratings above 
1.2 as a maximum technology option for gas furnaces. (FUR: EEI, No. 
1.3.015 at p. 5) In response, DOE reexamined the definition of a ``gas 
furnace.'' DOE notes that EPCA defines a ``furnace,'' in part, as ``an 
electric central furnace, electric boiler, forced-air central furnace, 
gravity central furnace, or low pressure steam or hot water boiler.'' 
(42 U.S.C. 6291(23)(C)) DOE's definitions in the CFR further clarify 
the definition of a ``forced-air central furnace,'' defining that term 
as a product in which ``[t]he heat generated by the combustion of gas 
or oil is transferred to the air within a casing by conduction through 
heat exchange surfaces. * * *'' 10 CFR 430.2. DOE notes that products 
using gas-fired air source heat pump technology do not use the heat 
generated by the combustion of gas or oil to heat the circulation air, 
as required under DOE's definitions. Therefore, DOE has concluded that 
products using this technology are outside the scope of this rulemaking 
because they do not meet the definition of a ``furnace,'' as defined by 
DOE.
    Regarding oil-fired furnaces, Lennox stated that it does not agree 
with DOE's max-tech level, which it believes is unrealistic. Lennox 
asserted that although condensing oil-fired furnaces do exist in the 
market, they comprise a very small minority and are, therefore, not 
representative of the market and should not be considered in the 
rulemaking. Instead, Lennox urged DOE to consider oil-fired furnaces 
with AFUE values between 85-percent and 87-percent as the true max-tech 
level for oil-fired furnaces. (FUR: Lennox, No. 1.3.018 at p. 3)

[[Page 37457]]

    While DOE does not believe that condensing oil-fired furnaces are 
representative of the market, their existence and commercial 
availability are evidence of technological feasibility. DOE believes 
that this technology warrants consideration in the analysis, and, 
therefore, the condensing level was retained for the oil-fired furnace 
product class.
(iii) Efficiency Levels for Analysis
    For each residential furnace product class, DOE analyzed both the 
baseline and max-tech efficiency levels, as well as several 
intermediate efficiency levels. In the furnaces RAP, DOE identified the 
intermediate efficiency levels that it proposed to include in the 
analysis, based on the most common efficiencies on the market. These 
levels are shown in Table IV.2.

 Table IV.2--Efficiency Levels Considered in the RAP for the Residential
                            Furnaces Analysis
------------------------------------------------------------------------
                                                            Efficiency
                      Product class                        level (AFUE)
                                                             (percent)
------------------------------------------------------------------------
Non-weatherized Gas.....................................              78
                                                                      80
                                                                      90
                                                                      92
                                                                      93
                                                                      95
                                                                    97.7
Mobile Home.............................................              75
                                                                      80
                                                                      90
                                                                      92
                                                                      93
                                                                    95.5
Oil-Fired Non-weatherized...............................              78
                                                                      80
                                                                      83
                                                                      84
                                                                      85
                                                                      97
------------------------------------------------------------------------

    For non-weatherized gas furnaces, Ingersoll Rand suggested 
performing teardowns at 90-percent, 95-percent, and 98-percent AFUE 
with interpolation to span the range of intermediate values. (FUR: 
Ingersoll Rand, No. 1.3.006 at p. 4) ACEEE suggested adding a level at 
81-percent AFUE, substituting 94-percent for 93-percent AFUE if there 
are more models available, and keeping an efficiency level at 95-
percent, which is the current tax credit level. (FUR: ACEEE, No. 
1.3.009 at p. 6)
    In response to these comments, DOE reexamined the market and 
reduced the efficiency levels for analysis to the most common 
efficiencies on the furnace market. DOE determined that there are very 
few products currently on the market at 81-percent AFUE. Because 
shipments are so low, DOE determined that 81-percent AFUE did not 
warrant consideration in the analysis. DOE also examined the prevalence 
of 93-percent and 94-percent AFUE products on the market, and 
determined that 93-percent AFUE models are more common. However, upon 
further consideration, DOE believes 92-percent AFUE models are the most 
commonly shipped units in this range. Therefore, DOE analyzed only 92-
percent AFUE instead of 93-percent or 94-percent AFUE. DOE kept the 
level at 95-percent AFUE for the direct final rule analysis, as was 
recommended by interested parties. Rather than performing teardowns at 
only 90-percent, 95-percent, and 98-percent AFUE, as Ingersoll Rand 
suggested, DOE performed teardowns at every efficiency level analyzed 
to provide greater accuracy in the analysis.
    The baseline, max-tech, and intermediate efficiency levels for each 
furnace product class analyzed are presented in Table IV.3. As noted 
above and discussed in section III.G.2.a, weatherized gas furnaces were 
not analyzed, and as a result, the table shows efficiency levels for 
only non-weatherized gas, mobile home, and non-weatherized oil 
furnaces.

     Table IV.3--Efficiency Levels Analyzed for Residential Furnaces
------------------------------------------------------------------------
                                                            Efficiency
                      Product class                        level (AFUE)
                                                             (percent)
------------------------------------------------------------------------
Non-weatherized Gas.....................................              80
                                                                      90
                                                                      92
                                                                      95
                                                                      98
Mobile Home.............................................              80
                                                                      90
                                                                      92
                                                                      96
Oil-Fired Non-weatherized...............................              82
                                                                      83
                                                                      84
                                                                      85
                                                                      97
------------------------------------------------------------------------

b. Central Air Conditioners and Heat Pumps
    DOE selected baseline efficiency levels as reference points for all 
of the product classes of central air conditioners and heat pumps and 
compared these baselines to projected changes resulting from potential 
amended energy conservation standards. Products at the baseline 
efficiency in each product class represent products with the common 
characteristics of equipment in that class that just meet current 
Federal energy conservation standards, while still providing basic 
consumer utility.
    For each of the representative products, DOE analyzed multiple 
efficiency levels and estimated manufacturer production costs at each 
efficiency level. Table IV.4 and Table IV.5 provide the full efficiency 
level range that DOE analyzed from the baseline efficiency level to the 
max-tech efficiency level for each product class. The highest 
efficiency level in each of the seven product classes was identified 
through a review of products listed in AHRI-certified directories, 
manufacturer catalogs, and other publicly-available documents.

[[Page 37458]]

[GRAPHIC] [TIFF OMITTED] TR27JN11.003

[[Page 37459]]

[GRAPHIC] [TIFF OMITTED] TR27JN11.004

    In the preliminary analysis of split system air conditioners and 
heat pumps, DOE only examined products at the representative three-ton 
capacity. For the direct final rule, DOE performed additional analyses 
for two-ton and five-ton products. Therefore, the efficiency levels 
analyzed for split system products were expanded to include the 
relevant efficiency levels at the additional cooling capacities. For 
single package central air conditioners and heat pumps, as well as SDHV 
systems, the efficiency levels did not change from the preliminary 
analysis.
    For space-constrained products, AHRI certification directory 
listings and manufacturer catalogs only contain units rated at a single 
efficiency level. DOE defined the baseline for space-constrained 
products as the efficiency specified by the current Federal energy 
conservation standards (i.e., 12 SEER). This SEER value is the same as 
the max-tech SEER value identified in DOE's analysis. Therefore, DOE 
did not conduct further analysis on the space-constrained products 
because the energy conservation standards for these two product classes 
are already set at the max-tech level and cannot be amended to provide 
additional savings. For additional details, see section III.G of this 
direct final rule.
4. Results
    Using the manufacturer markup and shipping costs, DOE calculated 
estimated manufacturer selling prices of the representative furnaces 
and central air conditioners and heat pumps from the manufacturer 
production costs developed using the cost model. Chapter 5 of the TSD 
accompanying today's notice provides a full list of manufacturer 
production costs and manufacturer selling prices at each efficiency 
level for each product class and capacity analyzed, for both furnaces 
and central air conditioners and heat pumps. Chapter 5 of the TSD also 
contains the estimated cost to implement each design option that DOE 
analyzed for reducing the standby mode and off mode energy consumption 
of furnaces and off mode energy consumption of central air conditioners 
and heat pumps.
5. Scaling to Additional Capacities
    DOE developed MPCs for the analysis of additional input capacities 
for furnaces and cooling capacities for residential central air 
conditioners and heat pumps by performing virtual teardowns of products 
at input capacities and cooling capacities other than the 
representative capacities. DOE developed a cost model for each virtual 
teardown product based on physical teardowns of representative units 
with a range of nominal capacities and from multiple manufacturers. 
Whenever possible, DOE maintained the same product line that was used 
for the physical teardown of the representative products to allow for a 
direct comparison of models at representative capacities and models at 
higher and lower capacities. For furnaces, the cost model accounts for 
changes in the size of components that would scale with input capacity 
(e.g., heat exchanger size), while components that typically do not 
change based on input capacity (e.g., gas valves, thermostats, 
controls) were assumed to remain largely the same across the different 
input capacities. Similarly, for central air conditioners and heat 
pumps, the cost model accounts for changes in the size of components 
that would scale with input capacity (e.g., coil size, compressor), 
while components that typically do not change based on input capacity 
(e.g., expansion valves, electronic controls) were assumed to remain 
largely the same across the different input capacities. DOE estimated 
the changes in material and labor costs that occur at capacities higher 
and lower than the representative capacities based on observations made 
during teardowns and professional experience. Performing physical 
teardowns of models outside of the representative capacities allowed 
DOE

[[Page 37460]]

to accurately model certain characteristics that are not identifiable 
in manufacturer literature.
a. Furnaces
    DOE recognizes that there is a large variation in the input 
capacity ratings of residential furnaces beyond the representative 
input capacity, which causes large discrepancies in manufacturer 
production costs. To account for this variation, DOE analyzed 
additional common input capacities (as determined during the market 
assessment) for the largest class of residential furnaces (i.e., non-
weatherized gas furnaces). DOE performed physical teardowns of several 
non-weatherized gas furnaces above and below the representative input 
capacity to gather the necessary data to accurately scale the results 
from the representative input capacity to other input capacities. 
Performing teardowns of models outside of the representative capacity 
allowed DOE to accurately model certain characteristics that are not 
identifiable in manufacturer literature. In the furnaces RAP, DOE set 
forth its plans to analyze models at input capacities of 50,000 Btu/h 
and 125,000 Btu/h in addition to the models at the representative input 
capacity.
    In comments, Ingersoll Rand stated that the additional input 
capacities which DOE planned to analyze are not very common, and 
instead, the company suggested that DOE should analyze units at 40,000 
Btu/h and 120,000 Btu/h, as the AHRI furnace directory lists a much 
greater number of models at these capacities. (FUR: Ingersoll Rand, No. 
1.3.006 at p. 5) ACEEE, too, favored 40,000 Btu/h for analysis, because 
it argued that the smaller input capacity is more appropriate for the 
heating loads of modest-sized houses. (FUR: ACEEE, No. 1.3.009 at pp. 
6-7) At the upper bounds of capacity, Ingersoll Rand also commented 
that there are not many condensing furnaces above 120,000 Btu/h input 
capacity. (FUR: Ingersoll Rand, Public Meeting Transcript, No. 1.2.006 
at p. 178) AHRI again advised DOE not to lock into discrete capacities 
in its analysis of the low and high ends of the capacity range. (FUR: 
AHRI, Public Meeting Transcript, No. 1.2.006 at pp. 176-177)
    In response to these comments, DOE reevaluated the distribution of 
capacities on the furnace market and determined that the majority of 
non-weatherized gas furnace models on the market are offered in 20,000 
Btu/h increments between 40,000 Btu/h and 120,000 Btu/h, with the bulk 
of models at 60,000, 80,000, 100,000 and 120,000 Btu/h.
    Therefore, DOE scaled its analysis for non-weatherized gas furnaces 
(using virtual teardowns in conjunction with physical teardowns) to 
60,000 Btu/h, 100,000 Btu/h, and 120,000 Btu/h, in addition to the 
analysis that was performed for the representative input capacity of 
80,000 Btu/h. DOE selected these three additional input capacities to 
align them with the number of additional cooling capacities being 
analyzed for the central air conditioners analysis. DOE believes that 
60,000 Btu/h is more representative of the lower end of the capacity 
range than 40,000 Btu/h, which is the minimum specified input capacity 
that meets DOE's definition.
    The results of DOE's analysis for the additional input capacities 
are presented in chapter 5 of the direct final rule TSD. Chapter 5 also 
contains additional details about the calculation of MPCs for input 
capacities outside of the representative capacity.
b. Central Air Conditioners and Heat Pumps
    To account for the variation in the rated cooling capacities of 
split system residential central air conditioners and heat pumps, and 
differences in both usage patterns and first cost to consumers of split 
system air conditioners and heat pumps larger or smaller than the 
representative capacity, DOE developed MPCs for central air 
conditioners and heat pumps at two-ton and five-ton cooling capacities, 
in addition to MPCs for the representative three-ton units.
    To develop the MPCs for the analysis of two-ton and five-ton units, 
DOE used its cost model based on teardowns of representative units from 
multiple manufacturers. DOE modified the cost model for the 
representative capacity (i.e., three-tons) to account for changes in 
the size of central air conditioner and heat pump components that would 
scale with cooling capacity (e.g., evaporator and condenser coils, 
outer cabinet, packaging). DOE accurately modeled certain other 
characteristics (e.g., compressor, fan motor, fan blades) using 
information contained in manufacturer literature.
    The results of DOE's analysis for the additional cooling capacities 
are presented in chapter 5 of the direct final rule TSD along with 
details about the calculation of central air conditioner and heat pump 
MPCs.
6. Heat Pump SEER/HSPF Relationships
    For heat pumps, energy conservation standards must establish 
minimum values for HSPF in addition to SEER. In previous rulemakings 
(see section 4.8.1 of the 2001 final rule TSD available at http://www1.eere.energy.gov/buildings/appliance_standards/residential/ac_central_1000_r.html), analyses performed in terms of SEER were used 
as the basis for determining HSPF standards, and DOE has continued that 
approach for the current analysis. Consequently, DOE investigated the 
relationship between SEER and HSPF in the preliminary analysis, and 
reexamined that relationship for the direct final rule analysis. As a 
first step in examining the relationship, DOE plotted the median HSPF 
values for units that met or exceeded the existing standard of 7.7 HSPF 
for each product class and cooling capacity analyzed at half-SEER 
increments up to 16 SEER, and one-SEER increments from 16 SEER up to 
the max-tech level. For the preliminary analysis, DOE tentatively 
proposed using a SEER-HSPF relationship consisting of two separate 
linear sections, which roughly followed the median HSPF at each SEER. 
One trend line was developed for SEER values ranging from 13 to 16, and 
a separate second trend line was developed for SEER values above 16 
SEER level. DOE proposed to use these two different trends because a 
substantial increase in the median HSPF was evident for units with 
cooling efficiencies greater than 16 SEER, which would be more 
accurately reflected through the use of two lines. DOE proposed to use 
the same relationship for single package units as well. Niche product 
relationships were not developed because these products were not fully 
analyzed in the preliminary analysis.
    Based on updates to unit listings in the AHRI directory \35\ as of 
June 2010, DOE has reexamined and updated the SEER-HSPF relationship 
for the direct final rule analysis. When DOE plotted the median HSPF 
values for the various SEER increments using 2010 version of the AHRI 
directory as opposed to a 2008 version which was used in the 
preliminary analysis, the more recent data exhibited a more gradual 
increase in the HSPF trend at SEER values over 16 SEER. As a result, 
DOE trended the data set of median values using a single linear 
relationship. DOE believes that this approach, which follows the median 
more closely than the relationship developed for the preliminary 
analysis, is more representative of the SEER-HSPF relationship 
illustrated by heat pumps currently available in the market. 
Additionally, while examining the

[[Page 37461]]

relationship for different product classes and capacity sizes, DOE 
determined that the differences in HSPF values across product classes 
were substantial enough to warrant separate SEER-HSPF relationships for 
each product class and each cooling capacity analyzed. See chapter 5 of 
the TSD accompanying today's notice for the specific HSPF values 
considered at given SEER levels based on the SEER-HSPF relationship 
developed for this direct final rule.
---------------------------------------------------------------------------

    \35\ Available at: http://www.ahridirectory.org/ceedirectory/pages/hp/defaultSearch.aspx.
---------------------------------------------------------------------------

7. Standby Mode and Off Mode Analysis
    As mentioned in section III.C, DOE is required by EPCA, as amended, 
to address standby mode and off mode energy consumption when developing 
amended energy conservation standards for furnaces and central air 
conditioners and heat pumps. (42 U.S.C. 6295(gg)) DOE adopted a design-
option approach for its standby mode and off mode engineering analysis 
for both furnaces and central air conditioners/heat pumps, which 
allowed DOE to calculate the incremental costs of adding specific 
design options to a baseline model. DOE decided on this approach 
because sufficient data do not exist to execute an efficiency-level 
analysis, and DOE is not aware of any manufacturers that currently rate 
or publish data on the standby mode energy consumption of their 
products. Unlike standby mode and off mode fossil-fuel consumption for 
furnaces which is accounted for by AFUE for gas and oil-fired furnaces, 
standby mode and off mode electricity consumption for furnaces 
(including for electric furnaces) is not currently regulated. 
Similarly, although SEER and HSPF account for the standby mode 
electricity consumption of central air conditioners and furnaces, off 
mode electricity consumption is currently unregulated. Because of this, 
DOE believes manufacturers generally do not invest in research and 
development (R&D) to design products with reduced standby mode and off 
mode electrical energy consumption. Therefore, DOE determined that 
there is no basis for comparison of efficiency levels among products in 
terms of standby mode and off mode energy consumption. The design-
option approach, by contrast, allowed DOE to examine potential designs 
for reducing the standby mode and off mode power consumption of 
residential furnaces and the off mode energy consumption of central air 
conditioners and heat pumps. Standby mode energy consumption for 
central air conditioners and heat pumps is already accounted for in the 
SEER and HSPF metrics. As discussed in section III.E of this direct 
final rule, DOE analyzed new, separate standards for standby mode and 
off mode energy consumption using separate metrics, because it is not 
technologically feasible to integrate standby mode and off mode into 
the existing metrics for these products; standby mode and off mode 
power consumption is orders of magnitude less than active mode power 
consumption, so in most cases, any effects would likely be lost because 
AFUE is reported to the nearest whole number for these products.
a. Identification and Characterization of Standby Mode and Off Mode 
Components
    Using the design-option approach, DOE identified components that 
contribute to standby mode and off mode energy consumption in the 
teardown-generated BOMs used for analyzing amended AFUE and SEER 
standards. For furnaces, DOE performed measurements of standby mode and 
off mode electrical energy consumption of each product before it was 
torn down in accordance with the test procedures specified in DOE's 
July 2009 furnaces test procedure NOPR (whose approach was subsequently 
adopted in a final rule published in the Federal Register on October 
20, 2010 (75 FR 64621)). 74 FR 36959 (July 27, 2009). In addition, DOE 
performed testing on individual components that DOE believes consume 
most of the standby energy (e.g., transformer, ECM blower motor). DOE 
aggregated these measurements to characterize and estimate the 
electrical energy use of each component operating in standby mode or 
off mode, as well as the standby mode and off mode consumption of the 
entire product. During manufacturer interviews, manufacturers provided 
feedback on these data, which DOE used to update its estimates. DOE 
also estimated the costs of individual components and designs capable 
of being used to reduce standby mode and off mode power consumption 
based on volume-variable price quotations and detailed discussions with 
manufacturers and component suppliers, and DOE received feedback from 
manufacturers which was used to refine the estimates.
    For electric furnaces, DOE analyzed the expected standby mode and 
off mode power consumption of an electric furnace in comparison to the 
standby mode and off mode power consumption of a non-weatherized gas 
furnace. For non-weatherized gas furnaces, DOE found that for the 
baseline standby mode and off mode design, the components that 
primarily contribute to standby mode and off mode power consumption are 
the control transformer, an ECM fan motor (which was assumed present 
for the baseline standby mode and off mode design), and the control 
board power supply, which were estimated to use a total of nine watts 
on average. Additionally, furnaces with more complex controls and 
features (which are included in the baseline for the standby mode and 
off mode analysis since they are the highest-power consuming designs), 
DOE found that additional standby mode and off mode power requirements 
could be up to 2 watts, for a total of 11 watts of standby mode and off 
mode power consumption.
    To estimate the likely standby mode and off mode power consumption 
of electric furnaces, DOE compared wiring diagrams, control schematics, 
and images of control boards of gas and electric furnaces. DOE found 
that electric furnaces commonly use a 40VA transformer that is very 
similar to those found in non-weatherized gas furnaces. Hence, DOE 
expects the power consumption associated with these transformers is the 
same. A DOE review of electric furnaces suggests that other components 
are also the same as (or very similar to) those used in non-weatherized 
gas furnaces, such as ECM blower motors, which suggests similar standby 
consumption for these components also. Finally, DOE examined the 
control boards, their power supplies, and the electrical systems of 
both electric and gas furnaces to examine potential differences in 
standby mode and off mode power consumption. DOE found that control 
boards for both electric and non-weatherized gas furnaces typically 
share many common features, such as linear and/or zener-style power 
supplies, relays, and microchip controllers. Additionally, both furnace 
types need a wiring harness and some sensors for safety and control. 
The two key differences are that electric furnace control boards tend 
to be simpler (no flame ignition/supervision, staging, and other 
combustion safety controls needed) and that electric furnace control 
boards use relays and/or sequencers that have higher capacity ratings 
than the relays typically found in gas furnaces. Sequencers are used to 
turn the electric furnace heating elements on incrementally to limit 
inrush currents and prevent nuisance trips of circuit breakers. DOE 
estimates that the additional standby power associated with the use of 
larger relays and/or sequencers of electric furnaces is balanced by the 
lack of need for controls/components for combustion initiation and 
control on gas furnaces.
    As a result, DOE believes the evidence suggests that an electric 
furnace has a

[[Page 37462]]

standby mode and off mode electrical consumption that is similar that 
of non-weatherized gas furnaces in similar models. Further, DOE 
believes the design options that were identified for reducing the 
standby mode and off mode power consumption of gas furnaces (i.e., a 
switching mode power supply and a toroidal transformer) will have the 
same impact on the standby mode and off mode power consumption of 
electric furnaces.
    For central air conditioners and heat pumps, DOE measured off mode 
electrical energy consumption of units with and without crankcase 
heaters and with various crankcase heater control strategies in 
accordance with the test procedures specified in the DOE test procedure 
NOPR for central air conditioners and heat pumps. 75 FR 31224, 31260 
(June 2, 2010). As was done for furnaces, DOE aggregated these 
measurements, in conjunction with nominal power ratings, to 
characterize the electrical energy use of each component operating in 
off mode. During manufacturer interviews, manufacturers provided 
feedback on these data, which DOE used to update its estimates. DOE 
also estimated the costs of individual components based on the same 
approach as furnaces and received feedback from manufacturers which was 
used to further refine these cost estimates.
b. Baseline Model
    As noted above, the design-option approach that DOE is using for 
the standby mode and off mode energy conservation standards engineering 
analysis calculates the incremental costs for products with standby 
mode or off mode energy consumption levels above a baseline model in 
each standby mode and off mode product class covered in this 
rulemaking. Because standby mode and off mode electrical energy 
consumption of residential furnaces and central air conditioners and 
heat pumps is currently unregulated, DOE began by defining and 
identifying baseline components from the representative furnace 
teardowns that consumed the most electricity during standby mode and 
off mode operation. Baseline components were then ``assembled'' to 
model the electrical system of a furnace or central air conditioner or 
heat pump with the maximum system standby mode or off mode electrical 
energy consumption from DOE's representative test data. The baseline 
model defines the energy consumption and cost of the most energy-
consumptive product on the market today (i.e., units with the highest 
standby mode and off mode electricity consumption) operating in standby 
mode or off mode. See chapter 5 of the direct final rule TSD for 
baseline model specifications.
    ACEEE stated that it expects the average furnace to have a standby 
power consumption of 8 watts or about 50 kilowatt-hours per year based 
on a 2003 study by the Wisconsin Energy Center.\36\ (FUR: ACEEE, No. 
1.3.009 at p. 11) As noted above, DOE tested furnaces in standby mode 
using the procedure proposed in the July 2009 furnaces test procedure 
NOPR and later adopted in the October 2010 test procedure final rule. 
None of the furnaces tested were equipped with a ``seasonal off 
switch,'' and as a result, DOE did not have any reason to expect a 
difference in standby mode and off mode power consumption, as the terms 
are defined in the test procedure.\37\ As specified in the October 2010 
test procedure final rule, DOE assumed that standby mode and off mode 
power consumption were equal, as the test procedure directs for units 
that do not have an expected difference between standby mode and off 
mode power consumption. 10 CFR Part 430, subpart B, appendix N, section 
8.6.2. DOE's testing resulted in a range of values, both above and 
below 8 watts. Additional discussion of the results of DOE's furnace 
testing is in chapter 5 of the direct final rule TSD.
---------------------------------------------------------------------------

    \36\ Pigg, S., ``Electricity Use by New Furnaces: A Wisconsin 
Field Study,'' Madison, WI: Energy Center of Wisconsin. (2003) 
(Available at: http://www.doa.state.wi.us/docs_view2.asp?docid=1812).
    \37\ The test procedure for furnaces and boilers defines 
``standby mode'' as ``the condition during the heating season in 
which the furnace or boiler is connected to the power source, and 
neither the burner, electric resistance elements, nor any electrical 
auxiliaries such as blowers or pumps, are activated,'' and ``off 
mode'' as ``the condition during the non-heating season in which the 
furnace or boiler is connected to the power source, and neither the 
burner, electric resistance elements, nor any electrical auxiliaries 
such as blowers or pumps, are activated.'' 75 FR 64621, (Oct. 20, 
2010); 10 CFR part 430, subpart B, appendix N, section 2.0.
---------------------------------------------------------------------------

c. Cost-Power Consumption Results
    The results of the engineering analysis are reported as cost-power 
consumption data (or ``curves'') in the form of power (in watts) versus 
MPC (in dollars). For furnaces, DOE developed two different data sets 
for standby mode and off mode: one to use for the non-weatherized gas, 
mobile home gas (DOE's testing showed that the standby mode and off 
mode power consuming components are the same in mobile home gas 
furnaces as non-weatherized gas furnaces), and electric furnace product 
classes, and one to use for non-weatherized and mobile home oil-fired 
furnace product classes. For central air conditioners and heat pumps, 
DOE developed six off mode data sets: four for air conditioners and two 
for heat pumps. The data sets were produced based on units with ECM fan 
motors, because they will have a slightly higher off mode power 
consumption due to the fact that ECM fan motors have some controls 
integrated into them.
    The methodology for developing the cost-power consumption curves 
started with determining the energy use of baseline products and their 
full cost of production. For furnaces and central air conditioners and 
heat pumps, the baseline products contained the highest energy-
consuming components, which included an ECM blower motor (rather than a 
PSC) when applicable. Above the baseline, DOE implemented design 
options based on cost-effectiveness. Design options were implemented 
until all available technologies were employed (i.e., at a max-tech 
level). For furnaces and central air conditioners and heat pumps, the 
design options are not all mutually exclusive, and, therefore, systems 
could incorporate multiple design options simultaneously.
    After considering several potential designs to improve standby mode 
efficiency for furnaces, DOE ultimately examined two designs in 
addition to the baseline that passed the screening analysis (see 
chapter 4 of the direct final rule TSD for details). DOE first 
considered the use of a switch mode power supply instead of a linear 
power supply. DOE also considered the use of a toroidal transformer in 
addition to a switch mode power supply to further reduce standby mode 
and off mode energy consumption of a furnace. The power consumption 
levels analyzed for furnaces are shown in Table IV.6 below.

[[Page 37463]]

                   Table IV.6--Standby Mode and Off Mode Power Consumption Levels for Furnaces
----------------------------------------------------------------------------------------------------------------
                                                                  Non-weatherized gas,     Non-weatherized oil-
                                                                  electric, and mobile    fired and mobile home
                                                                    home gas furnace        oil-fired furnace
                                                                     standby power            standby power
                                                                    consumption  (W)         consumption (W)
----------------------------------------------------------------------------------------------------------------
Baseline......................................................                       11                       12
Efficiency Level 1............................................                       10                       11
Efficiency Level 2............................................                        9                       10
----------------------------------------------------------------------------------------------------------------

    Although DOE's test results for furnaces showed that the standby 
mode and off mode consumption could be reduced below efficiency level 2 
by eliminating certain features (e.g., replacing an ECM blower motor 
with a PSC motor), DOE did not consider these as potential design 
options, because the elimination of such features and components would 
result in a reduction of consumer utility. In its analysis, DOE only 
considered designs that could be implemented with no noticeable impacts 
on the performance and utility of the unit.
    For central air conditioners, DOE examined three designs (i.e., 
thermostatically-controlled fixed-resistance crankcase heaters, 
thermostatically-controlled variable-resistance crankcase heaters with 
compressor covers, and thermostatically-controlled variable-resistance 
crankcase heaters with compressor covers and a toroidal transformer) in 
addition to the baseline for split-system blower coil and packaged air 
conditioners equipped with crankcase heaters. DOE only examined two 
designs (i.e., thermostatically-controlled fixed-resistance crankcase 
heaters and thermostatically-controlled variable-resistance crankcase 
heaters with compressor covers) in addition to the baseline for coil-
only air conditioners, because the transformer is contained in the 
furnace or air handler and is not a component of a coil-only system. 
DOE believes that the crankcase heater is the only source of off mode 
power consumption for the coil-only systems, and consequently, a coil-
only split-system air conditioner will have no off mode power 
consumption without a crankcase heater unless it has an ECM motor in 
the condensing unit.
    For heat pumps, DOE found during testing that heat pumps achieved a 
lower power consumption during the off mode period through the use of 
crankcase heaters with a control strategy based on outdoor ambient 
temperature, as opposed to compressor shell temperature. However, using 
this control strategy prevents a heat pump from achieving any 
additional energy savings with a compressor cover, because while a 
cover helps the compressor shell retain heat, it has no effect on the 
outdoor ambient temperature sensor. Additionally, DOE found that the 
fixed-resistance and variable-resistance crankcase heaters had similar 
test results in terms of energy consumption and believes that 
manufacturers will choose the fixed-resistance heaters because they are 
more cost-effective. Therefore, DOE did not include compressor covers 
as a design option for heat pumps because there is no benefit from them 
without the variable-resistance crankcase heaters and only considered 
thermostatically-controlled crankcase heaters and toroidal 
transformers.
    DOE also found during testing that the crankcase heater accounts 
for the vast majority of off mode power consumption for air 
conditioners and heat pumps. However, not every unit has a crankcase 
heater and, to accurately reflect this in the analyses, DOE determined 
separate efficiency levels within each product class for units with and 
without a crankcase heater. Because two of the design options are only 
relevant with crankcase heaters, the only possible improvement to units 
without crankcase heaters is the toroidal transformer. Table IV.7 
through Table IV.9 contain the off mode efficiency levels for central 
air conditioners and heat pumps.
BILLING CODE 6450-01-P

[[Page 37464]]

[GRAPHIC] [TIFF OMITTED] TR27JN11.005

BILLING CODE 6450-01-C
    For furnaces, the standby mode and off mode electrical energy 
consumption (in watts) of each design option was estimated based on 
test measurements performed on furnace electrical components, industry 
knowledge, and feedback from manufacturers during manufacturer 
interviews. For central air conditioners and heat pumps, the off mode 
energy consumption of each system design was calculated based on test 
measurements performed according to the off mode test procedure for 
central air conditioners and heat pumps that was proposed in the June 
2010 test procedure NOPR (75 FR 31224 (June 2, 2010)), and information 
gathered during manufacturer interviews. See chapter 5 in the direct 
final rule TSD for additional detail on the engineering analyses and 
for complete cost-power consumption results for standby mode and off 
mode operation.

D. Markup Analysis

    The markup analysis develops appropriate markups in the product 
distribution chain to convert the estimates of manufacturer selling 
price derived in the engineering analysis to consumer prices. At each 
step in the distribution channel, companies mark up the price of the 
product to cover business costs and profit margin. After establishing 
appropriate distribution channels, DOE relied on economic data from the 
U.S. Census Bureau and industry sources to estimate how prices are 
marked up as the products pass from the manufacturer to the consumer.
    In the central air conditioners and heat pumps preliminary TSD, DOE 
determined two typical distribution channels for central air 
conditioners and heat pumps--one for replacement products, and one for 
products installed in new homes. DOE then estimated the markups 
associated with the main parties in the distribution channels. For 
replacement products, these are distributors and mechanical 
contractors. For products installed in new homes, these are 
distributors, mechanical contractors, and general contractors 
(builders).
    DOE based the distributor and mechanical contractor markups on 
company income statement data; \38\ DOE based the general contractor 
markups on

[[Page 37465]]

U.S. Census Bureau data \39\ for the residential building construction 
industry. For distributors and contractors, DOE developed separate 
markups for baseline products (baseline markups) and for the 
incremental cost of more-efficient products (incremental markups). 
Thus, for these actors, the estimated total markup for more-efficient 
products is a blend of a baseline markup on the cost of a baseline 
product and an incremental markup on the incremental cost. No comments 
were received on the distribution markups contained in the preliminary 
TSD for central air conditioners and heat pumps, and DOE retained the 
approach used in the preliminary analysis for today's direct final 
rule.
---------------------------------------------------------------------------

    \38\ Heating, Air-conditioning & Refrigeration Distribution 
International (HARDI) 2010 Profit Report; Air Conditioning 
Contractors of America (ACCA) Financial Analysis (2005).
    \39\ 2007 Economics Census; available at: http://factfinder.census.gov/servlet/EconSectorServlet?caller=dataset&sv_name=*&_SectorId=23&ds_name=EC0700A1&_lang=en&_ts=309198552580.
---------------------------------------------------------------------------

    In the furnaces RAP, DOE stated its intention to determine typical 
markups in the furnace distribution chain using publicly-available 
corporate and industry data, particularly Economic Census data from the 
U.S. Census Bureau \40\ and input from industry trade associations such 
as HARDI. It described a similar approach for furnaces to estimate 
baseline and incremental markups as was used in the preliminary 
analysis for central air conditioners and heat pumps.
---------------------------------------------------------------------------

    \40\ U.S. Census Bureau, Plumbing, Heating, and Air-Conditioning 
Contractors: 2002 (Report EC02-231-238220).
---------------------------------------------------------------------------

    Commenting on the furnaces RAP, HARDI stated that distributors do 
not categorize costs into labor-scaling and non-labor-scaling costs, 
and it recommended that DOE should not use this approach when 
projecting distributor impacts. HARDI recommended that DOE should use 
the markups approach taken in chapter 17 of the TSD for central air 
conditioners and heat pumps. (FUR: HARDI, No. 1.3.016 at p. 9)
    In response, DOE notes that the analysis described in chapter 17 of 
the TSD for central air conditioners and heat pumps only used baseline 
markups because its purpose was to estimate the impacts of regional 
standards and not to estimate the incremental costs of higher-
efficiency products for the LCC and PBP analysis. To derive incremental 
markups for the LCC and PBP analysis, DOE distinguishes between costs 
that change when the distributor's cost for the appliances it sells 
changes due to standards and those that do not change. DOE agrees that 
the categorization of costs as non-labor-scaling and labor-scaling 
mentioned in the furnaces RAP may not be appropriate terminology. 
Accordingly, for the direct final rule, DOE refers to these two 
categories as variant and invariant costs.
    Chapter 6 of the direct final rule TSD provides additional details 
on the markup analysis.

E. Energy Use Analysis

    DOE's analysis of the energy use of furnaces and central air 
conditioners and heat pumps estimated the energy use of these products 
in the field (i.e., as they are actually used by consumers). The energy 
use analysis provided the basis for other follow-on analyses that DOE 
performed, particularly assessments of the energy savings and the 
savings in consumer operating costs that could result from DOE's 
adoption of potential amended standard levels. In contrast to the DOE 
test procedure, which provides standardized results that can serve as 
the basis for comparing the performance of different appliances used 
under the same conditions, the energy use analysis seeks to capture the 
range of operating conditions for furnaces and central air conditioners 
and heat pumps in U.S. homes and buildings.
    In the central air conditioners and heat pumps preliminary TSD, to 
determine the field energy use of products that would meet possible 
amended standard levels, DOE used data from the EIA's 2005 Residential 
Energy Consumption Survey (RECS), which was the most recent such survey 
available at the time of DOE's analysis.\41\ RECS is a national sample 
survey of housing units that collects statistical information on the 
consumption of and expenditures for energy in housing units along with 
data on energy-related characteristics of the housing units and 
occupants. The sample is selected to be representative of the 
population of occupied housing units in the U.S. RECS provides 
sufficient information to establish the type (product class) of 
furnace, central air conditioner, or heat pump used in each housing 
unit. As a result, DOE was able to develop discrete samples for each of 
the considered product classes. DOE uses these samples not only to 
establish each product's annual energy use, but also as the basis for 
conducting the LCC and PBP analysis. DOE described a similar approach 
for furnaces in the RAP.
---------------------------------------------------------------------------

    \41\ For information on RECS, see http://www.eia.doe.gov/emeu/recs/.
---------------------------------------------------------------------------

    Commenting on the furnaces RAP, Lennox stated that DOE should use 
more recent data for the energy consumption of furnaces than those in 
the 2005 RECS. Lennox asserted that using the 2005 RECS will overstate 
the savings associated with higher efficiency levels, because the 
market share of high-efficiency furnaces has increased since the time 
of the survey. (FUR: Lennox, No. 1.3.018 at p. 4) Ingersoll Rand made a 
similar point. (FUR: Ingersoll Rand, No. 1.3.006 at pp. 7-8) In 
response, DOE notes that the increase in the market share of high-
efficiency furnaces since 2005 does not result in overstated savings 
because, as described below, DOE uses information on the furnace in the 
RECS housing units only to estimate the heating load of each sample 
building (i.e., the amount of heat needed to maintain comfort). Since 
the heating load is a characteristic of the dwelling and not the 
heating equipment, DOE's estimate of annual energy use of baseline and 
higher-efficiency furnaces (and the difference, which is the energy 
savings) is not affected if some households have acquired new, more-
efficient furnaces since the time of the 2005 RECS.
    Details on how DOE used RECS to determine the annual energy use of 
residential furnaces and central air conditioners and heat pumps are 
provided below. A more detailed description of DOE's energy use 
analysis is contained in chapter 7 of the direct final rule TSD.
1. Central Air Conditioners and Heat Pumps
    In the central air conditioners and heat pumps preliminary TSD, DOE 
determined the annual energy use of central air conditioners and heat 
pumps at various efficiency levels using a nationally representative 
set of housing units that were selected from EIA's 2005 RECS. DOE began 
with the reported annual electric energy consumption for space cooling 
and space heating for each household in the sample. DOE then adjusted 
the RECS household energy use data, which reflect climate conditions in 
2005, to reflect normal (30-year average) climate conditions.
    DOE used the reported cooling equipment vintage (i.e., the year in 
which it was manufactured) to establish the cooling efficiency (SEER) 
and corresponding heating efficiency (HSPF) of the household's air 
conditioner or heat pump. DOE estimated the energy consumption for each 
sample household at the baseline and higher efficiency levels using the 
2005 RECS-reported cooling energy use multiplied by the ratio of the 
SEER of each efficiency level to the SEER of the household's equipment. 
Similarly, DOE calculated the heating energy use for each household in 
the sample using the 2005 RECS-reported heating energy use

[[Page 37466]]

multiplied by the ratio of the HSPF of each efficiency level to the 
HSPF of the household's equipment.
    DOE also estimated the energy consumption for central air 
conditioners and heat pumps shipped to commercial buildings, which DOE 
estimated at 7 percent of the market, using a model of a small office 
building, DOE's EnergyPlus building energy simulation software,\42\ and 
weather data for 237 locations around the U.S. Four efficiency levels, 
starting with a baseline SEER 13 level, were modeled and the energy use 
at intermediate efficiency levels was estimated by interpolation 
between these four levels. Details of the energy analysis methodology 
are described in chapter 7 of the TSD.
---------------------------------------------------------------------------

    \42\ For more information on EnergyPlus refer to DOE's 
EnergyPlus documentation, available at: http://apps1.eere.energy.gov/buildings/energyplus/energyplus_documentation.cfm. EnergyPlus software is freely available for 
public download at: http://apps1.eere.energy.gov/buildings/energyplus/energyplus_about.cfm.
---------------------------------------------------------------------------

    Commenting on the preliminary TSD, several commenters suggested 
that DOE use computer simulation models for the residential energy use 
estimates as well. (CAC: CA IOUs, No. 69 at p. 3; SCS, Public Meeting 
Transcript at p. 74) Commenters stated that using simulations is likely 
to be more accurate. (CAC: ACEEE, No. 72 at p. 6; NPCC, No. 74 at p. 3) 
Commenters noted that that RECS 2005 does not distinguish between 
heating and cooling used in the same 24-hour period (CAC: CA IOUs, No. 
69 at p. 3), and that heat pump usage estimated using RECS data may be 
less accurate due to the small sample size, particularly when examining 
RECS statistics at the Census division level. (CAC: SCS, No. 73 at p. 
3; NPCC, No. 74 at p. 2; ACEEE, No. 72 at p. 6) A commenter also noted 
that using RECS does not allow DOE to control for external system 
effects such as duct anomalies. (CAC: ACEEE, No. 72 at p. 6) More 
specifically with respect to heat pumps, NPCC commented that the 
approach used in the preliminary analysis assumed that improvements in 
efficiency result in comparable percentage savings across differing 
regions. NPCC noted that because HSPF is climate dependent, a 
simulation or bin temperature approach should be used to get at the 
right answer. (CAC: NPCC, No. 74 at p. 2; NPCC, Public Meeting 
Transcript at p. 44) NPCC also stated that presuming DOE moves to a 
simulation of the heat pump for the residential analysis, it should use 
a heat pump performance curve that reflects inverter-driven compressors 
because they perform quite differently at lower temperatures relative 
to the standard rating points that are now available. (CAC: NPCC, 
Public Meeting Transcript. at p. 70) Rheem commented that the 
proportional changes in SEER will reflect proportional changes in 
cooling energy use across climates, assuming similar characteristics 
for the underlying equipment design, but noted that SEER alone may not 
portray an accurate difference in relative energy consumption for 
disparate climates if the underlying systems have different 
characteristics such as two-stage compressors or variable-speed fans. 
(CAC: Rheem, No 76 at p. 6)
    In response to these comments, DOE is aware that RECS observations 
for heat pumps are limited when analyzing geographic subsets at the 
Census division levels identified by commenters, but points out that it 
relies on larger regions with more observations for its regional or 
national analysis of heat pumps. In response to the comment that DOE 
does not distinguish between heating and cooling in a 24-hour period, 
DOE believes that this comment may be relevant to the energy analysis 
for heat pumps, but that its importance is overshadowed by the much 
larger concern of achieving household energy consumption estimates that 
are reflective of the variability in residential homes of different 
vintages and building characteristics, which is difficult to capture in 
modeling. With regard to controlling for duct anomalies, DOE points out 
that a simulation may allow DOE to presume some duct performance or, 
through a sensitivity study, understand how the assumptions for a duct 
system can impact the energy results, but in fact would not necessarily 
yield more accurate estimates of energy consumption than an analysis 
that is based on more empirical energy use data.
    In response to the concern regarding the climate sensitivity of 
HSPF and the overall heating performance of heat pumps, DOE agrees that 
its approach to estimating energy savings should take into account how 
the heating HSPF would vary as a function of climate. DOE examined 
several strategies for doing this and relied for the direct final rule 
on an approach that estimates the change in seasonal heating efficiency 
for heat pumps based on equations developed from building simulation 
analysis across the U.S.\43\ DOE also examined other possible methods, 
including alternative simulation approaches, and discusses these in 
chapter 7 of the direct final rule TSD. For the direct final rule, 
however, DOE did not rely on separate simulations for residential 
buildings to estimate the underlying energy use at different efficiency 
levels, due to the concerns mentioned above, and, thus, did not include 
heating performance curves for inverter-driven heat pump systems. DOE 
acknowledges that certain inverter-driven heat pumps, primarily found 
in mini-split systems, have increased heating capacity at low 
temperature (relative to the nominal 47 [deg]F heating capacity) 
compared with non-inverter systems. DOE also acknowledges that this 
difference has potential heating energy benefits over the course of the 
year that, while captured in the HSPF rating, may differ depending on 
climate.
---------------------------------------------------------------------------

    \43\ Fairey, P., D.S. Parker, B. Wilcox and M. Lombardi, 
``Climate Impacts on Heating Seasonal Performance Factor (HSPF) and 
Seasonal Energy Efficiency Ratio (SEER) for Air Source Heat Pumps,'' 
ASHRAE Transactions, American Society of Heating, Refrigerating and 
Air Conditioning Engineers, Inc. (June 2004).
---------------------------------------------------------------------------

    DOE also received a number of comments on the commercial analysis, 
which relied on the use of energy simulations. ACEEE commented that in 
the commercial energy analysis, it appreciated that DOE used realistic 
values for the total static pressure in the building modeling, but it 
was not confident that the motor efficiencies or combined efficiencies 
are realistic for residential equipment at these higher static 
pressures. (CAC: ACEEE, Public Meeting Transcript at p. 69) In 
addition, ACEEE stated that it believes that there should be some 
empirical data to underlie the assumption that constant air circulation 
is the predominant mode of operation in small commercial buildings that 
utilize residential equipment. NPCC echoed this point, adding that it 
had not seen controls that provided switching between this mode and 
heating/cooling modes of operation. (CAC: NPCC, No. 74 at p. 5) NPCC 
also suggested that DOE use the most recent weather data in its 
analysis and provided an analysis of differences in TMY2 and TMY3 
weather data for the northwest.\44\ (CAC: NPCC, No. 74 at p. 4)
---------------------------------------------------------------------------

    \44\ The TMY2 data are based on examination of weather data from 
1961-1990 for 239 locations. See: National Renewable Energy 
Laboratory, User's manual for TMY2s (Typical meteorological years 
derived from the 1961-1990 national solar radiation database) 
(1995).
---------------------------------------------------------------------------

    DOE was not able to identify a specific source of information 
regarding the use of continuous air circulation for residential 
(single-phase) heat pumps in commercial buildings, but notes that a 
California study of 215 small air conditioners in commercial buildings 
found intermittent (cycling) ventilation operation during the occupied 
period in

[[Page 37467]]

38 percent of cases examined.\45\ DOE also notes that a programmable 
residential thermostat that is set in a continuous-circulation fan mode 
will still shift into a cooling or heating mode on a call for cooling 
or heat. However, in recognition that intermittent ventilation is 
common in small buildings, DOE modified its simulation model to have 40 
percent (two out of five) of the HVAC zones operate in intermittent-
circulation mode during the occupied period. DOE maintained the fan 
power assumptions from the preliminary TSD. DOE acknowledges that 
higher fan static pressure may result in motor efficiency deviating 
from the values used, but it may also result in the actual air flow 
differing in the field, depending on both the type and size of motor 
used and on installation practices. DOE also notes that there may be 
variation in cooling and heating efficiency when air flow rates deviate 
from nominal values. DOE has not attempted to systematically explore 
these variations in the commercial modeling. DOE has at this point not 
updated its commercial simulations to use TMY3 weather data but will 
consider doing so for the final rule. DOE believes that the impact of 
this change would be minimal with regard to the overall analysis. In 
the data provided by NPCC, the overall change for comparable TMY2 and 
TMY3 locations was on the order of a five percent reduction in heating 
degree days and no clear change in cooling degree days.
---------------------------------------------------------------------------

    \45\ Jacobs, P. Small HVAC Problems and Potential Savings 
Reports. 2003. California Energy Commission, Sacramento, California. 
Report No. CEC-500-03-082-A-25. Available at: http://www.energy.ca.gov/pier/project_reports/500-03-082.html.
---------------------------------------------------------------------------

    DOE received multiple comments on the SEER-EER relationship that 
was used in the commercial modeling. Commenters expressed concern that 
the relationship that was used in the preliminary analysis did not 
reflect the correct relationship between SEER and EER. Several 
commenters stated that the Wassmer-Brandemuehl \46\ curve used in the 
preliminary analysis suggested a nearly linear relationship between 
SEER and EER, but that their review of the data in the AHRI directory 
suggested that this is not accurate. (CAC: CA IOUs, No. 69 at pp. 3-4; 
PG&E, Public Meeting Transcript at pp.63, 72; Ingersoll Rand, Public 
Meeting Transcript at p. 63; EEI, No. 75at p. 5) ACEEE suggested that 
the curve should include two lines, reflecting the slopes of this 
relationship for single-speed versus step-modulating compressors. (CAC: 
ACEEE, Public Meeting Transcript at p. 57; ACEEE, No. 72 at p. 4) ASAP 
noted that the relationship between SEER and EER may become clearer 
when set by a standard, and that the market migrates to the lowest-cost 
compliance path, although single-stage equipment will provide a 
different EER at a 16 SEER than will two-stage equipment. (CAC: ASAP, 
Public Meeting Transcript at p. 64)
---------------------------------------------------------------------------

    \46\ Wassmer, M. and M.J. Brandemuehl, ``Effect of Data 
Availability on Modeling of Residential Air Conditioners and Heat 
Pumps for Energy Calculations'' (2006) ASHRAE Transactions 111(1), 
pp. 214-225.
---------------------------------------------------------------------------

    EEI and NPCC reported concerns that the nearly linear relationship 
between EER and SEER would result in the analysis showing better 
apparent economic benefit than what might actually occur due to 
differences between estimated versus actual impacts on peak demand and 
calculated marginal price. EEI suggested that DOE should use AHRI's 
published EER values in the simulations. (CAC: EEI, Public Meeting 
Transcript at pp. 61, 104; EEI, No. 75 at p. 5; NPCC, Public Meeting 
Transcript at p. 130) Southern also agreed that a curve based on EER 
values representative of the current AHRI database should be used 
instead of the relationship used in the preliminary TSD, and further 
suggested that the SEER 16 and max-tech efficiency levels should be 
modeled as dual-speed or variable-speed equipment. (CAC: SCS, No. 73 at 
p. 4; SCS, Public Meeting Transcript at p. 60) PG&E commented that, 
based on their review of the equipment market, there is a decrease in 
EER at very high SEER. They emphasized that the impact of this 
relationship on peak performance is an important issue for utilities 
and is a reason why they are emphatic about not using SEER as the only 
efficiency metric in hot, dry regions. (CAC: PG&E, Public Meeting 
Transcript at p. 72)
    In response to the above concerns, DOE modified its commercial 
simulations to use EER values that reflect the median values taken from 
the most recent AHRI database for the selected SEER levels that were 
simulated. In addition, 16 SEER and higher efficiency levels were 
modeled as two-stage equipment. Additional changes to the commercial 
modeling included the incorporation of new equipment performance curves 
from a 3-ton split system air conditioner that DOE believes to be more 
representative of residential central air conditioners and heat pumps.
    DOE also received several comments suggesting that northern region 
heat pumps should not be sized based on cooling loads. (CAC: CA IOUs, 
No. 69 at p. 4; NPCC, No. 74 at p. 4) At the public meeting, ACEEE 
asked if sizing based on cooling loads for northern climates is a 
recommended practice that one would find in an ACCA manual. (CAC: 
ACEEE, Public Meeting Transcript at p. 55) Southern also questioned the 
sizing based on cooling loads for northern climates. (CAC: SCS, Public 
Meeting Transcript at p. 50)
    DOE understands that, in the Northwest, utilities encourage sizing 
heat pumps based on the maximum of either the cooling load or the 
heating load at an ambient temperature between 30 [deg]F and 35 [deg]F, 
and that such sizing is one component of many Northwest heat pump 
rebate programs. DOE reviewed the current ACCA manual for sizing of 
equipment (Manual S),\47\ which clearly states that sizing of heat 
pumps should be based on cooling loads. However, Manual S allows 
installers some additional flexibility by suggesting that they can 
consider sizing heat pumps up to 25 percent larger if the building 
balance point (i.e., where sensible heating loads equal compressor 
heating capacity) is relatively high. The manual specifically caveats 
this by pointing out that the additional capacity may not translate 
into significant reduction in heating costs and may not justify the 
cost of a larger unit.
---------------------------------------------------------------------------

    \47\ Air Conditioning Contractors of America, Manual S 
Residential Equipment Selection (1995) (Available at: http://www.acca.org).
---------------------------------------------------------------------------

    In a 2005 study of installation practices of heat pumps in the 
Northwest provided by NPCC,\48\ the residential heat pump installations 
that were examined were undersized compared to the heating load in most 
of the locations examined except the sites in eastern Washington, which 
had higher cooling design temperatures and would be expected to have 
relatively comparable heating and cooling loads. (CAC: NPCC, No. 74, 
attachment 2 at p. 65) Sixty percent of the contractors consulted in 
the study reported that cooling sizing was the principle factor in 
equipment selection. The study also noted that, given the observed 
equipment sizes in the study, it would appear that a 30-percent 
increase in capacity would be required in order to be able to meet the 
design heating load at a 30 [deg]F outside temperature, particularly 
given the drop in capacity of heat pumps at lower temperatures. Given 
the additional cost for larger equipment (estimated at $1,000 in the 
study) and Northwest utility rates, the study noted that consumers may 
be making an economic decision to not invest in the larger equipment 
(and

[[Page 37468]]

therefore to not meet the 30 [deg]F heating load) at the expense of 
greater energy savings with the larger heat pump.
---------------------------------------------------------------------------

    \48\ Baylon, D., et al., ``Analysis of Heat Pump Installation 
Practices and Performance, Final Report'' (2005) (Available at: 
http://www.neea.org/research/reports/169.pdf).
---------------------------------------------------------------------------

    With respect to commercial buildings, DOE expects that for most new 
small commercial buildings in the northern U.S., cooling design loads 
used for sizing will typically be larger than heating design loads at 
30-35 [deg]F due to internal gain assumptions. However, DOE notes that 
variation in both ventilation and internal gain assumptions used in 
sizing in the small commercial building market will result in variation 
in relative design cooling and 30-35 [deg]F heating loads among 
buildings. DOE also notes that to the extent that continuous 
circulation is used in commercial buildings, fan energy use and 
corresponding cooling impact for larger equipment will have an 
offsetting factor on heating energy savings from larger heat pump 
sizing. DOE has not passed judgment on the economic or energy value of 
sizing for heating loads in commercial buildings, but, for the reasons 
cited above, DOE did not modify the sizing methods for the commercial 
modeling for the direct final rule.
2. Furnaces
    In the furnaces RAP, DOE stated its intention to use RECS data to 
estimate the annual energy consumption of residential furnaces used in 
existing homes, and further described its planned method for 
determining the range of annual energy use of residential furnaces at 
various efficiency levels.
    For the direct final rule analysis, DOE followed the method 
described in the furnaces RAP. In addition to using the 2005 RECS data 
to estimate the annual energy consumption of residential furnaces used 
in existing homes, DOE estimated the furnace energy efficiencies in 
existing homes, again based primarily on data from the 2005 RECS. To 
estimate the annual energy consumption of furnaces meeting higher 
efficiency levels, DOE calculated the house heating load based on the 
RECS estimates of the annual energy consumption of the furnace for each 
household. For each household with a furnace, RECS estimated the 
equipment's annual energy consumption from the household's utility 
bills using conditional demand analysis. DOE estimated the house 
heating load by reference to the existing furnace's characteristics, 
specifically its capacity and efficiency (AFUE), as well as by the heat 
generated from the electrical components. The AFUE was determined using 
the furnace vintage from 2005 RECS and data on the market share of 
condensing furnaces published by AHRI.\49\
---------------------------------------------------------------------------

    \49\ Air Conditioning, Heating & Refrigeration Institute 
Industry Statistics is the reference source for the shipped 
efficiency data by vintage year. Available at: http://www.ahrinet.org/Content/EquipmentStatistics_118.aspx.
---------------------------------------------------------------------------

    DOE then used the house heating load to calculate the burner 
operating hours, which is needed to calculate the fuel consumption and 
electricity consumption using section C of the current version of the 
American Society of Heating, Refrigerating and Air-Conditioning 
Engineers (ASHRAE) test procedure SPC 103-2007, ``Method of Testing for 
Annual Fuel Utilization Efficiency of Residential Central Furnaces and 
Boilers.'' To calculate blower electricity consumption, DOE accounted 
for field data from several sources (as described in chapter 8 of the 
direct final rule TSD) on static pressures of duct systems, as well as 
airflow curves for furnace blowers from manufacturer literature.
    To account for the effect of annual weather variations, the 2005 
RECS household energy consumption values were adjusted based on 30-year 
average HDD data for the specific Census division or the large State 
location.\50\ In addition, DOE made adjustments to the house heating 
load to reflect the expectation that housing units in the year in which 
compliance with the amended standards is required will have a somewhat 
different heating load than the housing units in the 2005 RECS. The 
adjustment considers projected improvements in building thermal 
efficiency (due to improvement in home insulation and other thermal 
efficiency practices) and projected increases in the square footages of 
houses between 2005 and the compliance date of the standards in this 
rule.
---------------------------------------------------------------------------

    \50\ Census divisions are groupings of States that are 
subdivisions of the four census regions. The large States considered 
separately are New York, Florida, Texas, and California.
---------------------------------------------------------------------------

    Commenting on the furnaces RAP, Ingersoll Rand stated that in using 
furnace capacity to estimate energy consumption, DOE needs to account 
for the fact that furnaces are often over-sized to maintain comfort 
under extreme conditions. (FUR: Ingersoll Rand, No. 1.3.006 at p. 10) 
In response, DOE's approach does account for the over-sizing of furnace 
capacity, since the furnace capacity assignment is a function of 
historical shipments by furnace capacity, which reflects actual 
practice, as well as heating square footage and the outdoor design 
temperature for heating (i.e., the temperature that is exceeded by the 
30-year minimum average temperature 2.5 percent of the time).
    In the furnaces RAP, DOE described its plans to consider the 
potential for a ``rebound effect'' in its analysis of furnace energy 
use. A rebound effect could occur when a piece of equipment that is 
more efficient is used more intensively, so that the expected energy 
savings from the efficiency improvement may not fully materialize. DOE 
stated that the rebound effect for residential space heating appears to 
be highly variable, ranging from 10 to 30 percent. A rebound effect of 
10 percent implies that 90 percent of the expected energy savings from 
more efficient equipment will actually occur.
    DOE received comments about applying a rebound effect associated 
with higher-efficiency furnaces. ACEEE referred to a 1993 study by 
Nadel that suggests the rebound effect should be about one percent.\51\ 
(FUR: ACEEE, No. 1.3.009 at p. 7) Based upon its experience, Southern 
stated that the rebound effect should not exceed 5 percent. (FUR: 
Southern, No. 1.2.006 at p. 189) Lennox expressed concern with DOE's 
value for the rebound effect. (FUR: Lennox, No. 1.3.018 at p. 4) 
Ingersoll Rand stated that a significant rebound effect is unlikely, 
because it implies that consumers are currently tolerating discomfort 
with existing furnaces. (FUR: Ingersoll Rand, No. 1.3.006 at p. 10)
---------------------------------------------------------------------------

    \51\ S. Nadel, ``The take-back effect: fact or fiction?'' 
Proceedings of the 1993 Energy Program Evaluation Conference, 
Chicago, IL, pp. 556-566.
---------------------------------------------------------------------------

    In response, DOE examined a recently-published review of empirical 
estimates of the rebound effect.\52\ The authors evaluated 12 quasi-
experimental studies of household heating that provide mean estimates 
of temperature take-back (i.e., the increase in indoor temperature in 
the period after improvement in efficiency) in the range from 0.14 
[deg]C to 1.6 [deg]C. They also reviewed nine econometric studies of 
household heating, each of which includes elasticity estimates that may 
be used as a proxy for the direct rebound effect. The authors conclude 
that ``the econometric evidence broadly supports the conclusions of the 
quasi-experimental studies, suggesting a mean value for the direct 
rebound effect for household heating of around 20 percent.'' \53\ Based 
on the above review, DOE incorporated a rebound effect of 20 percent 
for furnaces in the direct final rule analysis. The above-cited review

[[Page 37469]]

found far fewer studies that quantified a direct rebound effect for 
household air conditioning. Two studies of household cooling identified 
in the review provide estimates of the rebound effects that are roughly 
comparable to those for household heating (i.e., 1-26 percent).\54\ 
Therefore, to maintain consistency in its analysis, DOE also used a 
rebound effect of 20 percent for central air conditioners and heat 
pumps.
---------------------------------------------------------------------------

    \52\ S. Sorrell, J. Dimitropoulos, and M. Sommerville, 
``Empirical estimates of the direct rebound effect: a review,'' 
Energy Policy 37(2009) pp. 1356-71.
    \53\ Id. at p. 1363.
    \54\ Dubin, J.A., Miedema, A.K., Chandran, R.V., 1986. Price 
effects of energy-efficient technologies--a study of residential 
demand for heating and cooling. Rand Journal of Economics 17(3), 
310-25. Hausman, J.A., 1979. Individual discount rates and the 
purchase and utilization of energy-using durables. Bell Journal of 
Economics 10(1), 33-54.
---------------------------------------------------------------------------

3. Standby Mode and Off Mode
a. Central Air Conditioners and Heat Pumps
    DOE established annual off mode energy consumption estimates for 
each off mode technology option identified in the engineering analysis 
for air conditioners and for heat pumps. DOE estimated annual off mode 
energy consumption for air conditioners based on the shoulder season 
off mode power consumption and heating season off mode power 
consumption multiplied by the representative shoulder season rating 
hours (739 hours) and heating season rating hours (5,216 hours) 
established in the test procedure. DOE estimated annual energy 
consumption for heat pumps based only on the shoulder season off mode 
power consumption multiplied by the representative shoulder season 
rating hours (739 hours) established in the test procedure because heat 
pumps operate in active mode during the heating season. These seasonal 
hours are calculated to be consistent with the rating hours used in the 
SEER and HSPF ratings for air conditioners and heat pumps.
    DOE is considering national standards for off mode energy 
consumption, but does not intend to set regional standards for off mode 
energy consumption. DOE recognizes that there will be some variation in 
off mode hours depending on location and individual household usage, 
but believes that the defined off mode hours in the test procedure will 
represent a reasonable basis for calculation of energy savings from off 
mode energy conservation standards. In the case of heat pumps, the off 
mode period includes the shoulder period between the heating and 
cooling season. It is fairly constant across most of the U.S. and, on 
average, is close to the test procedure rating value for the DOE 
climate zones. In the case of air conditioners, the off mode period 
includes all non-cooling-season hours, so there is more variation 
across the Nation. However, for the majority of the U.S. population, 
the off mode period is close to the test procedure rating value.
    DOE does not include in the off mode period the time during the 
cooling season when a unit cycles off, because energy use during this 
period is captured in the seasonal SEER rating of the equipment. 
Similarly, DOE does not include in the off mode period the time during 
the heating season when a heat pump cycles off, because energy use 
during this period is captured in the seasonal HSPF rating of the 
equipment. To avoid double counting the benefits of design options 
which reduce energy consumption when equipment cycles off, DOE has 
defined the off mode time period for the energy analysis to be 
consistent with the operating periods used for the SEER and HSPF 
ratings
    The component that uses the most power during off mode is the 
crankcase heater, but it is not found in all products. DOE established 
annual off mode energy use estimates for air conditioners and heat 
pumps using each considered off mode technology option for units with 
and without crankcase heaters.
    DOE was not able to identify a data source establishing the 
fraction of central air conditioner or heat pump products in the U.S. 
market that would be tested with crankcase heaters or would be expected 
to have crankcase heaters installed in the field. However, a 2004 study 
of the Australian market estimated that one in six central air 
conditioners in that market utilized crankcase heaters.\55\ Given that 
the need to provide for compressor protection for central air 
conditioners is driven by similar refrigerant migration concerns during 
cool weather, DOE estimated that the use of crankcase heaters in 
Australia was roughly similar to that in the U.S. at that time. DOE 
estimated that changes in compressor technology since 2004, in 
particular market growth in the use of scroll compressors, have likely 
reduced the fraction of the central air conditioner market with 
crankcase heaters. Based on the above considerations, for the direct 
final rule analysis, DOE assumed that 10 percent of central air 
conditioners within each air conditioner product class would utilize 
crankcase heaters. Discussion during manufacturer interviews and review 
of product literature suggest that crankcase heaters are most commonly 
used in heat pumps, which must be able to cycle on in cold weather. DOE 
assumed that two-thirds of heat pumps would utilize crankcase heaters 
in each heat pump product class.
---------------------------------------------------------------------------

    \55\ Australian Greenhouse Office, ``Air Conditioners Standby 
Product Profile 2004/2006'' (June 2004) (Available at: http://www.energyrating.gov.au/library/pubs/sb200406-aircons.pdf).
---------------------------------------------------------------------------

    Because the technology options examined do not impact blower energy 
consumption in off mode, DOE determined that energy savings from 
equipment utilizing ECM or PSC blower motors would be identical for 
each off mode technology option.
    See chapter 7 in the direct final rule TSD for additional detail on 
the energy analysis and results for central air conditioner and heat 
pump off mode operation.
b. Furnaces
    As described in section IV.C.7, DOE analyzed two efficiency levels 
that reflect the design options for furnaces with ECM blower motors. 
The energy use calculations account only for the portion of the market 
with ECM blower motors, because the power use of furnaces with PCS 
motors is already below the power limits being considered for standby 
mode and off mode power, and, thus, would be unaffected by standards.
    To project the market share of furnaces with ECM blower motors, for 
non-weatherized gas furnaces DOE relied on market research data from 
studies conducted in Vancouver, Canada \56\ and the State of 
Oregon.\57\ From these data, DOE estimated that non-weatherized gas 
furnaces with ECMs comprise approximately 29 percent of the market. For 
oil-fired, mobile home gas, and electric furnaces, DOE estimated that 
furnaces with ECMs comprise 10 percent of the market.
---------------------------------------------------------------------------

    \56\ Hood, Innes, ``High Efficiency Furnace Blower Motors Market 
Baseline Assessment'' (March 31, 2004) (Available at: http://www.cee1.org/eval/db_pdf/416.pdf).
    \57\ Habart, Jack, ``Natural Gas Furnace Market Assessment'' 
(August 2005) (Available at: http://www.cee1.org/eval/db_pdf/434.pdf).
---------------------------------------------------------------------------

    DOE calculated furnace standby mode and off mode electricity 
consumption by multiplying the power consumption at each efficiency 
level by the number of standby mode and off mode hours. To calculate 
the annual number of standby mode and off mode hours for each sample 
household, DOE subtracted the estimated burner operating hours 
(calculated as described in section IV.E.2) from the total hours in a 
year (8,760).
    Commenting on the furnaces RAP, Ingersoll Rand stated that standby 
mode and off mode power should not be included in DOE's calculation of 
furnace energy consumption during the cooling season, when the furnace 
may

[[Page 37470]]

provide power for a central air conditioner. (Ingersoll Rand, No. 
1.3.006 at p. 9) In response, DOE would clarify that for homes that 
have both a furnace and a split central air conditioner, during the 
cooling season, the furnace blower controls operate in standby mode and 
off mode in conjunction with the air conditioner, but such energy 
consumption is not accounted for in the energy use calculation for the 
air conditioner. Therefore, DOE included this energy use in the 
calculation of furnace standby mode and off mode energy use.
    See chapter 7 in the direct final rule TSD for additional detail on 
the energy analysis and results for furnace standby mode and off mode 
operation.

F. Life-Cycle Cost and Payback Period Analyses

    DOE conducts LCC and PBP analyses to evaluate the economic impacts 
on individual consumers of potential energy conservation standards for 
furnaces and central air conditioners and heat pumps. The LCC is the 
total consumer expense over the expected life of a product, consisting 
of purchase and installation costs plus operating costs (expenses for 
energy use, maintenance, and repair). To compute the operating costs, 
DOE discounted future operating costs to the time of purchase and 
summed them over the expected lifetime of the product. The PBP is the 
estimated amount of time (in years) it takes consumers to recover the 
increased purchase cost (including installation) of a more-efficient 
product through lower operating costs. DOE calculates the PBP by 
dividing the change in purchase cost (normally higher) due to a more-
stringent standard by the change in average annual operating cost 
(normally lower) that results from the standard.
    For any given efficiency or energy use level, DOE measures the PBP 
and the change in LCC relative to an estimate of the base-case 
appliance efficiency or energy use levels. The base-case estimate 
reflects the market in the absence of new or amended mandatory energy 
conservation standards, including the market for products that exceed 
the current energy conservation standards.
    For each considered efficiency level in each product class, DOE 
calculated the LCC and PBP for a nationally-representative set of 
housing units. As discussed in section IV.E, DOE developed household 
samples from the 2005 RECS. For each sampled household, DOE determined 
the energy consumption for the furnace, central air conditioner, or 
heat pump and the appropriate energy prices in the area where the 
household is located. By developing a representative sample of 
households, the analysis captured the variability in energy consumption 
and energy prices associated with the use of residential furnaces, 
central air conditioners, and heat pumps.
    Inputs to the calculation of total installed cost include the cost 
of the product--which includes manufacturer costs, markups, and sales 
taxes--and installation costs. Inputs to the calculation of operating 
expenses include annual energy consumption, energy prices and price 
projections, repair and maintenance costs, expected product lifetimes, 
discount rates, and the year in which compliance with new or amended 
standards is required. DOE created distributions of values for some 
inputs to account for their uncertainty and variability. Specifically, 
DOE used probability distributions to characterize product lifetime, 
discount rates, and sales taxes.
    The computer model DOE uses to calculate the LCC and PBP, which 
incorporates Crystal Ball (a commercially-available software program), 
relies on a Monte Carlo simulation to incorporate uncertainty and 
variability into the analysis. The Monte Carlo simulations randomly 
sample input values from the probability distributions and furnace and 
central air conditioner and heat pump user samples. The model 
calculated the LCC and PBP for products at each efficiency level for 
10,000 housing units per simulation run. Details of the LCC spreadsheet 
model, and of all the inputs to the LCC and PBP analyses, are contained 
in TSD chapter 8 and its appendices.
    Table IV.10 and Table IV.11 summarize the inputs and methods DOE 
used for the LCC and PBP calculations for furnaces and central air 
conditioners and heat pumps, respectively. For central air conditioners 
and heat pumps, the table provides the data and approach DOE used for 
the preliminary TSD and the changes made for today's direct final rule. 
For furnaces, DOE has not conducted a preliminary analysis, so there 
are no changes to describe. The subsections that follow discuss the 
initial inputs and the changes DOE made to them.

 Table IV.10--Summary of Inputs and Methods for the LCC and PBP Analysis
                              for Furnaces*
------------------------------------------------------------------------
              Inputs                          Direct final rule
------------------------------------------------------------------------
                         Installed Product Costs
------------------------------------------------------------------------
Product Cost......................  Derived by multiplying manufacturer
                                     cost by manufacturer and retailer
                                     markups and sales tax, as
                                     appropriate.
                                    Used experience curve fits to
                                     develop a price scaling index to
                                     forecast product costs.
Installation Cost.................  Derived from RS Means data for 2010,
                                     the furnace installation model
                                     developed for the November 2007
                                     Rule, and consultant reports.
------------------------------------------------------------------------
                             Operating Costs
------------------------------------------------------------------------
Annual Energy Use.................  Used household sample from 2005 RECS
                                     data.
Energy Prices.....................  Natural Gas: Based on EIA's Natural
                                     Gas Monthly data for 2009.
                                    Electricity: Based on EIA's Form 861
                                     data for 2008.
                                    LPG and Oil: Based on data from
                                     EIA's State Energy Data System
                                     (SEDS) 2008.
                                    Variability: Separate energy prices
                                     determined for 13 geographic areas.
Energy Price Trends...............  Forecasted using AEO2010 data at the
                                     Census division level.
Repair and Maintenance Costs......  Costs for annual maintenance derived
                                     using data from a proprietary
                                     consumer survey.
                                    Repair costs based on Consumer
                                     Reports data on frequency of repair
                                     for gas furnaces in 2000-06, and
                                     estimate that an average repair has
                                     a parts cost equivalent to one-
                                     fourth of the equipment cost.

[[Page 37471]]

 
                 Present Value of Operating Cost Savings
------------------------------------------------------------------------
Product Lifetime..................  Estimated using survey results from
                                     RECS (1990, 1993, 1997, 2001, 2005)
                                     and the U.S. Census American
                                     Housing Survey (2005, 2007), along
                                     with historic data on appliance
                                     shipments.
                                    Variability: characterized using
                                     Weibull probability distributions.
Discount Rates....................  Approach involves identifying all
                                     possible debt or asset classes that
                                     might be used to purchase the
                                     considered appliances, or might be
                                     affected indirectly. Primary data
                                     source was the Federal Reserve
                                     Board's Survey of Consumer Finances
                                     for 1989, 1992, 1995, 1998, 2001,
                                     2004 and 2007.
Compliance Date of Standard.......  2016.
------------------------------------------------------------------------
* References for the data sources mentioned in this table are provided
  in the sections following the table or in chapter 8 of the direct
  final rule TSD.

 Table IV.11--Summary of Inputs and Methods for the LCC and PBP Analysis
              for Central Air Conditioners and Heat Pumps*
------------------------------------------------------------------------
                                                       Changes for the
           Inputs                Preliminary TSD      direct final rule
------------------------------------------------------------------------
                         Installed Product Costs
------------------------------------------------------------------------
Product Cost................  Derived by            Incremental retail
                               multiplying           markup changed as
                               manufacturer cost     described in
                               by manufacturer and   section IV.D.
                               retailer markups      Additional multi-
                               and sales tax, as     speed fan kit cost
                               appropriate.          added for coil only
                                                     air conditioners at
                                                     15 SEER and above.
                                                     Used experience
                                                     curve fits to
                                                     develop a price
                                                     scaling index to
                                                     forecast product
                                                     costs.
Installation Cost...........  National average      Derived from RS
                               cost of               Means data for
                               installation          2009. Does not
                               derived from RS       change with
                               Means data for        efficiency level or
                               2008, adjusted for    equipment size.
                               regional labor
                               price differences.
                               Does not change
                               with efficiency
                               level or equipment
                               size.
------------------------------------------------------------------------
                             Operating Costs
------------------------------------------------------------------------
Annual Energy Use...........  Residential: Derived  No change in
                               using household       approach.
                               sample from 2005
                               RECS data and
                               reported energy use
                               for space heating
                               and cooling.
                               Commercial: Derived
                               using whole
                               building
                               simulations.
Energy Prices...............  Electricity:          No change in
                               Marginal and          approach.
                               average prices
                               based on
                               residential and
                               commercial
                               electricity tariffs
                               for 90 electric
                               utilities in the
                               Lawrence Berkeley
                               National Lab Tariff
                               Analysis Project
                               database.
                               Commercial prices
                               incorporate demand
                               and time of use
                               rates calculated
                               based on hourly
                               electricity
                               consumption.
Energy Price Trends.........  Forecasted using the  Forecasts updated
                               April 2009 update     using AEO2010
                               to Annual Energy      forecasts at the
                               Outlook 2009          Census division
                               (AEO2009)..           level.
Repair and Maintenance Costs  Repair and            Repair costs
                               maintenance costs     calculated for 3-
                               calculated for 3-     ton (36,000 Btu/hr)
                               ton (36,000 Btu/hr)   units. Varies with
                               units. Varies with    efficiency level
                               efficiency level of   and size of
                               equipment.            equipment (2-ton, 3-
                                                     ton, or 5-ton).
                                                     Preventative
                                                     maintenance cost
                                                     assumed to not vary
                                                     with efficiency or
                                                     size of equipment.
------------------------------------------------------------------------
                 Present Value of Operating Cost Savings
------------------------------------------------------------------------
Product Lifetime............  Estimated using       No change.
                               survey results from
                               RECS (1990, 1993,
                               1997, 2001, 2005)
                               and the U.S. Census
                               American Housing
                               Survey (2005,
                               2007), along with
                               historic data on
                               appliance
                               shipments.
                               Variability:
                               characterized using
                               Weibull probability
                               distributions.
Discount Rates..............  Approach involves     No change to
                               identifying all       residential rates.
                               possible debt or      Commercial discount
                               asset classes that    rates updated to
                               might be used to      2009, using
                               purchase the          Damodaran Online
                               considered            for January 2010
                               appliances, or        and revised values
                               might be affected     for risk-free rates
                               indirectly. Primary   and market risk
                               data source was the   factor.
                               Federal Reserve
                               Board's Survey of
                               Consumer Finances
                               for 1989, 1992,
                               1995, 1998, 2001,
                               2004 and 2007. For
                               commercial
                               installations used
                               weighted average
                               cost of capital
                               derived from Value-
                               Line listed firms
                               at Damodaran Online
                               Web site for 2008.

[[Page 37472]]

 
Compliance Date of New        2016................  No change.
 Standard.
------------------------------------------------------------------------
* References for the data sources mentioned in this table are provided
  in the sections following the table or in chapter 8 of the direct
  final rule TSD.

    As discussed in section IV.E, DOE is taking into account the 
rebound effect associated with more-efficient residential furnaces, 
central air conditioners, and heat pumps. The take-back in energy 
consumption associated with the rebound effect provides consumers with 
increased value (e.g., enhanced comfort associated with a cooler or 
warmer indoor environment). The net impact on consumers is the sum of 
the change in the cost of owning the space-conditioning equipment 
(i.e., life-cycle cost) and the increased value of the more comfortable 
indoor environment. DOE believes that, if it were able to monetize the 
increased value to consumers of the rebound effect, this value would be 
similar in value to the foregone energy savings. Thus, for this 
standards rulemaking, DOE assumes 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 analysis, are the 
same.
1. Product Cost
    To calculate the consumer product cost at each considered 
efficiency level, DOE multiplied the manufacturer costs developed in 
the engineering analysis by the supply-chain markups described above 
(along with applicable average sales taxes). For wholesalers and 
contractors, DOE used different markups for baseline products and 
higher-efficiency products, because DOE applies an incremental markup 
to the cost increase associated with higher-efficiency products.
    During the direct final rule analysis, DOE determined that split-
system coil-only air conditioners rated at or above 15 SEER often have 
two stages of cooling capacity. Realizing the full efficiency of the 
product would require a fan that can operate at multiple speeds. DOE 
included a cost for a ``multi-speed fan kit'' that could be used to 
adapt the existing furnace fan for two-speed cooling operation. DOE 
estimated the kit cost to the consumer at $798 on a national average 
basis. DOE applied this cost to half of the split system, coil-only 
installations at 15 SEER, and all of the installations at 15.5 SEER.
    On February 22, 2011, DOE published a Notice of Data Availability 
(NODA, 76 FR 9696) stating that DOE may consider improving regulatory 
analysis by addressing equipment price trends. Consistent with the 
NODA, DOE sought to apply the experience curve approach to this 
rulemaking. To do so, DOE used historical shipments data together with 
historical producer price indices (PPI) for unitary air conditioners 
and warm-air furnace equipment. DOE recognizes the limitations of PPI 
as a proxy for manufacturing costs because it represents wholesale 
price.\58\ However, the agency determined that even with this 
limitation, the use of PPI may offer some directionally-correct 
information related to the experience curve approach. DOE believes that 
the PPI data may indicate long-term declining real price trends for 
both products. Thus, DOE used experience curve fits to develop price 
scaling indices to forecast product costs for this rulemaking.
---------------------------------------------------------------------------

    \58\ U.S. Department of Labor, Bureau of Labor Statistics 
Handbook of Methods (Available at: http://www.bls.gov/opub/hom/homch14.htm).
---------------------------------------------------------------------------

    DOE also considered the public comments that were received in 
response to the NODA and refined its experience curve trend forecasting 
estimates. Many commenters were supportive of DOE moving from an 
assumption-based equipment price trend forecasting method to a data-
driven methodology for forecasting price trends. Other commenters were 
skeptical that DOE could accurately forecast price trends given the 
many variables and factors that can complicate both the estimation and 
the interpretation of the numerical price trend results and the 
relationship between price and cost. DOE evaluated these concerns and 
determined that retaining the assumption-based approach is consistent 
when there are data gaps with the historical data for the products 
covered in this rule. As a result, DOE is presenting a range of 
estimates reflecting both the assumption-based approach and the 
experience curve approach.
    DOE also performed an initial evaluation of the possibility of 
other factors complicating the estimation of the long-term price trend, 
and developed a range of potential price trend values that was 
consistent with the available data and justified by the amount of data 
that was available to DOE at this time. DOE recognizes that its price 
trend forecasting methods are likely to be modified as more data and 
information becomes available to enhance the statistical certainty of 
the trend estimate and the completeness of the model. Additional data 
should enable an improved evaluation of the potential impacts of more 
of the factors that can influence equipment price trends over time.
    To evaluate the impact of the uncertainty of the price trend 
estimates, DOE performed price trend sensitivity calculations in the 
national impact analysis to examine the dependence of the analysis 
results on different analytical assumptions. DOE also included a 
constant real price trend assumption. DOE found that for the selected 
standard levels the benefits outweighed the burdens under all 
scenarios.
    A more detailed discussion of DOE's development of price scaling 
indices is provided in appendix 8-J of the direct final rule TSD.
2. Installation Cost
    Installation cost includes labor, overhead, and any miscellaneous 
materials and parts needed to install the equipment.
a. Central Air Conditioners and Heat Pumps
    In its central air conditioners and heat pumps preliminary 
analysis, DOE calculated average installation costs for each class of 
equipment based on installation costs found in RS Means.\59\ In the 
preliminary analysis, installation costs were assumed constant across 
efficiency levels, based on reported practices of installers in a 
limited telephone survey.
---------------------------------------------------------------------------

    \59\ RS Means, Residential Cost Data 2010, Reed Construction 
Data, Kingston, MA.
---------------------------------------------------------------------------

    Commenting on the above approach, Carrier suggested that DOE 
further explore the variation in installation costs by efficiency 
level, because when

[[Page 37473]]

an installation project changes from one-man to a two-man job because 
of the size of the unit, this change will impact contractor 
installation costs. (CAC: Carrier, Public Meeting Transcript at p. 140)
    For the direct final rule analysis, DOE conducted some additional 
interviews with mechanical contractor/installers and learned that while 
some contractors use one-man crews for SEER 13 installations, generally 
two-man crews are dispatched. If extra labor is required beyond a two-
man crew to move heavy components, additional laborers are brought to 
the site for the few minutes they are needed, resulting in minimal 
(less than $15) labor cost increase. Further, installation contractors 
reported that while installation costs vary due to specific differences 
among installation sites, they do not generally vary by efficiency 
level. Larger equipment is needed to move some of the larger 5-ton 
units, but investments in such equipment generally have been made 
already. Installation labor costs differ by less than 20 percent 
between 2-ton or 3-ton units and the larger 5-ton units. The primary 
reason for the difference in installation cost is not related to the 
greater weight of 5-ton systems, but rather to the greater effort 
required to install larger duct systems and longer refrigeration line 
sets, which are not within the scope of the rulemaking. Therefore, DOE 
concluded that installation cost for central air conditioners and heat 
pumps generally does not increase with the efficiency or the size of 
equipment, so it retained the approach used in the preliminary 
analysis. DOE did include additional installation costs of $161 for the 
multi-speed fan kit used for split system coil-only air conditioners 
with ratings at 15 SEER and above.
b. Furnaces
    In the furnaces RAP, DOE stated that it will: (1) Estimate 
installation costs at each considered efficiency level using a variety 
of sources, including RS Means, manufacturer literature, and 
information from expert consultants; (2) account for regional 
differences in labor costs; and (3) estimate specific installation 
costs for each sample household based on building characteristics set 
forth in the 2005 RECS.
    DOE received a number of comments concerning installation costs 
when a non-condensing furnace is replaced with a condensing furnace. 
AGA and APGA stated that DOE should consider important differences in 
classes of consumers, particularly northern consumers having to replace 
a non-condensing furnace with a condensing furnace. (FUR: AGA, 
No.1.3.010 at p. 4; APGA, No.1.3.004 at p. 4) APGA and NPGA stated that 
DOE must consider venting issues and other considerations unique to the 
replacement market. (FUR: APGA, No.1.3.004 at p. 4; NPGA, No.1.3.005 at 
p. 3)
    Several parties provided comments regarding the need for venting 
system modification when replacing a non-condensing furnace with a 
condensing gas furnace. Several comments referred to the venting 
considerations when installation of a condensing furnace no longer 
permits common venting with the pre-existing gas water heater. 
Ingersoll Rand stated that when a non-condensing furnace is replaced 
with a condensing furnace, the rework of gas appliance venting will add 
considerable cost; according to the commenter, it will have to include 
the cost of a dedicated vent for the condensing furnace, plus reworking 
the venting for a water heater, which was most likely on a common vent 
that will now be too large for the water heater. (FUR: Ingersoll Rand, 
No. 1.3.006 at p. 12) AGA, APGA, and NPGA made similar comments. (FUR: 
AGA, No. 1.3.010 at pp. 3-4; AGA, No. 1.2.006 at p. 41; APGA, No. 
1.3.004 at p. 4; NPGA, No. 1.3.005 at p. 3) AGA added that DOE must 
also consider consumer and installer behaviors that favor inadequate 
venting system attention aimed at reducing installation costs; AGA 
cautioned that such practices may represent code violations, as well as 
threats to consumer safety from carbon monoxide poisoning, due to 
improper venting or venting system failure. (FUR: AGA, No. 1.3.010 at 
p. 3) HARDI stated that there are significant portions of existing gas 
furnace installations that could not use a condensing furnace without 
performing major renovations to the building. (FUR: HARDI, No. 1.3.016 
at p. 3) ACCA stated that in a recent ACCA member survey, a majority of 
respondents said that 15-30 percent of furnace retrofits in the north 
would only accommodate non-condensing furnaces due to vent path issues 
or concerns about freezing condensate. (FUR: ACCA, No. 1.3.007 at pp. 
3-4)
    In contrast to some of the above comments, AHRI and Rheem stated 
that the venting issues resulting from the ``orphaned'' gas water 
heater can be resolved through power venting and new venting systems. 
(FUR: AHRI, No. 1.3.008 at p. 4; Rheem, No.1.3.022 at p. 4)
    In response to these comments, for the direct final rule analysis, 
DOE conducted a detailed analysis of installation costs when a non-
condensing gas furnace is replaced with a condensing gas furnace, with 
particular attention to venting issues in replacement applications. DOE 
gave separate consideration to the cost of installing a condensing gas 
furnace in new homes. As part of its analysis, DOE used information in 
the 2005 RECS to estimate the location of the furnace in each of the 
sample homes.
    First, DOE estimated basic installation costs that are applicable 
to both replacement and new home applications. These costs, which apply 
to both condensing and non-condensing gas furnaces, include putting in 
place and setting up the furnace, gas piping, ductwork, electrical 
hookup, permit and removal/disposal fees, and where applicable, 
additional labor hours for an attic installation.
    For replacement applications, DOE then included a number of 
additional costs (``adders'') for a fraction of the sample households. 
For non-condensing gas furnaces, these additional costs included 
updating flue vent connectors, vent resizing, and chimney relining. For 
condensing gas furnaces, DOE included new adders for flue venting 
(PVC), combustion air venting (PVC), concealing vent pipes, addressing 
an orphaned water heater (by updating flue vent connectors, vent 
resizing, or chimney relining), and condensate removal. Freeze 
protection is accounted for in the cost of condensate removal. Table 
IV.12 shows the fraction of installations impacted and the average cost 
for each of the adders. The estimate of the fraction of installations 
impacted was based on the furnace location (primarily derived from 
information in the 2005 RECS) and a number of other sources that are 
described in chapter 8 of the direct final rule TSD. The costs were 
based on 2010 RS Means. Chapter 8 of the direct final rule TSD 
describes in detail how DOE estimated the cost for each installation 
item.

[[Page 37474]]

   Table IV.12--Additional Installation Costs for Non-Weatherized Gas
                  Furnaces in Replacement Applications
------------------------------------------------------------------------
                                            Replacement
         Installation cost adder           installations   Average cost
                                             impacted         (2009$)
------------------------------------------------------------------------
                         Non-Condensing Furnaces
------------------------------------------------------------------------
Updating Flue Vent Connectors...........              7%            $211
Vent Resizing...........................              1%             591
Chimney Relining........................             16%             591
------------------------------------------------------------------------
                           Condensing Furnaces
------------------------------------------------------------------------
New Flue Venting (PVC)..................            100%             308
Combustion Air Venting (PVC)............             60%             301
Concealing Vent Pipes...................              5%             290
Orphaned Water Heater...................             24%             447
Condensate Removal......................            100%              49
------------------------------------------------------------------------

    DOE also included installation adders for fractions of new home 
applications. For non-condensing gas furnaces, a new flue vent (metal) 
is the only adder. For condensing gas furnaces, the adders include new 
flue venting (PVC), combustion air venting (PVC), accounting for a 
commonly-vented water heater, and condensate items. Table IV.13 shows 
the estimated fraction of new home installations impacted and the 
average cost for each of the adders. For details, see chapter 8 of the 
direct final rule TSD.

   Table IV.13--Additional Installation Costs for Non-Weatherized Gas
                    Furnaces in New Home Applications
------------------------------------------------------------------------
                                                New
                                           construction    Average cost
         Installation cost adder           installations      (2009$)
                                             impacted
------------------------------------------------------------------------
                         Non-Condensing Furnaces
------------------------------------------------------------------------
New Flue Vent (Metal)...................            100%            $818
------------------------------------------------------------------------
                           Condensing Furnaces
------------------------------------------------------------------------
New Flue Venting (PVC)..................            100%             249
Combustion Air Venting (PVC)............             60%             240
Accounting for Commonly Vented WH.......             50%             402
Condensate Removal......................            100%               7
------------------------------------------------------------------------

    Several parties provided comments regarding special considerations 
for installing condensing gas furnaces in manufactured homes. AGA, 
AGPA, and NPGA stated that replacement installation costs need to 
consider either: (1) Freeze protection from condensate in the furnace 
as well as in the condensate handling system; or (2) altering the 
closet insulation system to put the furnace within the thermal boundary 
of the manufactured home. (FUR: AGA, No. 1.3.010 at p. 5; APGA, No. 
1.3.004 at p. 4; NPGA, No. 1.3.005 at p. 4) ACEEE stated that furnace 
manufacturers signed the consensus agreement and, therefore, foresaw no 
problems with use of their condensing products in manufactured housing. 
ACEEE added that applicable codes require that furnaces in manufactured 
housing be installed in separate cabinets with outdoor air supply, 
which makes retrofitting with a condensing furnace relatively easy. 
(FUR: ACEEE, No. 1.3.009 at p. 8)
    For the direct final rule analysis, DOE included basic installation 
costs for manufactured home gas furnaces similar to those described 
above for non-weatherized gas furnaces. DOE also included costs for 
venting and condensate removal. Freeze protection is accounted for in 
the cost of condensate removal. In addition, DOE considered the cost of 
dealing with space constraints that could be encountered when a 
condensing furnace is installed.
    For oil-fired furnaces, DOE included basic installation costs 
similar to those described above for non-weatherized gas furnaces. DOE 
also included costs for venting (including stainless steel vent for 
some installations at 83-85 percent AFUE) and condensate removal. In 
addition, DOE assumed that condensing furnaces require two additional 
labor hours to tune up the combustion system. For further details on 
installation costs for both manufactured home gas furnaces and oil-
fired furnaces, see chapter 8 of the direct final rule TSD.
3. Annual Energy Consumption
    For each sample household, DOE determined the energy consumption 
for a furnace, central air conditioner, or heat pump at different 
efficiency levels using the approach described above in section IV.E.
4. Energy Prices
    In its central air conditioners and heat pumps preliminary 
analysis, DOE developed marginal electricity prices to express the 
value of electricity cost savings from more-efficient central air 
conditioners and heat pumps. The marginal electricity price for a given 
consumer is the cost of the next increment of electricity use on his or 
her utility bill, and is the correct estimate of the value of savings 
that a consumer would see in the real world.
    DOE developed residential marginal electricity prices from tariffs 
collected in 2008 from a representative sample of

[[Page 37475]]

electric utilities throughout the United States. DOE collected data for 
over 150 residential tariffs from a sample of about 90 electric 
utilities. As described earlier, DOE developed samples of households 
using central air conditioners and heat pumps from the 2005 RECS. The 
location of each household can be identified within broad geographic 
regions (e.g., Census Divisions). DOE developed a weighted-average 
marginal electricity price for each household from all the possible 
utility tariffs that could be assigned to that household. DOE also 
developed commercial marginal electricity prices from tariffs for those 
commercial building applications that use residential central air 
conditioners and heat pumps. As with the residential household sample, 
DOE developed a weighted-average marginal electricity price for each 
commercial building from the utility tariffs that could possibly be 
assigned to that building. For further details, see chapter 8 of the 
direct final rule TSD.
    Commenting on the central air conditioners and heat pumps 
preliminary TSD, the Joint Comment stated that the current impact 
analysis does not account for time-dependent valuation (TDV) of 
electricity,\60\ which is expected to change significantly by 2015 due 
to smart grid technology. (CAC: CA IOUs, No. 69 at p. 5) PG&E stated 
that time-of-use (TOU) tariffs are going to be present and important 
with respect to the impact of the standards on these products. (CAC: 
PG&E, Public Meeting Transcript at p. 113)
---------------------------------------------------------------------------

    \60\ TDV accounts for variations in electricity cost related to 
time of day, season, and geography. The concept behind TDV is that 
savings associated with energy efficiency measures should be valued 
differently at different times to better reflect the actual costs to 
users, the utility system, and society.
---------------------------------------------------------------------------

    In response, DOE determined in its preliminary analysis that many 
utilities in the U.S. offer optional time-of-use (TOU) tariffs that 
generally charge consumers more for electricity during peak periods, 
when it presumably costs the utility more to provide electrical 
service, in exchange for lower rates at other times. To determine the 
effect of TOU pricing structures on residential consumers, DOE 
collected data on TOU tariffs for those utilities in its sample that 
offered optional TOU tariffs. DOE found that approximately 50 percent 
of customers in the sample were offered TOU tariffs. Coupling hourly 
energy savings derived from typical residential household and central 
air conditioner/heat pump load profiles with TOU tariffs, DOE was able 
to derive TOU-based marginal electricity prices. These data show that, 
currently, there is no significant difference (on average less than 2 
percent) between TOU and default tariffs for the electricity costs used 
in the LCC and PBP analysis.
    The consensus agreement includes EER standards in addition to SEER 
requirements in the hot-dry region for split-system and single-package 
central air conditioners. Efficiency requirements that would improve 
the EER of a central air conditioner in the hot-dry region are believed 
to improve the performance of the equipment at peak conditions when the 
equipment is operating at its full capacity. Because the TOU tariffs in 
hot-dry climates are likely to yield higher electricity prices during 
peak conditions, DOE placed renewed focus on deriving TOU-based 
marginal prices for the hot-dry region. DOE also investigated the 
impact of TDV of electricity in the hot-dry region, given that the most 
populous State in the region (California) has used TDV of electricity 
to evaluate efficiency measures in updates to its building code 
standards. TOU-based and TDV-based marginal prices are not 
significantly different from the marginal prices derived from default 
tariffs. Therefore, DOE determined that they would not have a 
significant effect on the economic justification of more-stringent 
efficiency standards. Appendix 8-D of the direct final rule TSD 
describes the analysis that compares marginal prices developed from TOU 
tariffs and TDV of electricity with marginal prices developed from non-
TOU tariffs.
    For commercial-sector prices, the existing tariff structures that 
DOE has used in it analysis of electricity prices already account for 
the effect that an end use, such as central air conditioning, has on 
marginal electricity prices. Because utilities bill their commercial 
customers with demand charges (i.e., charges on power demand expressed 
in $/kW) in addition to energy charges, the resulting marginal prices 
reflect the contribution that air conditioning has on peak demand.
    In the furnaces RAP, DOE stated that it will derive average monthly 
energy prices using recent EIA data for each of 13 geographic areas, 
consisting of the nine U.S. Census divisions, with four large States 
(New York, Florida, Texas, and California) treated separately, to 
establish appropriate energy prices for each sample household. It added 
that in contrast to the situation with residential air conditioner and 
heat pumps, for which the appliance's load primarily occurs during 
utility peak periods during the summer, electricity consumption of 
furnaces is not concentrated during peak periods, so DOE did not see a 
compelling reason to use marginal electricity prices.
    Commenting on the furnaces RAP, Ingersoll Rand stated that DOE's 
intention to use average, not marginal, energy prices for the furnace 
LCC analysis is reasonable and avoids much unnecessary complexity. 
Ingersoll Rand further stated that, to improve accuracy, DOE should use 
State-level energy prices rather than prices determined according to 
Census division. (FUR: Ingersoll Rand, No. 1.3.006 at p. 11) In 
response, DOE agrees that average energy prices are appropriate for the 
furnace LCC analysis for the reason described above. DOE does not use 
State-level energy prices in its analyses, because the location of each 
sample household in the 2005 RECS dataset can be identified only within 
broad geographic regions. Thus, it would not be possible to make use of 
State-level energy prices in the LCC and PBP analysis. Accordingly, for 
the direct final rule analysis of furnaces, DOE derived average energy 
prices for the 13 geographic areas mentioned above. For Census 
divisions containing one of these large States, DOE calculated the 
regional average excluding the data for the large State.
    DOE calculated average residential electricity prices for each of 
the 13 geographic areas using data from EIA's Form EIA-861 Database 
(based on ``Annual Electric Power Industry Report'').\61\ DOE 
calculated an average annual regional residential price by: (1) 
Estimating an average residential price for each utility (by dividing 
the residential revenues by residential kilowatt-hour sales); and (2) 
weighting each utility by the number of residential consumers it served 
in that region. The direct final rule analysis used the data available 
for 2008.
---------------------------------------------------------------------------

    \61\ Available at: http://www.eia.doe.gov/cneaf/electricity/page/eia861.html.
---------------------------------------------------------------------------

    DOE calculated average residential natural gas prices for each of 
the 13 geographic areas using data from EIA's ``Natural Gas Monthly.'' 
\62\ DOE calculated average annual regional residential prices by: (1) 
Estimating an average residential price for each State; and (2) 
weighting each State by the number of residential consumers. The direct 
final rule analysis used the data for 2009.
---------------------------------------------------------------------------

    \62\ Available at: http://www.eia.gov/oil_gas/natural_gas/data_publications/natural_gas_monthly/ngm.html.
---------------------------------------------------------------------------

    DOE estimated average residential liquefied petroleum gas (LPG) and 
oil prices for each of the 13 geographic

[[Page 37476]]

areas based on data from EIA's State Energy Data System (SEDS) 
2008.\63\
---------------------------------------------------------------------------

    \63\ Table S2a, Residential Sector Energy Price Estimates by 
Source (June 2010) (Available at: http://www.eia.doe.gov/emeu/states/_seds.html).
---------------------------------------------------------------------------

    For each of the above energy forms, DOE disaggregated the annual 
energy prices into monthly prices using factors that relate historical 
prices for each month to the average annual prices.
5. Energy Price Projections
    To estimate energy prices in future years for the central air 
conditioners and heat pumps preliminary TSD, DOE multiplied the average 
marginal electricity prices in each of the 13 geographic areas by the 
forecast of annual average residential or commercial electricity price 
changes in the Reference Case \64\ derived from AEO2009. In the 
furnaces RAP, DOE stated its intention to use projections of national 
average natural gas, LPG, electricity, and fuel oil prices for 
residential consumers to estimate future energy prices, and to use the 
most recent available edition of the AEO.
---------------------------------------------------------------------------

    \64\ The spreadsheet tool that DOE used to conduct the LCC and 
PBP analyses allows users to select price forecasts from either 
AEO's High Economic Growth or Low Economic Growth Cases. Users can 
thereby estimate the sensitivity of the LCC and PBP results to 
different energy price forecasts.
---------------------------------------------------------------------------

    Commenting on the furnaces RAP, Ingersoll Rand stated that using 
national-average price changes to forecast future energy prices may 
distort the regional results. (FUR: Ingersoll Rand, No. 1.3.006 at p. 
9) In response, DOE agrees that using regional energy price forecasts 
is appropriate for the analysis in this rulemaking. For this rule, for 
central air conditioners and heat pumps as well as furnaces, DOE 
developed electricity price forecasts for the considered geographic 
areas using the forecasts by Census division for residential and 
commercial heating and cooling end uses from AEO2010. To estimate the 
electricity price trend after 2035 (the end year in AEO2010 
projections) and through 2060, DOE assumed that prices would rise at 
the average annual rate of change from 2020 to 2035 forecasted in 
AEO2010. To estimate the trends in natural gas, LPG, and fuel oil 
prices after 2035 and through 2060, DOE assumed that prices would rise 
at the average annual rate of change from 2020 to 2035 forecasted in 
AEO2010. DOE intends to update its energy price forecasts for the final 
rule based on the latest available AEO.
6. Maintenance and Repair Costs
    Repair costs are associated with repairing or replacing components 
that have failed in the appliance, whereas maintenance costs are 
associated with maintaining the proper operation of the equipment.
a. Central Air Conditioners and Heat Pumps
    In its central air conditioners and heat pumps preliminary 
analysis, DOE used RS Means and industry literature to obtain estimates 
of average repair costs and preventative maintenance costs. Both costs 
were scaled proportionately with equipment price for higher-efficiency 
equipment. DOE did not receive any significant comments on its 
procedure or findings. However, after further review, DOE determined 
that the actual functions carried out as part of annual preventative 
maintenance (such as coil cleaning or checking of system pressures) are 
tasks that are not affected by the cost of the equipment and, thus, 
would not be more expensive as efficiency increased. Therefore, for the 
direct final rule, maintenance costs were held constant as efficiency 
increased.
b. Furnaces
    In the furnaces RAP, DOE stated that it will: (1) Estimate 
maintenance and repair costs at each considered efficiency level using 
a variety of sources, including RS Means, manufacturer literature, and 
information from expert consultants; and (2) account for regional 
differences in labor costs. DOE did not receive any significant 
comments on this topic.
    For the direct final rule, DOE estimated costs for annual 
maintenance using data from a proprietary consumer survey \65\ on the 
frequency with which owners of different types of furnaces perform 
maintenance. For condensing oil furnaces, the high quantity of sulfur 
in the fuel results in frequent cleaning of the secondary heat 
exchanger, and DOE accounted for this cost.
---------------------------------------------------------------------------

    \65\ Decision Analysts, ``2008 American Home Comfort Study'' 
(2009).
---------------------------------------------------------------------------

    DOE estimated that about three percent of furnaces are repaired 
annually based on Consumer Reports data on frequency of repair for gas 
furnaces installed between 2000 and 2006.\66\ DOE assumed that an 
average repair has a parts cost equivalent to one-fourth of the 
equipment cost, marked up by a factor of two, and requires 1.5 hours of 
labor.
---------------------------------------------------------------------------

    \66\ Consumer Reports, ``Brand Repair History: Gas furnaces'' 
(Jan. 2008) (Available at: http://www.consumerreports.org/cro/appliances/heating-cooling-and-air/gas-furnaces/furnaces-repair-history-205/overview/index.htm).
---------------------------------------------------------------------------

7. Product Lifetime
    In the central air conditioners and heat pumps preliminary 
analysis, DOE conducted an analysis of actual product lifetime in the 
field using a combination of shipments data, responses in RECS on the 
age of household central air conditioner and heat pump products, and 
total installed stock data in the U.S. Census's American Housing Survey 
(AHS).\67\ DOE used RECS data from surveys conducted in 1990, 1993, 
1997, 2001, and 2005. DOE used AHS data from surveys conducted every 
other year from 1991 to 2007. By combining the results of RECS and AHS 
with the known history of appliance shipments, DOE estimated the 
percentage of central air conditioner and heat pump products of a given 
age still in operation. This analysis yielded distributions with a mean 
life of 19 years for central air conditioners and 16.3 years for heat 
pumps.
---------------------------------------------------------------------------

    \67\ Available at: http://www.census.gov/hhes/www/housing/ahs/ahs.html.
---------------------------------------------------------------------------

    Commenting on the central air conditioners and heat pumps 
preliminary TSD, Southern stated that the impact of the 
hydrochlorofluorocarbon (HCFC) R22 refrigerant phase-out on equipment 
lifetimes needs to be considered. (CAC: SCS, No. 73 at p. 4) By way of 
background, effective January 1, 2010, the Montreal Protocol requires 
the U.S. to reduce its consumption of HCFCs by 75 percent below the 
U.S. baseline cap. As of January 1, 2010, HVAC system manufacturers may 
only produce or import HCFC-22 to service existing equipment. Virgin 
HCFC-22 may not be used in new equipment. As a result, HVAC system 
manufacturers may not produce new air conditioners and heat pumps 
containing HCFC-22. The timeline for the phase-out of HCFC-22 in new 
equipment has been known since the mid-1990s. Since that time, the 
industry has sponsored considerable research into the development of 
refrigerant alternatives with zero ozone depletion potential, and they 
eventually settled on R-410a as a replacement. Manufacturers have been 
producing products that utilize R-410a for the past decade in 
anticipation of the 2010 phase-out date. DOE concluded that given the 
lead time accorded to the industry, and the fact that these products 
are widely distributed in the market, products manufactured with R-410a 
provide the same level of utility and performance, including product 
lifetime, as equipment utilizing HCFC-22.
    In the furnaces RAP, DOE stated its intention to use an approach 
based on an analysis of furnace lifetimes in the field using a 
combination of shipments data, the stock of furnaces, RECS data

[[Page 37477]]

on the age of the furnaces in the surveyed homes, and AHS data on the 
total installed furnace stock. The same survey years were utilized to 
determine furnace lifetimes as were used for central air conditioners 
and heat pumps. Commenting on the furnaces RAP, Ingersoll Rand 
requested that DOE review and refine its lifetime estimate for gas 
furnaces, because the often-cited 18-year to 20-year lifetime may be 
unrealistically long. Instead, Ingersoll Rand stated that the mean 
population life expectancy for furnaces is probably in the range of 15-
20 years. (FUR: Ingersoll Rand, No. 1.3.006 at pp. 8 & 10)
    For the direct final rule analysis, DOE derived probability 
distributions ranging from minimum to maximum lifetime for the products 
considered in this rulemaking. For central air conditioners and heat 
pumps, DOE used the same approach as it did in the preliminary 
analysis. For furnaces, it used the approach described in the RAP. The 
mean lifetimes estimated for the direct final rule are 23.6 years for 
non-weatherized gas furnaces, 18.7 years for mobile home gas furnaces, 
and 29.7 years for oil-fired furnaces. Regarding the comment by 
Ingersoll Rand, DOE believes that the method DOE used is reasonable 
because it relies on data from the field on furnace lifetimes. DOE was 
not able to substantiate the validity of the life expectancy mentioned 
by Ingersoll Rand, because the commenter did not provide any 
corroborating data in its comment.
    Chapter 8 of the direct final rule TSD provides further details on 
the methodology and sources DOE used to develop product lifetimes.
8. Discount Rates
    In the calculation of LCC, DOE applies discount rates to estimate 
the present value of future operating costs.
    In its central air conditioners and heat pumps preliminary 
analysis, to establish consumer (residential) discount rates for the 
LCC analysis, DOE identified all debt or asset classes that might be 
used to purchase major appliances or that might be affected indirectly. 
It estimated the average percentage shares of the various debt or asset 
classes for the average U.S. household using data from the Federal 
Reserve Board's Survey of Consumer Finances (SCF) for a number of 
years.\68\ Using the SCF and other sources, DOE then developed a 
distribution of rates for each type of debt and asset to represent the 
rates that may apply in the year in which amended standards would take 
effect. For the purchase of products for new homes, which are included 
in the sales price of the home, DOE uses finance costs based on a 
distribution of mortgage rates. DOE assigned each sample household a 
specific discount rate drawn from the distributions.
---------------------------------------------------------------------------

    \68\ Available at: http://www.federalreserve.gov/pubs/oss/oss2/scfindex.html. The surveys used range from 1989 to 2007.
---------------------------------------------------------------------------

    In the central air conditioners and heat pumps preliminary 
analysis, DOE developed commercial discount rates based on the weighted 
average cost of capital (WACC) calculated for commercial businesses 
expected to occupy small commercial buildings. For the commercial cost 
of capital data, DOE relied on financial data found in the Damodaran 
Online Web site as of January 2009 (since updated to January 2010). In 
the furnaces RAP, DOE stated its intention to use the same approach for 
furnaces as it used in the central air conditioners and heat pumps 
preliminary analysis.
    DOE did not receive any significant comments on consumer discount 
rates. Therefore, for the direct final rule, DOE used the same approach 
as it used in the central air conditioners and heat pumps preliminary 
analysis, with minor modifications to the estimation of risk-free rates 
and risk premiums that are needed to calculate WACC. See chapter 8 in 
the direct final rule TSD for further details on the development of 
discount rates for the LCC analysis.
9. Compliance Date of Amended Standards
    In the context of EPCA, the compliance date is the future date when 
parties subject to a new or amended standard must meet its applicable 
requirements. DOE calculates the LCC and PBP for each of the considered 
efficiency levels as if consumers would purchase new products in the 
year compliance with the standard is required.
    For the reasons discussed in section III.C, DOE determined that for 
all TSLs analyzed--except for the consensus agreement TSL--DOE is bound 
to calculate compliance dates in accordance with EPCA. For those TSLs, 
the analysis accounts for a five-year lead time between the publication 
of the final rule for furnaces and central air conditioners and heat 
pumps and the date by which manufacturers must comply with the amended 
standard.
    A final rule for the products that are the subject of this 
rulemaking is scheduled to be completed by June 30, 2011. Thus, for 
most of the TSLs analyzed, compliance with amended standards for 
furnaces and central air conditioners and heat pumps would be required 
in 2016. Accordingly, for purposes of the LCC and PBP analysis, DOE 
used 2016 as the year compliance with the amended standards is 
required.
10. Base-Case Efficiency Distribution
    To accurately estimate the share of consumers that would be 
affected by a standard at a particular efficiency level, DOE estimates 
the distribution of product efficiencies that consumers would purchase 
under the base case (i.e., the case without new or amended energy 
efficiency standards) in the year compliance with the standard is 
required. DOE refers to this distribution of product efficiencies as a 
base-case efficiency distribution. DOE develops base-case efficiency 
distributions for each of the considered product classes.
a. Energy Efficiency
    In the central air conditioners and heat pumps preliminary 
analysis, DOE assumed that the base-case efficiency distributions in 
2016 would be the same as in 2008. Southern commented that it is not 
reasonable to assume efficiencies are going to stay frozen from 2008 to 
2016, as there has been a huge increase in utility incentive programs 
for higher-efficiency units. Southern stated that there will be some 
increase in the shipment-weighted efficiency between 2008 and 2016. 
(CAC: SCS, Public Meeting Transcript at p. 196) HARDI commented that 
DOE must incorporate the role that energy efficiency incentive programs 
play in the sale and installation of higher-efficiency units. (CAC: 
HARDI, No. 70 at p. 1)
    In the furnaces RAP, DOE stated that its development of base-case 
efficiency distributions will use available data on recent market 
trends in furnace efficiency and will take into account the potential 
impacts of the ENERGY STAR program and other policies that may affect 
the demand for more-efficient furnaces. Commenting on the furnaces RAP, 
several parties stated that DOE should consider the extent to which 
incentives and other market forces are expanding the market for high-
efficiency furnaces even without new standards. (FUR: AGA, No. 1.3.010 
at p. 2 & pp. 5-6; APGA, No. 1.3.004 at p. 4; and HARDI, No. 1.2.006 at 
pp. 168-70)
    For the direct final rule analysis, DOE considered incentives and 
other market forces that have increased the sales of high-efficiency 
furnaces and central air conditioners and heat pumps to estimate base-
case efficiency distributions for the considered products. DOE started 
with data provided by AHRI on historical shipments for each product 
class. For

[[Page 37478]]

non-weatherized gas furnaces, the historical shipments data were 
further specified by region and type of furnace (i.e., non-condensing 
or condensing). DOE then used data on the distribution of models in 
AHRI's Directory of Certified Product Performance: Furnaces (October 
2010) \69\ to disaggregate shipments among condensing efficiency levels 
for 2009. For central air conditioners and heat pumps, the historical 
shipments data were accompanied with annual shipment-weighted 
efficiency data by product class. DOE then used data from the Air-
Conditioning, Heating, and Refrigeration (ACHR) News \70\ to 
disaggregate shipments among efficiency levels for 2008.
---------------------------------------------------------------------------

    \69\ See: http://www.ahridirectory.org/.
    \70\ ACHR News, ``Higher SEERs got popular'' (Dec. 24, 2007) 
(Available at: http://www.achrnews.com/Articles/Web_Exclusive/BNP_GUID_9-5-2006_A_10000000000000222513).
---------------------------------------------------------------------------

    DOE forecasted the non-weatherized gas furnace and central air 
conditioner and heat pump efficiency distributions to 2011 based on the 
average growth in efficiency from 2006 to 2009. The historical 
efficiency data from AHRI indicate a rapid growth in average equipment 
efficiency, based in large part on the availability of Federal tax 
credits for the purchase of high-efficiency products. The Federal tax 
credits expire on December 31, 2011. After the expiration, DOE believes 
that the demand for high-efficiency products is likely to decline 
somewhat initially, but it assumed that the average efficiency will 
then increase at the historic rate seen in the decade prior to 
availability of the Federal tax credits. For further information on 
DOE's estimation of the base-case efficiency distributions for non-
weatherized gas furnaces and central air conditioners and heat pumps, 
see chapter 8 of the direct final rule TSD.
    Table IV.14 shows the estimated base-case efficiency distributions 
in 2016 for non-weatherized gas furnaces. Table IV.15 shows the 
estimated base-case efficiency distributions in 2016 for the four 
primary central air conditioner and heat pump product classes. DOE was 
unable to develop unique efficiency distributions by region, as data 
were not provided by AHRI on a regional basis. Therefore, DOE assumed 
that the efficiency distributions are the same in each region.

             Table IV.14--Base-Case Efficiency Distribution in 2016 for Non-Weatherized Gas Furnaces
----------------------------------------------------------------------------------------------------------------
                           Efficiency                                  North           South         National
----------------------------------------------------------------------------------------------------------------
                              AFUE                                            Market share in percent
----------------------------------------------------------------------------------------------------------------
80%.............................................................            29.1            75.6            48.1
90%.............................................................            13.7             4.7            10.0
92%.............................................................            33.6            11.6            24.6
95%.............................................................            23.0             7.9            16.9
98%.............................................................             0.6             0.2             0.4
----------------------------------------------------------------------------------------------------------------

       Table IV.15--Base-Case Efficiency Distribution in 2016 for Central Air Conditioners and Heat Pumps
----------------------------------------------------------------------------------------------------------------
                                                                                  Single-package  Single-package
                   Efficiency                        Split CAC       Split HP           CAC             HP
----------------------------------------------------------------------------------------------------------------
                      SEER                                            Market share in percent
----------------------------------------------------------------------------------------------------------------
13.0............................................            24.0            13.0            62.7            32.1
13.5............................................            47.0            40.0            20.0            32.0
14.0............................................             4.0            10.0            14.3            28.9
14.5............................................             7.3            13.0             2.0             5.0
15.0............................................             5.8            11.5             1.0             2.0
15.5............................................             2.0             3.5             0.0             0.0
16.0............................................             7.0             5.0             0.0             0.0
16.5............................................             0.5             2.0             0.0             0.0
17.0............................................             1.0             1.5             0.0             0.0
18.0............................................             0.7             0.5             0.0             0.0
19.0............................................             0.3             0.0             0.0             0.0
20.0............................................             0.2             0.0             0.0             0.0
21.0............................................             0.2             0.0             0.0             0.0
22.0............................................             0.1             0.0             0.0             0.0
----------------------------------------------------------------------------------------------------------------

    For mobile home gas furnaces and oil-fired furnaces, DOE used data 
in the AHRI furnace models directory and manufacturer input to estimate 
current efficiency distributions. Because there is little indication of 
a trend in efficiency for these products, DOE assumed that the 
efficiency distributions in 2016 will be the same as in the current 
market (see Table IV.16).

[[Page 37479]]

[GRAPHIC] [TIFF OMITTED] TR27JN11.006

b. Standby Mode and Off Mode Power
    DOE also estimated base-case efficiency distributions for furnace 
standby mode and off mode power. As discussed in section IV.C.7.c, DOE 
considered efficiency levels only for furnaces with ECM motors. 
Baseline products contain the highest energy-consuming components, 
which include an ECM blower motor (rather than a PSC). Although DOE's 
test results for furnaces showed that the standby mode and off mode 
consumption could be reduced by eliminating certain features (e.g., 
replacing an ECM blower motor with a PSC motor), DOE did not consider 
these reductions because the elimination of such features and 
components would result in a reduction of consumer utility. (The ECM 
motor maintains constant airflow volume and is suited for two-speed 
equipment, which allows the consumer to maintain better comfort.) In 
its analysis, DOE only considered efficiency levels that could be 
implemented with no noticeable impacts on the performance and utility 
of the unit. As shown in Table IV.17 through Table IV.19, DOE estimated 
that all of the affected market would be at the baseline level in 2016.

    Table IV.17--Standby Mode and Off Mode Base-Case Efficiency Distribution in 2016 for Non-Weatherized Gas
                                         Furnaces and Electric Furnaces
----------------------------------------------------------------------------------------------------------------
                                                                                   Standby/off-    Market share
                        Efficiency level                            Motor type      mode  watts     in percent*
----------------------------------------------------------------------------------------------------------------
Baseline........................................................             ECM            11.0             100
1...............................................................             ECM             9.8               0
2...............................................................             ECM             9.0               0
----------------------------------------------------------------------------------------------------------------
* Refers to share of furnaces with ECM motor.

     Table IV.18--Standby Mode and Off Mode Base-Case Efficiency Distribution in 2016 for Oil-Fired Furnaces
----------------------------------------------------------------------------------------------------------------
                                                                                   Standby/off-    Market share
                        Efficiency level                            Motor type      mode  watts    in percent\*\
----------------------------------------------------------------------------------------------------------------
Baseline........................................................             ECM            12.0             100
1...............................................................             ECM            10.8               0
2...............................................................             ECM            10.0               0
----------------------------------------------------------------------------------------------------------------
* Refers to share of furnaces with ECM motor.

  Table IV.19--Standby Mode and Off Mode Base-Case Efficiency Distribution in 2016 for Mobile Home Gas Furnaces
----------------------------------------------------------------------------------------------------------------
                                                                                   Standby/off-    Market share
                        Efficiency level                            Motor type      mode  watts    in percent\*\
----------------------------------------------------------------------------------------------------------------
Baseline........................................................             ECM            11.0             100
1...............................................................             ECM             9.8               0
2...............................................................             ECM             9.0               0
----------------------------------------------------------------------------------------------------------------
* Refers to share of furnaces with ECM motor.

    DOE also estimated base-case efficiency distributions for central 
air conditioner and heat pump off mode power. As discussed in section 
IV.C.7.c, DOE considered efficiency levels only for air conditioning 
and heat pump equipment with crankcase heaters. DOE found that 
crankcase heaters account for the vast majority of off mode power 
consumption for air conditioners and heat pumps. However, not every 
unit has a crankcase heater and, to accurately

[[Page 37480]]

reflect this in the analyses, DOE determined separate efficiency levels 
within each product class for units with and without a crankcase 
heater. Although DOE's test results for central air conditioners and 
heat pumps showed that the standby mode and off mode consumption could 
be reduced eliminating certain features (such as the crankcase heater), 
DOE did not consider such measures because the elimination of the 
features and components would result in a reduction of consumer 
utility.\71\ In its analysis, DOE only considered designs that could be 
implemented with no noticeable impacts on the performance and utility 
of the unit.
---------------------------------------------------------------------------

    \71\ Crankcase heaters are used in some compressors and prevent 
refrigerant condensation in the crankcase of a compressor. Without 
the crankcase heater, the condensed refrigerant will mix with the 
crankcase oil, resulting in a watery mixture that can wash out 
compressor bearings, leading to premature compressor failure.
---------------------------------------------------------------------------

    As shown in Table IV.20, for split-system air conditioners, DOE 
estimated that 60 percent of the affected market would be at the 
baseline level, 30 percent at efficiency level 1, and 10 percent at 
efficiency level 2 in 2016. Because off mode power consumption is a 
function of system type (i.e., blower-coil or coil-only), the market 
share is further disaggregated by system type for each efficiency 
level. As a result of this further disaggregation, two different off 
mode power consumption levels are reported at each efficiency level.

    Table IV.20--Off Mode Base-Case Efficiency Distribution in 2016 for Split-System Central Air Conditioners
----------------------------------------------------------------------------------------------------------------
                                                                              Market share of affected market in
                                                                                          percent\*\
                                                                             -----------------------------------
          Efficiency level                  AC type          Off-Mode  watts                      By efficiency
                                                                                By efficiency     level and AC
                                                                                    level             type
----------------------------------------------------------------------------------------------------------------
Baseline...........................  Blower-Coil..........                48                60                 6
                                     Coil-Only............                40  ................                54
1..................................  Blower-Coil..........                36                30                 1
                                     Coil-Only............                28  ................                 9
2..................................  Blower-Coil..........                30                10                 3
                                     Coil-Only............                22  ................                27
3..................................  Blower-Coil..........                29                 0                 0
                                     Coil-Only............                NA  ................                 0
----------------------------------------------------------------------------------------------------------------
* Refers to share of air conditioners with crankcase heaters.

    As shown in Table IV.21, for single-package air conditioners, DOE 
estimated that 60 percent of the affected market would be at the 
baseline level, 30 percent at efficiency level 1, and 10 percent at 
efficiency level 2 in 2016. For split-system and single-package heat 
pumps (Table IV.22), DOE estimated that 50 percent of the affected 
market would be at the baseline level and 50 percent at efficiency 
level 1 in 2016. The off mode power consumption levels associated with 
ECM-equipped systems set the wattage limitations for each of the 
efficiency levels considered. Of further note, in the case of 
efficiency level 3 for single-package air conditioners and efficiency 
level 2 for heat pumps, only the fraction of the market equipped with 
ECMs is impacted. Single-package air conditioners with PSC motors that 
comply with the off mode power requirements in efficiency level 2 
already meet the requirements in efficiency level 3. For heat pumps, 
units with PSC motors that comply with the off mode power requirements 
in efficiency level 1 already meet the requirements in efficiency level 
2.

   Table IV.21--Off Mode Base-Case Efficiency Distribution in 2016 for
                 Single-Package Central Air Conditioners
------------------------------------------------------------------------
                                                           Market share
                                                Off-Mode    of affected
               Efficiency level                  watts       market in
                                                            percent\*\
------------------------------------------------------------------------
Baseline.....................................         48              60
1............................................         36              30
2............................................         30              10
3 **.........................................         29               0
------------------------------------------------------------------------
* Refers to fraction of central air conditioners with crankcase heaters.
** Impacts only that fraction of the market with ECMs; market with PSC
  motors meeting efficiency level 2 already meet efficiency level 3 off
  mode power requirements.

   Table IV.22--Off Mode Base-Case Efficiency Distribution in 2016 for
               Split-System and Single-Package Heat Pumps
------------------------------------------------------------------------
                                                           Market share
                                                Off-Mode    of affected
               Efficiency level                  watts       market in
                                                             percent *
------------------------------------------------------------------------
Baseline.....................................         50              50
1............................................         33              50
2 **.........................................         32               0
------------------------------------------------------------------------
* Refers to fraction of heat pumps with crankcase heaters.
** Impacts only that fraction of the market with ECMs; market with PSC
  motors meeting efficiency level 1 already meet efficiency level 2 off
  mode power requirements.

    For further information on DOE's estimate of base-case efficiency 
distributions, see chapter 8 of the direct final rule TSD.
11. Inputs To Payback Period Analysis
    The payback period is the amount of time it takes the consumer to 
recover the additional installed cost of more-efficient products, 
compared to baseline products, through energy cost savings. The simple 
payback period does not account for changes in operating expense over 
time or the time value of money. Payback periods are expressed in 
years. Payback periods that exceed the life of the product mean that 
the

[[Page 37481]]

increase in total installed cost is not recovered in reduced operating 
expenses.
    The inputs to the PBP calculation are the total installed cost of 
the equipment to the customer for each efficiency level and the average 
annual operating expenditures for each efficiency level. The PBP 
calculation uses the same inputs as the LCC analysis, except that 
discount rates are not needed. The results of DOE's PBP analysis are 
presented in section V.B.1.
12. Rebuttable Presumption Payback Period
    As noted above, EPCA, as amended, establishes a rebuttable 
presumption that a standard is economically justified if the Secretary 
finds that the additional cost to the consumer of purchasing a product 
complying with an energy conservation standard level will be less than 
three times the value of the energy (and, as applicable, water) savings 
during the first year that the consumer will receive as a result of the 
standard, as calculated under the test procedure in place for that 
standard. (42 U.S.C. 6295(o)(2)(B)(iii)) For each considered efficiency 
level, DOE determined the value of the first year's energy savings by 
calculating the quantity of those savings in accordance with the 
applicable DOE test procedure, and multiplying that amount by the 
average energy price forecast for the year in which compliance with the 
amended standard would be required. The results of DOE's analysis are 
presented in section V.B.1.

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

    The national impact analysis (NIA) assesses the national energy 
savings (NES) and the national net present value (NPV) of total 
consumer costs and savings that would be expected to result from new or 
amended standards at specific efficiency levels. (``Consumer'' in this 
context refers to users of the product being regulated.) DOE calculates 
the NES and NPV based on projections of annual appliance shipments, 
along with the annual energy consumption and total installed cost data 
from the energy use and LCC analyses.
    For most of the TSLs considered in the present analysis, DOE 
forecasted the energy savings from 2016 through 2045, and it calculated 
product costs, operating cost savings, and NPV of consumer benefits for 
products sold from 2016 through 2045. For TSL 4, which matches the 
recommendations in the consensus agreement, DOE forecasted the energy 
savings from 2015 through 2045 for central air conditioners and heat 
pumps, and from 2013 through 2045 for furnaces.\72\ For TSL 4, it 
calculated product costs, operating cost savings, and NPV of consumer 
benefits for products sold in these periods.
---------------------------------------------------------------------------

    \72\ Compared to all other TSLs, the compliance date for TSL 4 
is earlier for furnaces (in 2013) and for central air conditioners 
and heat pumps (in 2015). DOE used the same end year for TSL 4 as 
for all other TSLs to demonstrate the additional national impacts 
that would result from these earlier compliance dates.
---------------------------------------------------------------------------

    DOE evaluates the impacts of new or amended standards by comparing 
base-case projections with standards-case projections. The base-case 
projections characterize energy use and consumer costs for each product 
class in the absence of new or amended energy conservation standards. 
DOE compares these projections with projections characterizing the 
market for each product class if DOE adopted new or amended standards 
at specific energy efficiency levels (i.e., the TSLs or standards 
cases) for that class. For the base-case forecast, DOE considers 
historical trends in efficiency and various forces that are likely to 
affect the mix of efficiencies over time. For the standards cases, DOE 
also considers how a given standard would likely affect the market 
shares of products with efficiencies greater than the standard.
    To make the analysis more accessible and transparent to all 
interested parties, DOE makes publicly available a spreadsheet model 
(in Excel format) to calculate the energy savings and the national 
consumer costs and savings from each TSL. The TSD and other 
documentation that DOE provides during the rulemaking explain the 
models and how to use them, and interested parties can review DOE's 
analyses and also change various input values within the spreadsheet. 
The NIA spreadsheet model uses typical values as inputs (as opposed to 
probability distributions).
    For the current analysis, the NIA used projections of energy prices 
and housing starts from the AEO2010 Reference case. In addition, DOE 
analyzed scenarios that used inputs from the AEO2010 High Economic 
Growth and Low Economic Growth cases. These cases have higher and lower 
energy price trends compared to the Reference case, as well as higher 
and lower housing starts, respectively, which result in higher and 
lower appliance shipments to new homes. NIA results based on these 
cases are presented in appendix 10-A of the direct final rule TSD.
    Table IV.23 summarizes the inputs and methodology DOE used for the 
NIA analysis for the central air conditioners and heat pumps 
preliminary analysis and the changes to the analyses for this rule. For 
the direct final rule analysis, DOE used the same basic methodology for 
furnaces as it used for central air conditioners and heat pumps. 
Discussion of these inputs and methods follows the table. See chapter 
10 of the direct final rule TSD for further details.

   Table IV.23--Summary of Inputs and Methods for the National Impact
                                Analysis
------------------------------------------------------------------------
                                                       Changes for the
           Inputs                Preliminary TSD      Direct Final Rule
------------------------------------------------------------------------
Shipments...................  Annual shipments      No change.
                               from shipments
                               model.
Compliance Date of Standard.  2016. *.............  No change.
Base-Case Forecasted          Based on historical   No change in basic
 Efficiencies.                 SWEF ** growth        approach; modified
                               rates from 1992 to    efficiency
                               2005.                 distributions based
                                                     on new information
                                                     from AHRI;
                                                     historical SWEF
                                                     growth rates from
                                                     1993 to 2002 (CAC
                                                     and HP) or 2005
                                                     (Furnaces) used to
                                                     forecast
                                                     efficiencies.
Standards-Case Forecasted     Used a ``roll-up''    Modified efficiency
 Efficiencies.                 scenario to           distributions based
                               establish the         on new information.
                               distribution of       Retained ``roll-
                               efficiencies in the   up'' scenario.
                               compliance year;      Forecasted
                               forecasted            efficiencies based
                               efficiencies based    on maintaining
                               on historical SWEF    constant per-unit
                               growth rates from     total installed
                               1992 to 2005 (same    costs relative to
                               as base case).        base case.
Annual Energy Consumption     Annual weighted-      No change.
 per Unit.                     average values as a
                               function of SWEF.

[[Page 37482]]

 
Total Installed Cost per      Annual weighted-      Incorporated
 Unit.                         average values as a   learning rate to
                               function of SWEF.     forecast product
                                                     prices.
Annual Energy Cost per Unit.  Annual weighted-      No change.
                               average values as a
                               function of the
                               annual energy
                               consumption per
                               unit and energy
                               prices.
Repair and Maintenance Cost   Annual values as a    No change.
 per Unit.                     function of
                               efficiency level.
Energy Prices...............  AEO2009 forecasts     Updated using
                               (to 2035) and         AEO2010 forecasts.
                               extrapolation
                               through 2043.
Energy Site-to-Source         Varies yearly and is  No change.
 Conversion Factor.            generated by NEMS-
                               BT.
Discount Rate...............  Three and seven       No change.
                               percent real.
Present Year................  Future expenses are   Future expenses are
                               discounted to 2010.   discounted to 2011,
                                                     when the final rule
                                                     will be published.
------------------------------------------------------------------------
* The compliance date used for TSL 4 is 2013 for furnaces and 2015 for
  central air conditioners and heat pumps.
** Shipments-Weighted Energy Factor.

1. Shipments
    The shipments portion of the NIA spreadsheet is a model that uses 
historical data as a basis for projecting future shipments of the 
products that are the subjects of this rulemaking. In DOE's shipments 
models, shipments of products are driven by replacement of the existing 
stock of installed products, new home or building construction, and 
existing households or buildings that do not already own the product 
(referred to hereafter as ``new owners''). Central air conditioners and 
heat pumps are used in some commercial buildings as well as for 
residences. Based on industry input, DOE estimated that 7 percent of 
central air conditioner and heat pump shipments are to commercial 
applications, and accounted for these shipments in the shipments model.
    The shipments model takes an accounting approach, tracking market 
shares of each product class and the vintage of units in the existing 
stock. Stock accounting uses product shipments as inputs to estimate 
the age distribution of in-service product stocks for all relevant 
years. The age distribution of in-service product stocks is a key input 
to NES and NPV calculations because operating costs for any year depend 
on the age distribution of the stock. DOE used historical product 
shipments to assist in calibrating the shipments model.
    For the central air conditioners and heat pumps preliminary 
analysis, AHRI provided historical shipments data for each of the four 
primary product classes--split-system air conditioners, single-package 
air conditioners, split-system heat pumps, and single-package heat 
pumps. AHRI also provided regional shipments data for each product 
class for two years--2008 and 2009. The limited regional shipments 
data, in combination with calibration of the resulting product stock 
saturations to the values specified by past RECS surveys and U.S. 
Census Bureau American Housing Survey (AHS) data, allowed DOE to 
develop historical residential shipments disaggregated by region. 
Commercial shipments were allocated regionally based on the percentage 
allocations determined for residential shipments.
    In the furnaces RAP, DOE stated its intention to: (1) Develop base-
case shipments forecasts for each of the four Census regions that, in 
turn, could be aggregated to produce regional or national forecasts; 
and (2) to project shipments of residential furnaces by primarily 
accounting for sales to the replacement market and new homes.
    For the direct final rule analysis, DOE's base-case shipments 
forecasts used the same approach for central air conditioners and heat 
pumps as was used in the preliminary analysis, and used the approach 
described in the RAP for furnaces. For details on the shipments 
analysis, see chapter 9 of the direct final rule TSD.
a. Impact of Potential Standards on Shipments
    For the central air conditioners and heat pumps preliminary 
analysis, to estimate the impact that potential standards would have on 
product shipments, DOE analyzed the impact that purchase price, 
operating costs, and household income have had on historical central 
air conditioner and heat pump shipments. From this analysis, DOE 
derived a relative price elasticity that estimates shipments impacts as 
a function of the increase in purchase price, operating cost savings, 
and household income. Although the correlation among historical 
shipments and the above three parameters is not strong, there is enough 
evidence to suggest a connection. Of the three parameters, purchase 
price has the most significant impact on product shipments (an increase 
in product purchase price will lead to a decrease in product 
shipments). DOE only considered shipments decreases in the replacement 
and new owner markets.\73\ In the case of the replacement market, DOE 
assumed that any drop in shipments would be caused by consumers 
deciding to repair rather than replace their products. DOE estimated 
that the extended repair would last 6 years, after which time the 
products would be replaced.
---------------------------------------------------------------------------

    \73\ Because most new construction is now routinely equipped 
with either a central air conditioner or heat pump, DOE assumed that 
any increase in purchase price caused by standards would not affect 
the decision to install a central air conditioner or heat pump 
system in new construction.
---------------------------------------------------------------------------

    Commenting on the central air conditioners and heat pumps 
preliminary TSD, HARDI expressed concern that increases in the minimum 
efficiency required of residential central air conditioner units could 
lead to increased repair of legacy units, which would impact sales of 
new units. (CAC: HARDI, No. 56 at p. 3) Ingersoll Rand expressed a 
similar view, arguing that such a trend was noticeable after the 
implementation of the 13-SEER central air conditioner standard. (CAC: 
Ingersoll Rand, No. 66 at p. 3)
    In the furnaces RAP, DOE stated its intention to develop standards-
case forecasts that reflect the projected impacts of potential 
standards on product shipments. In the planned approach, the magnitude 
of the difference between the standards-case and base-case shipment 
forecasts depends on the estimated purchase price increase, as well as 
the operating cost savings caused by the considered

[[Page 37483]]

energy conservation standard, relative to household income.
    Commenting on the furnaces RAP, several parties stated that DOE 
should consider that high installed costs resulting from amended energy 
conservation standards might cause some consumers to repair their 
existing furnaces instead of replacing them with higher-efficiency 
units. Specifically, AGA stated that DOE has not considered the 
likelihood of repair over replacement of existing furnaces, 
particularly where replacement of non-condensing furnaces with 
condensing furnaces has potentially high venting system upgrade costs. 
(FUR: AGA, No. 1.3.010 at p. 2) Carrier stated that the economic burden 
of a 90-percent AFUE standard may lead some consumers in some areas not 
to replace a furnace that they might otherwise replace. (FUR: Carrier, 
No. 1.2.006 at p. 207) APGA made the same point, adding that the 
installation cost adders (i.e., costs over and above typical costs) of 
furnaces at 90-percent AFUE and above could even lead to the need for 
replacement of heat exchangers. (FUR: APGA, No. 1.3.004 at p. 3) 
Ingersoll Rand stated that preservation of the existing HVAC system is 
a very real prospect if the price for increased efficiency is not 
deemed warranted by the consumer. It added that if amended standards 
would require a condensing furnace with an ECM blower in a climate 
where consumers do not feel the added expense is warranted, they will 
be disposed to extend the life of the existing furnace, even to the 
point of replacing a heat exchanger and burners if that is necessary. 
(FUR: Ingersoll Rand, No. 1.3.006 at p. 12) AGA and APGA stated that 
DOE particularly needs to consider the likelihood of higher rates of 
repair over replacement in manufactured housing, where owners may have 
limited ability to afford a condensing furnace as a replacement. (FUR: 
AGA, No. 1.3.010 at p. 5; APGA, No. 1.3.004 at p. 4) HARDI stated that 
increases in minimum efficiency standards for HVAC systems could 
encourage repair of existing systems in need of replacement, which 
could risk the health and safety of homeowners. (FUR: HARDI, No. 
1.3.016 at p. 3)
    DOE agrees that amended standards that result in considerably 
higher installed costs could lead some consumers to repair their 
existing furnace, central air conditioner, or heat pump instead of 
replacing it with a new, higher-efficiency unit. However, DOE is not 
aware of a satisfactory approach for estimating the extent of this 
phenomenon. There exists considerable uncertainty regarding the metric 
that consumers might use to make the decision to repair rather than 
replace their HVAC equipment. In addition, there are a variety of 
potential repair possibilities, each having different costs and impacts 
on extending equipment lifetime, and DOE has no way to estimate which 
types of repair would be most likely. Thus, DOE was not able to 
explicitly model the extent to which consumers might repair their 
existing furnace (or central air conditioner or heat pump) instead of 
replacing it with a higher-efficiency unit. Instead, for the direct 
final rule analysis, DOE used the same approach as in the central air 
conditioners and heat pumps preliminary TSD to estimate the impact that 
standards may have on shipments of central air conditioners, heat 
pumps, and also furnaces. That is, DOE applied a relative price 
elasticity that estimates shipments impacts as a function of the 
increase in purchase price, operating cost savings, and household 
income. Application of this elasticity parameter likely captures some 
of the effects of ``extended repair'' by some consumers. Although the 
elasticity parameter was estimated using data on historical central air 
conditioner and heat pump shipments, DOE believes that it is reasonable 
to apply it to the case of furnaces as well, given the broad 
similarities in the markets for residential central air conditioning 
and heating equipment.
    Regarding the expressed concern that repair of existing systems in 
need of replacement could risk the health and safety of homeowners, DOE 
notes that contractors have a legal responsibility to perform repairs 
according to the requirements of applicable codes. Further, issues 
about sub-standard repair practices could as well arise in the absence 
of amended standards.
    Because home builders are sensitive to the cost of HVAC equipment, 
a standard level that significantly increases purchase price may induce 
some builders to switch to a different heating system than they would 
have otherwise installed. Such an amended standard level may also 
induce some home owners to replace their existing furnace at the end of 
its useful life with a different type of heating product, although in 
this case, switching may incur additional costs to accommodate the 
different product. The decision to switch is also affected by the 
prices of the energy sources for competing equipment. For the central 
air conditioners and heat pumps preliminary analysis, DOE used the 
relative price elasticity described above to account for any equipment 
switching that may result from standards requiring higher-efficiency 
products. That is, equipment switching was implicitly included in the 
response to higher equipment prices that is modeled using the 
elasticity parameter. In the furnaces RAP, DOE stated its intention to 
account for fuel and equipment switching that may result from amended 
standards requiring higher-efficiency furnaces.
    Commenting on the furnaces RAP, some parties stated that a standard 
requiring condensing furnaces could cause some consumers to switch from 
gas furnaces to electric resistance heating systems. (FUR: AGA, No. 
1.3.010 at p. 6; APGA, No. 1.3.004 at p. 3; NPGA, No. 1.3.005 at p. 3) 
NPGA stated that in existing homes with central air conditioning and 
gas furnaces, switching to a heat pump represents a feasible option. 
(FUR: NPGA, No. 1.3.005 at p. 3) AGA and APGA also stated that a 
standard requiring condensing furnaces could cause some consumers with 
hybrid heat pump/furnace-backup heating systems to switch to all-
electric heat pump systems. (AGA, No. 1.3.010 at p. 7; APGA, No. 
1.3.004 at p. 3)
    Several parties regarded fuel switching as unlikely for a variety 
of reasons. ACEEE stated that the barriers to fuel switching in the 
retrofit market are high enough that few cases will be encountered. As 
an example, it stated that switching from a heat pump to a gas furnace 
is prohibitively expensive if gas service is not already available at 
the curb or in the house. With respect to fuel switching in new 
construction, ACEEE stated that it expects builders to seek favorable 
terms for installing gas heat and water heat rather than switch to 
electric heating. (FUR: ACEEE, No.1.3.009 at pp. 7-8) NEEP stated they 
found no reason consumers would switch from gas-fueled to either oil-
fueled or electric technologies in response to standards. (NEEP, No. 
1.3.021 at pp. 2-3) HARDI stated that a change in efficiency standards 
is unlikely to spur fuel switching, which more commonly is driven by 
energy costs. (HARDI, No. 1.3.016 at p. 10) Ingersoll Rand stated that 
consumers tend to heat with gas if it is available. It added that 
retail gas suppliers can be expected, on the whole, to maintain gas 
prices at a level to discourage switching in existing homes, and with 
new construction, to strive to remain competitive in areas they wish to 
serve. (FUR: Ingersoll Rand, No. 1.3.006 at p. 14)
    For the direct final rule, DOE did not explicitly quantify the 
potential for fuel switching from gas furnaces to electric heating 
equipment, based upon the following reasoning. DOE conducted a

[[Page 37484]]

thorough review of the 2005 RECS to assess the type of space-heating 
system utilized by consumers as a function of house heating load. Gas 
furnaces are primarily utilized in households with high heating loads, 
while electric space heating systems are almost exclusively used in 
households with low heating loads. Generally, this is because the 
operating costs of electric space heating systems are relatively high 
due to the price of electricity, so using an electric system in a cold 
climate is significantly more expensive than using a gas furnace. Based 
on the above finding, DOE inferred that consumers with high heating 
loads would be unlikely to switch to electric space heating systems as 
a result of amended standards. In addition, for a household with a gas 
furnace to switch to electric space heating, a separate circuit up to 
30-amps would need to be installed at a cost of approximately $300 to 
power the electric resistance heater within an electric furnace or heat 
pump system.\74\ On average, the electrical circuit cost is 
approximately 60 percent of the added installation cost of a more 
expensive venting system required for high-efficiency, condensing 
furnaces, further diminishing the likelihood of a consumer switching 
from gas to electric heating.
---------------------------------------------------------------------------

    \74\ Based on RS Means, Residential Cost Data 2010, Reed 
Construction Data, Kingston, MA.
---------------------------------------------------------------------------

    As briefly described above, for the direct final rule, DOE 
conducted an analysis of the potential for equipment switching between 
a split system heat pump and the combination of a split system central 
air conditioner and electric furnace. To estimate the likelihood of 
equipment switching between these two systems, DOE utilized proprietary 
data from Decision Analysts,\75\ which identified for a representative 
sample of consumers their willingness to purchase more-efficient space-
conditioning systems. From these data, DOE deduced the payback period 
that consumers would expect for a more-expensive but more-efficient 
product. For each pairing of split heat pump and split air conditioner 
efficiency levels, DOE applied the payback period criterion to estimate 
the fraction of consumers who would be expected to switch to the other 
type of equipment. For example, when comparing a 15 SEER split system 
heat pump and a combination of a 14 SEER split air conditioner and an 
electric furnace, DOE calculated the payback period of the more-
efficient split system heat pump relative to the less-expensive 
combination of split air conditioner and electric furnace. If the 
resulting payback period for the split system heat pump exceeded the 
expected payback period deduced from the Decision Analysts' data, DOE 
forecasted that the consumer would switch to the combination of split 
air conditioner and electric furnace. For every possible pairing of 
split system heat pump and split system air conditioner efficiencies, 
DOE calculated the fraction of consumers who would be expected to 
switch from one type of split system to the other. The fraction of 
consumers switching was in turn used by DOE to forecast split system 
heat pump and split system air conditioner shipments in specific 
standards cases, as well as the increase in electric furnace shipments. 
Including the latter in accounting for the impacts of equipment 
switching is important for proper determination of national energy 
savings and national economic impacts.
---------------------------------------------------------------------------

    \75\ Decision Analysts, ``2008 American Home Comfort Study'' 
(2009).
---------------------------------------------------------------------------

    Because measures to limit standby mode and off mode power 
consumption have a very small impact on equipment total installed cost, 
and thereby would have a minimal effect on consumer purchase decisions, 
DOE did not analyze the impact to central air conditioner, heat pumps, 
and furnace shipments due to potential standards limiting standby mode 
and off mode power consumption. In other words, DOE estimated that 
base-case product shipments would be unaffected by standards to limit 
standby mode and off mode power consumption.
    For details on DOE's analysis of the impacts of standards on 
shipments, see chapter 9 of the direct final rule TSD. For details on 
DOE's analysis of equipment and fuel switching, see appendix 9-A of the 
direct final rule TSD.
2. Forecasted Efficiency in the Base Case and Standards Cases
    A key component of the NIA is the trend in energy efficiency 
forecasted for the base case (without new or amended standards) and 
each of the standards cases. Section IV.F.10 describes how DOE 
developed a base-case energy efficiency distribution (which yields a 
shipment-weighted average efficiency (SWEF)) for each of the considered 
product classes for the compliance year used in the LCC analysis 
(2016). To forecast base-case efficiencies over the entire forecast 
period for the direct final rule, DOE extrapolated from the historical 
trends in efficiency, as described below.
    For central air conditioners and heat pumps, DOE reviewed 
historical SWEF data from 1990 to 2009 provided by AHRI. The historical 
data, which encompassed years when new standards for central air 
conditioners and heat pumps required compliance (1992 and 2006), 
specified SWEFs for each of the four primary central air conditioner 
and heat pump product classes. DOE considered only the 1993 to 2002 
time period to forecast SWEF growth rates in order to factor out: (1) 
Any lingering effects on equipment SWEFs from industry efforts to 
comply with the 1992 standards; (2) any anticipatory efforts by the 
industry to comply with the 2006 standards that DOE issued in 2001; and 
(3) the effects of recent Federal tax credits to promote the purchase 
of high-efficiency central air conditioners and heat pumps. From 1993 
to 2002, central air conditioner and heat pump efficiency increased, on 
average, by 0.5 to 0.7 SEER, depending on product class, which is an 
efficiency growth rate of approximately 0.06 to 0.07 SEER per year.
    For non-weatherized gas furnaces, DOE was provided historical data 
from 1990 to 2009 by AHRI, detailing the market shares of non-
condensing (80 percent AFUE and less) and condensing (90 percent AFUE 
and greater) equipment.\76\ Similar to its approach for central air 
conditioners and heat pumps, DOE used only the data from 1993 to 2002 
to factor out the lingering effects of new furnace standards that 
required compliance in 1992 as well as the effects of market-pull 
programs, including recent Federal tax credits, to promote the purchase 
of high-efficiency condensing furnaces. From 1993 to 2002, non-
weatherized gas furnace efficiency increased, on average, by 0.5 AFUE 
and 1.5 AFUE percentage points in the southern and northern U.S., 
respectively, which implies efficiency growth rates of approximately 
0.05 and 0.17 AFUE percentage points per year.
---------------------------------------------------------------------------

    \76\ The market share of furnaces with AFUE between 80 and 90 
percent is well below 1 percent due to the very high installed cost 
of 81-percent AFUE furnaces, compared with condensing designs, and 
concerns about safety of operation.
---------------------------------------------------------------------------

    DOE used the above growth rates for central air conditioners and 
heat pumps and furnaces to forecast base-case SWEFs over the forecast 
period. Due to the lack of historical efficiency data for mobile home 
and oil-fired furnaces, DOE estimated that product efficiency 
distributions would remain the same throughout the forecast period.
    To estimate efficiency trends in the standards cases, DOE has used 
``roll-up'' and/or ``shift'' scenarios in its standards rulemakings. 
Under the ``roll-up'' scenario, DOE assumes: (1) Product efficiencies 
in the base case that do not meet the standard level under

[[Page 37485]]

consideration would ``roll-up'' to meet the new standard level; and (2) 
product efficiencies above the standard level under consideration would 
not be affected. Under the ``shift'' scenario, DOE retains the pattern 
of the base-case efficiency distribution but reorients the distribution 
at and above the potential new minimum energy conservation standard.
    In the central air conditioners and heat pumps preliminary TSD, DOE 
concluded that amended standards will cause baseline models to roll up 
to the standard efficiency level in the year of compliance, but that 
some fraction of shipments will remain above the minimum. DOE 
calculated the SWEFs from the resulting efficiency distribution. In the 
years following the year of compliance, DOE estimated that SWEFs will 
continue to grow at the rate observed between 1992 and 2005 until the 
max-tech efficiency level is attained, at which point the SWEF was held 
constant.
    Commenting on the furnaces RAP, NRDC and ASAP stated that market 
penetration in standards cases will resemble the shift scenario more 
than the roll-up scenario. (FUR: NRDC, No. 1.3.020 at p. 10; ASAP, No. 
1.2.006 at p. 216) NRDC added that the existence of successful Federal 
tax incentives for furnaces with 95 percent AFUE indicates that sales 
of these units are likely to continue to increase. (FUR: NRDC, No. 
1.3.020 at p. 11) In contrast, HARDI commented that roll-up and shift 
scenarios are unlikely under an amended energy conservation standard, 
and stated that an increase in minimum efficiency standards for 
furnaces or central air conditioners and heat pumps is likely to 
negatively impact the other energy efficiency programs that have been 
vital to achieving the growing penetration of higher-efficiency HVAC 
systems. (FUR: HARDI, No.1.3.016 at p. 3) ACEEE stated there is no 
strong reason to choose a roll-up scenario instead of a shift scenario 
based on the available evidence, and ACEEE encouraged DOE to consider 
both scenarios, premised on the likelihood of the continuation of 
incentives if there is a 90-percent AFUE furnace efficiency standard 
for the north. (FUR: ACEEE, No.1.3.009 at p. 8) The California IOUs 
also supported the use of both the roll-up and shift scenarios. (FUR: 
CA IOUs, No. 1.3.017 at p. 5)
    In response, DOE again reviewed the historical efficiency data for 
central air conditioners and heat pumps and furnaces from AHRI. It did 
not find any evidence to support a shift in the efficiency distribution 
in the year of compliance with amended standards. Therefore, for the 
direct final rule analysis, DOE decided to continue to utilize the 
roll-up scenario for central air conditioners and heat pumps in order 
to forecast the impact of standards for the year of compliance. DOE 
applied the roll-up scenario to furnaces as well. However, DOE agrees 
with the suggestion by some of the commenters that the efficiency 
distribution will shift after compliance with amended standards is 
required. DOE captured this expected market change in its forecast of 
efficiency in the standards cases, as described below.
    To forecast standards-case SWEFs after the year of compliance, 
rather than use the same efficiency growth rate as the base case, DOE 
developed growth trends for each candidate standard level that reflect 
the likelihood that the consumer willingness to pay for an increment of 
efficiency will be the same in the base case and the standards case. In 
revising its analysis, DOE found that the cost of a relatively small 
efficiency improvement over the most common product in the standards 
case is much higher than in the base case. Therefore, assuming the same 
efficiency increment in the base case and standards case would imply 
that the consumer willingness to pay for an increment of efficiency 
would dramatically increase under standards without the addition of any 
incentives or information. This is a phenomenon that DOE has not 
observed in any of its efficiency market analysis or modeling 
investigations. Therefore, for the direct final rule, DOE developed an 
approach in which the growth rate slows over time in response to the 
increasing incremental cost of efficiency improvements. DOE assumed 
that the rate of adoption of more-efficient products under a standards 
case occurs at a rate which ensures that the average total installed 
cost difference between the standards case and base case over the 
entire forecast period is constant.
    DOE modified the general approach for split-system coil-only air 
conditioner replacement units at 15 SEER and above, for which many 
consumers would incur a very large additional cost (an average of $959) 
to install a furnace fan kit (as explained in section IV.F.1). DOE 
believes that for much of the market, this cost would constrain demand 
for split-system coil-only air conditioner replacement units at 15 SEER 
and above. Thus, in analyzing standards cases below 15 SEER, as well as 
the base case, DOE forecast that the market shares of units at 15 SEER 
and above would remain at the 2016 level.
    For split-system coil-only air conditioner replacement units, DOE 
also analyzed a sensitivity case that reflects a more sophisticated 
model of efficiency market shares than the reference case analysis. In 
this case, there is a gradual shift of efficiency in the base case, 
with the rate of shift dependent on the price difference between an 
efficiency market share and the next highest efficiency market share. 
DOE calibrated the parameters of this model to the observed historical 
shift rate without tax incentives. The result of this model is that 
while there is more market shifting over the long term forecast to the 
very high efficiency levels, there is slower market shifting at the 
lower efficiency levels earlier in the forecast period. In analyzing 
standards cases below 15 SEER, DOE forecast that the market shares of 
units at 15 SEER and above would be no greater than the base case. The 
results of this sensitivity in terms of the consumer NPV are presented 
in section V.B.3.a. More discussion along with detailed results from 
the sensitivity calculation are provided in appendix 10-D of the TSD.
    For single package air conditioners and heat pumps, DOE observes 
that the market conditions are somewhat distinct from split system air 
conditioners as more than 90 percent of the single package market is 
comprised of low efficiency products of 13 to 14 SEER. In addition, DOE 
observes that higher efficiency single-package systems are more 
expensive relative to the lower efficiency models compared to the 
general cost structure for split system units. This indicates that 
efficiency trends for single-package systems are likely to be smaller 
than those for split systems. Nonetheless, DOE modeled the efficiency 
trends for single-package units the same as it modeled the trends for 
blower-coil split systems. While DOE believes that this approach is 
conservative, DOE did not have the data available to calibrate a more 
precise forecast of efficiency trends for this product class. An 
overestimate of the efficiency trend will likely lead to an 
overestimate of equipment costs resulting from a standard for these 
products. As a result, net consumer benefits from a standard are likely 
to be higher than the DOE estimate provided in this notice.
    In the case of standby mode and off mode power consumption, DOE 
used a roll-up scenario to forecast the impact of potential standards 
for the year of compliance. Due to the lack of historical information 
on standby mode and off mode power consumption in central air 
conditioners, heat pumps, and furnace equipment, DOE estimated that 
efficiency distributions of standby mode and off mode power consumption 
would remain the same until 2045.

[[Page 37486]]

    For further details about the forecasted efficiency distributions, 
see chapter 10 of the direct final rule TSD.
3. Installed Cost per Unit
    In the preliminary analysis, DOE assumed that the manufacturer 
costs and retail prices of products meeting various efficiency levels 
remain fixed, in real terms, after 2009 (the year for which the 
engineering analysis estimated costs) and throughout the period of the 
analysis. As discussed in section IV.F.1, examination of historical 
price data for certain appliances and equipment that have been subject 
to energy conservation standards indicates that the assumption of 
constant real prices and costs may, in many cases, over-estimate long-
term appliance and equipment price trends.
    On February 22, 2011, DOE published a Notice of Data Availability 
(NODA, 76 FR 9696) stating that DOE may consider improving regulatory 
analysis by addressing equipment price trends. Consistent with the 
NODA, DOE used historical producer price indices (PPI) for room air 
conditioners and household laundry equipment as a proxy for price data. 
DOE does not have price data for this equipment. DOE believes that PPI 
might shed some directionally-correct light on the price trend, 
recognizing that PPI is not a good proxy for price information because 
it incorporates shipment information, among other reasons. DOE found a 
long-term declining real price trend for both products. DOE used 
experience curve fits to forecast a price scaling index to forecast 
product costs into the future for this rulemaking. DOE also considered 
the public comments that were received in response to the NODA and 
refined the evaluation of its experience curve trend forecasting 
estimates. Many commenters were supportive of DOE moving from an 
assumption-based equipment price trend forecasting method to a data-
driven methodology for forecasting price trends. Other commenters were 
skeptical that DOE could accurately forecast price trends given the 
many variables and factors that can complicate both the estimation and 
the interpretation of the numerical price trend results and the 
relationship between price and cost. DOE evaluated these concerns and 
determined that retaining the assumption-based approach of a constant 
real price trend is consistent with the NODA when data gaps are 
sufficient. DOE presents the estimates based on a constant real price 
trend as a reasonable upper bound on the future equipment price trend. 
DOE also performed an initial evaluation of the possibility of other 
factors complicating the estimation of the long-term price trend, and 
developed a range of potential price trend values that were consistent 
with the available data and justified by the amount of data that was 
available to DOE at this time. DOE recognizes that its price trend 
forecasting methods are likely to be modified as more data and 
information becomes available to enhance the rigor and robustness of 
the trend estimate and the completeness of the model. Additional data 
should enable an improved evaluation of the potential impacts of more 
of the factors that can influence equipment price trends over time.
    To evaluate the impact of the uncertainty of the price trend 
estimates, DOE performed price trend sensitivity calculations in the 
national impact analysis to examine the dependence of the analysis 
results on different analytical assumptions. DOE also included a 
constant real price trend assumption as an upper bound on the forecast 
price trend. DOE found that for the selected standard levels the 
benefits outweighed the burdens under all scenarios.
    A more detailed discussion of price trend modeling and calculations 
is provided in Appendix 8-J of the TSD.
4. National Energy Savings
    For each year in the forecast period, DOE calculates the NES for 
each considered standard level by multiplying the stock of equipment 
affected by the energy conservation standards by the per-unit annual 
energy savings. As discussed in section IV.E, DOE incorporated the 
rebound effect utilized in the energy use analysis into its calculation 
of national energy savings.
    To estimate the national energy savings expected from amended 
appliance standards, DOE used a multiplicative factor to convert site 
energy consumption (at the home or commercial building) into primary or 
source energy consumption (the energy required to convert and deliver 
the site energy). These conversion factors account for the energy used 
at power plants to generate electricity and losses in transmission and 
distribution, as well as for natural gas losses from pipeline leakage 
and energy used for pumping. For electricity, the conversion factors 
vary over time due to changes in generation sources (i.e., the power 
plant types projected to provide electricity to the country) projected 
in AEO2010. The factors that DOE developed are marginal values, which 
represent the response of the electricity sector to an incremental 
decrease in consumption associated with potential appliance standards.
    In the central air conditioners and heat pumps preliminary 
analysis, DOE used annual site-to-source conversion factors based on 
the version of NEMS that corresponds to AEO2009. For today's direct 
final rule, DOE updated its conversion factors based on the NEMS that 
corresponds to AEO2010, which provides energy forecasts through 2035. 
For 2036-2045, DOE used conversion factors that remain constant at the 
2035 values.
    Section 1802 of the Energy Policy Act of 2005 (EPACT 2005) directed 
DOE to contract a study with the National Academy of Science (NAS) to 
examine whether the goals of energy efficiency standards are best 
served by measurement of energy consumed, and efficiency improvements, 
at the actual point-of-use or through the use of the full-fuel-cycle, 
beginning at the source of energy production (Pub. L. 109-58 (Aug. 8, 
2005)). NAS appointed a committee on ``Point-of-Use and Full-Fuel-Cycle 
Measurement Approaches to Energy Efficiency Standards'' to conduct the 
study, which was completed in May 2009. The NAS committee defined 
``full-fuel-cycle energy consumption'' as including, in addition to 
site energy use, the following: (1) Energy consumed in the extraction, 
processing, and transport of primary fuels such as coal, oil, and 
natural gas; (2) energy losses in thermal combustion in power 
generation plants; and (3) energy losses in transmission and 
distribution to homes and commercial buildings.\77\
---------------------------------------------------------------------------

    \77\ The National Academies, Board on Energy and Environmental 
Systems, Letter to Dr. John Mizroch, Acting Assistant Secretary, 
U.S. DOE, Office of EERE from James W. Dally, Chair, Committee on 
Point-of-Use and Full-Fuel-Cycle Measurement Approaches to Energy 
Efficiency Standards (May 15, 2009).
---------------------------------------------------------------------------

    In evaluating the merits of using point-of-use and full-fuel-cycle 
measures, the NAS committee noted that DOE currently uses what the 
committee referred to as ``extended site'' energy consumption to assess 
the impact of energy use on the economy, energy security, and 
environmental quality. The extended site measure of energy consumption 
includes the energy consumed during the generation, transmission, and 
distribution of electricity but, unlike the full-fuel-cycle measure, 
does not include the energy consumed in extracting, processing, and 
transporting primary fuels. A majority of the NAS committee concluded 
that extended site energy consumption understates the total energy 
consumed to make an appliance operational at the site. As a result, the 
NAS committee

[[Page 37487]]

recommended that DOE consider shifting its analytical approach over 
time to use a full-fuel-cycle measure of energy consumption when 
assessing national and environmental impacts, especially with respect 
to the calculation of greenhouse gas emissions. The NAS committee also 
recommended that DOE provide more comprehensive information to the 
public through labels and other means, such as an enhanced Web site. 
For those appliances that use multiple fuels (e.g., water heaters), the 
NAS committee indicated that measuring full-fuel-cycle energy 
consumption would provide a more complete picture of energy consumed 
and permit comparisons across many different appliances, as well as an 
improved assessment of impacts.
    In response to the NAS recommendations, DOE published in the 
Federal Register, on August 20, 2010, a Notice of Proposed Policy 
proposing to incorporate a full-fuel cycle analysis into the methods it 
uses to estimate the likely impacts of energy conservation standards on 
energy use and emissions. 75 FR 51423. Specifically, DOE proposed to 
use full-fuel-cycle (FFC) measures of energy and GHG emissions, rather 
than the primary (extended site) energy measures it currently uses. 
Additionally, DOE proposed to work collaboratively with the Federal 
Trade Commission (FTC) to make FFC energy and GHG emissions data 
available to the public so as to enable consumers to make cross-class 
comparisons. On October 7, 2010, DOE held an informal public meeting at 
DOE headquarters in Washington, DC to discuss and receive comments on 
its planned approach. The Notice of Proposed Policy, a transcript of 
the public meeting, and all public comments received by DOE are 
available at: http://www.regulations.gov/search/Regs/home.html#docketDetail?R=EERE-2010-BT-NOA-0028. DOE intends to develop 
a final policy statement on these subjects and then take steps to begin 
implementing that policy in rulemakings and other activities that are 
undertaken during 2011.
5. Net Present Value of Consumer Benefit
    The inputs for determining the NPV of the total costs and benefits 
experienced by consumers of the considered appliances are: (1) Total 
annual installed cost; (2) total annual savings in operating costs; and 
(3) a discount factor. DOE calculates net savings each year as the 
difference between the base case and each standards case in total 
savings in operating costs and total increases in installed costs. DOE 
calculates operating cost savings over the life of each product shipped 
in the forecast period.
    DOE multiplies the net savings in future years by a discount factor 
to determine their present value. For the central air conditioners and 
heat pumps preliminary analysis and today's direct final rule, DOE 
estimated the NPV of appliance consumer benefits using both a 3-percent 
and a 7-percent real discount rate. DOE uses these discount rates in 
accordance with guidance provided by the Office of Management and 
Budget (OMB) to Federal agencies on the development of regulatory 
analysis.\78\ The 7-percent real value is an estimate of the average 
before-tax rate of return to private capital in the U.S. economy. The 
3-percent real value represents the ``societal rate of time 
preference,'' which is the rate at which society discounts future 
consumption flows to their present value. The discount rates for the 
determination of NPV are in contrast to the discount rates used in the 
LCC analysis, which are designed to reflect a consumer's perspective
---------------------------------------------------------------------------

    \78\ OMB Circular A-4, section E, ``Identifying and Measuring 
Benefits and Costs'' (Sept. 17, 2003) (Available at: http://www.whitehouse.gov/omb/memoranda/m03-21.html).
---------------------------------------------------------------------------

    As noted above, DOE is accounting for the rebound effect associated 
with more-efficient furnaces, central air conditioners, and heat pumps 
in its determination of national energy savings. As previously 
discussed in section IV.F, because the rebound effect provides 
consumers with increased value (i.e., a more comfortable environment), 
DOE believes that, if it were able to monetize the increased value to 
consumers added by the rebound effect, this value would be similar in 
value to the foregone energy savings. For this standards rulemaking, 
DOE estimates that this value is equivalent to the monetary value of 
the energy savings that would have occurred without the rebound effect. 
Therefore, DOE concluded that the economic impacts on consumers with or 
without the rebound effect, as measured in the NPV, are the same.
6. Benefits From Effects of Standards on Energy Prices
    In the furnaces RAP, DOE described its plans to use NEMS-BT to 
analyze the impact on natural gas prices resulting from amended 
standards on furnaces, and the associated benefits for all natural gas 
consumers in all sectors of the economy. Commenting on the RAP, 
EarthJustice stated that DOE must consider standards' economic benefit 
to the nation through reductions in natural gas prices resulting from 
gas furnace efficiency improvements. (FUR: EarthJustice, No. 1.3.014 at 
p. 7) In contrast, Ingersoll Rand stated that standards may bring gas 
users no cost savings, and that DOE should not incorporate any 
potential savings into its considerations. (FUR: Ingersoll Rand, No. 
1.3.006 at p. 13)
    For the direct final rule analysis, DOE used NEMS-BT to model the 
impact of the natural gas savings associated with possible standards on 
natural gas prices. The response of price observed in the NEMS-BT 
output changes over the forecast period based on the model's dynamics 
of natural gas supply and demand. For each year, DOE calculated the 
nominal savings in total natural gas expenditures by multiplying the 
estimated annual change in the national-average end-user natural gas 
price by the annual total U.S. natural gas consumption projected in 
AEO2010, adjusted for the estimated natural gas savings associated with 
each TSL. DOE then calculated the NPV of the savings in natural gas 
expenditures for 2016-2045 (or 2013-2045 for TSL 4), using 3-percent 
and 7-percent discount rates for each scenario.
    Although amended standards for furnaces may yield benefits to all 
consumers associated with reductions in natural gas prices, DOE retains 
the position (recently set forth in the final rule for residential 
heating products (75 FR 20112, 20175 (April 16, 2010)) that it should 
not place a heavy emphasis on this factor in its consideration of the 
economic justification of standards. EPCA specifically directs DOE to 
consider the economic impact of an amended standard on manufacturers 
and consumers of the products subject to the standard. (42 U.S.C. 
6295(o)(2)(B)(i)(I)) While it is true that EPCA directs DOE to consider 
other factors the Secretary considers relevant, in so doing, DOE takes 
under advisement the guidance provided by OMB on the development of 
regulatory analysis. Specifically, Circular A-4 states, ``You should 
not include transfers in the estimates of the benefits and costs of a 
regulation.'' \79\ When gas prices drop in response to lower demand and 
lower output of existing natural gas production capacity, consumers 
benefit but producers suffer. In economic terms, the situation 
represents a benefits transfer to

[[Page 37488]]

consumers (whose expenditures fall) from producers (whose revenue falls 
equally). On the other hand, when gas prices decrease because 
extraction costs decline, however, consumers and producers both 
benefit, and the change in natural gas prices represents a net gain to 
society. Consumers benefit from the lower prices, and producers, whose 
revenues and costs both fall, are no worse off. DOE is continuing to 
investigate the extent to which a change in natural gas prices 
projected to result from potential standards represents a net gain to 
society. At this time, however, it is not able to reasonably determine 
the extent of transfers associated with a decrease in gas prices 
resulting from appliance standards.
---------------------------------------------------------------------------

    \79\ OMB Circular A-4, section E, ``Identifying and Measuring 
Benefits and Costs'' (Sept. 17, 2003), p. 38. (Available at: http://www.whitehouse.gov/omb/memoranda/m03-21.html).
---------------------------------------------------------------------------

    Reduction in electricity consumption associated with amended 
standards for central air conditioners and heat pumps could reduce the 
electricity prices charged to consumers in all sectors of the economy 
and thereby reduce total electricity expenditures. In chapter 2 of the 
central air conditioners and heat pumps preliminary TSD, DOE explained 
that, because the electric power industry is a complex mix of fuel and 
equipment suppliers, electricity producers, and distributors, and 
because it has a varied institutional structure, DOE did not plan to 
estimate the value of potentially-reduced electricity costs for all 
consumers associated with amended standards for central air 
conditioners and heat pumps.
    Commenting on the preliminary TSD, NPCC stated that the economic 
benefits of the reduced need for new power plants should be estimated 
using the NEMS-BT forecast. (FUR: NPCC, No. 74 at p. 6) ACEEE made a 
similar point. (ACEEE, No. 72 at p. 7)
    For the direct final rule, DOE used NEMS-BT to assess the impacts 
of the reduced need for new electric power plants and infrastructure 
projected to result from amended standards. In NEMS-BT, changes in 
power generation infrastructure affect utility revenue requirements, 
which in turn affect electricity prices. DOE estimated the impact on 
electricity prices associated with each considered TSL. Although the 
aggregate benefits for electricity users are potentially large, there 
may be negative effects on some of the actors involved in the 
electricity supply chain, particularly power plant providers and fuel 
suppliers. Because there is uncertainty about the extent to which the 
benefits for electricity users from reduced electricity prices would be 
a transfer from actors involved in the electricity supply chain to 
electricity consumers, DOE has concluded that, at present, it should 
not place a heavy emphasis on this factor in its consideration of the 
economic justification of new or amended standards. DOE is continuing 
to investigate the extent to which electricity price changes projected 
to result from amended standards represent a net gain to society.

H. Consumer Subgroup Analysis

    In analyzing the potential impacts of new or amended standards on 
consumers, DOE evaluates the impacts on identifiable subgroups of 
consumers that may be disproportionately affected by a national 
standard. DOE evaluates impacts on particular subgroups of consumers 
primarily by analyzing the LCC impacts and PBP for those particular 
consumers from alternative standard levels.
    In the central air conditioners and heat pumps preliminary TSD, DOE 
stated that it will evaluate impacts on consumer subgroups, especially 
low-income and small-business consumers. For the direct final rule, DOE 
also analyzed a consumer subgroup consisting of households occupied 
solely by senior citizens (senior-only households) for national 
standards. However, in the 2005 RECS sample used for the subgroup 
analysis, the number of low-income and senior-only households with a 
central air conditioner was too small to produce reliable results at 
the regional level, and the number of low-income and senior-only 
households with a heat pump was too small to produce reliable results 
at either the national or the regional level. Accordingly, DOE 
performed the analysis for these subgroups only at the national level 
and only for air conditioners.
    During the development of the preliminary TSD, it was thought that 
an analysis could be done of small businesses. However, DOE was not 
able to locate information on the energy use or economic 
characteristics of commercial users of residential air conditioning 
units in commercial buildings, so no analysis was done of a small 
business subgroup.
    In the furnaces RAP, DOE stated its intention to evaluate impacts 
of amended furnace standards on low-income and senior-only households, 
because the potential higher first cost of products that meet amended 
standards may lead to negative impacts for these particular groups. In 
response to the furnaces RAP, DOE received comments about which 
subgroups should be included in the consumer subgroup analysis. AGA and 
APGA stated that DOE should analyze the new construction and 
replacement markets separately for the subgroup analysis. (FUR: AGA, 
No. 1.3.010 at pp. 3-4; APGA, No. 1.3.004 at p. 4) Southern stated that 
DOE should consider multi-family housing units and dwellings that 
require significant venting system work to accommodate a new furnace. 
(FUR: Southern, No. 1.2.006 at pp. 227-28) Ingersoll Rand stated that 
DOE should consider landlords and tenants as subgroups for the 
analysis. (FUR: Ingersoll Rand, No. 1.3.006 at p. 15) NPGA stated that 
owners of manufactured homes should be considered as a subgroup. (FUR: 
NPGA, No. 1.3.005 at p. 4)
    For the direct final rule analysis, DOE evaluated the impacts of 
the considered energy efficiency standard levels for non-weatherized 
gas furnaces on low-income consumers and senior citizens (i.e., senior-
only households). DOE did not analyze these subgroups for mobile home 
gas furnaces or oil-fired furnaces because of the small sample sizes in 
the 2005 RECS database. In response to comments, for non-weatherized 
gas furnaces, DOE analyzed the impacts for three other subgroups: (1) 
Multi-family housing units; (2) new homes; and (3) replacement 
applications.
    DOE did not consider dwellings that require significant venting 
system work to accommodate a new furnace as a subgroup, because there 
is no way to define ``significant'' venting system work that would not 
be arbitrary. DOE did not consider landlords and tenants as subgroups 
because DOE's LCC and payback period calculation method implicitly 
assumes that either the landlord purchases an appliance and also pays 
its energy costs, or in those cases where the tenant pays the energy 
costs, the landlord purchases an appliance and passes on the expense in 
the rent. If a landlord passes on the expense in the rent, which is the 
more common situation, he or she is not a ``consumer'' in the context 
of DOE's methodology, so landlords are not a meaningful consumer 
subgroup. DOE does not consider tenants (renters) as a consumer 
subgroup because: (1) DOE is not able to evaluate the pace at which the 
incremental purchase cost of a covered product is passed on in the 
rent, and (2) not all tenants pay the energy costs for their dwelling.
    DOE did not consider owners of manufactured homes as a subgroup 
because the impacts of potential amended standards on these consumers 
are addressed in the LCC and PBP analysis of mobile home gas furnaces.
    DOE did not perform a subgroup analysis for the standby mode and 
off mode efficiency levels. The standby mode and off mode LCC analysis 
relied

[[Page 37489]]

on the test procedure to assess energy savings for the off mode 
efficiency levels, and, thus, energy savings are not different for 
population subgroups. In addition, the analysis was done with national 
average energy prices and national average markups for residential and 
commercial users, and thus, these inputs would not vary for the 
subgroups. The information sources for the other parameters affecting 
LCC (e.g., repair and maintenance cost) also did not differ by 
subgroup.
    Results of the subgroup analysis are presented in section V.B.1.b 
of today's direct final rule. For further information, consult chapter 
11 of the direct final rule TSD, which describes the consumer subgroup 
analysis and its results.

I. Manufacturer Impact Analysis

1. Overview
    DOE performed a manufacturer impact analysis (MIA) to estimate the 
financial impact of amended energy conservation standards on 
manufacturers of residential furnaces and central air conditioners and 
heat pumps, and to calculate the impact of such standards on direct 
employment and manufacturing capacity. The MIA has both quantitative 
and qualitative aspects. The quantitative component of the MIA 
primarily relies on the Government Regulatory Impact Model (GRIM), an 
industry cash-flow model customized for this rulemaking. The key GRIM 
inputs are data on the industry cost structure, product costs, 
shipments, and assumptions about markups and conversion expenditures. 
The key output is the industry net present value (INPV). Different sets 
of assumptions (markup scenarios) will produce different results. The 
qualitative component of the MIA addresses factors such as product 
characteristics, industry and market trends, and includes an assessment 
of the impacts of standards on sub-groups of manufacturers. Chapter 12 
of the direct final rule TSD describes the complete MIA.
    DOE conducted the MIA for this rulemaking in three phases. In Phase 
1, ``Industry Profile,'' DOE prepared an industry characterization. In 
Phase 2, ``Industry Cash Flow,'' DOE focused on the financial aspects 
of the industry as a whole. In this phase, DOE used the publicly-
available information gathered in Phase 1 to prepare an industry cash 
flow analysis using the GRIM model. DOE adapted the GRIM structure 
specifically to analyze the impact of new and amended standards on 
manufacturers of residential furnace and central air conditioner and 
heat pump products. In Phase 3, ``Sub-Group Impact Analysis,'' the 
Department conducted structured, detailed interviews with a 
representative cross-section of manufacturers that represent 
approximately 75 percent of furnace and central air conditioning sales. 
During these interviews, DOE discussed engineering, manufacturing, 
procurement, and financial topics specific to each company, and 
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 potential amended standards on manufacturers' 
cash flows, manufacturing capacities, and employment levels. Each of 
these phases is discussed in further detail below.
a. Phase 1: Industry Profile
    In Phase 1 of the MIA, DOE prepared a profile of the residential 
furnace and central air conditioner and heat pump industry based on the 
Market and Technology Assessment (MTA) prepared for this rulemaking. 
Before initiating detailed impact studies, DOE collected information on 
the present and past structure and market characteristics of the 
industry. This information included market share, product shipments, 
markups, and cost structure for various manufacturers. The industry 
profile includes: (1) Detail on the overall market and product 
characteristics; (2) estimated manufacturer market shares; (3) 
financial parameters such as net plant, property, and equipment (i.e., 
after accounting for depreciation), SG&A expenses, cost of goods sold, 
etc.; and (4) trends in the residential furnace and central air 
conditioner and heat pump industry, including the number of firms, 
technology, sourcing decisions, and pricing.
    The industry profile included a top-down cost analysis of 
residential furnace and central air conditioner and heat pump 
manufacturers that DOE used to derive preliminary financial inputs for 
the GRIM (e.g., revenues; SG&A expenses; research and development (R&D) 
expenses; and tax rates). DOE also used public sources of information 
to further calibrate its initial characterization of the industry, 
including company SEC 10-K filings, Moody's company data reports, 
corporate annual reports, the U.S. Census Bureau's 2008 Economic 
Census, and Dun & Bradstreet reports.
b. Phase 2: Industry Cash Flow Analysis
    Phase 2 of the MIA focused on the financial impacts of the 
potential amended energy conservation standards on the industry as a 
whole. New or more-stringent energy conservation standards can affect 
manufacturer cash flow in three distinct ways: (1) By creating a need 
for increased investment; (2) by raising production costs per unit; and 
(3) by altering revenue due to higher per-unit prices and possible 
changes in sales volumes. To quantify these impacts, in Phase 2, DOE 
used the GRIM to perform a cash-flow analysis of the residential 
furnace and central air conditioner and heat pump industry. In 
performing this analysis, DOE used the financial values determined 
during Phase 1, which were updated based on industry feedback and 
additional research, and the shipment projections used in the NIA. The 
GRIM modeled both impacts from energy efficiency standards (standards 
based on SEER, HSPF, and AFUE ratings) and impacts from standby mode 
and off mode standards (standards based on standby mode and off mode 
wattage). The GRIM results from the two standards were evaluated 
independent of one another.
c. Phase 3: Sub-Group Impact Analysis
    In Phase 3, DOE conducted interviews with manufacturers and refined 
its preliminary cash flow analysis. Many of the manufacturers 
interviewed also participated in interviews for the engineering 
analysis. As indicated above, the MIA interviews broadened the 
discussion from primarily technology-related issues to include finance-
related topics. One key objective for DOE was to obtain feedback from 
the industry on the assumptions used in the GRIM and to isolate key 
issues and concerns. See section IV.I.3 for a description of the key 
issues manufacturers raised during the interviews.
    Using average-cost assumptions to develop an industry cash-flow 
estimate may not adequately assess differential impacts of new or 
amended standards among manufacturer sub-groups. For example, small 
manufacturers, niche players, or manufacturers exhibiting a cost 
structure that largely differs from the industry average could be more 
negatively affected. Thus, during Phase 3, DOE used the results of the 
industry characterization analysis in Phase 1 to evaluate how groups of 
manufacturers could be differentially affected by potential standards, 
and to group manufacturers that exhibited similar production and cost 
structure characteristics. The manufacturer interviews provided 
additional, valuable information on manufacturer subgroups.

[[Page 37490]]

    DOE investigated whether small business manufacturers should be 
analyzed as a manufacturer subgroup. During its research, DOE 
identified multiple companies that manufacture products covered by this 
rulemaking and qualify as a small business under the applicable Small 
Business Administration (SBA) definition. The SBA defines a ``small 
business'' as having 750 employees or less for NAICS 333415, ``Air-
Conditioning and Warm Air Heating Equipment and Commercial and 
Industrial Refrigeration Equipment Manufacturing.'' As a result of this 
inquiry, DOE decided to analyze small business manufacturers as a 
separate subgroup in this direct final rule. The small businesses were 
further sub-divided by product class to understand the impacts of the 
rulemaking on those entities. The small business subgroup is discussed 
in chapter 12 of the direct final rule TSD and in section VI.B.1 of 
today's notice.
2. GRIM Analysis
    As discussed previously, DOE uses the GRIM to quantify the changes 
in cash flow that result in a higher or lower industry value due to 
amended standards. The GRIM uses a discounted cash-flow analysis that 
incorporates manufacturer costs, markups, shipments, and industry 
financial information as inputs. The GRIM models changes in costs, 
distribution of shipments, investments, and manufacturer margins that 
could result from amended energy conservation standards. The GRIM 
spreadsheet uses the inputs to arrive at a series of annual cash flows, 
beginning in 2010 (the base year of the analysis) and continuing to 
2045 (the last year of the analysis period). DOE calculated INPVs by 
summing the stream of annual discounted cash flows during these 
periods.
    The GRIM calculates cash flows using standard accounting principles 
and compares changes in INPV between the base case and each TSL (the 
standards case). The difference in INPV between the base case and 
standards case represents the financial impact of the amended standard 
on manufacturers. The GRIM results are shown in section V.B.2. 
Additional details about the GRIM can be found in chapter 12 of the 
direct final rule TSD.
    DOE typically presents its estimates of industry impacts by 
grouping the major product classes served by the same manufacturers. In 
the residential HVAC industry, split-system air conditioning, split-
system heat pumps, single-package air conditioning, single-package heat 
pumps, and non-weatherized gas furnaces make up 95 percent of total 
shipments, according to the NIA shipment model for 2010. These five 
product classes are considered to be ``conventional'' products. 
Manufacturers that compete in the marketplace for conventional products 
generally produce products in all five conventional product classes.
    Additionally, consumer selection of conventional products is often 
interdependent. As discussed in section IV.G.1 of the NIA methodology, 
the shipments forecasts that are an input to the GRIM incorporate 
product switching among the split-system air conditioning, split-system 
heat pumps, and non-weatherized gas furnaces product classes. To better 
capture the impacts of this rulemaking on industry, DOE aggregates 
results for split-system air conditioning, split-system heat pumps, 
single-package air conditioning, single-package heat pumps, and non-
weatherized gas furnaces into a single ``conventional'' product 
grouping.
    In section V.B.2.d pertaining to the MIA analysis, DOE discusses 
impacts on subgroups of manufacturers that produce niche products. 
Niche products, which serve much smaller segments of the market with 
unique needs, are produced by different manufacturers and include niche 
furnace products and niche central air conditioning and heat pumps 
products. Niche furnace products include weatherized gas furnaces, oil 
furnaces, and mobile home furnaces. Niche central air conditioning and 
heat pump products consist of the space-constrained and the small-duct, 
high-velocity (SDHV) product classes.
    For the weatherized gas furnaces product class and the space-
constrained product class, the current energy efficiency standard was 
determined to be equal to the max-tech efficiency level in the 
engineering analysis. Based on DOE's screening analysis, teardown 
analysis, and market research, DOE determined it would be unable to 
raise the energy efficiency standards on these products due to the 
state of technology and the design constraints inherent to these 
products. Therefore, DOE concluded that there is no need to perform an 
additional analysis for these products given that the current standard 
already meets the max-tech efficiency. For these product classes, no 
manufacturer impact analysis for energy efficiency standards was 
performed.
    For the small-duct, high-velocity product class, limited 
information was available for this market niche. DOE had insufficient 
information to build a shipments forecast model, and thus, did not 
perform a quantitative analysis using the GRIM for this product class. 
However, DOE did conduct interviews with manufacturers of this product 
class and has performed a qualitative analysis of the impacts on 
manufacturers of SDHV products.
    For consideration of standby mode and off mode regulations, DOE 
modeled the impacts of the design options for reducing electricity 
usage discussed in section IV.C.7 pertaining to the engineering 
analysis. The GRIM analysis incorporates the additional MPC cost of 
standby mode and off mode features and the resulting impacts on 
markups.
    Due to the small cost of standby mode and off mode components 
relative to the overall cost of a furnace, central air conditioner, or 
heat pump, DOE assumes that standards regarding standby mode and off 
mode features alone will not impact product shipment numbers. 
Additionally, DOE does not believe the incremental cost of standby mode 
and off mode features will have a differentiated impact on 
manufacturers of different product classes. DOE models the impact of 
standby mode and off mode for the industry as a whole.
    The GRIM results for standby mode and off mode standards include 
the electric furnace product class. Based on product catalogue 
information, DOE concluded that the major manufacturers of conventional 
products are also the major manufacturers of electric furnaces.
    The space-constrained and SDHV product classes were not analyzed in 
the GRIM for energy efficiency standards. As a result, quantitative 
numbers are also not available for the GRIM analyzing standby mode and 
off mode standards. However, the standby mode and off mode design 
options considered for space-constrained and SDHV products are 
identical to the design options for split-systems air conditioning and 
heat pump products. DOE expects the standby mode and off mode impacts 
on space-constrained and SDHV products to be of the same order of 
magnitude as the impacts on split-system air conditioning and heat pump 
products.
a. GRIM Key Inputs
i. Manufacturer Production Costs
    Manufacturing a higher-efficiency product is typically more 
expensive than manufacturing a baseline product due to the use of more 
complex components and higher-cost raw materials. The changes in the 
manufacturer production cost (MPC) of the analyzed products can affect 
revenues, gross margins, and cash flow of the industry, making these 
product

[[Page 37491]]

cost data key GRIM inputs for DOE's analysis.
    In the MIA, DOE used the MPCs for each considered efficiency level 
calculated in the engineering analysis, as described in section IV.C.1 
pertaining to the engineering analysis and further detailed in chapter 
5 of the direct final rule TSD. In addition, DOE used information from 
its teardown analysis, described in section IV.C.1, to disaggregate the 
MPCs into material, labor, and overhead costs. To calculate the MPCs 
for products above the baseline, DOE added the incremental material, 
labor, and overhead costs from the engineering cost-efficiency curves 
to the baseline MPCs. These cost breakdowns and product mark-ups were 
validated with manufacturers during manufacturer interviews.
ii. Base-Case Shipments Forecast
    The GRIM estimates manufacturer revenues based on total unit 
shipment forecasts and the distribution of shipments by product class 
and efficiency level. Changes in the efficiency mix at each potential 
standard level affect manufacturer finances. For this analysis, the 
GRIM uses the NIA shipments forecasts from 2010, the base year for the 
MIA analysis, to 2045, the last year of the analysis period. In the 
shipments analysis, DOE estimates the distribution of efficiencies in 
the base case for all product classes. See section IV.G.1, above, for 
additional details.
iii. Shipment Forecasts
    The GRIM used shipments figures developed in the NIA for 
residential furnace and central air conditioner and heat pump products. 
To determine efficiency distributions for the standards case, DOE used 
a ``roll-up + market shift'' scenario. DOE assumed that product 
efficiencies in the base case that did not meet the standard under 
consideration would ``roll up'' to meet the new standard in the 
standard year, when compliance with amended standards is required. DOE 
further assumed that revised standards would result in a market shift 
such that market shares of products with efficiencies better than the 
standard would gradually increase because ``market-pull'' programs, 
such as ENERGY STAR, would continue to promote efficient appliances 
after amended standards are introduced.
    The shipment forecasts account for possible product switching that 
may occur among split-system air conditioning, split-system heat pumps, 
non-weatherized gas furnaces, and electric furnaces. The product 
switching calculations incorporate considerations of consumer climate 
zones, existing equipment, equipment costs, and installation costs. In 
the MIA results discussion in section V.B.2, the presentation of INPV 
and the MIA analysis of conventional products incorporate the impacts 
of product switching. See section IV.G.1 of this direct final rule and 
chapter 10 of the direct final rule TSD for more information on the 
standards-case shipment scenario.
iv. Product and Capital Conversion Costs
    New or amended energy conservation standards will cause 
manufacturers to incur one-time conversion costs to bring their 
production facilities and product designs into compliance. DOE 
evaluated the level of conversion-related capital expenditures needed 
to comply with each considered efficiency level in each product class. 
For the purpose of the MIA, DOE classified these conversion costs into 
two major groups: (1) Product conversion costs, and (2) capital 
conversion costs. Product conversion costs are one-time investments in 
research, development, testing, and marketing, focused on making 
product designs comply with the new energy conservation standard. 
Capital conversion costs are one-time investments in property, plant, 
and equipment to adapt or change existing production facilities so that 
new equipment designs can be fabricated and assembled.
    DOE assessed the product conversion costs at each considered 
standard level by integrating data from multiple sources. Those R&D 
expenditures, and other components of product conversion cost, were 
validated through manufacturer interviews. DOE considered feedback from 
multiple manufacturers at each level. Manufacturer numbers were 
averaged using market share weighting of each company to provide a 
number that better reflects the industry as a whole.
    DOE also evaluated the level of capital conversion expenditures 
manufacturers would incur to comply with energy conservation standards. 
DOE used the manufacturer interviews to gather data on the level of 
capital investment required at each possible efficiency level. 
Manufacturer values were aggregated and scaled using market share 
weighting to better reflect the industry. Additionally, DOE validated 
manufacturer comments through estimates of capital expenditure 
requirements derived from the product teardown analysis and engineering 
model described in section IV.C.1.
    In general, DOE assumes that all conversion-related investments 
occur between the announcement year and the standards compliance year. 
For evaluation of the TSL corresponding to the consensus agreement, DOE 
used the accelerated timeframes to reflect the compliance dates 
recommended in the agreement. The GRIM models all furnace conversion 
costs occurring during the period between 2011 and 2013 for the TSL 
corresponding to the consensus agreement. Similarly, DOE assumed all 
central air conditioner and heat pump conversion costs would occur 
between 2011 and 2015 for the TSL corresponding to the consensus 
agreement.
    For standby mode and off mode, DOE did not receive quantitative 
feedback during MIA interviews on the conversion costs associated with 
standby mode and off mode features. Based on the design options from 
the engineering analysis, DOE assumed that the standby mode and off 
mode capital conversion costs would be small relative to the capital 
conversion cost for meeting energy efficiency standards. However, DOE 
did incorporate product conversion costs for R&D, testing, and revision 
of marketing materials. The product conversion costs were based on 
product testing cost quotations and on market information about the 
number of platforms and product families for each manufacturer.
    The investment figures used in the GRIM can be found in section 
V.B.2.a of today's notice. For additional information on the estimated 
product conversion and capital conversion costs, see chapter 12 of the 
TSD.
b. Markup Scenarios
    As discussed above, manufacturer selling prices (MSPs) include 
direct manufacturing production costs (i.e., labor, material, and 
overhead estimated in DOE's MPCs) and all non-production costs (i.e., 
SG&A, R&D, and interest), along with profit. To calculate the MSPs in 
the GRIM, DOE applied markups to the MPCs estimated in the engineering 
analysis for each product class and efficiency level. Modifying these 
markups in the standards case yields different sets of impacts on 
manufacturers. For the MIA, DOE modeled three standards-case markup 
scenarios to represent the uncertainty regarding the potential impacts 
on prices and profitability for manufacturers following the 
implementation of amended energy conservation standards: (1) A tiered 
markup scenario, (2) a preservation of earnings before interest and 
taxes (EBIT), and (3) a preservation of gross

[[Page 37492]]

margin percentage. These scenarios lead to different markups values 
which, when applied to the inputted MPCs, result in varying revenue and 
cash flow impacts. The first and second scenarios were determined to 
best represent the impacts of potential energy efficiency standards on 
industry mark ups. The second and third scenarios were used to model 
potential standby mode and off mode standards, because pricing tiers 
would not likely be impacted by standby mode and off mode standards.
    Under the ``preservation of gross margin percentage'' scenario, DOE 
applied a single uniform ``gross margin percentage'' markup across all 
efficiency levels. As production costs increase with efficiency, this 
scenario implies that the absolute dollar markup will increase as well. 
DOE assumed the non-production cost markup--which includes SG&A 
expenses, R&D expenses, interest, and profit--stays constant at the 
base-case percentage even as the standards-case efficiency increases. 
This markup is consistent with the one DOE assumed in the base case for 
the GRIM. Manufacturers noted in interviews that it is optimistic to 
assume that as their production costs increase in response to an 
amended energy conservation standard, they would be able to maintain 
the same gross margin percentage markup. Therefore, DOE assumed that 
this scenario represents a high bound to industry profitability under 
an energy conservation standard.
    The tiered markup scenario models the situation in which 
manufacturers set markups based on three tiers of products. The tiers 
described by manufacturers in MIA interviews were defined as ``good, 
better, best,'' or ``value, standard, premium.'' The high-volume 
``value'' product lines typically have fewer features, lower 
efficiency, and lower markups, while ``premium'' product lines 
typically have more features, higher efficiency, and higher markups. In 
the standards case, the tiered markups scenario considers the situation 
in which the breadth of a manufacturer's portfolio of products shrinks 
and amended standards ``demote'' higher-tier products to lower tiers. 
As a result, higher-efficiency products that previously commanded 
``standard'' and ``premium'' mark-ups are assigned ``value'' and 
``standard'' markups, respectively.
    In the preservation of earnings before interest and taxes (EBIT) 
scenario, the manufacturer markups are set so that EBIT one year after 
the compliance date of the amended energy conservation standards is the 
same as in the base case. Under this scenario, as the cost of 
production and the cost of sales go up, manufacturers are generally 
required to reduce their markups to a level that maintains base-case 
operating profit. The implicit assumption behind this markup scenario 
is that the industry can only maintain its operating profit in absolute 
dollars after the amended standards. Operating margin in percentage 
terms is squeezed (reduced) between the base case and standards case.
    During the March 2010 public meeting for residential furnaces and 
the May 2010 public meeting for central air conditioners and heat pumps 
and in the written comments for those public meetings, there were no 
comments on the assumptions of the preliminary MIA.
3. Manufacturer Interviews
    As part of the MIA interviews, DOE discussed potential impacts of 
standards with five of the seven leading manufacturers of residential 
furnaces, central air conditioners, and heat pumps.\80\ DOE also 
interviewed six niche product manufacturers.
---------------------------------------------------------------------------

    \80\ The remaining two major manufacturers were approached, but 
they declined to be interviewed.
---------------------------------------------------------------------------

    In the interviews, DOE asked manufacturers to describe their major 
concerns about this rulemaking. The following sections discuss 
manufacturers' concerns about the most significant issues they 
identified.
a. Consensus Agreement
    All manufacturers interviewed either strongly supported or were 
amenable to the consensus agreement that was recommended and signed by 
a number of manufacturers, advocacy organizations, and trade groups. 
Most interviewees were signatories and urged the Department to act as 
quickly as possible to adopt the consensus agreement. Manufacturers 
indicated that the consensus agreement provides regulatory certainty, 
manageable conversion costs, and accelerated compliance dates that 
provide energy savings earlier than would otherwise be achieved. Due to 
the tight timelines outlined in the agreement, manufacturers stated 
their desire for DOE to adopt the agreement as soon as possible in 
order to have sufficient time to meet the agreement's energy 
conservation standards and associated compliance dates.
b. Potential for Significant Changes to Manufacturing Facilities
    During interviews, several manufacturers indicated that central air 
conditioning and heat pump conversion costs are not linear, but would 
step up dramatically at various efficiency levels. In general, 
manufacturers were concerned that a national baseline energy 
conservation standard above 14 SEER for split-system air conditioners 
and split-system heat pumps would require extensive and costly product 
line redesigns. At various higher efficiency levels, system designs 
would have to incorporate additional or more complex technologies, 
including two-stage compressors, ECM fan motors, and larger heater 
exchangers. Therefore, to reach higher levels, units would have to 
increase in size, necessitating larger cabinet sizes and the purchase 
of new equipment and tooling. Several large manufacturers indicated 
that offshore production or completely new production facilities would 
be considered above 14 SEER due to the scope of changes required to 
meet an amended standard. Manufacturer estimates for the total 
investment required to meet national standards in the 14.5 to 16 SEER 
range varied widely, often depending on the current state of each 
manufacturer's production lines and whether a completely new production 
facility was required.
c. Increase in Product Repair and Migration to Alternative Products
    Several manufacturers stated that the higher cost of more-efficient 
systems resulting from amended energy conservation standards would need 
to be passed on to consumers, absorbed by manufacturers, or some 
combination of both. If manufacturers were to attempt to pass on higher 
costs, the industry is concerned higher prices would result in 
consumers pursuing lower-cost, less-efficient alternatives. In 
addition, manufacturers believe that consumers, facing higher first 
costs, would be more likely to repair older, less-efficient heating and 
cooling systems rather than replace those units with new, more-
efficient models. Similarly, manufacturers expressed concern that 
consumers would be more likely to switch to lower up-front cost, lower-
efficiency technologies such as room air conditioners and electric 
space heaters. Manufacturers agreed that these alternatives would 
reduce energy savings and reduce energy conserved.
    As evidence, manufacturers cited market trends following the 2006 
compliance date of the 2004 central air conditioners and heat pump 
energy conservation rulemaking. 69 FR 50997 (Aug. 14, 2004). Since 
2006, manufacturers have noted a decline in central air conditioner and 
heat pump sales coupled with an increase in room air conditioner sales 
and an increase in

[[Page 37493]]

orders for repair components. In general, the manufacturers are 
concerned that the decline in shipments from 2006 to 2010 will 
continue, and that a revised energy conservation standard will 
exacerbate the decline in unitary air conditioner shipments.
d. HFC Phase-Out Legislation
    Manufacturers expressed strong concerns about legislation proposed 
in Congress that would phase out HFC refrigerants, including R-410A and 
R-134a. Any phase-out would require extensive redesign of all central 
air conditioners and heat pump products to make use of an alternative 
refrigerant. Manufacturers asserted that there is no clear replacement 
for HFC refrigerants today. Without a clear replacement, the 
manufacturers stated that any phase-out would create a period of 
uncertainty as the industry identifies suitable alternatives and then 
redesigns products around the replacement. It is unclear what 
efficiency levels could be achieved at reasonable cost without HFC 
refrigerants. Manufacturers observed that past phase-outs generally 
have led to more-expensive and less-efficient refrigerant replacements. 
Additionally, manufacturers stated that alternative refrigerants may 
require substantially larger systems to achieve the same levels of 
performance.
e. Physical Constraints
    Multiple manufacturers expressed concern that an increase in 
appliance efficiency standards would leave older homes, and multi-
family homes in particular, with few cost-effective options for 
replacing their cooling systems. As the efficiency of air conditioning 
increases, the physical sizes of the units also increase. Manufacturers 
are concerned because central air conditioner and heat pump units are 
already so large that they can be difficult to fit into some end-user 
homes. Attic entryways, basement doors, and condensing unit pads all 
present physical constraints when replacing an air conditioner with a 
larger, more-efficient system. Multifamily homes are particularly 
restricted due to the limited space in utility closets and due to the 
limited options for renovation. These physical constraints lead to 
higher installation costs, which may encourage customers to repair 
existing systems rather than replace them.
f. Supply Chain Constraints
    Some manufacturers expressed concern about the impact of more-
stringent standards on their supply chain. Changes in energy 
conservation standards could affect the competitive positioning and 
dominance of component suppliers. One manufacturer cited the example of 
the 2001 central air conditioner rulemaking (66 FR 7170 (Jan. 22, 
2001)), after which one of two critical compressor suppliers nearly 
went bankrupt (because the change in standards led most manufacturers 
to choose design options that favored the technology of one supplier 
over the other). According to the manufacturer, having the industry 
rely on a single supplier for critical components, even just a few, 
puts the entire industry at risk.
    Additionally, manufacturers stated that more-stringent energy 
conservation standards would increase the demand for some key 
components over current levels. Given that most manufacturers rely on 
the same set of suppliers, amended standards could result in long lead 
times for obtaining critical components, such as high-efficiency 
compressors, ECM motors, modulating gas valves, advanced control 
systems, and new production tooling.

J. Employment Impact Analysis

    DOE considers employment impacts in the domestic economy as one 
factor in selecting a standard. Employment impacts consist of both 
direct and indirect impacts. Direct employment impacts are any changes 
in the number of employees of manufacturers of the appliance products 
which are the subject of this rulemaking, their suppliers, and related 
service firms. Indirect employment impacts are changes in national 
employment that occur due to the shift in expenditures and capital 
investment caused by the purchase and operation of more-efficient 
appliances. The MIA addresses the direct employment impacts that 
concern manufacturers of furnaces, central air conditioners, and heat 
pumps. The employment impact analysis addresses the indirect employment 
impacts.
    Indirect employment impacts from standards consist of the net jobs 
created or eliminated in the national economy, other than in the 
manufacturing sector being regulated, due to: (1) Reduced spending by 
end users on energy; (2) reduced spending on new energy supply by the 
utility industry; (3) increased spending on new products to which the 
new standards apply; and (4) the effects of those three factors 
throughout the economy. DOE expects the net monetary savings from 
amended energy conservation standards to be redirected to other forms 
of economic activity. DOE also expects these shifts in spending and 
economic activity to affect the demand for labor in the short term, as 
explained below.
    One method for assessing the possible effects on the demand for 
labor of such shifts in economic activity is to compare sectoral 
employment statistics developed by the Labor Department's BLS.\81\ The 
BLS regularly publishes its estimates of the number of jobs per million 
dollars of economic activity in different sectors of the economy, as 
well as the jobs created elsewhere in the economy by this same economic 
activity. Data from BLS indicate that expenditures in the utility 
sector generally create fewer jobs (both directly and indirectly) than 
expenditures in other sectors of the economy. There are many reasons 
for these differences, including wage differences and the fact that the 
utility sector is more capital-intensive and less labor-intensive than 
other sectors.\82\
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    \81\ Data on industry employment, hours, labor compensation, 
value of production, and the implicit price deflator for output for 
these industries are available upon request by calling the Division 
of Industry Productivity Studies (202-691-5618) or by sending a 
request by e-mail to dipsweb@bls.gov. (Available at: http://www.bls.gov/news.release/prin1.nro.htm.)
    \82\ See Bureau of Economic Analysis, Regional Multipliers: A 
User Handbook for the Regional Input-Output Modeling System (RIMS 
II), U.S. Department of Commerce (1992).
---------------------------------------------------------------------------

    Energy conservation standards have the effect of reducing consumer 
utility bills. Because reduced consumer expenditures for energy likely 
lead to increased expenditures in other sectors of the economy, the 
general effect of efficiency standards is to shift economic activity 
from a less labor-intensive sector (i.e., the utility sector) to more 
labor-intensive sectors (e.g., the retail and service sectors). Thus, 
based on the BLS data alone, the Department believes net national 
employment will increase due to shifts in economic activity resulting 
from amended standards for furnaces, central air conditioners, and heat 
pumps.
    For the standards considered in today's direct final rule, DOE 
estimated indirect national employment impacts using an input/output 
model of the U.S. economy called Impact of Sector Energy Technologies 
(ImSET). ImSET is a spreadsheet model of the U.S. economy that focuses 
on 187 sectors most relevant to industrial, commercial, and residential 
building energy use.\83\ ImSET is a special purpose version of the 
``U.S. Benchmark National Input-

[[Page 37494]]

Output'' (I-O) model,\84\ which has been designed to estimate the 
national employment and income effects of energy-saving technologies. 
The ImSET software includes a computer-based I-O model with structural 
coefficients to characterize economic flows among the 187 sectors. 
ImSET's national economic I-O structure is based on a 2002 U.S. 
benchmark table, specially aggregated to the 187 sectors. DOE estimated 
changes in expenditures using the NIA spreadsheet. Using ImSET, DOE 
then estimated the net national, indirect employment impacts by sector 
of potential amended efficiency standards for furnaces, central air 
conditioners, and heat pumps.
---------------------------------------------------------------------------

    \83\ M.J. Scott, O.V. Livingston, J.M. Roop, R.W. Schultz, and 
P.J. Balducci, ImSET 3.1: Impact of Sector Energy Technologies; 
Model Description and User's Guide (2009) (Available at: http://www.pnl.gov/main/publications/external/technical_reports/PNNL-18412.pdf).
    \84\ R.L. Stewart, J.B. Stone, and M.L. Streitwieser. U.S. 
Benchmark Input-Output Accounts, 2002. Survey of Current Business, 
October 2007. (Available at http://www.bea.gov/scb/pdf/2007/10%20October/1007_benchmark_io.pdf).
---------------------------------------------------------------------------

    No comments were received on the preliminary TSD for central air 
conditioners and heat pumps or the furnaces RAP concerning the 
employment impacts analysis. For more details on the employment impact 
analysis, see chapter 13 of the direct final rule TSD.

K. Utility Impact Analysis

    The utility impact analysis estimates several important effects on 
the utility industry that would result from the adoption of new or 
amended energy conservation standards. For the direct final rule 
analysis, DOE used the NEMS-BT model to generate forecasts of 
electricity and natural gas consumption, electricity generation by 
plant type, and electric generating capacity by plant type, that would 
result from each considered TSL. DOE obtained the energy savings inputs 
associated with efficiency improvements to the subject products from 
the NIA. DOE conducts the utility impact analysis as a scenario that 
departs from the latest AEO Reference case. For this direct final rule, 
the estimated impacts of amended energy conservation standards are the 
differences between values forecasted by NEMS-BT and the values in the 
AEO2010 Reference case (which does not contemplate amended standards).
    As part of the utility impact analysis, DOE used NEMS-BT to assess 
the impacts on natural gas prices of the reduced demand for natural gas 
projected to result from the considered standards. DOE also used NEMS-
BT to assess the impacts on electricity prices of the reduced need for 
new electric power plants and infrastructure projected to result from 
the considered standards. In NEMS-BT, changes in power generation 
infrastructure affect utility revenue, which in turn affects 
electricity prices. DOE estimated the change in electricity prices 
projected to result over time from each considered TSL. The benefits 
associated with the impacts of the standards in this rule on energy 
prices are discussed in section IV.G.5.
    For more details on the utility impact analysis, see chapter 14 of 
the direct final rule TSD.

L. Environmental Assessment

    Pursuant to the National Environmental Policy Act of 1969 and the 
requirements of 42 U.S.C. 6295(o)(2)(B)(i)(VI), DOE has prepared an 
environmental assessment (EA) of the impacts of the potential standards 
for residential furnaces, central air conditioners, and heat pumps in 
this rule, which it has included as chapter 15 of the direct final rule 
TSD.
    In the EA, DOE estimated the reduction in power sector emissions of 
CO2, NOX, and Hg using the NEMS-BT computer 
model. In the EA, NEMS-BT is run similarly to the AEO NEMS, except that 
furnace, central air conditioner, and heat pump energy use is reduced 
by the amount of energy saved (by fuel type) due to each TSL. The 
inputs of national energy savings come from the NIA spreadsheet model, 
while the output is the forecasted physical emissions. The net benefit 
of each TSL in this rule is the difference between the forecasted 
emissions estimated by NEMS-BT at each TSL and the AEO 2010 Reference 
Case. NEMS-BT tracks CO2 emissions using a detailed module 
that provides results with broad coverage of all sectors and inclusion 
of interactive effects. Because the on-site operation of non-electric 
heating products requires use of fossil fuels and results in emissions 
of CO2, NOX, and sulfur dioxide (SO2), 
DOE also accounted for the reduction in these emissions due to 
potential amended standards at the sites where these appliances are 
used. For today's direct final rule, DOE used NEMS-BT based on AEO 
2010. For the final rule, DOE intends to revise the emissions analysis 
using the most current version of NEMS-BT.
    DOE determined that SO2 emissions from affected fossil-
fuel-fired combustion devices (also known as Electric Generating Units 
(EGUs)) are subject to nationwide and regional emissions cap-and-trade 
programs that create uncertainty about the potential amended standards' 
impact on SO2 emissions. Title IV of the Clean Air Act, 42 
U.S.C. 7401-7671q, sets an annual emissions cap on SO2 for 
all affected EGUs in the 48 contiguous States and the District of 
Columbia (DC). SO2 emissions from 28 eastern States and DC 
are also limited under the Clean Air Interstate Rule (CAIR, 70 FR 25162 
(May 12, 2005)), which created an allowance-based trading program. 
Although CAIR has been remanded to the EPA by the U.S. Court of Appeals 
for the District of Columbia (DC Circuit), see North Carolina v. EPA, 
550 F.3d 1176 (DC Cir. 2008), it remains in effect temporarily, 
consistent with the D.C. Circuit's earlier opinion in North Carolina v. 
EPA, 531 F.3d 896 (DC Cir. 2008). On July 6, 2010, EPA issued the 
Transport Rule proposal, a replacement for CAIR, which would limit 
emissions from EGUs in 32 States, potentially through the interstate 
trading of allowances, among other options. 75 FR 45210 (Aug. 2, 2010).
    The attainment of the emissions caps is flexible among EGUs and is 
enforced through the use of emissions allowances and tradable permits. 
Under existing EPA regulations, and under the Transport Rule if it is 
finalized, any excess SO2 emission allowances resulting from 
the lower electricity demand caused by the imposition of an efficiency 
standard could be used to permit offsetting increases in SO2 
emissions by any regulated EGU. However, if the amended standard 
resulted in a permanent increase in the quantity of unused emission 
allowances, there would be an overall reduction in SO2 
emissions from the standards. While there remains some uncertainty 
about the ultimate effects of efficiency standards on SO2 
emissions covered by the existing cap and trade system, the NEMS-BT 
modeling system that DOE uses to forecast emissions reductions 
currently indicates that no physical reductions in power sector 
emissions would occur for SO2.
    A cap on NOX emissions, affecting electric generating 
units in the CAIR region, means that energy conservation standards may 
have little or no physical effect on NOX emissions in the 28 
eastern States and the D.C. covered by CAIR, or any States covered by 
the proposed Transport Rule if the Transport Rule is finalized. The 
standards would, however, reduce NOX emissions in those 22 
States not affected by the CAIR. As a result, DOE used NEMS-BT to 
forecast emission reductions from the standards considered for today's 
direct final rule.
    Similar to emissions of SO2 and NOX, future 
emissions of Hg would have been subject to emissions caps. In May 2005, 
EPA issued the Clean Air Mercury Rule (CAMR). 70 FR 28606 (May 18, 
2005). CAMR would have permanently capped

[[Page 37495]]

emissions of mercury for new and existing coal-fired power plants in 
all States by 2010. However, on February 8, 2008, the DC Circuit issued 
its decision in New Jersey v. Environmental Protection Agency, 517 F.3d 
574 (DC Cir. 2008), in which it vacated CAMR. EPA has decided to 
develop emissions standards for power plants under Section 112 of the 
Clean Air Act, consistent with the DC Circuit's opinion on the CAMR. 
See http://www.epa.gov/air/mercuryrule/pdfs/certpetition_withdrawal.pdf. Pending EPA's forthcoming revisions to the rule, DOE is 
excluding CAMR from its environmental assessment. In the absence of 
CAMR, a DOE standard would likely reduce Hg emissions, and DOE is using 
NEMS-BT to estimate these emission reductions. However, DOE continues 
to review the impact of rules that reduce energy consumption on Hg 
emissions, and may revise its assessment of Hg emission reductions in 
future rulemakings.
    The operation of non-electric heating products requires use of 
fossil fuels and results in emissions of CO2, 
NOX, and SO2 at the sites where these appliances 
are used. NEMS-BT provides no means for estimating such emissions. DOE 
calculated the effect of potential standards in this rule on the above 
site emissions based on emissions factors that are described in chapter 
15 of the direct final rule TSD.
    Commenting on the furnaces RAP, EEI stated that DOE should include 
the environmental impacts of furnace production, especially if higher 
standards involve more equipment being manufactured in and transported 
from other countries. (FUR: EEI, No. 1.3.015 at p. 6) APPA made a 
similar point. (FUR: APPA, No. 1.3.011 at p. 5)
    In response, DOE notes that the inputs to the EA for national 
energy savings come from the NIA. In the NIA, DOE only accounts for 
primary energy savings associated with considered standards. In so 
doing, EPCA directs DOE to consider (when determining whether a 
standard is economically justified) ``the total projected amount of 
energy * * * savings likely to result directly from the imposition of 
the standard.'' (42 U.S.C. 6295(o)(2)(B)(i)(III)) DOE interprets the 
phrase ``directly from the imposition of the standard'' to include 
energy used in the generation, transmission, and distribution of fuels 
used by appliances. In addition, DOE is evaluating the full-fuel-cycle 
measure, which includes the energy consumed in extracting, processing, 
and transporting primary fuels (see section IV.G.3). Both DOE's current 
accounting of primary energy savings and the full-fuel-cycle measure 
are directly linked to the energy used by appliances. In contrast, 
energy used in manufacturing and transporting appliances is a step 
removed from the energy used by appliances. Thus, DOE did not consider 
such energy use in either the NIA or the EA.
    EEI commented that DOE's environmental assessment should consider 
the standards' effect on emissions associated with the extraction, 
refining, and transport of oil and natural gas. (FUR: EEI, No. 1.3.015 
at p. 7) As noted in chapter 15 of the TSD, DOE developed only 
qualitative estimates of effects on upstream fuel-cycle emissions 
because NEMS-BT does a thorough accounting only of emissions at the 
power plant due to downstream energy consumption. In other words, NEMS-
BT does not account for upstream emissions. Therefore, the 
environmental assessment for this rule did not estimate effects on 
upstream emissions associated with oil and natural gas. As discussed in 
section IV.G.3, however, DOE is in the process of developing an 
approach that will allow it to estimate full-fuel-cycle energy use 
associated with products covered by energy conservation standards.

M. Monetizing Carbon Dioxide and Other Emissions Impacts

    As part of the development of this rule, DOE considered the 
estimated monetary benefits likely to result from the reduced emissions 
of CO2 and NOX that are expected to result from 
each of the TSLs considered. In order to make this calculation similar 
to the calculation of the NPV of consumer benefit, DOE considered the 
reduced emissions expected to result over the lifetime of products 
shipped in the forecast period for each TSL. This section summarizes 
the basis for the monetary values used for each of these emissions and 
presents the benefits estimates considered.
    For today's direct final rule, DOE relied on a set of values for 
the social cost of carbon (SCC) that was developed an interagency 
process. A summary of the basis for these values is provided below, and 
a more detailed description of the methodologies used is provided as in 
chapter 16 of the direct final rule TSD.
1. Social Cost of Carbon
    Under section 1(b) of Executive Order 12866, ``Regulatory Planning 
and Review,'' 58 FR 51735 (Oct. 4, 1993), agencies must, to the extent 
permitted by law, ``assess both the costs and the benefits of the 
intended regulation and, recognizing that some costs and benefits are 
difficult to quantify, propose or adopt a regulation only upon a 
reasoned determination that the benefits of the intended regulation 
justify its costs.'' The purpose of the SCC estimates presented here is 
to allow agencies to incorporate the monetized social benefits of 
reducing CO2 emissions into cost-benefit analyses of 
regulatory actions that have small, or ``marginal,'' impacts on 
cumulative global emissions. The estimates are presented with an 
acknowledgement of the many uncertainties involved and with a clear 
understanding that they should be updated over time to reflect 
increasing knowledge of the science and economics of climate impacts.
    As part of the interagency process that developed these SCC 
estimates, technical experts from numerous agencies met on a regular 
basis to consider public comments, explore the technical literature in 
relevant fields, and discuss key model inputs and assumptions. The main 
objective of this process was to develop a range of SCC values using a 
defensible set of input assumptions grounded in the existing scientific 
and economic literatures. In this way, key uncertainties and model 
differences transparently and consistently inform the range of SCC 
estimates used in the rulemaking process.
a. Monetizing Carbon Dioxide Emissions
    The SCC is an estimate of the monetized damages associated with an 
incremental increase in carbon emissions in a given year. It is 
intended to include (but is not limited to) changes in net agricultural 
productivity, human health, property damages from increased flood risk, 
and the value of ecosystem services. Estimates of the SCC are provided 
in dollars per metric ton of carbon dioxide.
    When attempting to assess the incremental economic impacts of 
carbon dioxide emissions, the analyst faces a number of serious 
challenges. A recent report from the National Research Council \85\ 
points out that any assessment will suffer from uncertainty, 
speculation, and lack of information about: (1) Future emissions of 
greenhouse gases; (2) the effects of past and future emissions on the 
climate system; (3) the impact of changes in climate on the physical 
and biological environment; and (4) the translation of these 
environmental impacts into

[[Page 37496]]

economic damages. As a result, any effort to quantify and monetize the 
harms associated with climate change will raise serious questions of 
science, economics, and ethics and should be viewed as provisional.
---------------------------------------------------------------------------

    \85\ National Research Council, Hidden Costs of Energy: Unpriced 
Consequences of Energy Production and Use, National Academies Press: 
Washington, DC (2009).
---------------------------------------------------------------------------

    Despite the serious limits of both quantification and monetization, 
SCC estimates can be useful in estimating the social benefits of 
reducing carbon dioxide emissions. Consistent with the directive in 
Executive Order 12866 quoted above, the purpose of the SCC estimates 
presented here is to make it possible for agencies to incorporate the 
social benefits from reducing carbon dioxide emissions into cost-
benefit analyses of regulatory actions that have small, or 
``marginal,'' impacts on cumulative global emissions. Most Federal 
regulatory actions can be expected to have marginal impacts on global 
emissions.
    For such policies, the agency can estimate the benefits from 
reduced (or costs from increased) emissions in any future year by 
multiplying the change in emissions in that year by the SCC value 
appropriate for that year. The net present value of the benefits can 
then be calculated by multiplying each of these future benefits by an 
appropriate discount factor and summing across all affected years. This 
approach assumes that the marginal damages from increased emissions are 
constant for small departures from the baseline emissions path, an 
approximation that is reasonable for policies that have effects on 
emissions that are small relative to cumulative global carbon dioxide 
emissions. For policies that have a large (non-marginal) impact on 
global cumulative emissions, there is a separate question of whether 
the SCC is an appropriate tool for calculating the benefits of reduced 
emissions. DOE does not attempt to answer that question here.
    At the time of the preparation of this notice, the most recent 
interagency estimates of the potential global benefits resulting from 
reduced CO2 emissions in 2010, expressed in 2009$, were 
$4.9, $22.1, $36.3, and $67.1 per metric ton avoided. For emission 
reductions that occur in later years, these values grow in real terms 
over time. Additionally, the interagency group determined that a range 
of values from 7 percent to 23 percent should be used to adjust the 
global SCC to calculate domestic effects,\86\ although preference is 
given to consideration of the global benefits of reducing 
CO2 emissions.
---------------------------------------------------------------------------

    \86\ It is recognized that this calculation for domestic values 
is approximate, provisional, and highly speculative. There is no a 
priori reason why domestic benefits should be a constant fraction of 
net global damages over time.
---------------------------------------------------------------------------

    It is important to emphasize that the interagency process is 
committed to updating these estimates as the science and economic 
understanding of climate change and its impacts on society improves 
over time. Specifically, the interagency group has set a preliminary 
goal of revisiting the SCC values within two years or at such time as 
substantially updated models become available, and to continue to 
support research in this area. In the meantime, the interagency group 
will continue to explore the issues raised by this analysis and 
consider public comments as part of the ongoing interagency process.
b. Social Cost of Carbon Values Used in Past Regulatory Analyses
    To date, economic analyses for Federal regulations have used a wide 
range of values to estimate the benefits associated with reducing 
carbon dioxide emissions. In the final model year 2011 CAFE rule, the 
Department of Transportation (DOT) used both a ``domestic'' SCC value 
of $2 per ton of CO2 and a ``global'' SCC value of $33 per 
ton of CO2 for 2007 emission reductions (in 2007 dollars), 
increasing both values at 2.4 percent per year.\87\ See Average Fuel 
Economy Standards Passenger Cars and Light Trucks Model Year 2011, 74 
FR 14196 (March 30, 2009) (Final Rule); Final Environmental Impact 
Statement Corporate Average Fuel Economy Standards, Passenger Cars and 
Light Trucks, Model Years 2011-2015 at 3-90 (Oct. 2008) (Available at: 
http://www.nhtsa.gov/fuel-economy). It also included a sensitivity 
analysis at $80 per ton of CO2. A domestic SCC value is 
meant to reflect the value of damages in the United States resulting 
from a unit change in carbon dioxide emissions, while a global SCC 
value is meant to reflect the value of damages worldwide.
---------------------------------------------------------------------------

    \87\ Throughout this section, the term ``tons of 
CO2'' refers to metric tons.
---------------------------------------------------------------------------

    A 2008 regulation proposed by DOT assumed a domestic SCC value of 
$7 per ton of CO2 (in 2006 dollars) for 2011 emission 
reductions (with a range of $0-$14 for sensitivity analysis), also 
increasing at 2.4 percent per year. See Average Fuel Economy Standards, 
Passenger Cars and Light Trucks, Model Years 2011-2015, 73 FR 24352 
(May 2, 2008) (Proposed Rule); Draft Environmental Impact Statement 
Corporate Average Fuel Economy Standards, Passenger Cars and Light 
Trucks, Model Years 2011-2015 at 3-58 (June 2008) (Available at: http://www.nhtsa.gov/fuel-economy). A regulation for packaged terminal air 
conditioners and packaged terminal heat pumps finalized by DOE in 
October of 2008 used a domestic SCC range of $0 to $20 per ton 
CO2 for 2007 emission reductions (in 2007 dollars). 73 FR 
58772, 58814 (Oct. 7, 2008). In addition, EPA's 2008 Advance Notice of 
Proposed Rulemaking for Greenhouse Gases identified what it described 
as ``very preliminary'' SCC estimates subject to revision. See 
Regulating Greenhouse Gas Emissions Under the Clean Air Act, 73 FR 
44354 (July 30, 2008) (Advance Notice of Proposed Rulemaking). EPA's 
global mean values were $68 and $40 per ton CO2 for discount 
rates of approximately 2 percent and 3 percent, respectively (in 2006 
dollars for 2007 emissions). See id. at 44416.
    In 2009, an interagency process was initiated to offer a 
preliminary assessment of how best to quantify the benefits from 
reducing carbon dioxide emissions. To ensure consistency in how 
benefits are evaluated across agencies, the Administration sought to 
develop a transparent and defensible method, specifically designed for 
the rulemaking process, to quantify avoided climate change damages from 
reduced CO2 emissions. The interagency group did not 
undertake any original analysis. Instead, it combined SCC estimates 
from the existing literature to use as interim values until a more 
comprehensive analysis could be conducted. The outcome of the 
preliminary assessment by the interagency group was a set of five 
interim values: global SCC estimates for 2007 (in 2006 dollars) of $55, 
$33, $19, $10, and $5 per ton of CO2.
    These interim values represent the first sustained interagency 
effort within the U.S. government to develop an SCC for use in 
regulatory analysis. The results of this preliminary effort were 
presented in several proposed and final rules and were offered for 
public comment in connection with proposed rules, including the joint 
EPA-DOT fuel economy and CO2 tailpipe emission proposed 
rules. See CAFE Rule for Passenger Cars and Light Trucks Draft EIS and 
Final EIS, cited above.
c. Current Approach and Key Assumptions
    Since the release of the interim values, the interagency group 
reconvened on a regular basis to generate improved SCC estimates, which 
were considered in the evaluation of this rule. Specifically, the group 
considered public comments and further explored the technical 
literature in relevant fields. The interagency group relied on three 
integrated assessment

[[Page 37497]]

models (IAMs) commonly used to estimate the SCC: the FUND, DICE, and 
PAGE models.\88\ These models are frequently cited in the peer-reviewed 
literature and were used in the last assessment of the 
Intergovernmental Panel on Climate Change. Each model was given equal 
weight in the SCC values that were developed.
---------------------------------------------------------------------------

    \88\ The models are described in appendix 16-A of the direct 
final rule TSD.
---------------------------------------------------------------------------

    Each model takes a slightly different approach to model how changes 
in emissions result in changes in economic damages. A key objective of 
the interagency process was to enable a consistent exploration of the 
three models while respecting the different approaches to quantifying 
damages taken by the key modelers in the field. An extensive review of 
the literature was conducted to select three sets of input parameters 
for these models: (1) Climate sensitivity; (2) socio-economic and 
emissions trajectories; and (3) discount rates. A probability 
distribution for climate sensitivity was specified as an input into all 
three models. In addition, the interagency group used a range of 
scenarios for the socio-economic parameters and a range of values for 
the discount rate. All other model features were left unchanged, 
relying on the model developers' best estimates and judgments.
    The interagency group selected four SCC values for use in 
regulatory analyses. Three values are based on the average SCC from 
three integrated assessment models, at discount rates of 2.5, 3, and 5 
percent. The fourth value, which represents the 95th-percentile SCC 
estimate across all three models at a 3-percent discount rate, is 
included to represent higher-than-expected impacts from temperature 
change further out in the tails of the SCC distribution. For emissions 
(or emission reductions) that occur in later years, these values grow 
in real terms over time, as depicted in Table IV.24.

                                   Table IV.24--Social Cost of CO2, 2010-2050
                                        [In 2007 dollars per metric ton]
----------------------------------------------------------------------------------------------------------------
                                                                                 Discount rate
                                                             ---------------------------------------------------
                                                                 5% Avg       3% Avg      2.5% Avg     3% 95th
----------------------------------------------------------------------------------------------------------------
2010........................................................          4.7         21.4         35.1         64.9
2015........................................................          5.7         23.8         38.4         72.8
2020........................................................          6.8         26.3         41.7         80.7
2025........................................................          8.2         29.6         45.9         90.4
2030........................................................          9.7         32.8         50.0        100.0
2035........................................................         11.2         36.0         54.2        109.7
2040........................................................         12.7         39.2         58.4        119.3
2045........................................................         14.2         42.1         61.7        127.8
2050........................................................         15.7         44.9         65.0        136.2
----------------------------------------------------------------------------------------------------------------

    It is important to recognize that a number of key uncertainties 
remain, and that current SCC estimates should be treated as provisional 
and revisable since they will evolve with improved scientific and 
economic understanding. The interagency group also recognizes that the 
existing models are imperfect and incomplete. The National Research 
Council report mentioned above points out that there is tension between 
the goal of producing quantified estimates of the economic damages from 
an incremental ton of carbon and the limits of existing efforts to 
model these effects. There are a number of concerns and problems that 
should be addressed by the research community, including research 
programs housed in many of the agencies participating in the 
interagency process to estimate the SCC.
    The U.S. Government intends to periodically review and reconsider 
estimates of the SCC used for cost-benefit analyses to reflect 
increasing knowledge of the science and economics of climate impacts, 
as well as improvements in modeling. In this context, statements 
recognizing the limitations of the analysis and calling for further 
research take on exceptional significance. The interagency group offers 
the new SCC values with all due humility about the uncertainties 
embedded in them and with a sincere promise to continue work to improve 
them.
    In summary, in considering the potential global benefits resulting 
from reduced CO2 emissions, DOE used the most recent values 
identified by the interagency process, adjusted to 2009$ using the GDP 
price deflator values for 2008 and 2009. For each of the four cases 
specified, the values used for emissions in 2010 were $4.9, $22.1, 
$36.3, and $67.1 per metric ton avoided (values expressed in 2009$). To 
monetize the CO2 emissions reductions expected to result 
from amended standards for furnaces, central air conditioners, and heat 
pumps, DOE used the values identified in Table A1 in the ``Social Cost 
of Carbon for Regulatory Impact Analysis Under Executive Order 12866,'' 
which is reprinted as appendix 16A of the direct final rule TSD, 
appropriately adjusted to 2009$.\89\ To calculate a present value of 
the stream of monetary values, DOE discounted the values in each of the 
four cases using the specific discount rate that had been used to 
obtain the SCC values in each case.
---------------------------------------------------------------------------

    \89\ Table A1 in appendix 16-A presents SCC values through 2050. 
For DOE's calculation, it derived values after 2050 using the 3-
percent per year escalation rate used by the interagency group.
---------------------------------------------------------------------------

2. Valuation of Other Emissions Reductions
    DOE investigated the potential monetary benefit of reduced 
NOX emissions from the TSLs it considered. As noted above, 
new or amended energy conservation standards would reduce 
NOX emissions in those 22 States that are not affected by 
the CAIR, in addition to the reduction in site NOX emissions 
nationwide. DOE estimated the monetized value of NOX 
emissions reductions resulting from each of the TSLs considered for 
today's direct final rule based on environmental damage estimates from 
the literature. Available estimates suggest a very wide range of 
monetary values, ranging from $370 per ton to $3,800 per ton of 
NOX from stationary sources, measured in 2001$ (equivalent 
to a range of $447 to $4,591 per ton in 2009$).\90\ In accordance with

[[Page 37498]]

OMB guidance, DOE conducted two calculations of the monetary benefits 
derived using each of the economic values used for NOX, one 
using a real discount rate of 3 percent and another using a real 
discount rate of 7 percent.\91\
---------------------------------------------------------------------------

    \90\ For additional information, refer to U.S. Office of 
Management and Budget, Office of Information and Regulatory Affairs, 
``2006 Report to Congress on the Costs and Benefits of Federal 
Regulations and Unfunded Mandates on State, Local, and Tribal 
Entities'' (Available at: http://www.whitehouse.gov/sites/default/files/omb/assets/omb/inforeg/2006_cb/2006_cb_final_report.pdf).
    \91\ OMB, Circular A-4: Regulatory Analysis (Sept. 17, 2003).
---------------------------------------------------------------------------

    DOE is aware of multiple agency efforts to determine the 
appropriate range of values used in evaluating the potential economic 
benefits of reduced Hg emissions. DOE has decided to await further 
guidance regarding consistent valuation and reporting of Hg emissions 
before it once again monetizes Hg emissions reductions in its 
rulemakings.
    Commenting on the central air conditioners and heat pumps 
preliminary TSD, Southern stated that the incremental climate change 
from a rulemaking is too uncertain to be included in the decision-
making for energy conservation standard levels, and the benefits of 
reduced carbon emissions should not be included. (CAC: SCS, No. 73 at 
p. 2) Commenting on the furnaces RAP, several parties provided comments 
regarding the economic valuation of CO2 emissions. EEI 
objected to using the global value for the social cost of carbon 
because the rest of DOE's analyses use domestic values. (FUR: EEI, No. 
1.3.015 at pp. 8-9) APPA recommended that DOE use a set of hyperbolic 
discount rates for the value of CO2. It also stated that the 
wide range of values for the SCC could adversely impact the calculation 
of benefits from amended energy conservation standards, and that DOE 
should consider the value of carbon reduction separately from the NIA 
analysis. (FUR: APPA, No. 1.3.011 at p. 5)
    DOE acknowledges that the economic value of future CO2 
emissions reductions is uncertain, and for this reason, it uses a wide 
range of potential values, and a range of discount rates, as described 
above. DOE further notes that the estimated monetary benefits of 
reduced CO2 emissions are only one factor among many that 
DOE considers in evaluating the economic justification of potential 
standard levels.
    As to whether DOE should consider the value of carbon reduction 
separately from the NIA, the NIA assesses the national energy savings 
and the national net present value of total consumer costs and savings 
expected to result from standards at specific efficiency levels. Thus, 
DOE does not aggregate the estimated economic benefits of avoided 
CO2 emissions (and other emissions) into the NIA. However, 
it does believe that the NPV of the monetized benefits associated with 
emissions reductions can be viewed as a complement to the NPV of the 
consumer savings expected to result from new or amended energy 
conservation standards. Therefore, in section V of this notice, DOE 
presents the NPV values that result from adding the estimates of the 
potential economic benefits resulting from reduced CO2 and 
NOX emissions in each of four valuation scenarios to the NPV 
of consumer savings calculated for each TSL considered in this 
rulemaking.
    Commenting on the furnaces RAP, EEI stated that utilities have 
embedded the cost of complying with existing environmental legislation 
in the price for electricity and that DOE must not double-count the 
benefits of reduced emissions related to standards. (FUR: EEI, No. 
1.3.015 at p. 6) In response, DOE calculates emissions reductions 
associated with potential standards relative to an AEO Reference case 
that includes the costs of complying with existing environmental 
legislation. The AEO Reference case still has emissions, of course, 
which are reduced in the case of standards. The reduction in emissions 
avoids impacts on human health or other damages, and DOE's monetization 
of emissions reductions seeks to quantify the value of those avoided 
damages.

V. Analytical Results

    The following section addresses the results from DOE's analyses 
with respect to potential energy conservation standards for the 
products examined as part of this rulemaking. It addresses the trial 
standard levels examined by DOE, the projected impacts of each of these 
levels if adopted as energy conservation standards for furnaces, 
central air conditioners, and heat pumps, and the standards levels that 
DOE is adopting in today's direct final rule. Additional details 
regarding the analyses conducted by DOE are contained in the publicly-
available direct final rule TSD supporting this notice.

A. Trial Standard Levels

    DOE analyzed the benefits and burdens of a number of TSLs for the 
furnaces, central air conditioners, and heat pumps that are the subject 
of this rule. A description of each TSL DOE analyzed is provided below. 
DOE attempted to limit the number of TSLs considered for the direct 
final rule by excluding efficiency levels that do not exhibit 
significantly different economic and/or engineering characteristics 
from the efficiency levels already selected as TSLs. While DOE only 
presents the results for those efficiency levels in TSL combinations in 
today's direct final rule, DOE presents the results for all efficiency 
levels that it analyzed in the direct final rule TSD.
1. TSLs for Energy Efficiency \92\
---------------------------------------------------------------------------

    \92\ In the context of presenting TSLs and results for each of 
them, DOE uses the term ``energy efficiency'' to refer to potential 
standards on SEER, HSPF, and AFUE throughout section V of this 
notice. TSLs for standby mode and off mode are addressed separately 
in the next section.
---------------------------------------------------------------------------

    Table V.1 presents the TSLs and the corresponding product class 
efficiency levels that DOE considered for furnace, central air 
conditioner, and heat pump energy efficiency. Eight product classes are 
specified in Table V.1: (1) Split-system central air conditioners 
(SAC); (2) split-system heat pumps (SHP); (3) single-package central 
air conditioners (PAC); (4) single-package heat pumps (PHP); (5) SDHV 
systems; (6) non-weatherized gas furnaces (NWGF); (7) oil furnaces 
(OF); and (8) mobile home gas furnaces (MHF).
    TSL 7 consists of the max-tech efficiency levels. For split-system 
central air conditioners and heat pumps, max-tech levels vary by 
capacity (tonnage) and, in the case of air conditioners, the type of 
unit (i.e., coil-only or blower-coil). Specifically, for split-system 
central air conditioners, the max-tech level specified in Table V.1 of 
22 SEER pertains only to 3-ton blower-coil units. The max-tech levels 
for the other tonnages and unit types are: 24.5 SEER for 2-ton, blower-
coil; 18 SEER for 5-ton, blower-coil and 2-ton, coil-only; 17 SEER for 
3-ton, coil-only; and 16 SEER for 5-ton, coil-only. For split-system 
heat pumps, the max-tech level specified in Table V.1 of 21 SEER/9.9 
HSPF pertains only to 3-ton units. The max-tech levels for the other 
tonnages are: 22 SEER/9.9 HSPF for 2-ton; and 17 SEER/9.0 HSPF for 5-
ton.
    TSL 6 consists of a cooling efficiency level of 15 SEER for all 
central air conditioner and heat pump product classes with the 
exception of specifying a cooling efficiency level of 14 SEER for 
split-system central air conditioners in the ``rest of country'' region 
(i.e., the North) and SDHV systems. For furnaces, TSL 6 consists of 
efficiency levels for each product class which are one level below the 
max-tech level.
    TSL 5 consists of cooling efficiency levels for each central air 
conditioner and heat pump product class which are one level below the 
efficiencies in TSL 6. This corresponds to a cooling efficiency level 
of 14 SEER for all

[[Page 37499]]

product classes with the exception of specifying a cooling efficiency 
at the baseline level (13 SEER) for split-system central air 
conditioners in the ``rest of country'' region (i.e., the North) and 
SDHV systems. For furnaces, TSL 5 consists of the same efficiency 
levels as TSL 6 (i.e., each product class has an efficiency level which 
is one level below the max-tech level).
    TSL 4 consists of the efficiency levels included in the consensus 
agreement, including accelerated compliance dates (i.e., by 3 years for 
furnaces and 1.5 years for central air conditioners and heat pumps) and 
requirements for a second metric (EER) applicable to split-system air 
conditioners and packaged air conditioners in the hot-dry region. For 
SDHV systems, TSL 4 consists of the baseline efficiency level.
    TSL 3 consists of the same efficiency levels as specified in TSL 4, 
except with a lead time for compliance of five years after the final 
rule publication, and no EER requirements for split system air 
conditioners and packaged air conditioners in the hot-dry region. TSL 2 
consists of the efficiency levels within each region that correspond to 
those products which currently have the largest market share. TSL 1 
refers to a single national standard and consists of the efficiency 
levels in each product class with the largest market share. For SDHV 
systems, TSLs 1, 2, and 3 consist of the baseline efficiency level.
BILLING CODE 6450-01-P
[GRAPHIC] [TIFF OMITTED] TR27JN11.007

[[Page 37500]]

BILLING CODE 6450-01-C
2. TSLs for Standby Mode and Off Mode Power
    Table V.2 presents the TSLs and the corresponding product class 
efficiency levels (expressed in watts) that DOE considered for furnace, 
central air conditioner, and heat pump standby mode and off mode power 
consumption. For the central air conditioner product classes, DOE 
considered three efficiency levels, while for the heat pump and furnace 
product classes, two efficiency levels were considered.
    TSL 3 consists of the max-tech efficiency levels. For the central 
air conditioner product classes, the max-tech level is efficiency level 
3, which specifies a maximum off mode power consumption of 29 watts. 
(For split-system central air conditioners, only blower-coil systems 
equipped with ECMs would be affected; the other system types are 
already below this level.) For the heat pump and furnace product 
classes, the max-tech level is efficiency level 2, which specifies a 
maximum standby mode and off mode power consumption of 9 watts for gas 
and electric furnaces and 10 watts for oil furnaces, and a maximum off 
mode power consumption of 32 watts for heat pumps.
    TSL 2 represents the efficiency level from each product class that 
is just below the max-tech efficiency level. TSL 2 consists of 
efficiency level 2 for the central air conditioner product classes, 
which specifies a maximum off mode power consumption of 30 watts. (For 
split-system central air conditioners, only blower-coil systems 
equipped with ECMs would be affected; the other system types are 
already below this level.) For the heat pump and furnace product 
classes, TSL 2 consists of efficiency level 1, which specifies a 
maximum standby mode and off mode power consumption of 10 watts for gas 
and electric furnaces and 11 watts for oil furnaces, and a maximum off 
mode power consumption of 33 watts for heat pumps.
    TSL 1 consists of efficiency level 1 for all product classes. TSL 1 
consists of efficiency level 1 for the central air conditioner product 
classes, which specifies a maximum off mode power consumption of 36 
watts. For the heat pump and furnace product classes, it consists of 
efficiency level 1, which specifies a maximum standby mode and off mode 
power consumption of 10 watts for gas and electric furnaces and 11 
watts for oil furnaces, and a maximum off mode power consumption of 33 
watts for heat pumps. Because the heat pump and furnace product classes 
have only two considered efficiency levels, TSL 1 for these classes is 
no different than TSL 2.
    Coil-only systems at efficiency level 1 would comply with off mode 
power requirements set at either efficiency levels 2 or 3 based on the 
blower-coil market. Of further note, in the case of efficiency level 3, 
only the fraction of the blower-coil market equipped with ECMs is 
impacted. Blower-coil systems with PSC motors and coil-only systems 
equipped with either ECMs or PSC motors that comply with the off mode 
power requirements in efficiency level 2 already meet the requirements 
in efficiency level 3.

                Table V.2--Trial Standard Levels for Central Air Conditioners, Heat Pumps, and Furnaces (Standby Mode and Off Mode Power)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                               TSL                                  SAC     SHP     PAC     PHP    SDHV    SCAC*   SCHP*   NWGF     OF      MHF     EF
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                 Efficiency Level (Watts)
--------------------------------------------------------------------------------------------------------------------------------------------------------
3...............................................................      29      32      29      32      29      29      32       9      10       9       9
2...............................................................      30      33      30      33      30      30      33      10      11      10      10
1...............................................................      36      33      36      33      36      36      33      10      11      10      10
--------------------------------------------------------------------------------------------------------------------------------------------------------
* SCAC = Space-Constrained Air Conditioner; SCHP = Space-Constrained Heat Pump; and EF = electric furnace.

B. Economic Justification and Energy Savings

1. Economic Impacts on Individual Consumers
a. Life-Cycle Cost and Payback Period
    Consumers affected by new or amended standards usually experience 
higher purchase prices and lower operating costs. DOE evaluates these 
impacts on individual consumers by calculating changes in life-cycle 
costs (LCC) and the payback period (PBP) associated with potential 
standard levels. Using the approach described in section IV.F, DOE 
calculated the LCC impacts and PBPs for the efficiency levels 
considered in this rulemaking. For each product class, DOE's analysis 
provided several outputs for each efficiency level. For energy 
efficiency, these results are reported for central air conditioners and 
heat pumps in Table V.3 through Table V.8, and for furnaces in Table 
V.9 through Table V.11. For standby mode and off mode, these results 
are reported for central air conditioners and heat pumps in Table V.12, 
and for furnaces in Table V.13. Each table includes the average total 
LCC and the average LCC savings, as well as the fraction of product 
consumers for which the LCC will either decrease (net benefit), or 
increase (net cost), or exhibit no change (no impact) relative to the 
product purchased in the base case. The last output in the tables is 
the median PBP for the consumer purchasing a design that complies with 
each TSL.
    The results for each TSL are relative to the energy efficiency 
distribution in the base case (no amended standards). The average LCC 
savings and payback period presented in the tables were calculated only 
for those consumers that would be affected by a standard at a specific 
efficiency level. At some lower efficiency levels, no consumers would 
be impacted by a potential standard, because the products they would 
purchase in the base case are as efficient, or more efficient, than the 
specific efficiency level. In the cases where no consumers would be 
impacted, calculation of LCC savings or payback period is not 
applicable.
    DOE based the LCC and PBP analyses on energy consumption under 
conditions of actual product use, whereas it based the rebuttable 
presumption PBP test on consumption under conditions prescribed by the 
DOE test procedure, as required by EPCA. (42 U.S.C. 6295(o)(2)(B)(iii))
    In its regional analysis, DOE used the same technology designs to 
describe the baseline and other considered efficiency levels in each 
region. However, the total installed cost varies among regions because 
the installation cost varies by region (due to labor cost differences),

[[Page 37501]]

and in addition, there is some variation in the equipment price due to 
differences in the overall markup (including sales tax) among regions.
(i) Central Air Conditioners and Heat Pumps

                                      Table V.3--LCC and PBP Results for Split-System Air Conditioners (Coil-Only)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                               Life-Cycle cost (2009$)               Life-Cycle cost savings (2009$)            Payback
                                                        -------------------------------------------------------------------------------------   period
                                     Efficiency level                                                       % of Consumers that experience      (years)
       Trial standard level                SEER           Installed  Discounted                Average   -----------------------------------------------
                                                            cost      operating      LCC       savings                                Net
                                                                        cost                               Net cost    No impact    benefit     Median
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                           Nation
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                   Baseline............       2,026       4,872       6,898         n/a            0         100           0         n/a
1................................  13.5................       2,074       4,770       6,844          55           11          75          14         9.1
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                         Hot-Humid
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                   Baseline............       1,834       5,649       7,484         n/a            0         100           0         n/a
2................................  13.5................       1,880       5,514       7,393          86            7          75          18         5.6
3, 4, 5..........................  14..................       1,934       5,393       7,326          93           26          27          46         7.2
6................................  15..................       2,515       5,188       7,702        (303)          73          16          12        34.4
7................................  18*.................       3,365       4,923       8,288        (797)          90           0          10        46.6
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                          Hot-Dry
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                   Baseline............       2,582       6,134       8,716         n/a            0         100           0         n/a
2................................  13.5................       2,642       5,977       8,619         104           10          75          14         8.0
3, 4, 5..........................  14..................       2,713       5,837       8,550         107           37          27          36        10.3
6................................  15..................       3,510       5,598       9,108        (468)          75          16           9        49.0
7................................  18*.................       4,673       5,288       9,960      (1,182)          91           0           9        71.2
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                  North (Rest of Country)
                                  ----------------------------------------------------------------------------------------------------------------------
3,4,5............................  Baseline............       2,127       3,476       5,603         n/a            0         100           0         n/a
2................................  13.5................       2,175       3,434       5,609          (8)          17          75           8        23.1
6................................  14..................       2,231       3,401       5,633         (26)          56          27          16        33.1
7................................  18*.................       3,753       3,360       7,113      (1,343)          99           0           1       100.0
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Varies by size of equipment: 2-ton units are 18 SEER; 3-ton units are 17 SEER; and 5-ton units are 16 SEER.
Parentheses indicate negative (-) values. For LCCs, a negative value means an increase in LCC by the amount indicated.

                                     Table V.4--LCC and PBP Results for Split-System Air Conditioners (Blower-Coil)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                               Life-Cycle cost (2009$)               Life-Cycle cost savings (2009$)            Payback
                                                        -------------------------------------------------------------------------------------   period
                                     Efficiency level                                                       % of Consumers that experience      (years)
       Trial standard level                SEER           Installed  Discounted                Average   -----------------------------------------------
                                                            cost      operating      LCC       savings                                Net
                                                                        cost                               Net cost    No impact    benefit     Median
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                           Nation
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                   Baseline............       3,015       4,869       7,884         n/a            0         100           0         n/a
1................................  13.5................       3,078       4,762       7,840          46            9          82           9        11.4
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                         Hot-Humid
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                   Baseline............       2,774       5,640       8,413         n/a            0         100           0         n/a
2................................  13.5................       2,833       5,500       8,333          77            6          82          12         7.2
3, 4, 5..........................  14..................       2,894       5,371       8,265          89           21          45          34         7.9
6................................  15..................       3,015       5,139       8,154         177           25          37          39         8.4
7................................  24.5*...............       4,069       4,298       8,367        (130)          70           1          29        20.8
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                          Hot-Dry
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                   Baseline............       3,825       6,171       9,995         n/a            0         100           0         n/a
2................................  13.5................       3,903       6,009       9,912          90            9          82          10         9.5
3, 4, 5..........................  14..................       3,984       5,860       9,844         101           28          45          27        10.7
6................................  15..................       4,142       5,592       9,734         196           33          37          31        10.8
7................................  24.5*...............       5,559       4,606      10,166        (311)          76           1          23        30.6
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                  North (Rest of Country)
--------------------------------------------------------------------------------------------------------------------------------------------------------
3, 4, 5..........................  Baseline............       3,110       3,468       6,577         n/a            0         100           0         n/a
2................................  13.5................       3,172       3,422       6,594         (18)          14          82           4        26.1
6................................  14..................       3,236       3,381       6,617         (30)          43          45          12        27.5

[[Page 37502]]

 
7................................  24.5*...............       4,410       3,193       7,603        (903)          96           1           3       100.0
--------------------------------------------------------------------------------------------------------------------------------------------------------
*Varies by size of equipment: 2-ton units are 24.5 SEER; 3-ton units are 22 SEER; and 5-ton units are 18 SEER.
Parentheses indicate negative (-) values. For LCCs, a negative value means an increase in LCC by the amount indicated.

                                               Table V.5--LCC and PBP Results for Split-System Heat Pumps
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                               Life-Cycle cost (2009$)               Life-Cycle cost savings (2009$)            Payback
                                                        -------------------------------------------------------------------------------------   period
                                     Efficiency level                                                       % of Consumers that experience      (years)
       Trial standard level                SEER           Installed  Discounted                Average   -----------------------------------------------
                                                            cost      operating      LCC       savings                                Net
                                                                        cost                               Net cost    No impact    benefit     Median
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                           Nation
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                   Baseline............       2,934       6,882       9,816         n/a            0         100           0         n/a
1................................  13.5................       2,999       6,743       9,742          71            5          86           9         6.6
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                         Hot-Humid
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                   Baseline............       2,804       6,943       9,747         n/a            0         100           0         n/a
2................................  13.5................       2,867       6,791       9,658          82            4          86          10         6.1
3, 4, 5..........................  14..................       2,932       6,644       9,576         102           17          45          38         6.0
6................................  15..................       3,114       6,383       9,496         137           29          23          48         7.2
7................................  22*.................       3,983       5,513       9,496         103           60           0          40        12.6
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                          Hot-Dry
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                   Baseline............       3,808       9,221      13,029         n/a            0         100           0         n/a
2................................  13.5................       3,890       8,987      12,877         148            4          86          11         4.5
3, 4, 5..........................  14..................       3,973       8,763      12,735         175           15          45          40         4.8
6................................  15..................       4,212       8,348      12,560         274           25          23          52         5.4
7................................  22 *................       5,387       6,894      12,280         477           51           0          49         9.4
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                  North (Rest of Country)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                   Baseline............       3,065       5,927       8,993         n/a            0         100           0         n/a
2................................  13.5................       3,129       5,861       8,990           5            9          86           5        13.2
3, 4, 5..........................  14..................       3,193       5,792       8,986           4           35          45          20        13.3
6................................  15..................       3,380       5,693       9,073         (89)          58          23          19        20.1
7................................  22 *................       4,262       5,362       9,624        (604)          87           0          13        32.7
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Varies by size of equipment: 2-ton units are 22 SEER; 3-ton units are 21 SEER; and 5-ton units are 18 SEER.
Parentheses indicate negative (-) values. For LCCs, a negative value means an increase in LCC by the amount indicated.

                                           Table V.6--LCC and PBP Results for Single-Package Air Conditioners
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                               Life-Cycle cost (2009$)               Life-Cycle cost savings (2009$)            Payback
                                                        -------------------------------------------------------------------------------------   period
                                     Efficiency level                                                       % of Consumers that experience      (years)
       Trial standard level                SEER           Installed  Discounted                Average   -----------------------------------------------
                                                            cost      operating      LCC       savings                                Net
                                                                        cost                               Net cost    No impact    benefit     Median
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                           Nation
--------------------------------------------------------------------------------------------------------------------------------------------------------
1, 2.............................  Baseline 13.........       3,040       5,303       8,343         n/a            0         100           0         n/a
3, 4, 5..........................  14..................       3,223       5,077       8,301          37           50          17          33        15.1
6................................  15..................       3,492       4,908       8,400         (68)          72           1          27        24.2
7................................  16.5................       4,064       4,760       8,825        (492)          84           0          16        46.3
--------------------------------------------------------------------------------------------------------------------------------------------------------
Parentheses indicate negative (-) values. For LCCs, a negative value means an increase in LCC by the amount indicated.

[[Page 37503]]

                                              Table V.7--LCC and PBP Results for Single-Package Heat Pumps
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                               Life-Cycle cost (2009$)               Life-Cycle cost savings (2009$)            Payback
                                                        -------------------------------------------------------------------------------------   period
                                     Efficiency level                                                       % of Consumers that experience      (years)
       Trial standard level                SEER           Installed  Discounted                Average   -----------------------------------------------
                                                            cost      operating      LCC       savings                                Net
                                                                        cost                               Net cost    No impact    benefit     Median
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                           Nation
--------------------------------------------------------------------------------------------------------------------------------------------------------
1, 2.............................  Baseline............       3,623       7,834      11,457         n/a            0         100           0         n/a
3, 4, 5..........................  14..................       3,828       7,463      11,291         104           29          36          35         8.4
6................................  15..................       4,163       7,182      11,345          15           63           2          35        13.6
7................................  16.5................       4,866       6,856      11,722        (363)          79           0          21        20.7
--------------------------------------------------------------------------------------------------------------------------------------------------------
Parentheses indicate negative (-) values. For LCCs, a negative value means an increase in LCC by the amount indicated.

                                 Table V.8--LCC and PBP Results for Small-Diameter High Velocity (SDHV) Air Conditioners
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                               Life-Cycle cost (2009$)               Life-Cycle cost savings (2009$)            Payback
                                                        -------------------------------------------------------------------------------------   Period
                                     Efficiency level                                                       % of Consumers that experience      (years)
       Trial standard level                SEER           Installed  Discounted                Average   -----------------------------------------------
                                                            cost      operating      LCC       savings                                Net
                                                                        cost                               Net cost    No impact    benefit     Median
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                           Nation
--------------------------------------------------------------------------------------------------------------------------------------------------------
1................................  Baseline 13.........       4,915       4,853       9,768         n/a            0         100           0         n/a
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                         Hot-Humid
--------------------------------------------------------------------------------------------------------------------------------------------------------
2-5..............................  Baseline 13.........       4,610       5,643      10,253         n/a            0         100           0         n/a
6................................  14..................       4,883       5,385      10,268         (14)          68           0          32        17.8
7................................  14.5................       5,029       5,250      10,279         (25)          67           0          33        17.3
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                          Hot-Dry
--------------------------------------------------------------------------------------------------------------------------------------------------------
2-5..............................  Baseline 13.........       6,302       6,105      12,407         n/a            0         100           0         n/a
6................................  14..................       6,665       5,807      12,472         (65)          74           0          26        26.1
7................................  14.5................       6,859       5,654      12,513        (106)          74           0          26        23.3
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                  North (Rest of Country)
--------------------------------------------------------------------------------------------------------------------------------------------------------
2-5..............................  Baseline 13.........       4,919       3,447       8,367         n/a            0         100           0         n/a
6................................  14..................       5,198       3,370       8,568        (202)          95           0           5        74.3
7................................  14.5................       5,347       3,313       8,660        (294)          92           0           8        74.7
--------------------------------------------------------------------------------------------------------------------------------------------------------
Parentheses indicate negative (-) values. For LCCs, a negative value means an increase in LCC by the amount indicated.

(ii) Furnaces

                                             Table V.9--LCC and PBP Results for Non-Weatherized Gas Furnaces
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                               Life-Cycle cost (2009$)               Life-Cycle cost savings (2009$)            Payback
                                                        -------------------------------------------------------------------------------------   Period
                                     Efficiency level                                                       % of Households that experience     (years)
       Trial standard level                SEER           Installed  Discounted                Average   -----------------------------------------------
                                                            cost      operating      LCC       savings                                Net
                                                                        cost                    2009$      Net cost    No impact    benefit     Median
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                           Nation
--------------------------------------------------------------------------------------------------------------------------------------------------------
1................................  Baseline 80%........       1,786       9,551      11,337         n/a            0         100           0         n/a
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                  South (Rest of Country)
--------------------------------------------------------------------------------------------------------------------------------------------------------
2-6..............................  Baseline 80%........       1,614       6,566       8,180         n/a            0         100           0         n/a
7................................  98%.................       2,661       5,624       8,286        (181)        72.3         0.2        27.4        28.9
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                           North
--------------------------------------------------------------------------------------------------------------------------------------------------------
3,4..............................  90%.................       2,474      10,409      12,883         155         10.0        71.4        18.6        10.1
2................................  92%.................       2,536      10,206      12,742         215         10.9        56.5        32.6         7.7
5,6..............................  95%.................       2,685       9,916      12,601         323         22.8        22.9        54.3         9.4
7................................  98%.................       2,943       9,784      12,727         198         58.7         0.6        40.7        17.1
--------------------------------------------------------------------------------------------------------------------------------------------------------
Parentheses indicate negative (-) values. For LCCs, a negative value means an increase in LCC by the amount indicated.

[[Page 37504]]

                                              Table V.10--LCC and PBP Results for Mobile Home Gas Furnaces
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                               Life-Cycle cost (2009$)               Life-Cycle cost savings (2009$)            Payback
                                                        -------------------------------------------------------------------------------------   Period
                                     Efficiency level                                                       % of Households that experience     (years)
       Trial standard level                SEER           Installed  Discounted                Average   -----------------------------------------------
                                                            cost      operating      LCC       savings                                Net
                                                                        cost                               Net cost    No impact    benefit     Median
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                           Nation
--------------------------------------------------------------------------------------------------------------------------------------------------------
1................................  Baseline 80%........       1,432      11,749      13,181         n/a            0         100           0         n/a
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                  South (Rest of Country)
--------------------------------------------------------------------------------------------------------------------------------------------------------
2-6..............................  Baseline 80%........       1,340      11,453      12,793         n/a            0         100           0         n/a
7................................  96%.................       2,415       9,780      12,194         391         51.0         3.8        45.2        13.0
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                           North
--------------------------------------------------------------------------------------------------------------------------------------------------------
2................................  Baseline 80%........       1,488      13,060      14,548         n/a            0         100           0         n/a
3,4..............................  90%.................       2,112      11,974      14,086         419         43.6         9.7        46.7        10.7
5-7..............................  96%.................       2,611      11,301      13,912         585         46.2         7.7        46.1        11.5
--------------------------------------------------------------------------------------------------------------------------------------------------------

                                                 Table V.11--LCC and PBP Results for Oil-fired Furnaces
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                Life-Cycle cost (2009$)               Life-Cycle cost savings (2009$)           Payback
                                                         ------------------------------------------------------------------------------------   period
                                      Efficiency level                                                      % of Households that experience     (years)
       Trial standard level                 AFUE           Installed  Discounted                Average  -----------------------------------------------
                                                             cost      operating      LCC       savings                               Net
                                                                         cost                              Net cost    No impact    benefit     Median
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                           Nation
--------------------------------------------------------------------------------------------------------------------------------------------------------
1, 2..............................  Baseline 82%........       3,008      30,287      33,295        n/a          0         100           0           n/a
3, 4..............................  83%.................       3,157      29,946      33,103         15          9.9        58.3        31.8         1.0
5, 6..............................  85%.................       3,622      29,287      32,909        (18)        34.6        33.0        32.4        19.8
7.................................  97%.................       4,810      27,809      32,619        272         51.0         0.9        48.1        18.2
--------------------------------------------------------------------------------------------------------------------------------------------------------

(iii) Results for Standby Mode and Off Mode
    Table V.12 and Table V.13 present the LCC and PBP results for the 
standby mode and off mode power efficiency levels considered for 
central air conditioners/heat pumps and furnaces, respectively.

                        Table V.12--LCC and PBP Results for Central Air Conditioner and Heat Pump Standby Mode and Off Mode Power
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                               Life-Cycle cost (2009$)                Life-Cycle cost savings (2009$)           Payback
                                                        -------------------------------------------------------------------------------------   period
                                                                                                            % of Households that experience     (years)
       Trial standard level          Efficiency level     Installed   Discounted                Average  -----------------------------------------------
                                                            cost      operating       LCC       savings                               Net
                                                                         cost                              Net cost    No impact    benefit     Median
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                        Split-System Air Conditioners (Blower-Coil)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                   Baseline............          17          105         122         n/a           0         100           0         n/a
1................................  1...................          27           96         114          84           0          94           6           1
2................................  2...................          23           93         115          40           3          91           6           6
3................................  3...................          23           92         116          35           3          91           6           7
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                         Split-System Air Conditioners (Coil-Only)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                   Baseline............           1           27          27         n/a           0         100           0         n/a
1, 2, 3..........................  1...................           1           18          19          84           0          94           6           1
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                  Split-System Heat Pumps
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                   Baseline............          19           31          50         n/a           0         100           0         n/a
1, 2.............................  1...................          23           21          44           9           0          67          33           4
3................................  2...................          26           21          47         (1)          19          57          24           5
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                              Single-Package Air Conditioners
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                   Baseline............          17          105         122         n/a           0         100           0         n/a
1................................  1...................          17           96         114          84           0          94           6           1

[[Page 37505]]

 
2................................  2...................          23           93         115          41           3          91           6           6
3................................  3...................          23           92         116          36           3          91           6           7
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                 Single-Package Heat Pumps
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                   Baseline............          20           31          51         n/a           0         100           0         n/a
1, 2.............................  1...................          24           21          45           9           0          66          34           4
3................................  2...................          27           21          49         (1)          19          57          24           5
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                         Small-Duct High-Velocity Air Conditioners
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                   Baseline............          18          107         124         n/a           0         100           0         n/a
1................................  1...................          18           98         116          84           0          94           6           1
2................................  2...................          24           94         117          37           3          91           6           7
3................................  3...................          24           94         118          32           3          91           6           7
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                             Space-Constrained Air Conditioners
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                   Baseline............          17          107         123         n/a           0         100           0         n/a
1................................  1...................          17           98         115          84           0          94           6           1
2................................  2...................          23           94         117          42           3          91           6           6
3................................  3...................          23           94         117          37           3          91           6           7
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                Space-Constrained Heat Pumps
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                   Baseline............          19           31          50         n/a           0         100           0         n/a
1, 2.............................  1...................          23           21          44           9           0          67          33           4
3................................  2...................          26           21          47         (1)          19          58          23           5
--------------------------------------------------------------------------------------------------------------------------------------------------------
Parentheses indicate negative (-) values. For LCCs, a negative value means an increase in LCC by the amount indicated.

                                      Table V.13.--LCC and PBP Results for Furnace Standby Mode and Off Mode Power
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                               Life-Cycle cost (2009$)                Life-Cycle cost savings (2009$)           Payback
                                                        -------------------------------------------------------------------------------------   period
                                                                                                            % of Households that experience     (years)
       Trial standard level          Efficiency level     Installed   Discounted                Average  -----------------------------------------------
                                                            cost      operating       LCC       savings                               Net
                                                                         cost                              Net cost    No impact    benefit     Median
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                Non-weatherized Gas Furnaces
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                   Baseline............           0          133         133         n/a           0         100           0         n/a
1, 2.............................  1...................           3          128         132           2         9.2        72.4        18.4        10.7
3................................  2...................           8          125         133         (0)        16.8        72.4        10.8        16.1
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                    Mobile Home Furnaces
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                   Baseline............           0          103         103         n/a           0         100           0         n/a
1, 2.............................  1...................           1          102         103         (0)         5.7        90.6         3.8        11.9
3................................  2...................           4          101         104         (1)         7.7        90.6         1.8        17.9
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                     Oil-fired Furnaces
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                   Baseline............           0          180         180         n/a           0         100           0         n/a
1, 2.............................  1...................           1          178         179           1         1.4        90.6         8.0         7.9
3................................  2...................           3          177         179           1         3.8        90.6         5.7        11.9
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                     Electric Furnaces
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                   Baseline............           0          111         111         n/a           0         100           0         n/a
1, 2.............................  1...................           1          110         111           0         4.3        89.9         5.1        10.3
3................................  2...................           3          109         111         (1)         6.9        89.9         2.5        15.5
--------------------------------------------------------------------------------------------------------------------------------------------------------
Parentheses indicate negative (-) values. For LCCs, a negative value means an increase in LCC by the amount indicated.

[[Page 37506]]

b. Consumer Subgroup Analysis \93\
---------------------------------------------------------------------------

    \93\ As described in section IV.H, DOE did not perform a 
subgroup analysis for the standby mode and off mode efficiency 
levels. The standby mode and off mode analysis relied on the test 
procedure to assess energy savings for the considered standby mode 
and off mode efficiency levels. Because the analysis used the same 
test procedure parameters for all sample households, the energy 
savings is the same among the consumer subgroups.
---------------------------------------------------------------------------

(i) Central Air Conditioners and Heat Pumps
    As described in section IV.H, for central air conditioners and heat 
pumps, DOE determined the impact of the considered energy efficiency 
TSLs on low-income households and senior-only households. For low-
income and senior-only households, the sample sizes from 2005 RECS were 
very small (i.e., less than 1 percent of the entire sample) at the 
regional level for central air conditioners and even at the national 
level for heat pumps, so DOE only performed the subgroup analysis at 
the national level for air conditioners.
    Table V.14 and Table V.15 present key results for split-system 
coil-only and blower-coil air conditioners, respectively. The analysis 
for low-income and senior-only households did not show substantially 
different impacts for these subgroups in comparison with the general 
population. See chapter 11 of the direct final rule TSD for further 
details.

             Table V.14.--Split-System Air Conditioners (Coil-Only): Comparison of Impacts for Consumer Subgroups and All Households, Nation
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                    LCC Savings (2009$)                 Median payback period Years
                            TSL                              Efficiency --------------------------------------------------------------------------------
                                                             level SEER     Senior      Low income        All         Senior     Low income      All
--------------------------------------------------------------------------------------------------------------------------------------------------------
1, 2......................................................         13.5           21            33            55            13           12            9
3, 4, 5...................................................           13            0             0             0           n/a          n/a          n/a
6.........................................................           14            9            24            51            18           17           12
7.........................................................         * 18       (1,212)       (1,150)       (1,046)         100+         100+         100+
--------------------------------------------------------------------------------------------------------------------------------------------------------
*Varies by size of equipment: 2-ton units are 18 SEER; 3-ton units are 17 SEER; and 5-ton units are 16 SEER.
Parentheses indicate negative (-) values. For LCCs, a negative value means an increase in LCC by the amount indicated.

            Table V.15.--Split-System Air Conditioners (Blower-Coil): Comparison of Impacts for Consumer Subgroups and All Households, Nation
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                    LCC savings (2009$)                 Median payback period Years
                            TSL                              Efficiency --------------------------------------------------------------------------------
                                                             level SEER     Senior      Low income        All         Senior     Low income      All
--------------------------------------------------------------------------------------------------------------------------------------------------------
1, 2......................................................         13.5           11            25            46            15           15           11
3, 4, 5...................................................           13            0             0             0           n/a          n/a          n/a
6.........................................................           14            7            22            49            17           16           13
7.........................................................       * 24.5         (696)         (630)         (421)           68           62           41
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Varies by size of equipment: 2-ton units are 24.5 SEER; 3-ton units are 22 SEER; and 5-ton units are 18 SEER.
Parentheses indicate negative (-) values. For LCCs, a negative value means an increase in LCC by the amount indicated.

(ii) Furnaces
    As described in section IV.H, for furnaces, DOE evaluated the 
impacts of the considered energy efficiency standard levels on low-
income consumers and senior citizens (i.e., senior-only households). In 
addition, DOE analyzed the impacts for three other subgroups: (1) 
Multi-family housing units; (2) new homes; and (3) replacement 
applications. DOE only presents the results for the Northern region in 
this section because, with the exception of TSL 7, there are no 
consumers impacted by national standards at the considered TSLs. At TSL 
7, the impacts of national standards on the considered subgroups are 
approximately the same as the impacts of the standard for the Northern 
region.
    Table V.16 compares the impacts of the TSLs for the Northern region 
for non-weatherized gas furnaces for low-income, senior-only, and 
multi-family households with those for all households. The senior and 
low-income households show somewhat higher LCC savings from more-
efficient furnaces than the general population. In contrast, the multi-
family households show lower LCC savings due to generally higher 
installation costs and lower heating energy use.
    Table V.17 compares the impacts of the TSLs for the Northern region 
for non-weatherized gas furnaces for new home and replacement subgroups 
with those for all households. The households in new homes show 
significantly higher LCC savings because their average installation 
costs are lower, while the households in replacement applications show 
lower, but still positive, LCC savings compared to the general 
population. The latter result is primarily due to the high installation 
costs in some replacement applications. See chapter 11 of the direct 
final rule TSD for further details.

[[Page 37507]]

   Table V.16--Non-Weatherized Gas Furnaces: Comparison of Impacts for Senior-Only, Low-Income, and Multi-Family Consumer Subgroups and All Households
                                                                         (North)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                 LCC savings  (2009$)                            Median payback period  years
                                     Efficiency --------------------------------------------------------------------------------------------------------
                TSL                  level AFUE                                                                                    Multi-
                                     (percent)      Senior     Low income  Multi-family      All         Senior     Low income     family        All
--------------------------------------------------------------------------------------------------------------------------------------------------------
2, 4..............................           90          201          175           63           155          8.4          9.4         13.9         10.1
3.................................           92          273          242          104           215          6.6          7.2          9.8          7.7
5, 6..............................           95          410          367          176           323          8.3          8.5         11.3          9.4
7.................................           98          307          229          (26)          198         14.8         16.5         23.2         17.1
--------------------------------------------------------------------------------------------------------------------------------------------------------
Parentheses indicate negative (-) values. For LCCs, a negative value means an increase in LCC by the amount indicated.

       Table V.17--Non-Weatherized Gas Furnaces: Comparison of Impacts for Replacement and New Home Consumer Subgroups and All Households (North)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                Efficiency           LCC savings  (2009$)               Median payback period  years
                             TSL                                level AFUE -----------------------------------------------------------------------------
                                                                (percent)   Replacement    New home       All      Replacement    New home       All
--------------------------------------------------------------------------------------------------------------------------------------------------------
2, 4.........................................................           90           90          343          155         12.9          2.5         10.1
3............................................................           92          151          404          215          9.0          5.1          7.7
5, 6.........................................................           95          262          502          323          9.7          8.8          9.4
7............................................................           98          158          315          198         16.9         17.9         17.1
--------------------------------------------------------------------------------------------------------------------------------------------------------

c. Rebuttable Presumption Payback
    As discussed above, EPCA provides a rebuttable presumption that an 
energy conservation standard is economically justified if the increased 
purchase cost for a product that meets the standard is less than three 
times the value of the first-year energy (and, as applicable, water) 
savings resulting from the amended standard. (42 U.S.C. 
6295(o)(2)(B)(iii)) In calculating a rebuttable presumption payback 
period for the considered standard levels, DOE used discrete values 
based on the applicable DOE test procedures rather than distributions 
for input values, and it based the energy use calculation on the DOE 
test procedures for furnaces and central air conditioners and heat 
pumps, as required by statute. Id. As a result, DOE calculated a single 
rebuttable presumption payback value, and not a distribution of payback 
periods, for each considered efficiency level.
    For central air conditioner and heat pump energy efficiency, only 
single-package heat pumps at the 13.5 SEER level meet the less-than-
three-year criteria. Rebuttable paybacks calculated for standby mode 
and off mode TSL 1 for the split system, single-package, small-duct 
high-velocity, and space-constrained air conditioners also meet the 
less-than-three-year criteria. None of the furnace energy efficiency 
levels meet the less-than-three-year criteria. The rebuttable 
presumption payback values for each considered efficiency level and 
product class are presented in chapter 8 of the direct final rule TSD.
    While DOE examined the rebuttable presumption criterion, it 
considered whether the standard levels considered for today's direct 
final rule are economically justified through a more detailed analysis 
of the economic impacts of these levels, including those to the 
consumer, manufacturer, Nation, and environment, as required under 42 
U.S.C. 6295(o)(2)(B)(i). The results of this analysis serve as the 
basis for DOE to definitively evaluate the economic justification for a 
potential standard level (thereby supporting or rebutting the results 
of any preliminary determination of economic justification).
2. Economic Impacts on Manufacturers
    DOE performed a manufacturer impact analysis (MIA) to estimate the 
impact of amended energy conservation standards on manufacturers of 
residential furnaces, central air conditioners, and heat pumps. The 
section below describes the expected impacts on manufacturers at each 
considered energy efficiency TSL (trial standard levels based on SEER, 
HSPF, and AFUE ratings) and each considered standby mode and off mode 
TSL (trial standard levels based on standby mode and off mode wattage). 
Chapter 12 of the TSD explains the analysis in further detail. A 
summary of the energy efficiency TSLs can be found in Table V.1, and a 
summary of standby mode and off mode TSLs can be found in Table V.2.
a. Industry Cash-Flow Analysis Results
    Table V.18 through Table V.22 depict the financial impacts on 
manufacturers and the conversion costs DOE estimates manufacturers 
could incur at each TSL. The financial impacts on manufacturers are 
represented by changes in industry net present value (INPV). DOE 
presents the results by grouping product classes that are commonly 
produced by the same manufacturers.
    Results for the energy efficiency standards for furnaces and 
central air conditioners and heat pumps are grouped as conventional 
products and niche products. These product groupings were analyzed 
under two markup scenarios: (1) The preservation of earnings before 
income and taxes (EBIT) scenario; and (2) the tiered markup scenario. 
As discussed in section IV.I.1 of the Methodology and Discussion 
section of this document, DOE considered the preservation of EBIT 
scenario to model manufacturer concerns about the inability to maintain 
their margins as manufacturing production costs increase to reach more-
stringent efficiency levels. In this scenario, while manufacturers make 
the necessary investments required to convert their facilities to 
produce amended standards-compliant equipment, operating profit does 
not change in absolute dollars and decreases as a percentage of 
revenue.
    DOE also considered the tiered markup scenario. The tiered markup 
scenario models the situation in which manufacturers maintain, when 
possible, three tiers of product markups. The tiers

[[Page 37508]]

described by manufacturers in MIA interviews were defined as ``good, 
better, best'' or ``value, standard, premium.'' In the standards case, 
the tiered markups scenario considers the situation in which the 
breadth of a manufacturer's portfolio of products shrinks and amended 
standards effectively ``demote'' higher-tier products to lower tiers. 
As a result, higher-efficiency products that previously commanded 
``standard'' and ``premium'' mark-ups are assigned ``value'' and 
``standard'' markups, respectively. Typically, a significant fraction 
of the market will seek the lowest-cost unit available for purchase, 
particularly in the new construction market. Manufacturers expect this 
phenomenon, in the standards case, to drive price competition at the 
new minimum efficiency and foster efforts to convert what was 
previously a ``better'' product into the new baseline ``good'' product. 
This scenario, therefore, reflects one of the industry's key concerns 
regarding this effect of product commoditization at higher efficiency 
levels.
    Standby mode and off mode standards results are presented for the 
industry as a whole, without groupings. Due to the small incremental 
cost of standby mode and off mode components relative to the overall 
cost of furnaces, central air conditioners, and heat pumps, DOE has 
concluded that standby mode and off mode features would not have a 
differentiated impact on different manufacturers or different product 
classes. The impacts of standby mode and off mode features were 
analyzed for two markup scenarios: (1) A preservation of gross margin 
percentage scenario; and (2) a preservation of EBIT scenario. The 
preservation of gross margin percentage scenario assumes that 
manufacturers will maintain a constant gross margin percentage even as 
product costs increase in the standards case. This scenario represents 
an upper bound to manufacturer profitability after energy conservation 
standards are amended. In contrast, the preservation of EBIT scenario 
assumes manufacturers will not be able to maintain the base case gross 
margin level. Rather, as production costs go up, manufacturers will 
only be able to maintain the same operating profit--in absolute 
dollars--reducing gross margin as a percentage of revenue. In other 
words, as products get more expensive to produce, manufacturers are not 
able to make as much profit per unit on a percentage basis.
    Each of the modeled scenarios results in a unique set of cash flows 
and corresponding industry value at each TSL. In the following 
discussion, the INPV results refer to the difference in industry value 
between the base case and each standards case that result from the sum 
of discounted cash flows from the base year 2010 through 2045, the end 
of the analysis period. To provide perspective on the short-run cash 
flow impact, DOE includes in the discussion of the results a comparison 
of free cash flow between the base case and the standards case at each 
TSL in the year before amended standards take effect.
(i) Cash-Flow Analysis Results for Conventional Products
    Table V.18 and Table V.19 show the MIA results for each TSL using 
the markup scenarios described above for conventional residential 
furnace, central air conditioner, and heat pump products. This 
``conventional products'' grouping includes the following product 
classes: (1) Split-system air conditioning; (2) split-system heat 
pumps; (3) single-package air conditioning; (4) single-package heat 
pumps; and (5) non-weatherized gas furnaces.

                       Table V.18--Manufacturer Impact Analysis for Conventional Products Under the Preservation of EBIT Scenario
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                      Trial standard level
                                            Units           Base case ----------------------------------------------------------------------------------
                                                                           1           2           3           4           5           6           7
--------------------------------------------------------------------------------------------------------------------------------------------------------
INPV............................  2009$ millions..........      8,347      8,354      7,847       7,936       7,893       7,857       7,685       6,855
Change in INPV..................  2009$ millions..........        n/a          8       (500)       (411)       (454)       (490)       (662)     (1,492)
                                  (%).....................        n/a        0.1       (6.0)       (4.9)       (5.4)       (5.9)       (7.9)      (17.9)
Product Conversion Costs........  2009$ millions..........        n/a        0.0          5          12          12          25         127         279
Capital Conversion Costs........  2009$ millions..........        n/a        0.0         15          16          16          52         158         532
                                 -----------------------------------------------------------------------------------------------------------------------
    Total Investment Required...  2009$ millions..........        n/a        0.0         20          28          28          77         284         810
--------------------------------------------------------------------------------------------------------------------------------------------------------
Parentheses indicate negative (-) values.

                          Table V.19.--Manufacturer Impact Analysis for Conventional Products Under the Tiered Markups Scenario
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                      Trial standard level
                                            Units           Base case ----------------------------------------------------------------------------------
                                                                           1           2           3           4           5           6           7
--------------------------------------------------------------------------------------------------------------------------------------------------------
INPV............................  2009$ millions..........      8,347      8,379      8,021       7,638       7,475       7,467       6,509       4,578
Change in INPV..................  2009$ millions..........        n/a         33       (326)       (709)       (871)       (879)     (1,837)     (3,768)
                                  (%).....................        n/a        0.4       (3.9)       (8.5)      (10.4)      (10.5)      (22.0)      (45.1)
Product Conversion Costs........  2009$ millions..........        n/a        0.0          5          12          12          25         127         279
Capital Conversion Costs........  2009$ millions..........        n/a        0.0         15          16          16          52         158         532
                                 -----------------------------------------------------------------------------------------------------------------------

[[Page 37509]]

 
    Total Investment Required...  2009$ millions..........        n/a        0.0         20          28          28          77         284         810
--------------------------------------------------------------------------------------------------------------------------------------------------------
Parentheses indicate negative (-) values.

    Sales of split-system air conditioners make up more than 60 percent 
of residential central cooling shipments, and non-weatherized gas 
furnaces make up more than 80 percent of the residential furnace 
shipments, respectively. These two product classes are the largest 
drivers of INPV in the conventional product grouping. In the base case, 
the conventional products industry is estimated to have an INPV value 
of $8,347 million (2009$).
    TSL 1 represents the efficiency levels for the conventional product 
classes that have the largest market share today. At TSL 1, DOE 
estimates impacts on INPV to be small, but positive. INPV impacts range 
from $33 million to $8 million, or a change in INPV of 0.4 percent to 
0.1 percent. At this considered level, industry free cash flow \94\ is 
estimated to remain steady at $511 million for both the base case and 
standards case in the year before the TSL 1 compliance date (2015).
---------------------------------------------------------------------------

    \94\ Free cash flow (FCF) is a metric commonly used in financial 
valuation. DOE calculates FCF by adding back depreciation to net 
operating profit after tax and subtracting increases in working 
capital and capital expenditures. See TSD chapter 12 for more detail 
on FCF and its relevance to DOE's MIA results.
---------------------------------------------------------------------------

    At TSL 1, the impacts on the industry are minor because 
manufacturers already ship products at TSL 1 efficiencies in high 
volumes. Eighty-one percent of all conventional HVAC products shipped 
today meet or exceed the TSL 1 standards. Additionally, an increase in 
standards from 13 SEER to 13.5 SEER for split-system air conditioning 
and heat pumps is expected to require no significant conversion costs. 
As a result, INPV remains mostly stable at this considered standard 
level.
    TSL 2 has a higher standard for non-weatherized gas furnaces than 
TSL 1. This results in a greater negative impact on INPV. TSL requires 
non-weatherized gas furnaces to meet a 92-percent AFUE minimum 
efficiency in the North. DOE estimates TSL 2 impacts on INPV to range 
from -$326 million to -$500 million, or a change in INPV of -3.9 
percent to -6.0 percent. At this level, industry free cash flow is 
estimated to decrease by approximately 5.3 percent to $484 million, 
compared to the base-case value of $511 million, in the year 2015.
    At TSL 2, for the non-weatherized gas furnace standard, 
manufacturers may incur elevated conversion costs as they redesign a 
92-percent AFUE furnace product to meet the requirements of the builder 
market and adjust their product families accordingly in the North. At 
92-percent AFUE, these furnaces would require a secondary heat 
exchanger, and, when compared to a 90-percent AFUE design, the heat 
exchangers would need to be sized up. DOE estimates that at this level, 
non-weatherized gas furnace conversion costs total approximately $20 
million for the industry. These conversion costs, along with changes in 
shipments due to standards, account for much of the drop in INPV from 
TSL 1 to TSL 2.
    TSL 3 incorporates regional standards for split-system air 
conditioning and furnace products. Compared to the baseline, TSL 3 
proposes a higher air conditioning and heat pump standard in the South 
(14 SEER minimum) and a higher furnace standard in the North (90-
percent AFUE minimum). At TSL 3, DOE estimates impacts on INPV to range 
from -$411 million to -$709 million, or a change in INPV of -4.9 
percent to -8.5 percent. At this considered level, industry free cash 
flow is estimated to decrease by approximately 5.8 percent to $481 
million, compared to the base-case value of $511 million, in the year 
leading up to the year in which compliance with considered energy 
conservation standards would be required (2015).
    Both markup scenarios in the GRIM for the energy efficiency 
standards at TSL 3 assume that a commoditization of 14 SEER air 
conditioning units in the South would put downward pressure on margins 
for 14 SEER units sold in all regions. Similarly, the 90-percent AFUE 
standard for non-weatherized gas furnaces in the North would negatively 
affect margins for non-weatherized gas furnace units sold in all 
regions. This impact on markups is more severe in the tiered scenario, 
because the change in the standard also compresses markups on higher-
AFUE products, which are effectively demoted in the ``good, better, 
best'' sales model. As a result, INPV decreases by 8.5 percent in the 
tiered markup scenario, compared to 4.9 percent in the preservation of 
EBIT scenario.
    TSL 4 represents the consensus agreement level and incorporates 
accelerated compliance dates. The standards are set at the same level 
as TSL 3, except that TSL 4 also includes EER standards for central air 
conditioners in the hot-dry region. In addition, the furnace standards 
are modeled to take effect in 2013, and the air conditioning and heat 
pump standards are modeled to take effect in 2015, instead of the 2016 
compliance dates used in TSL 3. At TSL 4, DOE estimates impacts on INPV 
to range -$454 million to -$871 million, or a change in INPV of -5.4 
percent to -10.4 percent. At this level, industry free cash flow is 
estimated to decrease by approximately 9.6 percent to $462 million, 
compared to the base-case value of $511 million, in the year 2015.
    To comply with the earlier compliance dates, manufacturers must 
make earlier investments in product conversions, which negatively 
affect INPV because of discounting effects. Additionally, the 
accelerated schedule for amended standards leads to earlier 
commoditization of residential furnace, central air conditioner, and 
heat pump products. As a result, the INPV value is slightly more 
negative in TSL 4 than in TSL 3 for both the preservation of EBIT 
scenario and the tiered markups scenario.
    TSL 5 includes higher furnace standards than TSL 4. Non-weatherized 
gas furnace standards would increase to 95-percent AFUE. Additionally, 
TSL 5 lacks the accelerated compliance dates associated with TSL 4. All 
HVAC standards in TSL 5 would require compliance in 2016. At TSL 5, DOE 
estimates impacts on INPV to range from -$490 million to -$879 million, 
or a change in INPV of -5.9 percent to -10.5 percent. At this 
considered level,

[[Page 37510]]

industry free cash flow is estimated to decrease by approximately 9.7 
percent to $461 million, compared to the base-case value of $511 
million, in the year 2015.
    At 95-percent AFUE, non-weatherized gas furnace efficiency would be 
one efficiency level below max-tech. To comply with such a standard, 
manufacturers would need to increase heat exchanger size up to the 
physical constraints of the furnace cabinets. Furnace manufacturers 
would need to upgrade their 95-percent AFUE production lines to meet 
demand. Additionally, manufacturers expect this efficiency level would 
require significant R&D costs to redesign and convert a premium, 
feature-loaded product into a basic value-line product, which would be 
demanded by the builder market. As a result, industry conversion costs 
could grow from $28 million at TSL 4 to $77 million at TSL 5. INPV 
becomes slightly more negative from TSL 4 to TSL 5.
    TSL 6 elevates the standard for air conditioning and heat pumps 
over TSL 5 while maintaining the same standards for all furnace product 
classes. TSL 6 is the most aggressive regional standard considered in 
this rulemaking (although TSL 7 has more stringent standards, the 
standards in TSL 7 are national rather than regional). At TSL 6, DOE 
estimates impacts on INPV to range from -$662 million to -$1837 
million, or a change in INPV of -7.9 percent to -22.0 percent. At this 
considered level, industry free cash flow is estimated to decrease by 
approximately 24.7 percent to $385 million, compared to the base-case 
value of $511 million, in the year 2015.
    In the base case, 73 percent of split-system air conditioning 
shipments in the North are below 14 SEER, and 84 percent of split-
system air conditioning shipments in the South are below 15 SEER. 
Increasing the minimum efficiency to 14 SEER in the North and 15 SEER 
in the South requires significantly more capital expenditure from 
manufacturers. At TSL 6, manufacturers would need to redesign their 
highest-volume product lines in both the South and the North. There are 
multiple design paths that manufacturer could take; however, the 
changes will likely involve the addition of two-stage compressors, the 
enlargement of heat exchangers, the application of more-sophisticated 
controls, the incorporation of microchannel technology, or some 
combination of these options. Some manufacturers indicated that new 
production facilities would be necessary at this potential standard 
level.
    TSL 7 represents the max-tech efficiency level for all product 
classes. At TSL 7, DOE estimates impacts on INPV to range from -$1,492 
million to -$3,768 million, or a change in INPV of -17.9 percent to -
45.1 percent. At this considered level, industry free cash flow is 
estimated to decrease by approximately 65.9 percent to $174 million, 
compared to the base-case value of $511 million, in the year 2015.
    At TSL 7, the industry incurs significant R&D costs and loses the 
ability to differentiate products based on efficiency. For central air 
conditioning systems, manufacturers would likely have to move to add a 
second compressor, incorporate inverter technology, or make their 
product significantly larger. For furnaces, manufacturers would likely 
have to incorporate burner modulation technology, which would include 
adding modulating gas valves, variable speed inducer fans, and more-
sophisticated controls. These potential standard levels would require 
much higher R&D and product design expenditures by manufacturers. It 
could be difficult for all major manufacturers to justify the 
investments necessary to reach max-tech. A few manufacturers indicated 
that building a new facility would create less business disruption risk 
than attempting to completely redesign and upgrade existing facilities. 
Additionally, some manufacturers noted that lower labor rates in Mexico 
and other countries abroad may entice them to move their production 
facilities outside of the U.S. There was general agreement that the 
high conversion costs and more expensive components required in TSL 7 
could also make foreign-based technologies, which have traditionally 
been more expensive, more attractive in the domestic market.
(ii) Cash-Flow Analysis Results for Niche Furnace Products
    Table V.20 and Table V.21 show the MIA results for each TSL using 
the markup scenarios described above for niche furnace products. The 
niche furnace grouping includes the mobile home and oil furnace product 
classes. In the base case, annual mobile home furnace shipments total 
approximately 120,000 units/year, while annual oil furnace shipments 
total approximately 80,000 units/year for 2010.

                       Table V.20--Manufacturer Impact Analysis for Niche Furnace Products Under the Preservation of EBIT Scenario
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                      Trial standard level
                                             Units           Base case ---------------------------------------------------------------------------------
                                                                            1          2           3           4           5           6           7
--------------------------------------------------------------------------------------------------------------------------------------------------------
INPV.............................  2009$ millions..........        149        149        151      132         125         131         131         109
Change in INPV...................  2009$ millions..........        n/a          0          2     (17)        (24)        (18)        (18)        (40)
                                   (%).....................        n/a        0.0        1.2      (11.6)      (16.4)      (12.1)      (12.1)      (26.7)
Product Conversion Costs.........  2009$ millions..........        n/a        0.0          0        4           4           8           8          16
Capital Conversion Costs.........  2009$ millions..........        n/a        0.0          0       11          11          17          17          35
Total Investment Required........  2009$ millions..........        n/a        0.0          0       15          15          24          24          51
--------------------------------------------------------------------------------------------------------------------------------------------------------
Parentheses indicate negative (-) values.

                          Table V.21--Manufacturer Impact Analysis for Niche Furnace Products Under the Tiered Markup Scenario
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                      Trial standard level
                                             Units           Base case ---------------------------------------------------------------------------------
                                                                            1          2           3           4           5           6           7
--------------------------------------------------------------------------------------------------------------------------------------------------------
INPV.............................  2009$ millions..........        149        149        151      129         120         114         114          94
Change in INPV...................  2009$ millions..........        n/a        (0)          2     (20)        (29)        (36)        (36)        (55)

[[Page 37511]]

 
                                   (%).....................        n/a      (0.0)        1.4      (13.5)      (19.6)      (23.8)      (23.8)      (36.7)
Product Conversion Costs.........  2009$ millions..........        n/a        0.0          0        4           4           8           8          16
Capital Conversion Costs.........  2009$ millions..........        n/a        0.0          0       11          11          17          17          35
Total Investment Required........  2009$ millions..........        n/a        0.0          0       15          15          24          24          51
--------------------------------------------------------------------------------------------------------------------------------------------------------
Parentheses indicate negative (-) values.

    At TSL 1 and TSL 2, the standards-case efficiency remains at the 
baseline level for both mobile home furnaces and oil furnaces. There 
are no conversion costs, and the INPV varies very little from the 
baseline value.
    At TSL 3, the oil furnace standard increases to 83-percent AFUE, 
while the mobile home furnace standard increases to 90-percent AFUE in 
the North. At TSL 3, DOE estimates impacts on INPV to range from -$17 
million to -$20 million, or a change in INPV of -11.6 percent to -13.5 
percent. At this level, industry free cash flow is estimated to 
decrease by approximately 54.0 percent to $5.1 million, compared to the 
base-case value of $11.0 million, in the year 2015.
    TSL 3 would require the addition of a secondary heat exchanger for 
mobile home furnace products sold in the North. As a result, mobile 
home furnace manufacturers could incur conversion costs for redesigns 
and tooling. Oil furnace manufacturers would likely need to increase 
the surface area of heat exchangers. DOE estimates conversion costs for 
the entire industry to meet the TSL 3 to be $15 million.
    TSL 4 represents the consensus agreement level and incorporates 
accelerated compliance dates. The mobile home furnace standard and the 
oil furnace standard do not vary from TSL 3. DOE estimates impacts on 
INPV to range from -$24 million to -$29 million, or a change in INPV of 
-16.4 percent to -19.6 percent. At this level, industry free cash flow 
is estimated to decrease by approximately 11.5 percent to $9.8 million, 
compared to the base-case value of $11.0 million, in the year 2015.
    The accelerated compliance dates of TSL 4 lead to earlier 
investments by manufacturers. The production line changes necessary to 
produce secondary heat exchangers for mobile home furnace products and 
larger heat exchanges for oil furnaces would need to occur before the 
standards year 2013. Manufacturers could incur conversion costs for 
redesigns and additional tooling totaling $15 million. There is a 
decrease in INPV in TSL 4, as compared to TSL 3, due to the earlier 
commoditization impacts of the accelerated compliance dates. In TSL 4, 
INPV decreases 4.8 percent to 6.1 percent lower than in TSL 3.
    TSL 5 and TSL 6 represent an increase in standards for mobile home 
furnaces and oil furnaces above the level set in TSL 1 through TSL 4. 
The standard in the North for mobile home furnaces increases to 96-
percent AFUE, and the national standard for oil furnaces increases to 
85-percent AFUE. TSL 5 and TSL 6 require compliance in 2016. DOE 
estimates impacts on INPV to range from -$18 million to -$36 million, 
or a change in INPV of -12.1 percent to -23.8 percent. At this level, 
industry free cash flow is estimated to decrease by approximately 86.0 
percent to $1.6 million, compared to the base-case value of $11 
million, in the year 2015.
    TSL 5 and TSL 6 would raise the standard in the North for mobile 
home furnaces to the max-tech level (i.e., 96-percent AFUE). At this 
level, all mobile home furnaces in the North would be required to be 
condensing. This change would drive the increase in conversion cost, as 
manufacturers work on condensing furnace designs that function within 
the physical dimension and price constraints of the mobile home market. 
Mobile home furnace manufacturers would no longer be able to 
differentiate products based on efficiency. In interviews, 
manufacturers noted that the loss of product differentiation would lead 
to increased focus on cost competitiveness. Given the size of the 
mobile home furnace market (approximately 120,000 units per year) and 
manufacturer feedback that the mobile home market is highly price 
sensitive, a number of manufacturers could choose to exit the market 
rather than compete at this efficiency level. Additionally, TSL 5 and 
TSL 6 would increase the standard for oil furnaces to 85-percent AFUE. 
To reach this level, manufacturers would continue to increase the 
surface area of heat exchangers, incurring additional production costs 
and higher raw material costs. Conversion costs for TSL 5 and TSL 6 are 
$24 million. At this cost, it is possible that some oil furnace 
manufacturers would exit the business.
    TSL 7 raises the standard for oil furnaces and mobile home furnaces 
to max-tech. DOE estimates impacts on INPV to range -$40 million to -
$55 million, or a change in INPV of -26.7 percent to -36.7 percent. At 
this considered level, industry free cash flow is estimated to decrease 
by approximately 193 percent to -$9.2 million, compared to the base-
case value of $11 million, in the year 2015.
    TSL 7 sets a national standard for oil furnaces at the max-tech 
level (i.e., 97-percent AFUE). This efficiency level would require the 
development of condensing oil furnaces as the baseline product. DOE was 
only able to identify one domestic manufacturer offering a condensing 
oil furnace. The development of cost-effective, reliable, and durable 
oil furnace products would require significant capital expenditures by 
a majority of the industry. It is unclear how many manufacturers would 
make the product conversion investment to compete in a market that 
supplies fewer than 80,000 units/year and, according to most 
manufacturers, is shrinking. However, given the limited size of the oil 
furnace market and the market's declining shipments, it could be 
expected that a number of manufacturers would choose to leave the 
market rather than compete at this efficiency level. DOE expects a 
similar effect in the mobile home furnace market.
(iii) Cash-Flow Analysis Results for Standby Mode and Off Mode 
Standards

[[Page 37512]]

   Table V.22--Standby Mode and Off Mode Impacts for Furnace, Central Air Conditioning, and Heat Pump Products
                           Under the Preservation of Gross Margin Percentage Scenario
----------------------------------------------------------------------------------------------------------------
                                                                            Standby mode and off mode TSL
                                        Units           Base case   --------------------------------------------
                                                                           1              2              3
----------------------------------------------------------------------------------------------------------------
INPV...........................  2009$ millions....           8,711       8,715          8,716          8,734
Change in INPV.................  2009$ millions....             n/a           4              5             23
                                 (%)...............             n/a           0.05           0.06           0.26
Product Conversion Costs.......  2009$ millions....             n/a           2.77           2.77           2.77
Capital Conversion Costs.......  2009$ millions....             n/a           0              0              0
                                --------------------------------------------------------------------------------
    Total Investment Required..  2009$ millions....             n/a           2.77           2.77           2.77
----------------------------------------------------------------------------------------------------------------

   Table V.23--Standby Mode and Off Mode Impacts for Furnace, Central Air Conditioning, and Heat Pump Products Under the Preservation of EBIT scenario
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                 Standby mode and off mode TSL
                                                                     Units                Base case   --------------------------------------------------
                                                                                                              1                2                3
--------------------------------------------------------------------------------------------------------------------------------------------------------
INPV...................................................                2009$ millions           8,711           8,458            8,457            8,456
Change in INPV.........................................                2009$ millions             n/a            (253)            (253)            (255)
                                                                                  (%)             n/a           (2.91)           (2.91)           (2.93)
Product Conversion Costs...............................                2009$ millions             n/a            2.77             2.77             2.77
Capital Conversion Costs...............................                2009$ millions             n/a               0                0                0
                                                        ------------------------------------------------------------------------------------------------
    Total Investment Required..........................                2009$ millions             n/a            2.77             2.77             2.77
--------------------------------------------------------------------------------------------------------------------------------------------------------
Parentheses indicate negative (-) values.

    The preservation of gross margin percentage and preservation of 
EBIT markup scenarios for the standby mode and off mode analysis 
provide similar results. DOE estimates impacts on INPV to range from 
$23 million to -$255 million, or a change in INPV of 0.26 percent to -
2.93 percent. These results include the impacts of conversion costs, 
estimated at $2.8 million for the industry. DOE estimated total 
conversion costs to be similar at all three standby mode and off mode 
TSLs, because the levels of R&D, testing, and compliance expenditures 
do not vary dramatically. Furthermore, DOE did not identify significant 
changes to manufacturer production processes that would result from 
standby mode and off mode standards. In general, the range of potential 
impacts resulting from the standby mode and off mode standards is small 
when compared to the range of potential impacts resulting from the 
energy efficiency standards.
b. Impacts on Employment
    DOE quantitatively assessed the impacts of amended energy 
conservation standards on domestic employment. DOE used the GRIM to 
estimate the domestic labor expenditures and number of domestic 
production workers in the base case and at each energy efficiency TSL 
from 2010 to 2045. DOE used statistical data from the U.S. Census 
Bureau's 2008 Economic Census,\95\ the results of the engineering 
analysis, and interviews with manufacturers to determine the inputs 
necessary to calculate industry-wide labor expenditures and domestic 
employment levels. Labor expenditures resulting from the manufacture of 
products are a function of the labor intensity of the product, the 
sales volume, and an assumption that wages remain fixed in real terms 
over time.
---------------------------------------------------------------------------

    \95\ Annual Survey of Manufacturing: 2006. American FactFinder. 
2008. Bureau of the Census (Available at: http://factfinder.census.gov/servlet/IBQTable?_bm=y&-ds_name=AM0631GS101>).
---------------------------------------------------------------------------

    In the GRIM, DOE used the labor content of each product and the 
manufacturing production costs from the engineering analysis to 
estimate the annual labor expenditures in the industry. DOE used Census 
data and interviews with manufacturers to estimate the portion of the 
total labor expenditures that is attributable to U.S. (i.e., domestic) 
labor.
    The production worker estimates in this section only cover 
employment up to the line-supervisor level for functions involved in 
fabricating and assembling a product within a manufacturer facility. 
Workers performing services that are closely associated with production 
operations, such as material handing with a forklift, are also included 
as production labor. DOE's estimates only account for production 
workers who manufacture the specific products covered by this 
rulemaking. For example, even though a manufacturer may also produce 
hearth products, a worker on a hearth product line would not be 
included with the estimate of the number of residential furnace 
workers.
    Impact on employment results are based on analysis of energy 
efficiency standards. For standby mode and off mode, the technology 
options considered in the engineering analysis result in component 
swaps, which do not add significant product complexity. While some 
product development effort will be required, DOE does not expect the 
standby mode and off mode standard to meaningfully affect the amount of 
labor required in production. Therefore, the standby and off mode would 
not result in significant changes to employment calculations based on 
the energy efficiency TSLs.
    The employment impacts shown in Table V.24 represent the potential 
production employment that could result following the adoption of 
amended energy conservation standards. The upper end of the results in 
the table estimates the maximum change in the number of production 
workers after amended energy conservation standards must be met. The 
upper end of the results assumes that manufacturers would continue to 
produce the same scope of covered products in the same production 
facilities, or in new or expanded facilities located in the United 
States.

[[Page 37513]]

The upper end of the range, therefore, assumes that domestic production 
does not shift to lower-labor-cost countries. Because there is a real 
risk of manufacturers evaluating sourcing decisions in response to 
amended energy conservation standards, the lower end of the range of 
employment results in Table V.24 includes the estimated total number of 
U.S. production workers in the industry who could lose their jobs if 
all existing production were moved outside of the U.S. Finally, it is 
noted that the employment impacts shown are independent of the 
employment impacts to the broader U.S. economy, which are documented in 
chapter 13 of the direct final rule TSD.
    Using the GRIM, DOE estimates that in the absence of amended energy 
conservation standards, there would be 16,902 domestic production 
workers involved in manufacturing residential furnaces, central air 
conditioners, and heat pumps in 2016. Using 2008 Census Bureau data and 
interviews with manufacturers, DOE estimates that approximately 89 
percent of products sold in the United States are manufactured 
domestically. Table V.24 shows the range of the impacts of potential 
amended energy conservation standards on U.S. production workers in the 
residential furnace, central air conditioner, and heat pump market. The 
table accounts for both conventional products and niche furnace 
products.

                           Table V.24--Potential Changes in the Total Number of Residential Furnace, Central Air Conditioner, and Heat Pump Production Workers in 2016
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                        Trial standard level
                                                                   -----------------------------------------------------------------------------------------------------------------------------
                                                                      Base Case          1               2               3               4               5               6               7
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Total Number of Domestic Production Workers in 2016 (without              16,902         16,998          17,242          17,485          17,746          17,940          17,998          18,102
 facilities moving offshore)......................................
Potential Changes in Domestic Production Workers in 2016*.........           n/a     96-(16,902)    340-(16,902)    583-(16,902)    844-(16,902)   1038-(16,902)   1096-(16,902)   1200-(16,902)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
* DOE presents a range of potential employment impacts.
Parentheses indicate negative (-) values.

    Based on the GRIM analysis, DOE estimates that there would be 
positive employment impacts among conventional residential furnace, 
central air conditioner, and heat pump manufacturers at the upper bound 
of the employment estimates. This effect occurs because the required 
labor content increases per product at higher efficiency levels, and 
the analysis assumes manufacturers do not alter the current mix of 
domestic and international production. DOE believes the assumption for 
the employment scenarios become less realistic at the most stringent 
TSLs when complete technology changes would likely require the 
development of new manufacturing plants.
c. Impacts on Manufacturing Capacity
(i) Conventional Furnaces, Central Air Conditioners, and Heat Pumps
    Most manufacturers currently have excess production capacity, 
reflected in part by the substantial decline in shipments since the 
height of the housing boom in 2005. Manufacturers did not express major 
capacity-related concerns at the efficiency levels included at TSL 1, 
2, and 3. Additionally, manufacturers did not express concerns about 
the production capacity at TSL 4, which includes accelerated compliance 
dates arising out of the consensus agreement. All major manufacturers 
that were interviewed agreed that the timelines in TSL 4 could be met 
and that no capacity shortages were likely to occur.
    At TSL 5, the standard levels for all central air conditioners and 
heat pumps product classes would be the same as at TSL 4, so DOE does 
not anticipate capacity impacts for these products. For non-weatherized 
gas furnaces, TSL 5 would be more challenging for manufacturers because 
of the 95-percent AFUE standard in the North (as opposed to the 90-
percent AFUE standard in the North in TSL 4). However, because the 
regional standard in the South is set at the baseline efficiency, 
manufacturers would not have to redesign all production lines. 
Additionally, TSL 5 allows for an additional 3 years beyond TSL 4's 
consensus timeline for manufacturers to ramp up production 
capabilities. Therefore, DOE does not believe there would be any impact 
on manufacturing capacity from TSL 1 to TSL 5.
    At the efficiency levels included in TSL 6 and TSL 7, manufacturers 
were concerned that the changes in technology could impose production 
capacity constraints in the near to medium term. At TSL 6, the higher 
energy conservation standard would increase industry demand for some 
key components and tooling over current levels. All major manufacturers 
would seek to increase their purchasing volumes of high-efficiency 
compressors, ECM motors, and production tooling during the same 
timeframe. Given that the industry relies on a limited number of 
suppliers for these parts, some manufacturers expressed concern that a 
bottleneck in the supply chain could create production constraints.
    At TSL 7, the major domestic manufacturers of split-system air 
conditioners and heat pumps would likely need to redesign all of their 
existing products to incorporate more-efficient technologies for 
residential applications. If manufacturers chose not to or could not 
afford to develop new technologies, they would likely need to 
significantly enlarge the products' exchangers, which in turn would 
require a redesign of their production lines to accommodate 
significantly larger units or to add a second compressor. This 
increased demand for components and production tooling could lead to 
short-term constraints on production. Manufacturers would face similar 
concerns with non-weatherized gas furnaces. Manufacturers would have to 
redesign all product lines to incorporate burner modulation technology, 
which would include adding modulating gas valves, variable-speed 
inducer fans, and more-sophisticated controls. The coinciding demand 
for modulating gas valves and variable-speed inducer fans from seven 
major manufacturers could potentially create supply chain constraints.
    In summary, production capacity implications for the conventional 
product classes would be most severe at TSL 6 and TSL 7.

[[Page 37514]]

(ii) Niche Furnace Products
    According to the manufacturers of oil furnace and mobile home 
furnace products, amended energy conservation standards should not 
significantly affect production capacity, except at the max-tech levels 
(where condensing operation would be required). According to 
manufacturers interviewed, these capacity-related concerns are focused 
on the technical feasibility of increasing oil furnace efficiency to 
condensing levels. Most manufacturers have not found a design that 
reliably delivers performance above 95-percent AFUE. Some manufacturers 
indicated that they would not be able to produce products at the 
condensing level until the sulfur content of heating oil was regulated 
and substantially lowered in key markets.
d. Impacts on Sub-Groups of Small Manufacturers
    As discussed in section IV.I.1, using average cost assumptions to 
develop an industry cash-flow estimate is not adequate for assessing 
differential impacts among manufacturer subgroups. Small manufacturers, 
niche equipment manufacturers, and manufacturers exhibiting a cost 
structure substantially different from the industry average could be 
affected disproportionately. DOE used the results of the industry 
characterization to group manufacturers exhibiting similar 
characteristics. Consequently, DOE identified two sub-groups for 
analysis: (1) Small manufacturers and (2) SDHV manufacturers.
(i) Small Manufacturers Sub-Group
    DOE evaluated the impact of amended energy conservation standards 
on small manufacturers, specifically ones defined as ``small 
businesses'' by the U.S. Small Business Administration (SBA). The SBA 
defines a ``small business'' as having 750 employees or less for NAICS 
333415, ``Air-Conditioning and Warm Air Heating Equipment and 
Commercial and Industrial Refrigeration Equipment Manufacturing.'' 
Based on this definition, DOE identified four niche central air 
conditioner and heat pump manufacturers and five niche furnace 
manufacturers that are classified as small businesses. DOE describes 
the differential impacts on these small businesses in today's notice at 
section VI.B, Review Under the Regulatory Flexibility Act.
    Section VI.B concludes that larger manufacturers could have a 
competitive advantage in multiple niche product markets due to their 
size and ability to access capital. Additionally, in some market 
segments, larger manufacturers have significantly higher production 
volumes over which to spread costs. The Department cannot certify this 
rule would not have a significant economic impact on a substantial 
number of small manufacturers. However, DOE has carefully considered 
these potential impacts and has sought to mitigate any such impacts in 
this rule. For a complete discussion of the impacts on small 
businesses, see chapter 12 of the direct final rule TSD.
(ii) Small-Duct, High-Velocity Manufacturers Sub-Group
    Small-duct, high-velocity systems serve a niche within the 
residential air conditioning market. A SDHV system consists of a non-
conventional indoor unit and air distribution system (produced by the 
SDHV manufacturer) mated to a conventional outdoor unit (produced by 
split-system manufacturers). These SDHV systems typically make use of 
flexible ducting and operate at a higher static pressure than 
conventional air conditioning systems. This product class makes up less 
than 0.5 percent of central air conditioning shipments. DOE estimates 
the total market size to be less than 30,000 units per year.
    SDHV systems are primarily installed in existing structures that do 
not have air conditioning duct work. In this application, SDHV systems 
are often a more cost-effective solution for centralized cooling 
because conventional systems may require substantial installation and 
retrofit costs to install ducting. The SDHV system delivers conditioned 
air via small diameter flexible tubing, which requires less space than 
conventional ductwork. SDHV systems are often paired with hydronic 
heat, radiant heat, and ground temperature heat pump systems. 
Historically, approximately 80 percent of shipments have been for the 
retrofit market, and 20 percent of shipments have been for the new 
construction market.
    DOE has identified three manufacturers of SDHV systems that serve 
the U.S. market. The two domestic manufacturers, Unico Systems and 
SpacePak, serve the majority of the market. SpacePak is a subsidiary of 
MesTek Inc., a U.S. holding company with over 30 specialty 
manufacturing brands. Unico is a small business, as defined by the SBA.
    DOE's analysis of AHRI Directory product listings indicates that 
the primary difference between SDHV products rated at 11 SEER and SDHV 
products rated above 11 SEER is the paired condensing unit. The indoor 
unit, which is the component designed and manufactured by SpacePak and 
Unico, does not change as the AHRI-certified efficiency increases. 
SpacePak and Unico are reaching higher efficiencies by pairing their 
products with larger condensing units, which are produced by 
conventional air conditioning and heat pump manufacturers.
    According to SDHV manufacturers, the small size of the SDHV 
industry limits influence on key suppliers. As a result, SDHV 
manufacturers must choose from stock fan motors, compressors, and 
products that are optimized for other applications and industries. The 
selection of available components limits the technology options 
available to SDHV manufacturers, thereby constraining the 
manufacturers' ability to achieve efficiencies above 11 SEER through 
improved product design. Interviewed SDHV manufacturers indicated that 
they are near max-tech for the SDHV indoor unit with the standards in 
this rule and available components.
    In 2004, both Unico and SpacePak petitioned DOE's Office of 
Hearings and Appeals (OHA) for exception relief from the 13 SEER energy 
efficiency standard found at 10 CFR 430.32(c)(2), with which compliance 
was required for products manufactured on or after January 23, 2006. 
OHA granted both petitions on October 14, 2004.\96\ Accordingly, the 
manufacturers were authorized to produce equipment that performed at 11 
SEER/6.8 HSPF and above. In their 2004 application for exception 
relief, SpacePak and Unico both indicated that a 13 SEER standard would 
create significant hardships for the SDHV industry. SpacePak wrote in 
its application for exception relief that an absence of relief would 
lead to ``the loss of all sales within the United States.'' As part of 
the 2004 OHA Decision and Order (case TEE-0010), Lennox 
International filed comments stating that ``it agrees these [SDHV] 
products would be unfairly burdened by * * * the 13 SEER/7.7 HSPF 
minimum level.''
---------------------------------------------------------------------------

    \96\ Department of Energy: Office of Hearings and Appeals, 
Decision and Order, Case TEE 0010 (2004) (Available at: 
http://www.oha.doe.gov/cases/ee/tee0010.pdf) (last accessed 
September 2010).
---------------------------------------------------------------------------

    Since 2004, SDHV manufacturers have been able to reach efficiencies 
of 13 SEER, but the vast majority of products listed in the AHRI 
Directory are below 13 SEER (see chapter 3 of the direct final rule TSD 
for a distribution of SDHV systems by efficiency level). This improved 
efficiency is primarily the result of pairing their products with 
higher-efficiency outdoor units

[[Page 37515]]

produced by other manufacturers. One manufacturer has incorporated 
variable-speed technology to improve product efficiency. However, 
overall, SDHV manufacturers still face many of the same challenges they 
faced in 2004 and have limited options for further improving the 
efficiency of the air handling unit, which is the only component 
designed and produced by SDHV manufacturers. As a result, higher 
standards would force SDHV manufactures to pair their products with 
more expensive, higher-efficiency outdoor units to provide performance 
that meets energy conservation standards. TSL 1 through TSL 5 would 
require only the baseline efficiency level (13 SEER), while TSL 6 and 
TSL 7 would increase the level to 14 SEER and 14.5 SEER, respectively. 
DOE believes the increases represented by TSL 6 and TSL 7 would 
significantly adversely impact the financial standing of SDHV 
manufacturers. As discussed in their 2004 application for exception 
relief, such an increase would likely significantly depress shipments 
because it would require additional controls and a much more expensive 
outdoor unit. As a result manufacturers would be forced to spread fixed 
costs over a lower volume and would be less able to pass on the higher 
incremental costs. Manufacturers would face increasingly difficult 
decisions regarding the investment of resources toward what would 
likely be a much smaller market.
e. Cumulative Regulatory Burden
    While any one regulation may not impose a significant burden on 
manufacturers, the combined effects of several impending regulations 
may have serious consequences for some manufacturers, groups of 
manufacturers, or an entire industry. Assessing the impact of a single 
regulation may overlook this cumulative regulatory burden. In addition 
to DOE energy conservation standards, other regulations can 
significantly affect manufacturers' financial operations. Multiple 
regulations affecting the same manufacturer can strain profits and can 
lead companies to abandon product lines or markets with lower expected 
future returns than competing products. For these reasons, DOE conducts 
an analysis of cumulative regulatory burden as part of its rulemakings 
pertaining to appliance efficiency.
    During previous stages of this rulemaking, DOE identified a number 
of requirements, in addition to amended energy conservation standards 
for furnaces, central air conditioners, and heat pumps, that 
manufacturers of these products will face for products they manufacture 
within three years prior to and three years after the anticipated 
compliance date of the amended standards. These requirements included 
DOE's amended energy conservation standards for other products produced 
by the manufacturers covered under this rulemaking. Amended energy 
conservation standards coming into effect during the analysis period 
that are expected to affect at least a subset of the manufacturers 
include the rulemakings for residential boilers, packaged terminal air 
conditioners/packaged terminal heat pumps, furnace fans, room air 
conditioners, and residential water heaters. DOE discusses these 
requirements in greater detail in chapter 12 of the direct final rule 
TSD.
    The most common regulatory burden concern raised by manufacturers 
during interviews was the potential phase-down of HFCs. While no phase-
down is currently required, air conditioning and heat pump 
manufacturers raised these concerns because of HFC phase-down language 
in proposed legislation, such as H.R. 2454, the American Clean Energy 
and Security Act of 2009. Manufacturers cited concerns that a phase-
down of HFC refrigerants could negatively impact product efficiency, 
product functionality, and manufacturing processes for central air 
conditioners and heat pumps. Additionally, there is the potential for 
significant conversion costs as well as higher on-going costs for 
production.
    Furnace manufacturers also cited concerns about the cumulative 
burden associated with low NOX and ultra-low NOX 
standards adopted in the South Coast Air Quality Management District 
(SCAQMD) and other air quality districts of California for mobile home 
furnaces, weatherized gas furnaces, and non-weatherized gas 
furnaces.\97\ Manufacturers stated that these standards will require 
R&D resources, which may be limited due to conversion costs associated 
with Federal standards.
---------------------------------------------------------------------------

    \97\ California Air Resources Board, South Coast AQMD List of 
Current Rules (2010) (Available at: http://www.arb.ca.gov/drdb/sc/cur.htm) (last accessed September 2010).
---------------------------------------------------------------------------

    Several manufacturers indicated that Canada has programs in place 
that regulate products covered in this rulemaking. DOE research 
indicates that Natural Resources Canada (NRCan) regulates residential 
furnaces, central air conditioners and heat pumps, and furnace 
fans.\98\
---------------------------------------------------------------------------

    \98\ Natural Resources Canada, Canada's Energy Efficiency 
Regulations (2009) (Available at: http://oee.nrcan.gc.ca/regulations/guide.cfm) (last accessed October 2010).
---------------------------------------------------------------------------

    DOE discusses these and other requirements, and includes the full 
details of the cumulative regulatory burden, in chapter 12 of the 
direct final rule TSD.
3. National Impact Analysis
    This section presents DOE's estimates of the national energy 
savings and the NPV of consumer benefits that would result from each of 
the TSLs considered as potential amended furnace, central air 
conditioner, and heat pump energy efficiency standards, as well as from 
each of the TSLs considered as potential standards for standby mode and 
off mode.
    In estimating national energy savings and the NPV of consumer 
benefits, for TSLs 2, 3, and 4, DOE calculated a range of results that 
reflect alternative assumptions with respect to how the market for non-
weatherized and mobile home furnaces will respond to a standard at 90-
percent or 92-percent AFUE. DOE believes that the response of the 
market to a standard at either of these efficiency levels is 
sufficiently uncertain that it is reasonable to use a range to 
represent the expected impacts. The low end of the range reflects the 
approach to forecasting standards-case efficiency distributions 
described in section IV.G.2. With this approach, the part of the market 
that was below the amended standard level rolls up to the amended 
standard level in the year of compliance, and some fraction of 
shipments remains above the minimum. The high end of the range reflects 
the possibility that, under an amended standard that requires a minimum 
AFUE of 90 percent or 92 percent, the entire market will shift to 95 
percent because the additional installed cost, relative to 90-percent 
or 92-percent AFUE, is minimal. In both cases, the approach to 
forecasting the change in efficiency in the years after the year of 
compliance is the same.
a. Significance of Energy Savings
    To estimate the energy savings attributable to potential standards 
for furnaces, central air conditioners, and heat pumps, DOE compared 
the energy consumption of these products under the base case to their 
anticipated energy consumption under each TSL. As discussed in section 
IV.E, the results account for a rebound effect of 20 percent for 
furnaces, central air conditioners, and heat pumps (i.e., 20 percent of 
the total savings from higher product efficiency are ``taken back'' by 
consumers through more intensive use of the product).
    Table V.25 presents DOE's forecasts of the national energy savings 
for each TSL considered for energy efficiency, and Table V.26 presents 
DOE's forecasts of

[[Page 37516]]

the national energy savings for each TSL considered for standby mode 
and off mode power. The savings were calculated using the approach 
described in section IV.G. Chapter 10 of the direct final rule TSD 
presents tables that also show the magnitude of the energy savings if 
the savings are discounted at rates of 7 percent and 3 percent. 
Discounted energy savings represent a policy perspective in which 
energy savings realized farther in the future are less significant than 
energy savings realized in the nearer term.

     Table V.25--Furnaces, Central Air Conditioners, and Heat Pumps:
 Cumulative National Energy Savings for Energy Efficiency TSLs for 2016-
                                  2045
------------------------------------------------------------------------
                  Trial standard level                        Quads
------------------------------------------------------------------------
1......................................................            0.18
2......................................................    2.32 to 2.91
3......................................................    2.97 to 3.84
4 *....................................................    3.20 to 4.22
5......................................................            3.89
6......................................................            5.91
7......................................................           19.18
------------------------------------------------------------------------
* For TSL 4, which matches the recommendations in the consensus
  agreement, DOE forecasted the energy savings from 2015 through 2045
  for central air conditioners and heat pumps, and from 2013 through
  2045 for furnaces.

     Table V.26--Furnaces, Central Air Conditioners, and Heat Pumps:
 Cumulative National Energy Savings for Standby Mode and Off Mode Power
                           TSLs for 2016-2045
------------------------------------------------------------------------
                     Trial standard level                        Quads
------------------------------------------------------------------------
1............................................................      0.153
2............................................................      0.16
3............................................................      0.186
------------------------------------------------------------------------

    DOE also conducted a sensitivity analysis that reflects alternate 
assumptions regarding the market demand for split-system coil-only air 
conditioner replacement units at 15 SEER and above in the standards 
cases (see section IV.G.2 for details). Table V.27 shows the NES 
results for this sensitivity analysis.

     Table V.27--Furnaces, Central Air Conditioners, and Heat Pumps:
 Cumulative National Energy Savings for Energy Efficiency TSLs for 2016-
 2045 (Alternate Assumptions for Split-system Coil-only Air Conditioner
                           Replacement Market)
------------------------------------------------------------------------
                  Trial standard level                        Quads
------------------------------------------------------------------------
1......................................................            0.20
2......................................................    2.34 to 2.93
3......................................................    2.91 to 3.78
4 *....................................................    3.14 to 4.16
5......................................................            3.83
6......................................................            5.69
7......................................................           19.01
------------------------------------------------------------------------
* For TSL 4, which matches the recommendations in the consensus
  agreement, DOE forecasted the energy savings from 2015 through 2045
  for central air conditioners and heat pumps, and from 2013 through
  2045 for furnaces.

    b. Net Present Value of Consumer Costs and Benefits
    DOE estimated the cumulative NPV to the Nation of the total costs 
and savings for consumers that would result from particular standard 
levels for furnaces, central air conditioners, and heat pumps. In 
accordance with the OMB's guidelines on regulatory analysis,\99\ DOE 
calculated NPV using both a 7-percent and a 3-percent real discount 
rate. The 7-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. DOE 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 3-percent rate to capture the potential effects 
of standards on private consumption (e.g., through higher prices for 
products 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, which has averaged about 3 
percent on a pre-tax basis for the last 30 years.
---------------------------------------------------------------------------

    \99\ OMB Circular A-4, section E (Sept. 17, 2003). Available at: 
http://www.whitehouse.gov/omb/circulars_a004_a-4.
---------------------------------------------------------------------------

    Table V.28 shows the consumer NPV for each considered energy 
efficiency TSL for furnaces, central air conditioners, and heat pumps, 
using both a 7-percent and a 3-percent discount rate, and Table V.29 
shows the consumer NPV results for each TSL DOE considered for standby 
mode and off mode power. For all TSLs except TSL 4 (the level 
corresponding to the consensus agreement), the impacts cover the 
lifetime of products purchased in 2016-2045; for TSL 4, the impacts 
cover the lifetime of products purchased in 2013-2045 for furnaces and 
in 2015-2045 for central air conditioners and heat pumps. See chapter 
10 of the direct final rule TSD for more detailed NPV results.

     Table V.28--Furnaces, Central Air Conditioners, and Heat Pumps:
 Cumulative Net Present Value of Consumer Benefits for Energy Efficiency
                 TSLs for Products Shipped in 2016-2045
------------------------------------------------------------------------
                                        3-percent          7-percent
       Trial standard level           discount rate      discount rate
------------------------------------------------------------------------
                                                Billion 2009$
                                   -------------------------------------
1.................................              0.76               0.23
2.................................    10.61 to 11.56       2.60 to 2.41
3.................................    13.35 to 15.29       3.36 to 3.36
4 \*\.............................    14.73 to 17.55       3.93 to 4.21
5.................................             15.69               3.47
6.................................              8.18             (2.56)
7.................................           (45.12)            (44.98)
------------------------------------------------------------------------
* For TSL 4, which matches the recommendations in the consensus
  agreement, DOE forecasted the consumer benefits for products sold in
  2015-2045 for central air conditioners and heat pumps, and in 2013-
  2045 for furnaces.

[[Page 37517]]

 
Parentheses indicate negative (-) values.

     Table V.29--Furnaces, Central Air Conditioners, and Heat Pumps:
 Cumulative Net Present Value of Consumer Benefits for Standby Mode and
          Off Mode Power TSLs for Products Shipped in 2016-2045
------------------------------------------------------------------------
                                        3-percent          7-percent
       Trial standard level           discount rate      discount rate
------------------------------------------------------------------------
                                                Billion 2009$
                                   -------------------------------------
1.................................              1.14              0.371
2.................................              1.18              0.373
3.................................              1.01              0.235
------------------------------------------------------------------------
Parentheses indicate negative (-) values.

    DOE also conducted a sensitivity analysis that reflects alternate 
assumptions regarding the market demand for split-system coil-only air 
conditioner replacement units at 15 SEER and above in the standards 
cases (see section IV.G.2 for details). Table V.30 shows the consumer 
NPV results for this sensitivity analysis.

     Table V.30--Furnaces, Central Air Conditioners, and Heat Pumps:
 Cumulative Net Present Value of Consumer Benefits for Energy Efficiency
TSLs for Products Shipped in 2016-2045 (Alternate Assumptions for Split-
          system Coil-only Air Conditioner Replacement Market)
------------------------------------------------------------------------
                                        3-percent          7-percent
       Trial standard level           Discount rate      Discount rate
------------------------------------------------------------------------
                                                Billion 2009$
                                   -------------------------------------
1.................................              0.87               0.26
2.................................    10.71 to 11.65       2.63 to 2.45
3.................................    14.32 to 16.27       3.74 to 3.75
4 *...............................    15.71 to 18.53       4.31 to 4.59
5.................................             16.66               3.85
6.................................             10.36             (1.68)
7.................................           (38.87)            (42.47)
------------------------------------------------------------------------
* For TSL 4, which matches the recommendations in the consensus
  agreement, DOE forecasted the consumer benefits for products sold in
  2015-2045 for central air conditioners and heat pumps, and in 2013-
  2045 for furnaces.
Parentheses indicate negative (-) values.

    DOE also investigated the impact of different learning rates on the 
NPV for the seven energy efficiency TSLs. The NPV results presented in 
Table V.28 are based on learning rates of 18.1 percent for central air 
conditioners and heat pumps, and 30.6 percent for furnaces, both of 
which are referred to as the ``default'' learning rates. DOE considered 
three learning rate sensitivities: (1) A ``high learning'' rate; (2) a 
``low learning'' rate; and (3) a ``no learning'' rate. The ``high 
learning''' rates are 20.5 percent for central air conditioners and 
heat pumps and 33.3 percent for furnaces. The ``low learning'' rates 
are 11.5 percent for central air conditioners and heat pumps and 19.2 
percent for furnaces. The ``no learning'' rate sensitivity assumes 
constant real prices over the entire forecast period. Refer to appendix 
8-J of the TSD for details on the development of the above learning 
rates.
    Table V.31 provides the annualized NPV of consumer benefits at a 7-
percent discount rate, combined with the annualized present value of 
monetized benefits from CO2 and NOX emissions 
reductions, for each of the energy efficiency TSLs for the ``default'' 
learning rate and the three sensitivity cases. (DOE's method for 
annualization is described in section V.C.3 of this notice.) Table V.32 
provides the same combined annualized NPVs using a 3-percent discount 
rate. (Section V.B.6 below provides a complete description and summary 
of the monetized benefits from CO2 and NOX 
emissions reductions.) For details on these results, see appendix 10-C 
of the direct final rule TSD.

     Table V.31--Furnaces, Central Air Conditioners, and Heat Pumps: Annualized Net Present Value of Consumer Benefits (7-percent Discount Rate) and
  Annualized Present Value of Monetized Benefits From CO2 and NOX Emissions Reductions ** for Energy Efficiency TSLs for Products Shipped in 2016-2045
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                 Learning Rate (LR)
                                                           ---------------------------------------------------------------------------------------------
                   Trial standard level                     Default:  LRCAC	HP =    High sensitivity:     Low sensitivity:
                                                               18.1%  LRFURN =      LRCAC	HP = 20.5%      LRCAC	HP = 11.5%       No learning:  LR = 0%
                                                                    30.6%            LRFURN = 33.3%        LRFURN = 19.2%       (constant real prices)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                    Billion 2009$
                                                           ---------------------------------------------------------------------------------------------
1.........................................................                0.036                 0.037                 0.034                       0.028
2.........................................................       0.304 to 0.287        0.309 to 0.294        0.285 to 0.258              0.242 to 0.195
3.........................................................       0.414 to 0.437        0.421 to 0.448        0.389 to 0.400              0.328 to 0.312

[[Page 37518]]

 
4 *.......................................................       0.456 to 0.517        0.464 to 0.528        0.430 to 0.479              0.366 to 0.387
5.........................................................                0.451                 0.462                 0.414                       0.326
6.........................................................                0.075                 0.106               (0.016)                     (0.266)
7.........................................................              (2.497)               (2.360)               (2.890)                     (3.998)
--------------------------------------------------------------------------------------------------------------------------------------------------------
* For TSL 4, which matches the recommendations in the consensus agreement, DOE forecasted the consumer benefits for products sold in 2015-2045 for
  central air conditioners and heat pumps, and in 2013-2045 for furnaces.
Parentheses indicate negative (-) values.
** The economic benefits from reduced CO2 emissions were calculated using a SCC value of $22.1/metric ton in 2010 (in 2009$) for CO2, increasing at 3%
  per year, and a discount rate of 3%. The economic benefits from reduced NOX emissions were calculated using a value of $2,519/ton (in 2009$), which is
  the average of the low and high values used in DOE's analysis, and a 7-percent discount rate.

     Table V.32--Furnaces, Central Air Conditioners, and Heat Pumps: Annualized Net Present Value of Consumer Benefits (3-percent Discount Rate) and
  Annualized Present Value of Monetized Benefits From CO2 and NOX Emissions Reductions ** for Energy Efficiency TSLs for Products Shipped in 2016-2045
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                 Learning Rate (LR)
                                                           ---------------------------------------------------------------------------------------------
                   Trial standard level                     Default:  LRCAC	HP =    High sensitivity:     Low sensitivity:
                                                               18.1%  LRFURN =      LRCAC	HP = 20.5%      LRCAC	HP = 11.5%       No learning:  LR = 0%
                                                                    30.6%            LRFURN = 33.3%        LRFURN = 19.2%       (constant real prices)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                    Billion 2009$
                                                           ---------------------------------------------------------------------------------------------
1.........................................................                0.057                 0.058                 0.055                       0.048
2.........................................................       0.639 to 0.685        0.646 to 0.694        0.611 to 0.644              0.553 to 0.559
3.........................................................       0.827 to 0.950        0.837 to 0.964        0.793 to 0.898              0.711 to 0.782
4 *.......................................................       0.871 to 1.049        0.880 to 1.062        0.836 to 0.998              0.755 to 0.882
5.........................................................                0.976                 0.990                 0.924                       0.807
6.........................................................                0.704                 0.745                 0.580                       0.255
7.........................................................              (1.152)               (0.972)               (1.673)                     (3.094)
--------------------------------------------------------------------------------------------------------------------------------------------------------
* For TSL 4, which matches the recommendations in the consensus agreement, DOE forecasted the consumer benefits for products sold in 2015-2045 for
  central air conditioners and heat pumps, and in 2013-2045 for furnaces.
Parentheses indicate negative (-) values.
** The economic benefits from reduced CO2 emissions were calculated using a SCC value of $22.1/metric ton in 2010 (in 2009$) for CO2, increasing at 3%
  per year, and a discount rate of 3%. The economic benefits from reduced NOX emissions were calculated using a value of $2,519/ton (in 2009$), which is
  the average of the low and high values used in DOE's analysis, and a 3-percent discount rate.

c. Indirect Impacts on Employment
    DOE develops estimates of the indirect employment impacts of 
potential standards on the economy in general. As discussed above, DOE 
expects amended energy conservation standards for furnaces, central air 
conditioners, and heat pumps to reduce energy bills for consumers of 
these products, and the resulting net savings to be redirected to other 
forms of economic activity. These expected shifts in spending and 
economic activity could affect the demand for labor. As described in 
section IV.J, to estimate these effects, DOE used an input/output model 
of the U.S. economy. Table V.33 presents the estimated net indirect 
employment impacts in 2025 and 2045 for the energy efficiency TSLs that 
DOE considered in this rulemaking. Table V.34 shows the indirect 
employment impacts of the standby mode and off mode TSLs. Chapter 13 of 
the direct final rule TSD presents more detailed results.

 Table V.33--Net Increase in Jobs From Indirect Employment Effects Under
 Furnace, Central Air Conditioner, and Heat Pump Energy Efficiency TSLs
------------------------------------------------------------------------
                                                  Jobs in      Jobs in
             Trial standard level                   2025         2045
------------------------------------------------------------------------
1.............................................        1,000          500
2.............................................        3,000        2,700
3.............................................        5,400        6,100
4.............................................        6,000        6,300
5.............................................        6,400        6,300
6.............................................       16,000       18,500
7.............................................       60,200       81,400
------------------------------------------------------------------------

[[Page 37519]]

 Table V.34--Net Increase in Jobs From Indirect Employment Effects Under
  Furnace, Central Air Conditioner, and Heat Pump Standby Mode and Off
                             Mode Power TSLs
------------------------------------------------------------------------
                                                     Jobs in    Jobs in
               Trial standard level                    2025       2045
------------------------------------------------------------------------
1.................................................        320        800
2.................................................        350        860
3.................................................        420      1,020
------------------------------------------------------------------------

    The input/output model suggests that the standards in this rule 
would be likely to increase the net demand for labor in the economy. 
However, the gains would most likely be very small relative to total 
national employment. Moreover, neither the BLS data nor the input/
output model DOE uses includes the quality or wage level of the jobs. 
Therefore, DOE has concluded that the standards in this rule are likely 
to produce employment benefits sufficient to fully offset any adverse 
impacts on employment in the manufacturing industry for the furnaces, 
central air conditioners, and heat pumps that are the subjects of this 
rulemaking.
4. Impact on Utility or Performance of Products
    As presented in section III.D.1.d of this notice, DOE concluded 
that none of the TSLs considered in this notice would reduce the 
utility or performance of the products under consideration in this 
rulemaking. Furthermore, manufacturers of these products currently 
offer furnaces, central air conditioners, and heat pumps that meet or 
exceed the standards in this rule. (42 U.S.C. 6295(o)(2)(B)(i)(IV))
5. Impact of Any Lessening of Competition
    DOE has also considered any lessening of competition that is likely 
to result from amended 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 in writing to the 
Secretary, together with an analysis of the nature and extent of such 
impact. (42 U.S.C. 6295(o)(2)(B)(i)(V) and (ii))
    DOE is publishing a NOPR containing energy conservation standards 
identical to those set forth in today's direct final rule and has 
transmitted a copy of today's direct final rule and the accompanying 
TSD to the Attorney General, requesting that the DOJ provide its 
determination on this issue. DOE will consider DOJ's comments on the 
rule in determining whether to proceed with the direct final rule. DOE 
will also publish and respond to DOJ's comments in the Federal Register 
in a separate notice.
6. Need of the Nation To Conserve Energy
    An improvement in the energy efficiency of the products subject to 
today's direct final rule is likely to improve the security of the 
Nation's energy system by reducing overall demand for energy. Reduced 
electricity demand may also improve the reliability of the electricity 
system. (42 U.S.C. 6295(o)(2)(B)(i)(VI)) As a measure of this reduced 
demand, Table V.35 and Table V.36 present the estimated reduction in 
generating capacity in 2045 for the TSLs that DOE considered in this 
rulemaking for energy efficiency and standby mode and off mode power, 
respectively.

   Table V.35--Reduction in Electric Generating Capacity in 2045 Under
    Considered Furnace, Central Air Conditioner, and Heat Pump Energy
                             Efficiency TSLs
------------------------------------------------------------------------
                 Trial standard level                       Gigawatts
------------------------------------------------------------------------
1.....................................................            0.397
2.....................................................    0.646 to 1.12
3.....................................................     3.61 to 3.53
4.....................................................     3.81 to 3.69
5.....................................................             3.56
6.....................................................             10.5
7.....................................................             35.6
------------------------------------------------------------------------

   Table V.36--Reduction in Electric Generating Capacity in 2045 Under
 Considered Furnace, Central Air Conditioner, and Heat Pump Standby Mode
                         and Off Mode Power TSLs
------------------------------------------------------------------------
                    Trial standard level                      Gigawatts
------------------------------------------------------------------------
1..........................................................       0.103
2..........................................................       0.110
3..........................................................       0.127
------------------------------------------------------------------------

    Energy savings from amended standards for furnaces, central air 
conditioners, and heat pumps could also produce environmental benefits 
in the form of reduced emissions of air pollutants and greenhouse gases 
associated with electricity production, and also reduced site 
emissions. Table V.37 provides DOE's estimate of cumulative 
CO2, NOX, and Hg emissions reductions that would 
be expected to result from each of the TSLs considered in this 
rulemaking for energy efficiency standards, and Table V.38 provides the 
results for each of the TSLs considered for standby mode and off mode 
power standards. In the environmental assessment (chapter 15 in the 
direct final rule TSD), DOE reports annual CO2, 
NOX, and Hg emissions reductions for each considered TSL.
    As discussed in section IV.L, DOE has not reported SO2 
emissions reductions from power plants, because there is uncertainty 
about the effect of energy conservation standards on the overall level 
of SO2 emissions in the United States due to SO2 
emissions caps. DOE also did not include NOX emissions 
reduction from power plants in States subject to CAIR because an 
amended energy conservation standard would not affect the overall level 
of NOX emissions in those States due to the emissions caps 
mandated by CAIR.

 Table V.37--Cumulative Emissions Reduction for 2016-2045 Under Furnace, Central Air Conditioner, and Heat Pump
                                             Energy Efficiency TSLs
----------------------------------------------------------------------------------------------------------------
                                                  CO[ihel2]  million
             Trial standard level                    metric tons         NOX  thousand tons        Hg  tons
----------------------------------------------------------------------------------------------------------------
1............................................                    15.2                 12.3                0.022
2............................................            62.8 to 61.2         55.5 to 56.7     0.011 to (0.012)
3............................................             97.1 to 113         83.1 to 98.5       0.086 to 0.059
4 *..........................................              105 to 134          90.1 to 117       0.097 to 0.071
5............................................                     116                  102                0.059
6............................................                     200                  168                0.270

[[Page 37520]]

 
7............................................                     772                  640                1.160
----------------------------------------------------------------------------------------------------------------
* For TSL 4, which matches the recommendations in the consensus agreement, DOE forecasted the emissions
  reductions from 2015 through 2045 for central air conditioners and heat pumps, and from 2013 through 2045 for
  furnaces.
Parentheses indicate a negative value.

 Table V.38--Cumulative Emissions Reduction for 2016-2045 Under Furnace, Central Air Conditioner, and Heat Pump
                                      Standby Mode and Off Mode Power TSLs
----------------------------------------------------------------------------------------------------------------
                                                                   CO2  million    NOX  thousand
                      Trial standard level                          metric tons        tons          Hg  tons
----------------------------------------------------------------------------------------------------------------
1...............................................................            8.23            6.60           0.056
2...............................................................            8.73            7.00           0.072
3...............................................................            10.1            8.11           0.079
----------------------------------------------------------------------------------------------------------------

    DOE also estimated monetary benefits likely to result from the 
reduced emissions of CO2 and NOX that DOE 
estimated for each of the TSLs considered for furnaces, central air 
conditioners, and heat pumps. In order to make this calculation similar 
to the calculation of the NPV of consumer benefit, DOE considered the 
reduced emissions expected to result over the lifetime of products 
shipped in the forecast period for each TSL.
    As discussed in section IV.M, a Federal interagency group selected 
four SCC values for use in regulatory analyses, which DOE used in the 
direct final rule analysis. The four SCC values (expressed in 2009$) 
are $4.9/ton (the average value from a distribution that uses a 5-
percent discount rate), $22.1/ton (the average value from a 
distribution that uses a 3-percent discount rate), $36.3/ton (the 
average value from a distribution that uses a 2.5-percent discount 
rate), and $67.1/ton (the 95th-percentile value from a distribution 
that uses a 3-percent discount rate). These values correspond to the 
value of CO2 emission reductions in 2010; the values for 
later years are higher due to increasing damages as the magnitude of 
climate change increases. For each of the four cases, DOE calculated a 
present value of the stream of annual values using the same discount 
rate as was used in the studies upon which the dollar-per-ton values 
are based.
    Table V.39 presents the global values of CO2 emissions 
reductions at each TSL considered for energy efficiency. As explained 
in section IV.M.1, DOE calculated domestic values as a range from 7 
percent to 23 percent of the global values, and these results are 
presented in Table V.40. Table V.41 and Table V.42 present similar 
results for the TSLs considered for standby mode and off mode power.

   Table V.39--Estimates of Global Present Value of CO[ihel2] Emissions Reductions Under Furnace, Central Air
                                Conditioner, and Heat Pump Energy Efficiency TSLs
----------------------------------------------------------------------------------------------------------------
                                                                       Million 2009$
                                         -----------------------------------------------------------------------
                   TSL                                                                             3% Discount
                                             5% Discount       3% Discount      2.5% Discount      rate, 95th
                                           rate, average *   rate, average *   rate, average *    percentile *
----------------------------------------------------------------------------------------------------------------
1.......................................               65               332               562              1013
2.......................................       328 to 320      1805 to 1757      3105 to 3021      5490 to 5344
3.......................................       496 to 577      2711 to 3149      4657 to 5409      8249 to 9581
4.......................................       530 to 672      2860 to 3622      4902 to 6204     8705 to 11025
5.......................................              596              3253              5586              9897
6.......................................              987              5326              9123             16209
7.......................................             3926             21391             36723             65087
----------------------------------------------------------------------------------------------------------------
* Columns are labeled by the discount rate used to calculate the SCC and whether it is an average value or drawn
  from a different part of the distribution. Values presented in the table incorporate the escalation of the SCC
  over time.

  Table V.40--Estimates of Domestic Present Value of CO[ihel2] Emissions Reductions Under Furnace, Central Air
                                Conditioner, and Heat Pump Energy Efficiency TSLs
----------------------------------------------------------------------------------------------------------------
                                                                       Million 2009$
                                         -----------------------------------------------------------------------
                   TSL                                                                             3% Discount
                                             5% Discount       3% Discount      2.5% Discount      rate, 95th
                                           rate, average *   rate, average *   rate, average *    percentile *
----------------------------------------------------------------------------------------------------------------
1.......................................      4.6 to 15.0      23.2 to 76.4       39.3 to 129       70.9 to 233
2.......................................     22.4 to 75.4        123 to 415        211 to 714       374 to 1263
3.......................................      34.7 to 133        190 to 724       326 to 1244       577 to 2204

[[Page 37521]]

 
4.......................................      37.1 to 155        200 to 833       343 to 1427       609 to 2536
5.......................................      41.7 to 137        228 to 748       391 to 1285       691 to 2269
6.......................................      69.1 to 227       373 to 1225       639 to 2098      1135 to 3728
7.......................................       275 to 903      1497 to 4920      2571 to 8446     4556 to 14970
----------------------------------------------------------------------------------------------------------------
* Columns are labeled by the discount rate used to calculate the SCC and whether it is an average value or drawn
  from a different part of the distribution. Values presented in the table incorporate the escalation of the SCC
  over time.

      Table V.41--Estimates of Global Present Value of CO2 Emissions Reductions Under Furnace, Central Air
                         Conditioner, and Heat Pump Standby Mode and Off Mode Power TSLs
----------------------------------------------------------------------------------------------------------------
                                                                           Million 2009$
                                                 ---------------------------------------------------------------
                       TSL                                                                          3% Discount
                                                    5% Discount     3% Discount    2.5% Discount    rate, 95th
                                                  rate, average*  rate, average*  rate, average*    percentile*
----------------------------------------------------------------------------------------------------------------
1...............................................            41.7             228             392             694
2...............................................            44.3             242             417             738
3...............................................            51.7             283             487             862
----------------------------------------------------------------------------------------------------------------
* Columns are labeled by the discount rate used to calculate the SCC and whether it is an average value or drawn
  from a different part of the distribution. Values presented in the table incorporate the escalation of the SCC
  over time.

     Table V.42--Estimates of Domestic Present Value of CO2 Emissions Reductions Under Furnace, Central Air
                         Conditioner, and Heat Pump Standby Mode and Off Mode Power TSLs
----------------------------------------------------------------------------------------------------------------
                                                                       Million 2009$
                                         -----------------------------------------------------------------------
                   TSL                                                                             3% discount
                                             5% Discount       3% Discount      2.5% Discount      rate, 95th
                                           rate, average*    rate, average*    rate, average*      percentile*
----------------------------------------------------------------------------------------------------------------
1.......................................     2.92 to 9.59      16.0 to 52.4      27.4 to 90.2     48.6 to 159.6
2.......................................     3.10 to 10.2      16.9 to 55.7      29.2 to 95.9     51.7 to 169.7
3.......................................     3.62 to 11.9      19.8 to 65.1     34.1 to 112.0     60.3 to 198.3
----------------------------------------------------------------------------------------------------------------
* Columns are labeled by the discount rate used to calculate the SCC and whether it is an average value or drawn
  from a different part of the distribution. Values presented in the table incorporate the escalation of the SCC
  over time.

    DOE is well aware that scientific and economic knowledge about the 
contribution of CO2 and other GHG emissions to changes in 
the future global climate and the potential resulting damages to the 
world economy continues to evolve rapidly. Thus, any value placed in 
this rulemaking on reducing CO2 emissions is subject to 
change. DOE, together with other Federal agencies, will continue to 
review various methodologies for estimating the monetary value of 
reductions in CO2 and other GHG emissions. This ongoing 
review will consider any comments on this subject that are part of the 
public record for this and other rulemakings, as well as other 
methodological assumptions and issues. However, consistent with DOE's 
legal obligations, and taking into account the uncertainty involved 
with this particular issue, DOE has included in this notice the most 
recent values and analyses resulting from the ongoing interagency 
review process.
    DOE also estimated a range for the cumulative monetary value of the 
economic benefits associated with NOX emissions reductions 
anticipated to result from amended standards for furnaces, central air 
conditioners, and heat pumps. The dollar-per-ton values that DOE used 
are discussed in section IV.M. Table V.43 presents the cumulative 
present values for each TSL considered for energy efficiency, 
calculated using 7-percent and 3-percent discount rates. Table V.44 
presents similar results for the TSLs considered for standby mode and 
off mode power.

Table V.43--Estimates of Present Value of NOX Emissions Reductions Under
 Furnace, Central Air Conditioner, and Heat Pump Energy Efficiency TSLs
------------------------------------------------------------------------
                                         3% Discount
                 TSL                    rate  million   7% Discount rate
                                            2009$         million 2009$
------------------------------------------------------------------------
1...................................      3.4 to 35.3       1.7 to 17.0
2...................................      17.9 to 188       6.8 to 72.3
3...................................      26.4 to 322       10.3 to 126

[[Page 37522]]

 
4...................................      28.5 to 380       11.9 to 160
5...................................      32.3 to 332       12.7 to 131
6...................................      52.2 to 536       21.2 to 218
7...................................      203 to 2082       79.8 to 820
------------------------------------------------------------------------

Table V.44--Estimates of Present Value of NOX Emissions Reductions Under
  Furnace, Central Air Conditioner, and Heat Pump Standby Mode and Off
                             Mode Power TSLs
------------------------------------------------------------------------
                                      3% discount rate  7% discount rate
                 TSL                    million 2009$     million 2009$
------------------------------------------------------------------------
1...................................     2.07 to 21.3     0.793 to 8.15
2...................................     2.20 to 22.6     0.841 to 8.65
3...................................     2.56 to 26.3     0.975 to 10.0
------------------------------------------------------------------------

    The NPV of the monetized benefits associated with emissions 
reductions can be viewed as a complement to the NPV of the consumer 
savings calculated for each TSL considered in this rulemaking. Table 
V.45 shows an example of the calculation of the combined NPV, including 
benefits from emissions reductions for the case of TSL 4 for furnaces, 
central air conditioners, and heat pumps. Table V.46 and Table V.47 
present the NPV values that result from adding the estimates of the 
potential economic benefits resulting from reduced CO2 and 
NOX emissions in each of four valuation scenarios to the NPV 
of consumer savings calculated for each TSL considered for energy 
efficiency, at both a 7-percent and a 3-percent discount rate. The 
CO2 values used in the columns of each table correspond to 
the four scenarios for the valuation of CO2 emission 
reductions presented in section IV.M. Table V.48 and Table V.49 present 
similar results for the TSLs considered for standby mode and off mode 
power.

   Table V.45--Adding Net Present Value of Consumer Savings to Present
 Value of Monetized Benefits From CO2 and NOX Emissions Reductions Under
    TSL 4 for Furnace, Central Air Conditioner, and Heat Pump Energy
                               Efficiency
------------------------------------------------------------------------
                                              Present value    Discount
                 Category                     billion 2009$     rate %
------------------------------------------------------------------------
                                Benefits
------------------------------------------------------------------------
Operating Cost Savings....................     10.6 to 14.0           7
                                               26.3 to 34.4           3
CO2 Reduction Monetized Value (at $4.9/               0.530           5
 Metric Ton) *............................
CO2 Reduction Monetized Value (at $22.1/              2.860           3
 Metric Ton) *............................
CO2 Reduction Monetized Value (at $36.3/              4.902         2.5
 Metric Ton) *............................
CO2 Reduction Monetized Value (at $67.1/              8.705           3
 Metric Ton) *............................
NOX Reduction Monetized Value (at $2,519/             0.067           7
 Ton) *...................................
                                                      0.161           3
Total Monetary Benefits **................     13.5 to 16.9           7
                                               29.3 to 37.4           3
------------------------------------------------------------------------
                                  Costs
------------------------------------------------------------------------
Incremental Installed Costs...............       6.7 to 9.8           7
                                               11.5 to 16.8           3
------------------------------------------------------------------------
                           Net Benefits/Costs
------------------------------------------------------------------------
Including CO2 and NOX **..................       6.8 to 7.1           7
                                               17.8 to 20.6           3
------------------------------------------------------------------------
* These values represent global values (in 2009$) of the social cost of
  CO2 emissions in 2010 under several scenarios. The values of $4.9,
  $22.1, and $36.3 per ton are the averages of SCC distributions
  calculated using 5-percent, 3-percent, and 2.5-percent discount rates,
  respectively. The value of $67.1 per ton represents the 95th
  percentile of the SCC distribution calculated using a 3-percent
  discount rate. See section IV.M for details. The value for NOX (in
  2009$) is the average of the low and high values used in DOE's
  analysis.
** Total Monetary Benefits and Net Benefits/Costs for both the 3% and 7%
  cases utilize the central estimate of social cost of CO2 emissions
  calculated at a 3% discount rate, which is equal to $22.1/ton in 2010
  (in 2009$).

[[Page 37523]]

  Table V.46--Results of Adding Net Present Value of Consumer Savings (at 7% Discount Rate) to Present Value of
 Monetized Benefits from CO2 and NOX Emissions Reductions Under Furnace, Central Air Conditioner, and Heat Pump
                                             Energy Efficiency TSLs
----------------------------------------------------------------------------------------------------------------
                                                    Consumer NPV at 7% discount rate added to:
                                 -------------------------------------------------------------------------------
                                  SCC Value of $4.9/  SCC Value of $22.1/ SCC Value of $36.3/ SCC Value of $67.1/
               TSL                 metric ton CO2 *    metric ton CO2 *    metric ton CO2 *    metric ton CO2 *
                                   and Low Value for   and Medium Value    and Medium Value   and High Value for
                                    NOX ** billion    for NOX ** billion  for NOX ** billion    NOX ** billion
                                         2009$               2009$               2009$               2009$
----------------------------------------------------------------------------------------------------------------
1...............................               0.29                0.57                0.80                1.26
2...............................       2.93 to 2.74        4.44 to 4.21        5.74 to 5.47      8.16 to 7.8379
3...............................       3.87 to 3.95        6.13 to 6.58        8.08 to 8.84        11.7 to 13.1
4...............................       4.47 to 4.90        6.85 to 7.92        8.89 to 10.5        12.8 to 15.4
5...............................               4.08                6.80                9.13                13.5
6...............................             (1.55)                2.89                6.69                13.9
7...............................             (41.0)              (23.1)              (7.81)                20.9
----------------------------------------------------------------------------------------------------------------
* These label values represent the global SCC of CO2 in 2010, in 2009$. The values have been calculated with
  scenario-consistent discount rates. See section IV.M for a discussion of the derivation of these values.
** Low Value corresponds to $447 per ton of NOX emissions. Medium Value corresponds to $2,519 per ton of NOX
  emissions. High Value corresponds to $4,591 per ton of NOX emissions.
Parentheses indicate negative (-) values.

  Table V.47--Results of Adding Net Present Value of Consumer Savings (at 3% Discount Rate) to Present Value of
 Monetized Benefits from CO2 and NOX Emissions Reductions Under Furnace, Central Air Conditioner, and Heat Pump
                                             Energy Efficiency TSLs
----------------------------------------------------------------------------------------------------------------
                                                    Consumer NPV at 3% discount rate added to:
                                 -------------------------------------------------------------------------------
                                  SCC Value of $4.9/  SCC Value of $22.1/ SCC Value of $36.3/ SCC Value of $67.1/
               TSL                 metric ton CO2 *    metric ton CO2 *    metric ton CO2 *    metric ton CO2 *
                                   and Low Value for   and Medium Value    and Medium Value   and High Value for
                                    NOX ** billion    for NOX ** billion  for NOX ** billion    NOX ** billion
                                         2009$               2009$               2009$               2009$
----------------------------------------------------------------------------------------------------------------
1...............................               0.83                1.12                1.33                1.79
2...............................       11.0 to 11.9        12.5 to 13.4        13.8 to 14.6        16.2 to 17.0
3...............................       13.9 to 15.9        16.2 to 18.6        18.1 to 20.8        21.7 to 25.0
4...............................       15.3 to 18.2        17.8 to 21.4        19.7 to 22.8        23.6 to 28.7
5...............................               16.3                19.1                21.4                25.7
6...............................                9.2                13.8                17.4                24.6
7...............................             (41.1)              (22.6)               (8.0)                20.8
----------------------------------------------------------------------------------------------------------------
* The label values represent the global SCC of CO2 in 2010, in 2009$. The values have been calculated with
  scenario-consistent discount rates. See section IV.M for a discussion of the derivation of these values.
** Low Value corresponds to $447 per ton of NOX emissions. Medium Value corresponds to $2,519 per ton of NOX
  emissions. High Value corresponds to $4,591 per ton of NOX emissions.
Parentheses indicate negative (-) values.

  Table V.48--Results of Adding Net Present Value of Consumer Savings (at 7% Discount Rate) to Present Value of
 Monetized Benefits from CO2 and NOX Emissions Reductions Under Furnace, Central Air Conditioner, and Heat Pump
                                      Standby Mode and Off Mode Power TSLs
----------------------------------------------------------------------------------------------------------------
                                                    Consumer NPV at 7% discount rate added to:
                                 -------------------------------------------------------------------------------
                                  SCC Value of $4.9/  SCC Value of $22.1/ SCC Value of $36.3/ SCC Value of $67.1/
               TSL                 metric ton CO2 *    metric ton CO2 *    metric ton CO2 *    metric ton CO2 *
                                   and Low Value for   and Medium Value    and Medium Value   and High Value for
                                    NOX ** billion    for NOX ** billion  for NOX ** billion    NOX ** billion
                                         2009$               2009$               2009$               2009$
----------------------------------------------------------------------------------------------------------------
1...............................              0.413               0.603               0.767               1.072
2...............................              0.418               0.620               0.794               1.119
3...............................              0.288               0.524               0.728               1.107
----------------------------------------------------------------------------------------------------------------
* The label values represent the global SCC of CO2 in 2010, in 2009$. The values have been calculated with
  scenario-consistent discount rates. See section IV.M for a discussion of the derivation of these values.
** Low Value corresponds to $447 per ton of NOX emissions. Medium Value corresponds to $2,519 per ton of NOX
  emissions. High Value corresponds to $4,591 per ton of NOX emissions.

[[Page 37524]]

  Table V.49--Results of Adding Net Present Value of Consumer Savings (at 3% Discount Rate) to Present Value of
 Monetized Benefits From CO2 and NOX Emissions Reductions Under Furnace, Central Air Conditioner, and Heat Pump
                                      Standby Mode and Off Mode Power TSLs
----------------------------------------------------------------------------------------------------------------
                                                    Consumer NPV at 3% discount rate added to:
                                 -------------------------------------------------------------------------------
                                  SCC Value of $4.9/  SCC Value of $22.1/ SCC Value of $36.3/ SCC Value of $67.1/
               TSL                 metric ton CO2 *    metric ton CO2 *    metric ton CO2 *    metric ton CO2 *
                                   and Low Value for   and Medium Value    and Medium Value   and High Value for
                                    NOX ** billion    for NOX ** billion  for NOX ** billion    NOX ** billion
                                         2009$               2009$               2009$               2009$
----------------------------------------------------------------------------------------------------------------
1...............................              1.182               1.378               1.542               1.854
2...............................              1.226               1.434               1.608               1.939
3...............................              1.069               1.312               1.516               1.903
----------------------------------------------------------------------------------------------------------------
* The label values represent the global SCC of CO2 in 2010, in 2009$. The values have been calculated with
  scenario-consistent discount rates. See section IV.M for a discussion of the derivation of these values.
** Low Value corresponds to $447 per ton of NOX emissions. Medium Value corresponds to $2,519 per ton of NOX
  emissions. High Value corresponds to $4,591 per ton of NOX emissions.

    Although adding the value of consumer savings to the values of 
emission reductions provides a valuable perspective, two issues should 
be considered. First, the national operating savings are domestic U.S. 
consumer monetary savings that occur as a result of market 
transactions, while the value of CO2 reductions is based on 
a global value. Second, the assessments of operating cost savings and 
CO2 savings are performed with different methods that use 
quite different time frames for analysis. The national operating cost 
savings is measured for the lifetime of products shipped in the 30-year 
period after the compliance date. The SCC values, on the other hand, 
reflect the present value of future climate-related impacts resulting 
from the emission of one ton of carbon dioxide in each year. These 
impacts go well beyond 2100.
7. Other Factors
    The Secretary, in determining whether a proposed standard is 
economically justified, may consider any other factors that he deems to 
be relevant. (42 U.S.C. 6295(o)(2)(B)(i)(VI)) In developing the 
proposals set forth in this notice, DOE has also considered the 
comments submitted by interested parties, including the recommendations 
in the consensus agreement, which DOE believes provides a reasoned 
statement by interested persons that are fairly representative of 
relevant points of view (including representatives of manufacturers of 
covered products, States, and efficiency advocates) and contains 
recommendations with respect to an energy conservation standard that 
are in accordance with 42 U.S.C. 6295(o). Moreover, DOE has encouraged 
the submission of consensus agreements as a way to get diverse 
stakeholders together, to develop an independent and probative analysis 
useful in DOE standard setting, and to expedite the rulemaking process. 
In the present case, one outcome of the consensus agreement was a 
recommendation to accelerate the compliance dates for these products, 
which would have the effect of producing additional energy savings at 
an earlier date. DOE also believes that standard levels recommended in 
the consensus agreement may increase the likelihood for regulatory 
compliance, while decreasing the risk of litigation.

C. Conclusion

    When considering standards, the new or amended energy conservation 
standard that DOE adopts 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. (42 U.S.C. 6295(o)(2)(A)) In determining 
whether a standard is economically justified, the Secretary must 
determine whether the benefits of the standard exceed its burdens to 
the greatest extent practicable, in light of the seven statutory 
factors discussed previously. (42 U.S.C. 6295(o)(2)(B)(i)) The new or 
amended standard must also ``result in significant conservation of 
energy.'' (42 U.S.C. 6295(o)(3)(B))
    For today's direct final rule, DOE considered the impacts of 
standards at each TSL, beginning with the maximum technologically 
feasible level, to determine whether that level was economically 
justified. Where the max-tech level was not justified, DOE then 
considered the next most efficient level and undertook the same 
evaluation until it reached the highest efficiency level that is both 
technologically feasible and economically justified and saves a 
significant amount of energy.
    To aid the reader as DOE discusses the benefits and/or burdens of 
each TSL, tables present a summary of the results of DOE's quantitative 
analysis for each TSL. In addition to the quantitative results 
presented in the tables, DOE also considers other burdens and benefits 
that affect economic justification. These include the impacts on 
identifiable subgroups of consumers, such as low-income households and 
seniors, who may be disproportionately affected by an amended national 
standard. Section V.B.1 presents the estimated impacts of each TSL for 
these subgroups.
    DOE also notes that the economics literature provides a wide-
ranging discussion of how consumers trade off upfront costs and energy 
savings in the absence of government intervention. Much of this 
literature attempts to explain why consumers appear to undervalue 
energy efficiency improvements. This undervaluation suggests that 
regulation that promotes energy efficiency can produce significant net 
private gains (as well as producing social gains by, for example, 
reducing pollution). There is evidence that consumers undervalue future 
energy savings as a result of: (1) A lack of information, (2) a lack of 
sufficient salience of the long-term or aggregate benefits, (3) a lack 
of sufficient savings to warrant delaying or altering purchases (e.g., 
an inefficient ventilation fan in a new building or the delayed 
replacement of a water pump), (4) excessive focus on the short term, in 
the form of inconsistent weighting of future energy cost savings 
relative to available returns on other investments, (5) computational 
or other difficulties associated with the evaluation of relevant 
tradeoffs, and (6) a divergence in incentives (e.g., renter versus 
owner; builder versus purchaser). Other literature indicates that with 
less than perfect foresight and a high degree of uncertainty about the 
future, consumers may trade off these types of investments

[[Page 37525]]

at a higher than expected rate between current consumption and 
uncertain future energy cost savings.
    In its current regulatory analysis, potential changes in the 
benefits and costs of a regulation due to changes in consumer purchase 
decisions are included in two ways. First, if consumers forego a 
purchase of a product in the standards case, this decreases sales for 
product manufacturers and the cost to manufacturers is included in the 
MIA. Second, DOE accounts for energy savings attributable only to 
products actually used by consumers in the standards case; if a 
regulatory option decreases the number of products used by consumers, 
this decreases the potential energy savings from an energy conservation 
standard. DOE provides detailed estimates of shipments and changes in 
the volume of product purchases under standards in chapter 9 of the 
TSD. However, DOE's current analysis does not explicitly control for 
heterogeneity in consumer preferences, preferences across subcategories 
of products or specific features, or consumer price sensitivity 
variation according to household income (Reiss and White 2004).
    While DOE is not prepared at present to provide a fuller 
quantifiable framework for estimating the benefits and costs of changes 
in consumer purchase decisions due to an energy conservation standard, 
DOE seeks comments on how to more fully assess the potential impact of 
energy conservation standards on consumer choice and how to quantify 
this impact in its regulatory analysis in future rulemakings.
1. Benefits and Burdens of TSLs Considered for Furnace, Central Air 
Conditioner, and Heat Pump Energy Efficiency
    Table V.50 through Table V.54 present summaries of the quantitative 
impacts estimated for each TSL for furnace, central air conditioner, 
and heat pump energy efficiency. The efficiency levels contained in 
each TSL are described in section V.A.

BILLING CODE 6450-01-P

                                   Table V.50--Summary of Results for Furnace, Central Air Conditioner, and Heat Pump Energy Efficiency TSLs: National Impacts
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                             Category                                     TSL 1             TSL 2             TSL 3             TSL 4             TSL 5             TSL 6             TSL 7
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
National Energy Savings (quads)...................................             0.18      2.32 to 2.91      2.97 to 3.84      3.20 to 4.22              3.89              5.91             19.18
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                            NPV of Consumer Benefits (2009$ billion)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
3% discount rate..................................................             0.76    10.61 to 11.56    13.35 to 15.29    14.73 to 17.55             15.69              8.18           (45.12)
7% discount rate..................................................             0.23      2.60 to 2.41      3.36 to 3.36      3.93 to 4.21              3.47            (2.56)           (44.98)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                 Cumulative Emissions Reduction
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
CO2 (million metric tons).........................................             15.2      62.8 to 61.2      971.1 to 113        105 to 134               116               200               772
NOX (thousand tons)...............................................             12.3      55.5 to 56.7      83.1 to 98.5       90.1 to 117               102               168               640
Hg (tons).........................................................            0.022   0.011 to (0.012)   0.086 to 0.059    0.097 to 0.071             0.059             0.270             1.160
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                  Value of Emissions Reductions
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
CO2 (2009$ billion)*..............................................   0.065 to 1.013     0.320 to 5.49     0.496 to 9.58    0.530 to 11.03     0.596 to 9.90    0.987 to 16.21     3.93 to 65.09
NOX--3% discount rate (2009$ million).............................      3.4 to 35.3       17.9 to 188       26.4 to 322       28.5 to 380       32.3 to 332       52.2 to 536       203 to 2082
NOX--7% discount rate (2009$ million).............................      1.7 to 17.0       6.8 to 72.3       10.3 to 126       11.9 to 160       12.7 to 131       21.2 to 218       79.8 to 820
Generation Capacity Reduction (GW)\**\............................            0.397     0.646 to 1.12      3.61 to 3.53      3.81 to 3.69              3.56              10.5              35.6
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                       Employment Impacts
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Changes in Domestic Production Workers in 2016 (thousands)........    0.1 to (16.9)     0.3 to (16.9)     0.6 to (16.9)     0.8 to (16.9)       1 to (16.9)     1.1 to (16.9)     1.2 to (16.9)
Indirect Domestic Jobs (thousands)\ **\...........................              0.5               2.7               6.1               6.3               6.3              18.5              81.4
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Parentheses indicate negative (-) values.
* Range of the value of CO2 reductions is based on estimates of the global benefit of reduced CO2 emissions.
** Changes in 2045.

                                 Table V.51--Summary of Results for Furnace, Central Air Conditioner, and Heat Pump Energy Efficiency TSLs: Manufacturer Impacts
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                             Category                                     TSL 1             TSL 2             TSL 3             TSL 4             TSL 5             TSL 6             TSL 7
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                      Manufacturer Impacts
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Change in Industry NPV (2009$ million)............................          8 to 33    (324) to (498)    (428) to (729)    (478) to (900)    (508) to (915)   (680) to (1873)   (1530) to (3820)
Industry NPV (% change)...........................................       0.4 to 0.1    (3.8) to (5.9)    (5.0) to (8.6)   (5.6) to (10.6)   (6.0) to (10.8)   (8.0) to (22.0)   (18.0) to (45.0)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Parentheses indicate negative (-) values.

[[Page 37526]]

[GRAPHIC] [TIFF OMITTED] TR27JN11.008

[[Page 37527]]

[GRAPHIC] [TIFF OMITTED] TR27JN11.009

[[Page 37528]]

[GRAPHIC] [TIFF OMITTED] TR27JN11.010

[[Page 37529]]

[GRAPHIC] [TIFF OMITTED] TR27JN11.011

[GRAPHIC] [TIFF OMITTED] TR27JN11.012

BILLING CODE 6450-01-C
    DOE first considered TSL 7, which represents the max-tech 
efficiency levels. TSL 7 would save 19.18 quads of energy, an amount 
DOE considers significant. Under TSL 7, the NPV of consumer benefit 
would be -$44.98 billion, using a discount rate of 7 percent, and -
$45.12 billion, using a discount rate of 3 percent.
    The cumulative emissions reductions at TSL 7 are 772 Mt of 
CO2, 640 thousand tons of NOX, and 1.160 ton of 
Hg. The estimated monetary value of the cumulative CO2 
emissions reductions at TSL 7 ranges from $3.93 billion to $65.1 
billion. Total generating capacity in 2045 is estimated to decrease by 
35.6 GW under TSL 7.
    At TSL 7, the average LCC impact is a savings (LCC decrease) of 
$198 for non-weatherized gas furnaces in the northern region and a cost 
(LCC increase) of $181 in the southern region; a savings of $585 for 
mobile home gas furnaces in the northern region and a savings of $391 
in the southern region; and a savings of $272 for oil-fired furnaces.
    For split-system air conditioners (coil-only), the average consumer 
LCC impact is a cost of $1,343 in the rest of country, a cost of $797 
in the hot-humid region, and a cost of $1,182 in the hot-dry region. 
For split-system air conditioners (blower-coil), the average LCC impact 
is a cost of $903 in the rest of country, a cost of $130 in the hot-
humid region, and a cost of $311 in the hot-dry region. For split-
system heat pumps, the average LCC impact is a cost of $604 in

[[Page 37530]]

the rest of country, a savings of $103 in the hot-humid region, and a 
savings of $477 in the hot-dry region. For single-package air 
conditioners, the average LCC impact is a cost of $492. For single-
package heat pumps, the average LCC impact is a cost of $363. For SDHV 
air conditioners, the average LCC impact is a cost of $294 in the rest 
of country, a cost of $25 in the hot-humid region, and a cost of $106 
in the hot-dry region.
    At TSL 7, the median payback period for non-weatherized gas 
furnaces is 17.1 years in the northern region and 28.9 years in the 
southern region; 11.5 years for mobile home gas furnaces in the 
northern region and 13 years in the southern region; and 18.2 years for 
oil-fired furnaces.
    For split-system air conditioners (coil-only), the median payback 
period is 100 years in the rest of country, 47 years in the hot-humid 
region, and 71 years in the hot-dry region. For split-system air 
conditioners (blower-coil), the median payback period is 100 years in 
the rest of country, 21 years in the hot-humid region, and 31 years in 
the hot-dry region. For split-system heat pumps, the median payback 
period is 33 years in the rest of country, 13 years in the hot-humid 
region, and 9 years in the hot-dry region. For single-package air 
conditioners, the median payback period is 46 years. For single-package 
heat pumps, the median payback period is 21 years. For SDHV air 
conditioners, the median payback period is 75 years in the rest of 
country, 17 years in the hot-humid region, and 23 years in the hot-dry 
region.
    At TSL 7, the fraction of consumers experiencing an LCC benefit is 
41 percent for non-weatherized gas furnaces in the northern region and 
27 percent in the southern region; 46 percent for mobile home gas 
furnaces in the northern region and 45 percent in the southern region; 
and 48 percent for oil-fired furnaces.
    For split-system air conditioners (coil-only), the fraction of 
consumers experiencing an LCC benefit at TSL 7 is 1 percent in the rest 
of country, 10 percent in the hot-humid region, and 9 percent in the 
hot-dry region. For split-system air conditioners (blower-coil), the 
fraction of consumers experiencing an LCC benefit is 3 percent in the 
rest of country, 29 percent in the hot-humid region, and 23 percent in 
the hot-dry region. For split-system heat pumps, the fraction of 
consumers experiencing an LCC benefit is 13 percent in the rest of 
country, 40 percent in the hot-humid region, and 49 percent in the hot-
dry region. For single-package air conditioners, the fraction of 
consumers experiencing an LCC benefit is 16 percent. For single-package 
heat pumps, the fraction of consumers experiencing an LCC benefit is 21 
percent. For SDHV air conditioners, the fraction of consumers 
experiencing an LCC benefit is 8 percent in the rest of country, 33 
percent in the hot-humid region, and 26 percent in the hot-dry region.
    At TSL 7, the fraction of consumers experiencing an LCC cost is 59 
percent for non-weatherized gas furnaces in the northern region and 72 
percent in the southern region; 46 percent for mobile home gas furnaces 
in the northern region and 51 percent in the southern region; and 51 
percent for oil-fired furnaces.
    For split-system air conditioners (coil-only), the fraction of 
consumers experiencing an LCC cost is 99 percent in the rest of 
country, 90 percent in the hot-humid region, and 91 percent in the hot-
dry region. For split-system air conditioners (blower-coil), the 
fraction of consumers experiencing an LCC cost is 96 percent in the 
rest of country, 70 percent in the hot-humid region, and 76 percent in 
the hot-dry region. For split-system heat pumps, the fraction of 
consumers experiencing an LCC cost is 87 percent in the rest of 
country, 60 percent in the hot-humid region, and 51 percent in the hot-
dry region. For single-package air conditioners, the fraction of 
consumers experiencing an LCC cost is 84 percent. For single-package 
heat pumps, the fraction of consumers experiencing an LCC cost is 79 
percent. For SDHV air conditioners, the fraction of consumers 
experiencing an LCC cost is 92 percent in the rest of country, 67 
percent in the hot-humid region, and 74 percent in the hot-dry region.
    At TSL 7, the projected change in INPV ranges from a decrease of 
$1,530 million to a decrease of $3,820 million. At TSL 7, DOE 
recognizes the risk of large negative impacts if manufacturers' 
expectations concerning reduced profit margins are realized. If the 
high end of the range of impacts is reached as DOE expects, TSL 7 could 
result in a net loss of 45.0 percent in INPV to furnace, central air 
conditioner, and heat pump manufacturers.
    The Secretary concludes that at TSL 7 for furnace, central air 
conditioner, and heat pump energy efficiency, the benefits of energy 
savings, generating capacity reductions, emission reductions, and the 
estimated monetary value of the CO2 emissions reductions 
would be outweighed by the negative NPV of consumer benefits, the 
economic burden on a significant fraction of consumers due to the large 
increases in product cost, and the capital conversion costs and profit 
margin impacts that could result in a very large reduction in INPV for 
the manufacturers. Consequently, the Secretary has concluded that TSL 7 
is not economically justified.
    DOE then considered TSL 6. TSL 6 would save 5.91 quads of energy, 
an amount DOE considers significant. Under TSL 6, the NPV of consumer 
benefit would be -$2.56 billion, using a discount rate of 7 percent, 
and $8.18 billion, using a discount rate of 3 percent.
    The cumulative emissions reductions at TSL 6 are 200 Mt of 
CO2, 168 thousand tons of NOX, and 0.270 ton of 
Hg. The estimated monetary value of the cumulative CO2 
emissions reductions at TSL 6 ranges from $0.987 billion to $16.2 
billion. Total generating capacity in 2045 is estimated to decrease by 
10.5 GW under TSL 6.
    At TSL 6, the average LCC impact is a savings (LCC decrease) of 
$323 for non-weatherized gas furnaces in the northern region and not 
applicable in the south, a savings of $585 for mobile home gas furnaces 
in the northern region and not applicable in the south, and a cost of 
$18 for oil-fired furnaces.
    For split-system air conditioners (coil-only), the average LCC 
impact is a cost of $26 in the rest of country, a cost of $303 in the 
hot-humid region, and a cost of $468 in the hot-dry region. For split-
system air conditioners (blower-coil), the average LCC impact is a cost 
of $30 in the rest of country, a savings of $177 in the hot-humid 
region, and a savings of $196 in the hot-dry region. For split-system 
heat pumps, the average LCC impact is a cost of $89 in the rest of 
country, a savings of $137 in the hot-humid region, and a savings of 
$274 in the hot-dry region. For single-package air conditioners, the 
average LCC impact is a cost of $68. For single-package heat pumps the 
average LCC impact is a savings of $15. For SDHV air conditioners, the 
average LCC impact is a cost of $202 in the rest of country, a cost of 
$14 in the hot-humid region, and a cost of $65 in the hot-dry region.
    At TSL 6, the median payback period is 9.4 years for non-
weatherized gas furnaces in the northern region and not applicable in 
the south; 11.5 years for mobile home gas furnaces in the northern 
region and not applicable in the south; and 19.8 years for oil-fired 
furnaces.
    For split-system air conditioners (coil-only), the median payback 
period is 33 years in the rest of country, 34 years in the hot-humid 
region, and 49 years in the hot-dry region. For split-system air 
conditioners (blower-coil), the median payback period is 28 years in 
the rest of country, 8 years in the hot-humid region, and 11 years in 
the hot-dry

[[Page 37531]]

region. For split-system heat pumps, the median payback period is 20 
years in the rest of country, 7 years in the hot-humid region, and 5 
years in the hot-dry region. For single-package air conditioners, the 
median payback period is 24 years. For single-package heat pumps, the 
median payback period is 14 years. For SDHV air conditioners, the 
median payback period is 74 years in the rest of country, 18 years in 
the hot-humid region, and 26 years in the hot-dry region.
    At TSL 6, the fraction of consumers experiencing an LCC benefit is 
54 percent for non-weatherized gas furnaces in the northern region and 
0 percent in the south; 46 percent for mobile home gas furnaces in the 
northern region and 0 percent in the south; and 33 percent for oil-
fired furnaces.
    For split-system air conditioners (coil-only), the fraction of 
consumers experiencing an LCC benefit is 16 percent in the rest of 
country, 12 percent in the hot-humid region, and 9 percent in the hot-
dry region. For split-system air conditioners (blower-coil), the 
fraction of consumers experiencing an LCC benefit is 12 percent in the 
rest of country, 39 percent in the hot-humid region, and 31 percent in 
the hot-dry region. For split-system heat pumps, the fraction of 
consumers experiencing an LCC benefit is 19 percent in the rest of 
country, 48 percent in the hot-humid region, and 52 percent in the hot-
dry region. For single-package air conditioners, the fraction of 
consumers experiencing an LCC benefit is 27 percent. For single-package 
heat pumps, the fraction of consumers experiencing an LCC benefit is 35 
percent. For SDHV air conditioners, the fraction of consumers 
experiencing an LCC benefit is 5 percent in the rest of country, 32 
percent in the hot-humid region, and 26 percent in the hot-dry region.
    At TSL 6, the fraction of consumers experiencing an LCC cost is 23 
percent for non-weatherized gas furnaces in the northern region and 0 
percent in the south; 46 percent for mobile home gas furnaces in the 
northern region and 0 percent in the south; and 35 percent for oil-
fired furnaces.
    For split-system air conditioners (coil-only), the fraction of 
consumers experiencing an LCC cost is 56 percent in the rest of 
country, 73 percent in the hot-humid region, and 75 percent in the hot-
dry region. For split-system air conditioners (blower-coil), the 
fraction of consumers experiencing an LCC cost is 43 percent in the 
rest of country, 25 percent in the hot-humid region, and 33 percent in 
the hot-dry region. For split-system heat pumps, the fraction of 
consumers experiencing an LCC cost is 58 percent in the rest of 
country, 29 percent in the hot-humid region, and 25 percent in the hot-
dry region. For single-package air conditioners, the fraction of 
consumers experiencing an LCC cost is 72 percent. For single-package 
heat pumps, the fraction of consumers experiencing an LCC cost is 63 
percent. For SDHV air conditioners, the fraction of consumers 
experiencing an LCC cost is 95 percent in the rest of country, 68 
percent in the hot-humid region, and 74 percent in the hot-dry region.
    At TSL 6, the projected change in INPV ranges from a decrease of 
$680 million to a decrease of $1,873 million. At TSL 6, DOE recognizes 
the risk of negative impacts if manufacturers' expectations concerning 
reduced profit margins are realized. If the high end of the range of 
impacts is reached as DOE expects, TSL 6 could result in a net loss of 
22.0 percent in INPV to furnace, central air conditioner, and heat pump 
manufacturers.
    The Secretary concludes that at TSL 6 for furnace and central air 
conditioner and heat pump energy efficiency, the benefits of energy 
savings, generating capacity reductions, emission reductions, and the 
estimated monetary value of the CO2 emissions reductions 
would be outweighed by the negative NPV of consumer benefits, the 
economic burden on a significant fraction of consumers due to the 
increases in installed product cost, and the capital conversion costs 
and profit margin impacts that could result in a very large reduction 
in INPV for the manufacturers. Consequently, the Secretary has 
concluded that TSL 6 is not economically justified.
    As discussed above, DOE calculated a range of results for national 
energy savings and NPV of consumer benefit under TSL 4. Because the 
range of results for TSL 4 overlaps with the results for TSL 5, and 
because TSLs 4 and 5 are similar in many aspects, DOE discusses the 
benefits and burdens of TSLs 4 and 5 together below.
    TSL 5 would save 3.98 quads of energy, an amount DOE considers 
significant. TSL 4 would save 3.20 to 4.22 quads of energy, an amount 
DOE considers significant. Under TSL 5, the NPV of consumer benefit 
would be $3.47 billion, using a discount rate of 7 percent, and $15.69 
billion, using a discount rate of 3 percent. Under TSL 4, the NPV of 
consumer benefit would be $3.93 billion to $4.21 billion, using a 
discount rate of 7 percent, and $14.73 billion to $17.55 billion, using 
a discount rate of 3 percent.
    The cumulative emissions reductions at TSL 5 are 116 Mt of 
CO2, 102 thousand tons of NOX, and 0.059 ton of 
Hg. The cumulative emissions reductions at TSL 4 are 105 to 134 Mt of 
CO2, 90.1 to 117 thousand tons of NOX, and 0.097 
to 0.071 ton of Hg. The estimated monetary value of the cumulative 
CO2 emissions reductions at TSL 5 ranges from $0.596 billion 
to $9.90 billion. The estimated monetary value of the cumulative 
CO2 emissions reductions at TSL 4 ranges from $0.530 billion 
to $11.0 billion. Total generating capacity in 2045 is estimated to 
decrease by 3.56 GW under TSL 5, and by 3.81 to 3.69 GW under TSL 4.
    At TSL 5, the average LCC impact is a savings (LCC decrease) of 
$323 for non-weatherized gas furnaces in the northern region and not 
applicable in the south; a savings of $585 for mobile home gas furnaces 
in the northern region and not applicable in the south; and a cost of 
$18 for oil-fired furnaces. At TSL 4, the average LCC impact is a 
savings of $155 for non-weatherized gas furnaces in the northern region 
and not applicable in the south, a savings of $419 for mobile home gas 
furnaces in the northern region and not applicable in the south, and a 
savings of $15 for oil-fired furnaces.
    For central air conditioners and heat pumps, the average LCC 
impacts for TSL 5 and TSL 4 are the same. For split-system air 
conditioners (coil-only), the average LCC impact is not applicable in 
the rest of country, but is a savings of $93 in the hot-humid region, 
and a savings of $107 in the hot-dry region. For split-system air 
conditioners (blower-coil), the average LCC impact is not applicable in 
the rest of country, but is a savings of $89 in the hot-humid region, 
and a savings of $101 in the hot-dry region. For split-system heat 
pumps, the average LCC impact is a savings of $4 in the rest of 
country, a savings of $102 in the hot-humid region, and a savings of 
$175 in the hot-dry region. For single-package air conditioners, the 
average LCC impact is a cost of $37. For single-package heat pumps, the 
average LCC impact is a cost of $104. For SDHV air conditioners, the 
average LCC impact is not applicable for all regions.
    At TSL 5, the median payback period is 9.4 years for non-
weatherized gas furnaces in the northern region and not applicable in 
the south, 11.5 years for mobile home gas furnaces in the northern 
region and not applicable in the south, and 19.8 years for oil-fired 
furnaces. At TSL 4, the median payback period is 10.1 years for non-
weatherized gas furnaces in the northern region and not applicable in 
the south, 10.7 years for mobile home gas furnaces in the northern 
region and not applicable in

[[Page 37532]]

the south, and 1.0 year for oil-fired furnaces.
    For central air conditioners and heat pumps, the median payback 
periods for TSL 5 and TSL 4 are the same. For split-system air 
conditioners (coil-only), the median payback period is not applicable 
in the rest of country, 7 years in the hot-humid region, and 10 years 
in the hot-dry region. For split-system air conditioners (blower-coil), 
the median payback period is not applicable in the rest of country, 8 
years in the hot-humid region, and 11 years in the hot-dry region. For 
split-system heat pumps, the median payback period is 13 years in the 
rest of country, 6 years in the hot-humid region, and 5 years in the 
hot-dry region. For single-package air conditioners, the median payback 
period is 15 years. For single-package heat pumps, the median payback 
period is 8 years. For SDHV air conditioners, the median payback period 
is not applicable in all regions.
    At TSL 5, the fraction of consumers experiencing an LCC benefit is 
54 percent for non-weatherized gas furnaces in the northern region and 
0 percent in the south, 46 percent for mobile home gas furnaces in the 
northern region and 0 percent in the south, and 33 percent for oil-
fired furnaces. At TSL 4, the fraction of consumers experiencing an LCC 
benefit is 19 percent for non-weatherized gas furnaces in the northern 
region and 0 percent in the south, 47 percent for mobile home gas 
furnaces in the northern region and 0 percent in the south, and 32 
percent for oil-fired furnaces.
    For central air conditioners and heat pumps, at TSL 5 and at TSL 4, 
the fraction of consumers experiencing an LCC benefit is the same. For 
split-system air conditioners (coil-only), the fraction of consumers 
experiencing an LCC benefit is 0 percent in the rest of country, 46 
percent in the hot-humid region, and 36 percent in the hot-dry region. 
For split-system air conditioners (blower-coil), the fraction of 
consumers experiencing an LCC benefit is 0 percent in the rest of 
country, 34 percent in the hot-humid region, and 27 percent in the hot-
dry region. For split-system heat pumps, the fraction of consumers 
experiencing an LCC benefit is 20 percent in the rest of country, 38 
percent in the hot-humid region, and 40 percent in the hot-dry region. 
For single-package air conditioners, the fraction of consumers 
experiencing an LCC benefit is 33 percent. For single-package heat 
pumps, the fraction of consumers experiencing an LCC benefit is 35 
percent. For SDHV air conditioners, no consumers experience an LCC 
benefit in any of the regions.
    At TSL 5, the fraction of consumers experiencing an LCC cost is 23 
percent for non-weatherized gas furnaces in the northern region and 0 
percent in the south, 46 percent for mobile home gas furnaces in the 
northern region and 0 percent in the south, and 35 percent for oil-
fired furnaces. At TSL 4, the fraction of consumers experiencing an LCC 
cost is 10 percent for non-weatherized gas furnaces in the northern 
region and 0 percent in the south, 44 percent for mobile home gas 
furnaces in the northern region and 0 percent in the south, and 10 
percent for oil-fired furnaces.
    For central air conditioners and heat pumps, at TSL 5 and at TSL 4, 
the fraction of consumers experiencing an LCC cost is the same. For 
split-system air conditioners (coil-only), the fraction of consumers 
experiencing an LCC cost is 0 percent in the rest of country, 26 
percent in the hot-humid region, and 37 percent in the hot-dry region. 
For split-system air conditioners (blower-coil), the fraction of 
consumers experiencing an LCC cost is 0 percent in the rest of country, 
21 percent in the hot-humid region, and 28 percent in the hot-dry 
region. For split-system heat pumps, the fraction of consumers 
experiencing an LCC cost is 35 percent in the rest of country, 17 
percent in the hot-humid region, and 15 percent in the hot-dry region. 
For single-package air conditioners, the fraction of consumers 
experiencing an LCC cost is 37 percent. For single-package heat pumps, 
the fraction of consumers experiencing an LCC cost is 29 percent. For 
SDHV air conditioners, no consumers experience an LCC cost in any of 
the regions.
    At TSL 5, the projected change in INPV ranges from a decrease of 
$508 million to a decrease of $915 million. At TSL 5, DOE recognizes 
the risk of negative impacts if manufacturers' expectations concerning 
reduced profit margins are realized. If the high end of the range of 
impacts is reached as DOE expects, TSL 5 could result in a net loss of 
10.8 percent in INPV to furnace, central air conditioner, and heat pump 
manufacturers. At TSL 4, the projected change in INPV ranges from a net 
loss of $478 million to a net loss of $900 million. At TSL 4, DOE 
recognizes the risk of negative impacts if manufacturers' expectations 
concerning reduced profit margins are realized. If the high end of the 
range of impacts is reached as DOE expects, TSL 4 could result in a net 
loss of 10.6 percent in INPV to furnace, central air conditioner, and 
heat pump manufacturers.
    The Secretary concludes that at TSL 5 for furnace and central air 
conditioner and heat pump energy efficiency, the benefits of energy 
savings, positive NPV of consumer benefits, generating capacity 
reductions, emission reductions, and the estimated monetary value of 
the CO2 emissions reductions are outweighed by the economic 
burden on some consumers due to large increases in installed cost, and 
the capital conversion costs and profit margin impacts that could 
result in a large reduction in INPV for the manufacturers. 
Consequently, the Secretary has concluded that TSL 5 is not 
economically justified.
    The Secretary concludes that at TSL 4 for furnace and central air 
conditioner and heat pump energy efficiency, the benefits of energy 
savings, positive NPV of consumer benefits, generating capacity 
reductions, emission reductions, and the estimated monetary value of 
the CO2 emissions reductions would outweigh the economic 
burden on some consumers due to increases in installed cost, and the 
capital conversion costs and profit margin impacts that could result in 
a moderate reduction in INPV for the manufacturers. TSL 4 may yield 
greater cumulative energy savings than TSL 5, and also a higher NPV of 
consumer benefits at both 3-percent and 7-percent discount rates.
    In addition, the efficiency levels in TSL 4 correspond to the 
recommended levels in the consensus agreement, which DOE believes sets 
forth a statement by interested persons that are fairly representative 
of relevant points of view (including representatives of manufacturers 
of covered products, States, and efficiency advocates) and contains 
recommendations with respect to an energy conservation standard that 
are in accordance with 42 U.S.C. 6295(o). Moreover, DOE has encouraged 
the submission of consensus agreements as a way to get diverse 
stakeholders together, to develop an independent and probative analysis 
useful in DOE standard setting, and to expedite the rulemaking process. 
In the present case, one outcome of the consensus agreement was a 
recommendation to accelerate the compliance dates for these products, 
which would have the effect of producing additional energy savings at 
an earlier date. DOE also believes that standard levels recommended in 
the consensus agreement may increase the likelihood for regulatory 
compliance, while decreasing the risk of litigation.
    After considering the analysis, comments to the furnaces RAP and 
the preliminary TSD for central air

[[Page 37533]]

conditioners and heat pumps, and the benefits and burdens of TSL 4, the 
Secretary has concluded that this trial standard level offers the 
maximum improvement in efficiency that is technologically feasible and 
economically justified, and will result in significant conservation of 
energy. Therefore, DOE today adopts TSL 4 for furnaces and central air 
conditioners and heat pumps. Today's amended energy conservation 
standards for furnaces, central air conditioners, and heat pumps, 
expressed in terms of minimum energy efficiency, are shown in Table 
V.55.

       Table V.55--Amended Standards for Furnace, Central Air Conditioner, and Heat Pump Energy Efficiency
----------------------------------------------------------------------------------------------------------------
             Product class                   National standards              Northern region ** standards
----------------------------------------------------------------------------------------------------------------
                                             Residential Furnaces *
----------------------------------------------------------------------------------------------------------------
Non-weatherized gas....................  AFUE = 80%................  AFUE = 90%
Mobile home gas........................  AFUE = 80%................  AFUE = 90%
Non-weatherized oil-fired..............  AFUE = 83%................  AFUE = 83%
Weatherized gas........................  AFUE = 81%................  AFUE = 81%
Mobile home oil-fired [Dagger] [Dagger]  AFUE = 75%................  AFUE = 75%
Weatherized oil-fired [Dagger] [Dagger]  AFUE = 78%................  AFUE = 78%
Electric [Dagger] [Dagger].............  AFUE = 78%................  AFUE = 78%
----------------------------------------------------------------------------------------------------------------

 
                                                                                                  Southwestern
         Product class                 National standards            Southeastern region        region [Dagger]
                                                                  [dagger][dagger] standards       standards
----------------------------------------------------------------------------------------------------------------
                                Central Air Conditioners and Heat Pumps [dagger]
----------------------------------------------------------------------------------------------------------------
Split-system air conditioners..  SEER = 13....................  SEER = 14....................  SEER = 14
                                                                                               EER = 12.2 (for
                                                                                                units with a
                                                                                                rated cooling
                                                                                                capacity less
                                                                                                than 45,000 Btu/
                                                                                                h)
                                                                                               EER = 11.7 (for
                                                                                                units with a
                                                                                                rated cooling
                                                                                                capacity equal
                                                                                                to or greater
                                                                                                than 45,000 Btu/
                                                                                                h).
Split-system heat pumps........  SEER = 14....................  SEER = 14....................  SEER = 14.
                                 HSPF = 8.2...................  HSPF = 8.2...................  HSPF = 8.2.
Single-package air conditioners  SEER = 14....................  SEER = 14....................  SEER = 14.
 [Dagger] [Dagger].
                                                                                               EER = 11.0.
Single-package heat pumps......  SEER = 14....................  SEER = 14....................  SEER = 14.
                                 HSPF = 8.0...................  HSPF = 8.0...................  HSPF = 8.0.
Small-duct, high-velocity        SEER = 13....................  SEER = 13....................  SEER = 13.
 systems.
                                 HSPF = 7.7...................  HSPF = 7.7...................  HSPF = 7.7.
Space-constrained products--air  SEER = 12....................  SEER = 12....................  SEER = 12.
 conditioners [Dagger][Dagger].
Space-constrained products--     SEER = 12....................  SEER = 12....................  SEER = 12.
 heat pumps [Dagger][Dagger].
                                 HSPF = 7.4...................  HSPF = 7.4...................  HSPF = 7.4.
----------------------------------------------------------------------------------------------------------------
* AFUE is Annual Fuel Utilization Efficiency.
** The Northern region for furnaces contains the following States: 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.
 [dagger] SEER is Seasonal Energy Efficiency Ratio; EER is Energy Efficiency Ratio; HSPF is Heating Seasonal
  Performance Factor; and Btu/h is British Thermal Units per hour.
 [dagger] [dagger] The Southeastern region for central air conditioners and heat pumps contains the following
  States: Alabama, Arkansas, Delaware, Florida, Georgia, Hawaii, Kentucky, Louisiana, Maryland, Mississippi,
  North Carolina, Oklahoma, South Carolina, Tennessee, Texas, and Virginia, and the District of Columbia.
 [Dagger]The Southwestern region for central air conditioners and heat pumps contains the States of Arizona,
  California, Nevada, and New Mexico.
DOE is not amending energy conservation standards for these product classes in this direct final rule.

2. Benefits and Burdens of TSLs Considered for Furnace, Central Air 
Conditioner, and Heat Pump Standby Mode and Off Mode Power
    Table V.56 through Table V.58 present a summary of the quantitative 
impacts estimated for each TSL considered for furnace, central air 
conditioner, and heat pump standby mode and off mode power. The 
efficiency levels contained in each TSL are described in section V.A.

  Table V.56--Summary of Results for Furnace, Central Air Conditioner, and Heat Pump Standby Mode and Off Mode
                                          Power TSLs: National Impacts
----------------------------------------------------------------------------------------------------------------
             Category                        TSL 1                      TSL 2                     TSL 3
----------------------------------------------------------------------------------------------------------------
National Energy Savings (quads)..  0.153....................  0.16....................  0.186.
NPV of Consumer Benefits (2009$
 billion)
    3% discount rate.............  1.14.....................  1.18....................  1.01.
    7% discount rate.............  0.371....................  0.373...................  0.235.

[[Page 37534]]

 
Cumulative Emissions Reduction
    CO2 (million metric tons)....  8.23.....................  8.73....................  10.1.
    NOX (thousand tons)..........  6.60.....................  7.00....................  8.11.
    Hg (ton).....................  0.056....................  0.072...................  0.079.
Value of Emissions Reductions
    CO2 (2009$ million)*.........  41.7 to 694..............  44.3 to 738.............  51.7 to 862.
    NOX--3% discount rate (2009$   2.07 to 21.3.............  2.20 to 22.6............  2.56 to 26.3.
     million).
    NOX--7% discount rate (2009$   0.793 to 8.15............  0.841 to 8.65...........  0.975 to 10.0.
     million).
    Generation Capacity Reduction  0.103....................  0.110...................  0.127.
     (GW) **.
Employment Impacts
        Total Potential Change in  negligible...............  negligible..............  negligible.
         Domestic Production
         Workers in 2016
         (thousands).
    Indirect Domestic Jobs         0.8......................  0.86....................  1.02.
     (thousands) **.
----------------------------------------------------------------------------------------------------------------
Parentheses indicate negative (-) values.
* Range of the value of CO2 reductions is based on estimates of the global benefit of reduced CO2 emissions.
** Changes in 2045.

  Table V.57--Summary of Results for Furnace, Central Air Conditioner, and Heat Pump Standby Mode and Off Mode
                                  Power TSLs: Manufacturer and Consumer Impacts
----------------------------------------------------------------------------------------------------------------
             Category                        TSL 1                      TSL 2                     TSL 3
----------------------------------------------------------------------------------------------------------------
Manufacturer Impacts
    Change in Industry NPV (2009$  4 to (253)                 5 to (253)                23 to (255)
     million).
    Industry NPV (% change)......  .05 to (2.91)              .06 to (2.91)             0.26 to (2.93)
Consumer Mean LCC Savings*
 (2009$)
    Non-Weatherized Gas Furnaces.  2                          2                         0
    Mobile Home Gas Furnaces.....  0                          0                         (1)
    Oil-Fired Furnaces...........  1                          1                         1
    Electric Furnaces............  0                          0                         (1)
    Split-System Air Conditioners  84                         84                        84
     (coil-only).
    Split-System Air Conditioners  84                         40                        35
     (blower-coil).
    Split-System Heat Pumps......  9                          9                         (1)
    Single-Package Air             84                         41                        36
     Conditioners.
    Single-Package Heat Pumps....  9                          9                         (1)
    SDHV Air Conditioners........  84                         37                        32
    Space-Constrained Air          84                         42                        37
     Conditioners.
    Space-Constrained Heat Pumps.  9                          9                         (1)
Consumer Median PBP (years)
    Non-Weatherized Gas Furnaces.  11                         11                        16
    Mobile Home Gas Furnaces.....  12                         12                        18
    Oil-Fired Furnaces...........  8                          8                         12
    Electric Furnaces............  10                         10                        16
    Split-System Air Conditioners  1                          1                         1
     (coil-only).
    Split-System Air Conditioners  1                          6                         7
     (blower-coil).
    Split-System Heat Pumps......  4                          4                         5
    Single-Package Air             1                          6                         7
     Conditioners.
    Single-Package Heat Pumps....  4                          4                         5
    SDHV Air Conditioners........  1                          7                         7
    Space-Constrained Air          1                          6                         7
     Conditioners.
    Space-Constrained Heat Pumps.  4                          4                         5
----------------------------------------------------------------------------------------------------------------
* Parentheses indicate negative (-) values. For LCCs, a negative value means an increase in LCC by the amount
  indicated.

  Table V.58--Summary of Results for Furnace, Central Air Conditioner, and Heat Pump Standby Mode and Off Mode
                                  Power TSLs: Distribution of Consumer Impacts
----------------------------------------------------------------------------------------------------------------
                        Category                               TSL 1              TSL 2              TSL 3
----------------------------------------------------------------------------------------------------------------
                                      Distribution of Consumer LCC Impacts
----------------------------------------------------------------------------------------------------------------
Non-Weatherized Gas Furnaces
    Net Cost (%).......................................                  9                  9                 17
    No Impact (%)......................................                 72                 72                 72
    Net Benefit (%)....................................                 18                 18                 11
Mobile Home Gas Furnaces
    Net Cost (%).......................................                  6                  6                  8
    No Impact (%)......................................                 91                 91                 91
    Net Benefit (%)....................................                  4                  4                  2
Oil-Fired Furnaces
    Net Cost (%).......................................                  1                  1                  4

[[Page 37535]]

 
    No Impact (%)......................................                 91                 91                 91
    Net Benefit (%)....................................                  8                  8                  6
Electric Furnaces
    Net Cost (%).......................................                  4                  4                  7
    No Impact (%)......................................                 90                 90                 90
    Net Benefit (%)....................................                  5                  5                  3
Split-System Air Conditioners (coil-only)
    Net Cost (%).......................................                  0                  0                  0
    No Impact (%)......................................                 94                 94                 94
    Net Benefit (%)....................................                  6                  6                  6
Split-System Air Conditioners (blower-coil)
    Net Cost (%).......................................                  0                  3                  3
    No Impact (%)......................................                 94                 91                 91
    Net Benefit (%)....................................                  6                  6                  6
Split-System Heat Pumps
    Net Cost (%).......................................                  0                  0                 19
    No Impact (%)......................................                 67                 67                 57
    Net Benefit (%)....................................                 33                 33                 24
Single-Package Air Conditioners
    Net Cost (%).......................................                  0                  3                  3
    No Impact (%)......................................                 94                 91                 91
    Net Benefit (%)....................................                  6                  6                  6
Single-Package Heat Pumps
    Net Cost (%).......................................                  0                  0                 19
    No Impact (%)......................................                 66                 66                 57
    Net Benefit (%)....................................                 34                 34                 24
SDHV Air Conditioners
    Net Cost (%).......................................                  0                  3                  3
    No Impact (%)......................................                 94                 91                 91
    Net Benefit (%)....................................                  6                  6                  6
Space-Constrained Air Conditioners
    Net Cost (%).......................................                  0                  3                  3
    No Impact (%)......................................                 94                 91                 91
    Net Benefit (%)....................................                  6                  6                  6
Space-Constrained Heat Pumps
    Net Cost (%).......................................                  0                  0                 19
    No Impact (%)......................................                 67                 67                 58
    Net Benefit (%)....................................                 33                 33                 23
----------------------------------------------------------------------------------------------------------------
Values in the table are rounded off, and thus, sums may not equal 100 percent in all cases.

    DOE first considered TSL 3, which represents the max-tech 
efficiency levels. TSL 3 would save 0.186 quads of energy, an amount 
DOE considers significant. Under TSL 3, the NPV of consumer benefit 
would be $0.235 billion, using a discount rate of 7 percent, and $1.01 
billion, using a discount rate of 3 percent.
    The cumulative emissions reductions at TSL 3 are 10.1 Mt of 
CO2, 8.11 thousand tons of NOX, and 0.079 ton of 
Hg. The estimated monetary value of the cumulative CO2 
emissions reductions at TSL 3 ranges from $51.7 million to $862 
million. Total generating capacity in 2045 is estimated to decrease by 
0.127 GW under TSL 3.
    At TSL 3, the average LCC impact is a cost (LCC increase) of $0 for 
non-weatherized gas furnaces, a cost of $1 for mobile home gas 
furnaces, a savings of $1 for oil-fired furnaces, and a cost of $1 for 
electric furnaces. For split-system air conditioners (coil-only), the 
average LCC impact is a savings (LCC decrease) of $84. For split-system 
air conditioners (blower-coil), the average LCC impact is a savings of 
$35. For split-system heat pumps, the average LCC impact is a cost of 
$1. For single-package air conditioners, the average LCC impact is a 
savings of $36. For single-package heat pumps, the average LCC impact 
is a cost of $1. For SDHV air conditioners, the average LCC impact is a 
savings of $32. For space-constrained air conditioners, the average LCC 
impact is a savings of $37. For space-constrained heat pumps, the 
average LCC impact is a cost of $1.
    At TSL 3, the median payback period is 16 years for non-weatherized 
gas furnaces; 18 years for mobile home gas furnaces; 12 years for oil-
fired furnaces; and 16 years for electric furnaces. For split-system 
air conditioners (coil-only), the median payback period is 1 year. For 
split-system air conditioners (blower-coil), the median payback period 
is 7 years. For split-system heat pumps, the median payback period is 5 
years. For single-package air conditioners, the median payback period 
is 7 years. For single-package heat pumps, the median payback period is 
5 years. For SDHV air conditioners, the median payback period is 7 
years. For space-constrained air conditioners, the median payback 
period is 7 years. For space-constrained heat pumps, the median payback 
period is 5 years.
    At TSL 3, the fraction of consumers experiencing an LCC benefit is 
11 percent for non-weatherized gas furnaces, 2 percent for mobile home 
gas furnaces, 6 percent for oil-fired furnaces, and 3 percent for 
electric furnaces. For split-system air conditioners (coil-only), the 
fraction of consumers experiencing an LCC benefit is 6 percent. For 
split-system air conditioners (blower-coil), the fraction of consumers 
experiencing an LCC benefit is 6 percent. For split-system heat pumps, 
the fraction of consumers experiencing an LCC benefit is 24 percent. 
For single-package air conditioners, the fraction of consumers

[[Page 37536]]

experiencing an LCC benefit is 6 percent. For single-package heat 
pumps, the fraction of consumers experiencing an LCC benefit is 24 
percent. For SDHV air conditioners, the fraction of consumers 
experiencing an LCC benefit is 6 percent. For space-constrained air 
conditioners, the fraction of consumers experiencing an LCC benefit is 
6 percent. For space-constrained heat pumps, the fraction of consumers 
experiencing an LCC benefit is 23 percent.
    At TSL 3, the fraction of consumers experiencing an LCC cost is 17 
percent for non-weatherized gas furnaces, 8 percent for mobile home gas 
furnaces, 4 percent for oil-fired furnaces, and 7 percent for electric 
furnaces. For split-system air conditioners (coil-only), the fraction 
of consumers experiencing an LCC cost is 0 percent. For split-system 
air conditioners (blower-coil), the fraction of consumers experiencing 
an LCC cost is 3 percent. For split-system heat pumps, the fraction of 
consumers experiencing an LCC cost is 19 percent. For single-package 
air conditioners, the fraction of consumers experiencing an LCC cost is 
3 percent. For single-package heat pumps, the fraction of consumers 
experiencing an LCC cost is 19 percent. For SDHV air conditioners, the 
fraction of consumers experiencing an LCC cost is 3 percent. For space-
constrained air conditioners, the fraction of consumers experiencing an 
LCC cost is 3 percent. For space-constrained heat pumps, the fraction 
of consumers experiencing an LCC cost is 19 percent.
    At TSL 3, the projected change in INPV ranges from an increase of 
$23 million to a decrease of $255 million. The model anticipates 
impacts on INPV to range from 0.26 percent to -2.93 percent. In 
general, the cost of standby mode and off mode features is not expected 
to significantly affect manufacturer profit margins for furnace, 
central air conditioner, and heat pump products.
    The Secretary concludes that at TSL 3 for furnace and central air 
conditioner and heat pump standby mode and off mode power, the benefits 
of energy savings, positive NPV of consumer benefits at 3-percent 
discount rate, generating capacity reductions, emission reductions, and 
the estimated monetary value of the CO2 emissions reductions 
would be outweighed by the negative NPV of consumer benefits at 7 
percent and the economic burden on some consumers due to the increases 
in product cost. Of the consumers of furnaces and heat pumps who would 
be impacted, many more would be burdened by standards at TSL 3 than 
would benefit. Consequently, the Secretary has concluded that TSL 3 is 
not economically justified.
    DOE then considered TSL 2. TSL 2 would save 0.16 quads of energy, 
an amount DOE considers significant. Under TSL 2, the NPV of consumer 
benefit would be $0.373 billion, using a discount rate of 7 percent, 
and $1.18 billion, using a discount rate of 3 percent.
    The cumulative emissions reductions at TSL 2 are 8.73 Mt of 
CO2, 7.00 thousand tons of NOX, and 0.072 tons of 
Hg. The estimated monetary value of the cumulative CO2 
emissions reductions at TSL 2 ranges from $44.3 million to $738 
million. Total generating capacity in 2045 is estimated to decrease by 
0.11 GW under TSL 2.
    At TSL 2, the average LCC impact is a savings (LCC decrease) of $2 
for non-weatherized gas furnaces, a savings of $0 for mobile home gas 
furnaces, a savings of $1 for oil-fired furnaces, and a savings of $0 
for electric furnaces. For split-system air conditioners (coil-only), 
the average LCC impact is a savings of $84. For split-system air 
conditioners (blower-coil), the average LCC impact is a savings of $40. 
For split-system heat pumps, the average LCC impact is a savings of $9. 
For single-package air conditioners, the average LCC impact is a 
savings of $41. For single-package heat pumps, the average LCC impact 
is a savings of $9. For SDHV air conditioners, the average LCC impact 
is a savings of $37. For space-constrained air conditioners, the 
average LCC impact is a savings of $42. For space-constrained heat 
pumps, the average LCC impact is a savings of $9.
    At TSL 2, the median payback period is 11 years for non-weatherized 
gas furnaces; 12 years for mobile home gas furnaces; 8 years for oil-
fired furnaces; and 10 years for electric furnaces. For split-system 
air conditioners (coil-only), the median payback period is 1 year. For 
split-system air conditioners (blower-coil), the median payback period 
is 6 years. For split-system heat pumps, the median payback period is 4 
years. For single-package air conditioners, the median payback period 
is 6 years. For single-package heat pumps, the median payback period is 
4 years. For SDHV air conditioners, the median payback period is 7 
years. For space-constrained air conditioners, the median payback 
period is 6 years. For space-constrained heat pumps, the median payback 
period is 4 years.
    At TSL 2, the fraction of consumers experiencing an LCC benefit is 
18 percent for non-weatherized gas furnaces, 4 percent for mobile home 
gas furnaces, 8 percent for oil-fired furnaces, and 5 percent for 
electric furnaces. For split-system air conditioners (coil-only), the 
fraction of consumers experiencing an LCC benefit is 6 percent. For 
split-system air conditioners (blower-coil), the fraction of consumers 
experiencing an LCC benefit is 6 percent. For split-system heat pumps, 
the fraction of consumers experiencing an LCC benefit is 33 percent. 
For single-package air conditioners, the fraction of consumers 
experiencing an LCC benefit is 6 percent. For single-package heat 
pumps, the fraction of consumers experiencing an LCC benefit is 34 
percent. For SDHV air conditioners, the fraction of consumers 
experiencing an LCC benefit is 6 percent. For space-constrained air 
conditioners, the fraction of consumers experiencing an LCC benefit is 
6 percent. For space-constrained heat pumps, the fraction of consumers 
experiencing an LCC benefit is 33 percent.
    At TSL 2, the fraction of consumers experiencing an LCC cost is 9 
percent for non-weatherized gas furnaces, 6 percent for mobile home gas 
furnaces, 1 percent for oil-fired furnaces, and 4 percent for electric 
furnaces. For split system air conditioners (coil-only), the fraction 
of consumers experiencing an LCC cost is 0 percent. For split-system 
air conditioners (blower-coil), the fraction of consumers experiencing 
an LCC cost is 3 percent. For split-system heat pumps, the fraction of 
consumers experiencing an LCC cost is 0 percent. For single-package air 
conditioners, the fraction of consumers experiencing an LCC cost is 3 
percent. For single-package heat pumps, the fraction of consumers 
experiencing an LCC cost is 0 percent. For SDHV air conditioners, the 
fraction of consumers experiencing an LCC cost is 3 percent. For space-
constrained air conditioners, the fraction of consumers experiencing an 
LCC cost is 3 percent. For space-constrained heat pumps, the fraction 
of consumers experiencing an LCC cost is 0 percent.
    At TSL 2, the projected change in INPV ranges from an increase of 
$5 million to a decrease of $253 million. The modeled impacts on INPV 
range from 0.06 percent to 2.91 percent. In general, the incremental 
cost of standby mode and off mode features are not expected to 
significantly affect INPV for the furnace, central air conditioner, and 
heat pump industry at this level.
    The Secretary concludes that at TSL 2 for furnace, central air 
conditioner, and heat pump standby mode and off mode power, the 
benefits of energy savings, positive NPV of consumer benefits at both 
7-percent and 3-percent

[[Page 37537]]

discount rates, generating capacity reductions, emission reductions, 
and the estimated monetary value of the CO2 emissions 
reductions would outweigh the economic burden on a small fraction of 
consumers due to the increases in product cost. With the exception of 
consumers of mobile home gas furnaces (whose mean LCC impact is zero), 
the majority of the consumers that would be affected by standards at 
TSL 2 would see an LCC benefit. Consequently, the Secretary has 
concluded that TSL 2 is economically justified.
    After considering the analysis and the benefits and burdens of TSL 
2, the Secretary has concluded that this trial standard level offers 
the maximum improvement in energy efficiency that is technologically 
feasible and economically justified, and will result in the significant 
conservation of energy. Therefore, DOE today adopts TSL 2 for furnace, 
central air conditioner, and heat pump standby mode and off mode. 
Today's amended energy conservation standards for standby mode and off 
mode, expressed as maximum power in watts, are shown in Table V.59.

  Table V.59--Standards for Furnace, Central Air Conditioner, and Heat
                    Pump Standby Mode and Off Mode *
------------------------------------------------------------------------
                                     Standby mode and off mode standard
          Product class                            levels
------------------------------------------------------------------------
                         Residential Furnaces **
------------------------------------------------------------------------
Non-Weatherized Gas..............  PW,SB = 10 watts.
                                   PW,OFF = 10 watts.
Mobile Home Gas..................  PW,SB = 10 watts.
                                   PW,OFF = 10 watts.
Non-Weatherized Oil-Fired........  PW,SB = 11 watts.
                                   PW,OFF = 11 watts.
Mobile Home Oil-Fired............  PW,SB = 11 watts.
                                   PW,OFF = 11 watts.
Electric.........................  PW,SB = 10 watts.
                                   PW,OFF = 10 watts.
------------------------------------------------------------------------
            Central Air Conditioners and Heat Pumps [dagger]
------------------------------------------------------------------------
          Product class              Off mode standard levels [dagger]
------------------------------------------------------------------------
Split-system air conditioners....  PW,OFF = 30 watts.
Split-system heat pumps..........  PW,OFF = 33 watts.
Single-package air conditioners..  PW,OFF = 30 watts.
Single-package heat pumps........  PW,OFF = 33watts.
Small-duct, high-velocity systems  PW,OFF = 30 watts.
Space-constrained air              PW,OFF = 30 watts.
 conditioners.
Space-constrained heat pumps.....  PW,OFF = 33 watts.
------------------------------------------------------------------------
* PW,SB is standby mode electrical power consumption, and PW,OFF is off
  mode electrical power consumption for furnaces.
** Standby mode and off mode energy consumption for weatherized gas and
  oil-fired furnaces is regulated as a part of single-package air
  conditioners and heat pumps, as discussed in section III.E.1.
[dagger] PW,OFF is off mode electrical power consumption for central air
  conditioners and heat pumps.
[Dagger] DOE is not adopting a separate standby mode standard level for
  central air conditioners and heat pumps, because standby mode power
  consumption for these products is already regulated by SEER and HSPF.

3. Annualized Benefits and Costs of Standards for Furnace, Central Air 
Conditioner, and Heat Pump Energy Efficiency
    The benefits and costs of the standards in this rule can also be 
expressed in terms of annualized values over the analysis period. The 
annualized monetary values are the sum of: (1) The annualized national 
economic value (expressed in 2009$) of the benefits from operating 
products that meet the standards (consisting primarily of operating 
cost savings from using less energy, minus increases in equipment 
purchase costs, which is another way of representing consumer NPV); and 
(2) the monetary value of the benefits of emission reductions, 
including CO2 emission reductions.\100\ The value of the 
CO2 reductions, otherwise known as the Social Cost of Carbon 
(SCC), is calculated using a range of values per metric ton of 
CO2 developed by a recent Federal interagency process. The 
monetary costs and benefits of cumulative emissions reductions are 
reported in 2009$ to permit comparisons with the other costs and 
benefits in the same dollar units.
---------------------------------------------------------------------------

    \100\ DOE used a two-step calculation process to convert the 
time-series of costs and benefits into annualized values. First, DOE 
calculated a present value in 2011, the year used for discounting 
the NPV of total consumer costs and savings, for the time-series of 
costs and benefits using discount rates of three and seven percent 
for all costs and benefits except for the value of CO2 
reductions. For the latter, DOE used a range of discount rates, as 
shown in Table I.3. From the present value, DOE then calculated the 
fixed annual payment over a 32-year period, starting in 2011, that 
yields the same present value. The fixed annual payment is the 
annualized value. Although DOE calculated annualized values, this 
does not imply that the time-series of cost and benefits from which 
the annualized values were determined would be a steady stream of 
payments.
---------------------------------------------------------------------------

    Although combining the values of operating savings and 
CO2 reductions provides a useful perspective, two issues 
should be considered. First, the national operating savings are 
domestic U.S. consumer monetary savings that occur as a result of 
market transactions, while the value of CO2 reductions is 
based on a global value. Second, the assessments of operating cost 
savings and CO2 savings are performed with different methods 
that use quite different time frames for analysis. The national 
operating cost savings is measured for the lifetime of products shipped 
in 2013-2045 for furnaces and 2015-2045 for central air conditioners 
and heat pumps. The SCC values, on the other hand, reflect the present 
value of future climate-related impacts resulting from the emission of 
one metric ton of

[[Page 37538]]

carbon dioxide in each year. These impacts continue well beyond 2100.
    Estimates of annualized benefits and costs of the standards in this 
rule for furnace, central air conditioner, and heat pump energy 
efficiency are shown in Table V.60. The results under the primary 
estimate are as follows. Using a 7-percent discount rate and the SCC 
value of $22.1/ton in 2010 (in 2009$), the cost of the energy 
efficiency standards in today's direct final rule is $527 million to 
$773 million per year in increased equipment installed costs, while the 
annualized benefits are $837 million to $1106 million per year in 
reduced equipment operating costs, $140 million to $178 million in 
CO2 reductions, and $5.3 million to $6.9 million in reduced 
NOX emissions. In this case, the net benefit amounts to $456 
million to $517 million per year. DOE also calculated annualized net 
benefits using a range of potential electricity and equipment price 
trend forecasts. Given the range of modeled price trends, the range of 
net benefits using a 7-percent discount rate is from $295 million to 
$623 million per year. The low estimate corresponds to a scenario with 
a low electricity price trend and a constant real price trend for 
equipment. Using a 3-percent discount rate and the SCC value of $22.1/
metric ton in 2010 (in 2009$), the cost of the energy efficiency 
standards in today's direct final rule is $566 million to $825 million 
per year in increased equipment installed costs, while the benefits are 
$1289 million to $1686 million per year in reduced operating costs, 
$140 million to $178 million in CO2 reductions, and $7.9 
million to $10.2 million in reduced NOX emissions. In this 
case, the net benefit amounts to $871 million to $1049 million per 
year. DOE also calculated annualized net benefits using a range of 
potential electricity and equipment price trend forecasts. Given the 
range of modeled price trends, the range of net benefits using a 3-
percent discount rate is from $601 million to $1,260 million per year. 
The low estimate corresponds to a scenario with a low electricity price 
trend and a constant real price trend for equipment.

          Table V.60--Annualized Benefits and Costs of Standards for Furnace, Central Air Conditioner, and Heat Pump Energy Efficiency (TSL 4)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                        Discount rate                              Monetized (million 2009$/year)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                               Primary estimate *          Low estimate *            High estimate *
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                        Benefits
--------------------------------------------------------------------------------------------------------------------------------------------------------
Operating Cost Savings..........................                       7%              837 to 1,106                723 to 959              955 to 1,258
                                                                       3%            1,289 to 1,686            1,083 to 1,422            1,493 to 1,948
CO2 Reduction at $4.9/t **......................                       5%                  34 to 43                  34 to 43                  34 to 43
CO2 Reduction at $22.1/t **.....................                       3%                140 to 178                141 to 178                140 to 178
CO2 Reduction at $36.3/t **.....................                     2.5%                224 to 284                225 to 285                224 to 284
CO2 Reduction at $67.1/t **.....................                       3%                427 to 541                428 to 543                427 to 541
NOX Reduction at $2,519/ton **..................                       7%                5.3 to 6.9                5.3 to 7.0                5.3 to 6.9
                                                                       3%               7.9 to 10.2               7.9 to 10.3               7.9 to 10.2
    Total[dagger]...............................                 7% plus CO2 range     876 to 1,653              762 to 1,509              994 to 1,805
                                                                       7%              983 to 1,290              869 to 1,144            1,100 to 1,442
                                                                       3%            1,437 to 1,874            1,232 to 1,611            1,641 to 2,136
                                                                 3% plus CO2 range   1,330 to 2,237            1,125 to 1,975            1,535 to 2,499
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                          Costs
--------------------------------------------------------------------------------------------------------------------------------------------------------
Incremental Product Costs.......................                       7%                527 to 773                574 to 840                555 to 819
                                                                       3%                566 to 825                630 to 916                599 to 876
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                   Net Benefits/Costs
--------------------------------------------------------------------------------------------------------------------------------------------------------
    Total [dagger][dagger]......................                 7% plus CO2 range       349 to 880                188 to 669                438 to 986
                                                                       7%                456 to 517                295 to 305                545 to 623
                                                                       3%              871 to 1,049                601 to 695            1,042 to 1,260
                                                                 3% plus CO2 range     764 to 1,412              494 to 1,059              935 to 1,623
--------------------------------------------------------------------------------------------------------------------------------------------------------
* The benefits and costs are calculated for products shipped in 2013-2045 for the furnace standards and in 2015-2045 for the central air conditioner and
  heat pump standards.
** The Primary, Low, and High Estimates utilize forecasts of energy prices and housing starts from the AEO2010 Reference case, Low Economic Growth case,
  and High Economic Growth case, respectively. In addition, the low estimate uses incremental product costs that reflects constant prices (no learning
  rate) for product prices, and the high estimate uses incremental product costs that reflects a declining trend (high learning rate) for product
  prices. The derivation and application of learning rates for product prices is explained in section IV.F.1.
[dagger] The CO2 values represent global monetized values (in 2009$) of the social cost of CO2 emissions in 2010 under several scenarios. The values of
  $4.9, $22.1, and $36.3 per metric ton are the averages of SCC distributions calculated using 5-percent, 3-percent, and 2.5-percent discount rates,
  respectively. The value of $67.1 per ton represents the 95th percentile of the SCC distribution calculated using a 3-percent discount rate. The value
  for NOX (in 2009$) is the average of the low and high values used in DOE's analysis.
[dagger][dagger] Total Benefits for both the 3-percent and 7-percent cases are derived using the SCC value calculated at a 3-percent discount rate,
  which is $22.1/ton in 2010 (in 2009$). In the rows labeled as ``7% plus CO2 range'' and ``3% plus CO2 range,'' the operating cost and NOX benefits are
  calculated using the labeled discount rate, and those values are added to the full range of CO2 values.

[[Page 37539]]

4. Annualized Benefits and Costs of Standards for Furnace, Central Air 
Conditioner, and Heat Pump Standby Mode and Off Mode Power
    As explained in detail above, the benefits and costs of the 
standards in this rule for standby mode and off mode power can also be 
expressed in terms of annualized values. The annualized monetary values 
are the sum of: (1) The annualized national economic value (expressed 
in 2009$) of the benefits from operating products that meet the 
standards (consisting primarily of operating cost savings from using 
less energy, minus increases in equipment purchase costs, which is 
another way of representing consumer NPV); and (2) the monetary value 
of the benefits of emission reductions, including CO2 
emission reductions.
    Estimates of annualized benefits and costs of the standards in this 
rule for furnace, central air conditioner, and heat pump standby mode 
and off mode power are shown in Table V.61. The results under the 
primary estimate are as follows. Using a 7-percent discount rate and 
the SCC value of $22.1/ton in 2010 (in 2009$), the cost of the standby 
mode and off mode standards in today's direct final rule is $16.4 
million per year in increased equipment costs, while the annualized 
benefits are $46.5 million per year in reduced equipment operating 
costs, $12.4 million in CO2 reductions, and $0.4 million in 
reduced NOX emissions. In this case, the net benefit amounts 
to $42.8 million per year. Using a 3-percent discount rate and the SCC 
value of $22.1/ton in 2010 (in 2009$), the cost of the standby mode and 
off mode standards in today's direct final rule is $19.1 million per 
year in increased equipment costs, while the benefits are $79.3 million 
per year in reduced operating costs, $12.4 million in CO2 
reductions, and $0.6 million in reduced NOX emissions. In 
this case, the net benefit amounts to $73.2 million per year.

   Table V.61--Annualized Benefits and Costs of Standards for Furnace, Central Air Conditioner, and Heat Pump Standby Mode and Off Mode Power (TSL 2)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                        Discount rate                              Monetized (million 2009$/year)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                               Primary estimate *          Low estimate *            High estimate *
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                        Benefits
--------------------------------------------------------------------------------------------------------------------------------------------------------
Operating Cost Savings..........................                       7%                      46.5                      40.4                      52.8
                                                                       3%                      79.3                      67.9                      90.8
CO2 Reduction at $4.9/t **......................                       5%                       2.9                       2.9                       2.9
CO2 Reduction at $22.1/t **.....................                       3%                      12.4                      12.4                      12.4
CO2 Reduction at $36.3/t **.....................                     2.5%                      19.9                      19.9                      19.9
CO2 Reduction at $67.1/t **.....................                       3%                      37.6                      37.6                      37.6
NOX Reduction at $2,519/ton **..................                       7%                       0.4                       0.4                       0.4
                                                                       3%                       0.6                       0.6                       0.6
    Total [dagger]..............................                 7% plus CO2 range     49.7 to 84.5              43.6 to 78.4              56.1 to 90.8
                                                                       7%                      59.2                      53.1                      65.5
                                                                       3%                      92.3                      80.9                     103.8
                                                                 3% plus CO2 range    82.8 to 117.5             71.4 to 106.2             94.3 to 129.1
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                          Costs
--------------------------------------------------------------------------------------------------------------------------------------------------------
Incremental Product Costs.......................                       7%                      16.4                      15.2                      17.7
                                                                       3%                      19.1                      17.6                      20.6
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                   Net Benefits/Costs
--------------------------------------------------------------------------------------------------------------------------------------------------------
    Total [dagger]..............................                 7% plus CO2 range     33.3 to 68.1              28.5 to 63.2              38.4 to 73.1
                                                                       7%                      42.8                      38.0                      47.9
                                                                       3%                      73.2                      63.3                      83.2
                                                                 3% plus CO2 range     63.7 to 98.4              53.8 to 88.5             73.7 to 108.5
--------------------------------------------------------------------------------------------------------------------------------------------------------
* The benefits and costs are calculated for products shipped in 2013-2045 for the furnace standards and in 2015-2045 for the central air conditioner and
  heat pump standards.
** The Primary, Low, and High Estimates utilize forecasts of energy prices and housing starts from the AEO2010 Reference case, Low Economic Growth case,
  and High Economic Growth case, respectively. In addition, the low estimate uses incremental product costs that reflects constant prices (no learning
  rate) for product prices, and the high estimate uses incremental product costs that reflects a declining trend (high learning rate) for product
  prices. The derivation and application of learning rates for product prices is explained in section IV.F.1.
[dagger][dagger] The CO2 values represent global monetized values (in 2009$) of the social cost of CO2 emissions in 2010 under several scenarios. The
  values of $4.9, $22.1, and $36.3 per metric ton are the averages of SCC distributions calculated using 5-percent, 3-percent, and 2.5-percent discount
  rates, respectively. The value of $67.1 per ton represents the 95th percentile of the SCC distribution calculated using a 3-percent discount rate. The
  value for NOX (in 2009$) is the average of the low and high values used in DOE's analysis.
[dagger][dagger] Total Benefits for both the 3-percent and 7-percent cases are derived using the SCC value calculated at a 3-percent discount rate,
  which is $22.1/ton in 2010 (in 2009$). In the rows labeled as ``7% plus CO2 range'' and ``3% plus CO2 range,'' the operating cost and NOX benefits are
  calculated using the labeled discount rate, and those values are added to the full range of CO2 values.

5. Certification Requirements
    In today's direct final rule, in addition to proposing amended 
energy conservation standards for the existing AFUE levels (for 
furnaces) and SEER and HSPF levels (for central air conditioners and 
heat pumps), DOE is setting new requirements for standby mode and off 
mode energy consumption for residential furnaces and off mode energy 
consumption for central air conditioners and heat pumps. Additionally, 
DOE is adopting new requirements for EER for States in the hot-dry, 
southwestern region for central air conditioners. Because standby mode 
and off mode for furnaces, off mode for central air conditioners and 
heat pumps, and EER for central air conditioners have not previously 
been regulated, DOE does not currently require

[[Page 37540]]

certification for these metrics. DOE notes, however, that determining 
compliance with the standards in today's direct final rule will likely 
require manufacturers to certify these ratings (i.e., PW,OFF 
and PW,SB for furnaces, PW,OFF for central air 
conditioners and heat pumps, and EER for central air conditioners sold 
in the southwestern region (Arizona, California, Nevada, and New 
Mexico)). DOE has decided that it will address these certification 
requirements in a separate certification and enforcement rulemaking, or 
in a rulemaking to determine the enforcement mechanism for regional 
standards.

VI. Procedural Issues and Regulatory Review

A. Review Under Executive Order 12866 and 13563

    Section 1(b)(1) of Executive Order 12866, ``Regulatory Planning and 
Review,'' 58 FR 51735 (Oct. 4, 1993), requires each agency to identify 
the problem that it intends to address, including, where applicable, 
the failures of private markets or public institutions that warrant new 
agency action, as well as to assess the significance of that problem. 
The problems that the standards in this rule address are as follows:
    (1) There is a lack of consumer information and/or information 
processing capability about energy efficiency opportunities in the 
furnace, central air conditioner, and heat pump market.
    (2) There is asymmetric information (one party to a transaction has 
more and better information than the other) and/or high transactions 
costs (costs of gathering information and effecting exchanges of goods 
and services).
    (3) There are external benefits resulting from improved energy 
efficiency of furnaces, central air conditioners, and heat pumps that 
are not captured by the users of such equipment. These benefits include 
externalities related to environmental protection and energy security 
that are not reflected in energy prices, such as reduced emissions of 
greenhouse gases.
    In addition, DOE has determined that today's regulatory action is 
an ``economically significant regulatory action'' under section 3(f)(1) 
of Executive Order 12866. Accordingly, section 6(a)(3) of the Executive 
Order requires that DOE prepare a regulatory impact analysis (RIA) on 
this rule and that the Office of Information and Regulatory Affairs 
(OIRA) in the Office of Management and Budget (OMB) review this rule. 
DOE presented to OIRA for review the draft rule and other documents 
prepared for this rulemaking, including the RIA, and has included these 
documents in the rulemaking record. The assessments prepared pursuant 
to Executive Order 12866 can be found in the technical support document 
for this rulemaking. They are available for public review in the 
Resource Room of DOE's Building Technologies Program, 950 L'Enfant 
Plaza, SW., Suite 600, Washington, DC 20024, (202) 586-2945, between 9 
a.m. and 4 p.m., Monday through Friday, except Federal holidays.
    DOE has also reviewed this regulation pursuant to Executive Order 
13563, issued on January 18, 2011 (76 FR 3281, Jan. 21, 2011). EO 13563 
is supplemental to and explicitly reaffirms the principles, structures, 
and definitions governing regulatory review established in Executive 
Order 12866. To the extent permitted by law, agencies are required by 
Executive Order 13563 to: (1) Propose or adopt a regulation only upon a 
reasoned determination that its benefits justify its costs (recognizing 
that some benefits and costs are difficult to quantify); (2) tailor 
regulations to impose the least burden on society, consistent with 
obtaining regulatory objectives, taking into account, among other 
things, and to the extent practicable, the costs of cumulative 
regulations; (3) select, in choosing among alternative regulatory 
approaches, those approaches that maximize net benefits (including 
potential economic, environmental, public health and safety, and other 
advantages; distributive impacts; and equity); (4) to the extent 
feasible, specify performance objectives, rather than specifying the 
behavior or manner of compliance that regulated entities must adopt; 
and (5) identify and assess available alternatives to direct 
regulation, including providing economic incentives to encourage the 
desired behavior, such as user fees or marketable permits, or providing 
information upon which choices can be made by the public.
    We emphasize as well that Executive Order 13563 requires agencies 
``to use the best available techniques to quantify anticipated present 
and future benefits and costs as accurately as possible.'' In its 
guidance, the Office of Information and Regulatory Affairs has 
emphasized that such techniques may include ``identifying changing 
future compliance costs that might result from technological innovation 
or anticipated behavioral changes.'' For the reasons stated in the 
preamble, DOE believes that today's direct final rule is consistent 
with these principles, including that, to the extent permitted by law, 
agencies adopt a regulation only upon a reasoned determination that its 
benefits justify its costs and select, in choosing among alternative 
regulatory approaches, those approaches that maximize net benefits.

B. Review Under the Regulatory Flexibility Act

    The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) requires 
preparation of a final regulatory flexibility analysis (FRFA) 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. DOE has made its 
procedures and policies available on the Office of the General 
Counsel's Web site (http://www.gc.doe.gov).
    DOE reviewed the standard levels considered in today's direct final 
rule under the provisions of the Regulatory Flexibility Act and the 
procedures and policies published on February 19, 2003. 68 FR 7990. As 
a result of this review, DOE prepared a FRFA in support of the 
standards in this rule, which DOE will transmit to the Chief Counsel 
for Advocacy of the SBA for review under 5 U.S.C 605(b). As presented 
and discussed below, the FRFA describes potential impacts on small 
residential furnace, central air conditioner, and heat pump 
manufacturers associated with today's direct final rule and discusses 
alternatives that could minimize these impacts. A description of the 
reasons why DOE is adopting the standards in this rule and the 
objectives of and legal basis for the rule are set forth elsewhere in 
the preamble and not repeated here.
1. Description and Estimated Number of Small Entities Regulated
    For the manufacturers of residential furnaces, central air 
conditioners, and heat pumps, the Small Business Administration (SBA) 
has set a size threshold, which defines those entities classified as 
``small businesses'' for the purposes of the statute. DOE used the 
SBA's small business size standards to determine whether any small 
entities would be subject to the requirements of the rule. 65 FR 30836, 
30848 (May 15,

[[Page 37541]]

2000), as amended at 65 FR 53533, 53544 (Sept. 5, 2000) and codified at 
13 CFR part 121. The size standards are listed by North American 
Industry Classification System (NAICS) code and industry description 
and are available at: http://www.sba.gov/idc/groups/public/documents/sba_homepage/serv_sstd_tablepdf.pdf. Residential furnace and central 
air conditioning (including heat pumps) manufacturing is classified 
under NAICS 333415, ``Air-Conditioning and Warm Air Heating Equipment 
and Commercial and Industrial Refrigeration Equipment Manufacturing.'' 
The SBA sets a threshold of 750 employees or less for an entity to be 
considered as a small business for this category.
    During its market survey, DOE used all available public information 
to identify potential small manufacturers. DOE's research involved 
industry trade association membership directories (including AHRI), 
public databases (e.g., AHRI Directory \101\, the SBA Database \102\), 
individual company Web sites, and market research tools (e.g., Dunn and 
Bradstreet reports \103\ and Hoovers reports \104\) to create a list of 
companies that manufacture or sell products covered by this rulemaking. 
DOE also asked stakeholders and industry representatives if they were 
aware of any other small manufacturers during manufacturer interviews 
and at DOE public meetings. DOE reviewed publicly-available data and 
contacted select companies on its list, as necessary, to determine 
whether they met the SBA's definition of a small business manufacturer 
of covered residential furnaces, central air conditioners, and heat 
pumps. DOE screened out companies that do not offer products covered by 
this rulemaking, do not meet the definition of a ``small business,'' or 
are foreign owned and operated.
---------------------------------------------------------------------------

    \101\ See http://www.ahridirectory.org/ahriDirectory/pages/home.aspx.
    \102\ See http://dsbs.sba.gov/dsbs/search/dsp_dsbs.cfm.
    \103\ See http://www.dnb.com/
    \104\ See http://www.hoovers.com/.
---------------------------------------------------------------------------

    For central air conditioners, DOE initially identified 89 distinct 
brands sold in the U.S. Out of these 89 brands, DOE determined that 18 
brands are managed by small businesses. While identifying the parent 
companies of the 18 brands, DOE determined that only four companies are 
domestic small business manufacturers of central air conditioning 
products. Three of these small businesses produce space-constrained 
products and one produces small-duct, high-velocity products. None of 
the small businesses produced split-system air conditioning, split-
system heat pumps, single-package air conditioning, or single-package 
heat pump products, which together make up 99 percent of industry air 
conditioner and heat pump shipments.
    For residential furnaces, DOE initially identified at least 90 
distinct brands sold in the U.S. Out of these 90 brands, DOE determined 
that 14 were managed by small businesses. When identifying the parent 
companies of the 14 brands, DOE determined that only five companies are 
domestic small business manufacturers of furnace products. All five 
small businesses manufacture oil furnaces as their primary product 
line. One of the small businesses also produces mobile home furnaces as 
a secondary product offering. DOE did not identify any small 
manufacturers producing non-weatherized gas furnaces or weatherized gas 
furnaces, which together make up over 95 percent of residential furnace 
shipments. DOE also did not identify any small manufacturers of 
electric furnaces affected by this rulemaking.
    Next, DOE contacted all of the identified small business 
manufacturers listed in the AHRI directory to request an interview 
about the possible impacts of amended energy conservation standards on 
small manufacturers. Not all manufacturers responded to interview 
requests; however, DOE did interview three small furnace manufacturers 
and two small central air conditioning and heat pump manufacturers. 
From these discussions, DOE determined the expected impacts of the rule 
on affected small entities.
2. Description and Estimate of Compliance Requirements
    After examining structure of the central air conditioner and heat 
pump and furnace market, DOE determined it necessary to examine impacts 
on small manufacturers in two broad categories: (1) Manufacturers of 
central air conditioners and heat pumps and (2) manufacturers of 
furnaces.
a. Central Air Conditioning and Heat Pumps
    As discussed above, no small manufacturers for split-system air 
conditioning, split-system heat pump, single-package air conditioning, 
or single-package heat pump products were identified. DOE identified 
four domestic small business manufacturers of central air conditioner 
and heat pump products. All four small businesses manufacture niche 
products; three produce space-constrained products, and one produces 
SDHV products.
    With regard to the space-constrained market, the three small 
business manufacturers identified by DOE make up the vast majority of 
shipments of these products in the United States. DOE did not identify 
any competing large manufacturers in this niche market. Supporting this 
finding, no large manufacturers listed through-the-wall, or space-
constrained, products in the AHRI directory. According to manufacturer 
interviews, no manufacturers have entered or exited the space-
constrained market in the past decade. Furthermore, based on the 
screening analysis, teardown analysis, and market research, DOE has 
determined that the current energy conservation standard applicable to 
these products is equal to the max-tech efficiency level. In other 
words, DOE has determined it is unable to raise the energy conservation 
standards applicable to space-constrained products due to the state of 
technology and the design constraints inherent to these products. 
Therefore, because the efficiency level to which these three small 
manufacturers are subject will not change, DOE does not anticipate that 
the rule would adversely affect the small businesses manufacturing 
space-constrained air conditioning products.
    With respect to SDHV products, DOE identified one company as a 
small domestic manufacturer. The company's primary competitors are a 
small manufacturer based in Canada and a domestic manufacturer that 
does not qualify as a small business due to its parent company's size. 
These three manufacturers account for the vast majority of the SDHV 
market in the U.S., which makes up less than 1 percent of the overall 
domestic central air conditioning and heat pumps market.
    The current energy conservation standard for SDHV is 13 SEER. In 
today's notice, DOE is not amending that level. Therefore, because the 
efficiency level to which the manufacturers are subject will not 
change, DOE does not anticipate that the standard level would adversely 
affect the manufacturers of SDHV products.
    It should be noted that this rulemaking adopts a separate standard 
for the SDHV product class. As a result, exception relief granted in 
2004 under the condition that ``exception relief will remain in effect 
until such time as the agency modifies the general energy efficiency 
standard for central air conditioners and establishes a different 
standard for SDHV systems that

[[Page 37542]]

comports with the EPCA \105\'' will expire. Large and small SDHV 
manufacturers operating under exception relief will be required to 
either comply with the standard or re-apply for exception relief ahead 
of the compliance date.
---------------------------------------------------------------------------

    \105\ Department of Energy: Office of Hearings and Appeals, 
Decision and Order, Case TEE 0010 (2004) (Available at: 
http://www.oha.doe.gov/cases/ee/tee0010.pdf) (last accessed 
September 2010).
---------------------------------------------------------------------------

b. Residential Furnaces
    DOE identified five domestic small business manufacturers of 
residential furnace products. All five produce oil furnaces as their 
primary product line. Oil furnaces make up less than 3 percent of 
residential furnace shipments. One of the small businesses also 
produces mobile home furnaces as a secondary product line. No 
additional small manufacturers of mobile home furnaces were identified.
    The five small business manufacturers of residential furnace 
products account for 22 percent of the 1,207 active oil furnace product 
listings in the AHRI Directory (data based on information available 
from the AHRI Directory in September 2010). Ninety-nine percent of the 
small oil furnace manufacturer product listings were above the base 
standard of 78-percent AFUE. Seventy-seven percent of the small oil 
furnace manufacturer product listings had efficiencies equal to or 
above 83-percent AFUE, the efficiency level for oil furnaces adopted in 
today's notice. All small business manufacturers of residential furnace 
products have product lines that meet the efficiency level adopted in 
today's notice.
    In interviews, several small manufacturers noted that the majority 
of their businesses' sales are above 83-percent AFUE today. According 
to interviews, the small manufacturers focus on marketing their brands 
as premium products in the replacement market, while the major 
manufacturers tend to sell their products at lower cost and lower 
efficiency. For this reason, a higher standard is unlikely to require 
investments in research and development by small manufacturers to catch 
up to larger manufacturers in terms of technology development. However, 
in interviews, small oil furnace manufacturers did indicate some 
concern if the energy conservation standard were to be raised to 85 
percent, which is the efficiency level just below max-tech, or above. 
At these efficiency levels, according to manufacturers, the 
installation costs for oil furnaces could significantly increase due to 
the need for chimney liners, which are necessary to manage the acidic 
condensate that results from the high sulfur content of domestic 
heating oil. Small oil furnace manufacturers expressed concern that the 
additional installation costs of a chimney liner would deter home 
owners from purchasing new oil furnaces and accelerate the contraction 
of an already-shrinking oil furnace market. Additionally, small 
manufacturers were concerned that a high standard would leave little 
opportunity to differentiate their oil furnaces as premium products 
through higher efficiencies. If the amended standards were sufficiently 
stringent as to leave little room for small manufacturers to offer 
higher-efficiency products, it would become more difficult to for them 
to justify their premium positioning in the marketplace. However, 
manufacturers indicated that the change in the efficiency level 
corresponding to that adopted by today's notice would not significantly 
alter that premium pricing dynamic.
    For oil furnaces, the majority of both small business product lines 
and sales are at efficiencies equal to or above 83-percent AFUE. Oil 
furnace manufacturers do not expect to face significant conversion 
costs to reach the adopted level. Based on manufacturer feedback, DOE 
estimated that a typical small oil furnace manufacturer would need to 
invest $250,000 to cover conversion costs, including both capital and 
product conversion costs such as investments in production lines, R&D 
and engineering resources, and product testing, to meet the standard. 
However, any relatively fixed costs associated with R&D, marketing, and 
testing necessitated by today's direct final rule would have to be 
spread over lower volumes, on average, as compared to larger 
manufacturers. DOE believes this disproportionate adverse impact on 
small manufacturers is somewhat mitigated by an industry trend toward 
large manufacturers outsourcing their oil furnace production to small 
manufacturers, which has increased the sales of both domestic and 
Canadian small manufacturers. Interviewed small manufacturers indicated 
that larger manufacturers are becoming less willing to allocate 
resources to the shrinking oil furnace market, yet still want to 
maintain a presence in this portion of the market in order to offer a 
full product line. In turn, market share in oil furnace production is 
shifting to small manufacturers. For all of the foregoing reasons, DOE 
does not believe today's direct final rule jeopardizes the viability of 
the small oil furnace manufacturers.
    As noted above, DOE identified one small manufacturer of mobile 
home furnaces. This manufacturer primarily produces and sells oil 
furnaces, but it also produces mobile home furnaces as a secondary 
product offering. The standard promulgated in today's notice would 
require 90-percent AFUE in the North and 80-percent AFUE in the South. 
DOE believes the adopted standard level would be unlikely to cause the 
small manufacturer to incur significant conversion costs because their 
current product offering already meets it, as illustrated by the 
listings in the AHRI directory.
    In multiple niche product classes, larger manufacturers could have 
a competitive advantage due to their size and ability to access capital 
that may not be available to small businesses. Additionally, in some 
market segments, larger businesses have larger production volumes over 
which to spread costs.
3. Duplication, Overlap, and Conflict With Other Rules and Regulations
    DOE is not aware of any rules or regulations that duplicate, 
overlap, or conflict with the rule being promulgated today.
4. Significant Alternatives to the Rule
    The discussion above analyzes impacts on small businesses that 
would result from DOE's rule. In addition to the other TSLs being 
considered, the direct final rule TSD includes a regulatory impact 
analysis (RIA). For residential furnaces, central air conditioners, and 
heat pumps, the RIA discusses the following policy alternatives: (1) No 
change in standard; (2) consumer rebates; (3) consumer tax credits; (4) 
manufacturer tax credits; and (5) early replacement. While these 
alternatives may mitigate to some varying extent the economic impacts 
on small entities compared to the amended standards, DOE determined 
that the energy savings of these regulatory alternatives are at least 
10 times smaller than those that would be expected to result from 
adoption of the amended standard levels. Thus, DOE rejected these 
alternatives and is adopting the amended standards set forth in this 
rulemaking. (See chapter 16 of the direct final rule TSD for further 
detail on the policy alternatives DOE considered.)

C. Review Under the Paperwork Reduction Act of 1995

    Manufacturers of residential furnaces, central air conditioners, 
and heat pumps must certify to DOE that their products comply with any 
applicable energy conservation standard. In certifying compliance, 
manufacturers must test

[[Page 37543]]

their products according to the DOE test procedures for furnaces, 
central air conditioners, and heat pumps, as applicable, including any 
amendments adopted for those particular test procedures. DOE has 
proposed regulations for the certification and recordkeeping 
requirements for all covered consumer products and commercial 
equipment, including residential furnaces, central air conditioners, 
and heat pumps. 75 FR 56796 (Sept. 16, 2010). The collection-of-
information requirement for the certification and recordkeeping is 
subject to review and approval by OMB under the Paperwork Reduction Act 
(PRA). (44 U.S.C. 3501 et seq.) This requirement has been submitted to 
OMB for approval. Public reporting burden for the certification is 
estimated to average 20 hours per response, including the time for 
reviewing instructions, searching existing data sources, gathering and 
maintaining the data needed, and completing and reviewing the 
collection of information.
    Notwithstanding any other provision of the law, no person is 
required to respond to, nor shall any person be subject to a penalty 
for failure to comply with, a collection of information subject to the 
requirements of the PRA, unless that collection of information displays 
a currently valid OMB Control Number.

D. Review Under the National Environmental Policy Act of 1969

    DOE has prepared an environmental assessment (EA) of the impacts of 
the direct final rule 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 DOE's regulations 
for compliance with the National Environmental Policy Act of 1969 (10 
CFR part 1021). This assessment includes an examination of the 
potential effects of emission reductions likely to result from the rule 
in the context of global climate change, as well as other types of 
environmental impacts. The EA has been incorporated into the direct 
final rule TSD as chapter 15.

E. Review Under Executive Order 13132

    Executive Order 13132, ``Federalism,'' 64 FR 43255 (Aug. 10, 1999) 
imposes certain requirements on Federal 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. EPCA governs and 
prescribes Federal preemption of State regulations as to energy 
conservation for the products that are the subject of today's direct 
final rule. States can petition DOE for exemption from such preemption 
to the extent, and based on criteria, set forth in EPCA. (42 U.S.C. 
6297) 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,'' 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. 61 FR 
4729 (Feb. 7, 1996). Section 3(b) of Executive Order 12988 specifically 
requires that Executive agencies make every reasonable effort to ensure 
that the regulation: (1) Clearly specifies the preemptive effect, if 
any; (2) clearly specifies any effect on existing Federal law or 
regulation; (3) provides a clear legal standard for affected conduct 
while promoting simplification and burden reduction; (4) specifies the 
retroactive effect, if any; (5) adequately defines key terms; and (6) 
addresses other important issues affecting clarity and general 
draftsmanship under any guidelines issued by the Attorney General. 
Section 3(c) of Executive Order 12988 requires Executive agencies to 
review regulations in light of applicable standards in section 3(a) and 
section 3(b) to determine whether they are met or it is unreasonable to 
meet one or more of them. DOE has completed the required review and 
determined that, to the extent permitted by law, this direct final 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 (UMRA) 
requires each Federal agency to assess the effects of Federal 
regulatory actions on State, local, and Tribal governments and the 
private sector. Public Law 104-4, sec. 201 (codified at 2 U.S.C. 1531). 
For a 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 ``significant 
intergovernmental mandate,'' and requires an agency plan for giving 
notice and opportunity for timely input to potentially affected small 
governments before establishing any requirements that might 
significantly or uniquely affect small governments. On March 18, 1997, 
DOE published a statement of policy on its process for 
intergovernmental consultation under UMRA. 62 FR 12820. DOE's policy 
statement is also available at http://www.gc.doe.gov.
    Although this rule does not contain a Federal intergovernmental 
mandate, it may impose expenditures of $100 million or more on the 
private sector. Specifically, the final rule could impose expenditures 
of $100 million or more. Such expenditures may include: (1) Investment 
in research and development and in capital expenditures by furnace, 
central air conditioner, and heat pump manufacturers in the years 
between the final rule and the compliance date for the new standards, 
and (2) incremental additional expenditures by consumers to purchase 
higher-efficiency furnace, central air conditioner, and heat pump 
products, starting at the compliance date for the applicable standard.
    Section 202 of UMRA authorizes a Federal agency to respond to the 
content requirements of UMRA in any other statement or analysis that 
accompanies the rule. 2 U.S.C. 1532(c). The content requirements of 
section 202(b) of UMRA relevant to a private sector mandate 
substantially overlap the economic analysis requirements that apply 
under section 325(o) of EPCA and Executive Order 12866. The 
SUPPLEMENTARY INFORMATION section of the direct final

[[Page 37544]]

rule and the ``Regulatory Impact Analysis'' section of the TSD for this 
direct final rule respond to those requirements.
    Under section 205 of UMRA, the Department is obligated to identify 
and consider a reasonable number of regulatory alternatives before 
promulgating a rule for which a written statement under section 202 is 
required. 2 U.S.C. 1535(a). DOE is required to select from those 
alternatives the most cost-effective and least burdensome alternative 
that achieves the objectives of the rule unless DOE publishes an 
explanation for doing otherwise, or the selection of such an 
alternative is inconsistent with law. As required by 42 U.S.C. 6295(d), 
(f) and (o), this rule would establish amended energy conservation 
standards for residential furnaces, central air conditioners, and heat 
pumps that are designed to achieve the maximum improvement in energy 
efficiency that DOE has determined to be both technologically feasible 
and economically justified. A full discussion of the alternatives 
considered by DOE is presented in the ``Regulatory Impact Analysis'' 
chapter of the TSD for today's direct final rule.

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

    Section 654 of the Treasury and General Government Appropriations 
Act, 1999 (Pub. L. 105-277) requires Federal agencies to issue a Family 
Policymaking Assessment for any rule that may affect family well-being. 
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

    DOE has determined, under Executive Order 12630, ``Governmental 
Actions and Interference with Constitutionally Protected Property 
Rights,'' 53 FR 8859 (Mar. 18, 1988), that this regulation would not 
result in any takings which might require compensation under the Fifth 
Amendment to the U.S. Constitution.

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

    Section 515 of the Treasury and General Government Appropriations 
Act, 2001 (44 U.S.C. 3516, note) provides for Federal agencies to 
review most disseminations of information to the public under 
guidelines established by each agency pursuant to general guidelines 
issued by OMB. OMB's guidelines were published at 67 FR 8452 (Feb. 22, 
2002), and DOE's guidelines were published at 67 FR 62446 (Oct. 7, 
2002). DOE has reviewed today's 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 OIRA 
at OMB, a Statement of Energy Effects for any significant energy 
action. A ``significant energy action'' is defined as any action by an 
agency that promulgates or is expected to lead to promulgation of a 
final rule, and that: (1) Is a 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 significant energy action, the 
agency must give a detailed statement of any adverse effects on energy 
supply, distribution, or use should the proposal be implemented, and of 
reasonable alternatives to the action and their expected benefits on 
energy supply, distribution, and use.
    DOE has concluded that today's regulatory action, which sets forth 
energy conservation standards for furnaces, central air conditioners, 
and heat pumps, is not a significant energy action because the amended 
standards are not likely to have a significant adverse effect on the 
supply, distribution, or use of energy, nor has it been designated as 
such by the Administrator at OIRA. Accordingly, DOE has not prepared a 
Statement of Energy Effects on the direct final rule.

L. Review Under the Information Quality Bulletin for Peer Review

    On December 16, 2004, OMB, in consultation with the Office of 
Science and Technology Policy (OSTP), issued its Final Information 
Quality Bulletin for Peer Review (the Bulletin). 70 FR 2664 (Jan. 14, 
2005). The Bulletin establishes that certain scientific information 
shall be peer reviewed by qualified specialists before it is 
disseminated by the Federal Government, including influential 
scientific information related to agency regulatory actions. The 
purpose of the bulletin is to enhance the quality and credibility of 
the Government's scientific information. Under the Bulletin, the energy 
conservation standards rulemaking analyses are ``influential scientific 
information,'' which the Bulletin defines as ``scientific information 
the agency reasonably can determine will have, or does have, a clear 
and substantial impact on important public policies or private sector 
decisions.'' Id. at 2667.
    In response to OMB's Bulletin, DOE conducted formal in-progress 
peer reviews of the energy conservation standards development process 
and analyses and has prepared a Peer Review Report pertaining to the 
energy conservation standards rulemaking analyses. Generation of this 
report involved a rigorous, formal, and documented evaluation using 
objective criteria and qualified and independent reviewers to make a 
judgment as to the technical/scientific/business merit, the actual or 
anticipated results, and the productivity and management effectiveness 
of programs and/or projects. The ``Energy Conservation Standards 
Rulemaking Peer Review Report'' dated February 2007 has been 
disseminated and is available at the following Web site: http://www1.eere.energy.gov/buildings/appliance_standards/peer_review.html.

M. Congressional Notification

    As required by 5 U.S.C. 801, DOE will report to Congress on the 
promulgation of this rule prior to its effective date. The report will 
state that it has been determined that the rule is a ``major rule'' as 
defined by 5 U.S.C. 804(2). DOE also will submit the supporting 
analyses to the Comptroller General in the U.S. Government 
Accountability Office (GAO) and make them available to each House of 
Congress.

VII. Public Participation

A. Submission of Comments

    DOE will accept comments, data, and information regarding this 
direct final rule no later than the date provided in the DATES section 
at the beginning of this direct final rule. Interested parties may 
submit comments, data, and other information using any of the methods 
described in the ADDRESSES section at the beginning of this notice.
    Submitting comments via regulations.gov. The regulations.gov web 
page will require you to provide your name and contact information. 
Your contact information will be viewable to DOE Building Technologies 
staff only. Your contact information will not be publicly viewable 
except for your first and last names, organization name (if any), and 
submitter representative name (if any). If your comment is not

[[Page 37545]]

processed properly because of technical difficulties, DOE will use this 
information to contact you. If DOE cannot read your comment due to 
technical difficulties and cannot contact you for clarification, DOE 
may not be able to consider your comment.
    However, your contact information will be publicly viewable if you 
include it in the comment itself or in any documents attached to your 
comment. Any information that you do not want to be publicly viewable 
should not be included in your comment, nor in any document attached to 
your comment. Otherwise, persons viewing comments will see only first 
and last names, organization names, correspondence containing comments, 
and any documents submitted with the comments.
    Do not submit to regulations.gov information for which disclosure 
is restricted by statute, such as trade secrets and commercial or 
financial information (hereinafter referred to as Confidential Business 
Information (CBI)). Comments submitted through regulations.gov cannot 
be claimed as CBI. Comments received through the Web site will waive 
any CBI claims for the information submitted. For information on 
submitting CBI, see the Confidential Business Information section 
below.
    DOE processes submissions made through regulations.gov before 
posting. Normally, comments will be posted within a few days of being 
submitted. However, if large volumes of comments are being processed 
simultaneously, your comment may not be viewable for up to several 
weeks. Please keep the comment tracking number that regulations.gov 
provides after you have successfully uploaded your comment.
    Submitting comments via e-mail, hand delivery/courier, or mail. 
Comments and documents submitted via e-mail, hand delivery, or mail 
also will be posted to regulations.gov. If you do not want your 
personal contact information to be publicly viewable, do not include it 
in your comment or any accompanying documents. Instead, provide your 
contact information in a cover letter. Include your first and last 
names, e-mail address, telephone number, and optional mailing address. 
The cover letter will not be publicly viewable as long as it does not 
include any comments.
    Include contact information each time you submit comments, data, 
documents, and other information to DOE. E-mail submissions are 
preferred. If you submit via mail or hand delivery/courier, please 
provide all items on a CD, if feasible. It is not necessary to submit 
printed copies. No facsimiles (faxes) will be accepted.
    Comments, data, and other information submitted to DOE 
electronically should be provided in PDF (preferred), Microsoft Word or 
Excel, WordPerfect, or text (ASCII) file format. Provide documents that 
are not secured, that are written in English, and that are free of any 
defects or viruses. Documents should not contain special characters or 
any form of encryption and, if possible, they should carry the 
electronic signature of the author.
    Campaign form letters. Please submit campaign form letters by the 
originating organization in batches of between 50 to 500 form letters 
per PDF or as one form letter with a list of supporters' names compiled 
into one or more PDFs. This reduces comment processing and posting 
time.
    Confidential business information. 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 via 
e-mail, postal mail, or hand delivery/courier two well-marked copies: 
one copy of the document marked confidential including all the 
information believed to be confidential, and one copy of the document 
marked non-confidential with the information believed to be 
confidential deleted. Submit these documents via e-mail or on a CD, if 
feasible. DOE will make its own determination about the confidential 
status of the information and treat it according to its determination.
    Factors of interest to DOE 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.
    It is DOE's policy that all comments may be included in the public 
docket, without change and as received, including any personal 
information provided in the comments (except information deemed to be 
exempt from public disclosure).

VIII. Approval of the Office of the Secretary

    The Secretary of Energy has approved publication of today's direct 
final rule.

List of Subjects in 10 CFR Part 430

    Administrative practice and procedure, Confidential business 
information, Energy conservation, Household appliances, Imports, 
Intergovernmental relations, Reporting and recordkeeping requirements, 
and Small businesses.

    Issued in Washington, DC, on June 6, 2011.
Henry Kelly,
Acting Assistant Secretary, Energy Efficiency and Renewable Energy.

    For the reasons set forth in the preamble, DOE amends part 430 of 
chapter II, subchapter D, of title 10 of the Code of Federal 
Regulations, to read as set forth below:

PART 430--ENERGY CONSERVATION PROGRAM FOR CONSUMER PRODUCTS

0
1. The authority for part 430 continues to read as follows:

    Authority: 42 U.S.C. 6291-6309; 28 U.S.C. 2461 note.

0
2. Section 430.23 is amended by:
0
a. Redesignating paragraphs (m)(4), (m)(5), and (n)(5) as paragraphs 
(m)(5), (m)(6), and (n)(6), respectively;
0
b. Adding new paragraphs (m)(4) and (n)(5); and
0
c. Revising paragraph (n)(2).
    The additions and revision read as follows:

Sec.  430.23  Test procedures for the measurement of energy and water 
consumption.

* * * * *
    (m) Central air conditioners and heat pumps. * * *
    (4) The average off mode power consumption for central air 
conditioners and central air conditioning heat pumps shall be 
determined according to appendix M of this subpart. Round the average 
off mode power consumption to the nearest watt.
* * * * *
    (n) Furnaces. * * *
    (2) The annual fuel utilization efficiency for furnaces, expressed 
in percent, is the ratio of the annual fuel output of useful energy 
delivered to the heated space to the annual fuel energy input to the 
furnace determined according to section 10.1 of appendix N of this 
subpart for gas and oil furnaces and determined in accordance with 
section 11.1 of the American National Standards Institute/American 
Society of

[[Page 37546]]

Heating, Refrigerating, and Air-Conditioning Engineers (ANSI/ASHRAE) 
Standard 103-1993 (incorporated by reference, see Sec.  430.3) for 
electric furnaces. Round the annual fuel utilization efficiency to the 
nearest whole percentage point.
* * * * *
    (5) The average standby mode and off mode electrical power 
consumption for furnaces shall be determined according to section 8.6 
of appendix N of this subpart. Round the average standby mode and off 
mode electrical power consumption to the nearest watt.
* * * * *

0
3. Appendix M to subpart B of part 430 is amended by adding a note 
after the heading that reads as follows:

Appendix M to Subpart B of Part 430--Uniform Test Method for Measuring 
the Energy Consumption of Central Air Conditioners and Heat Pumps

    Note: The procedures and calculations that refer to off mode 
energy consumption (i.e., sections 3.13 and 4.2.8 of this appendix 
M) need not be performed to determine compliance with energy 
conservation standards for central air conditioners and heat pumps 
at this time. However, any representation related to standby mode 
and off mode energy consumption of these products made after 
corresponding revisions to the central air conditioners and heat 
pumps test procedure must be based upon results generated under this 
test procedure, consistent with the requirements of 42 U.S.C. 
6293(c)(2). For residential central air conditioners and heat pumps 
manufactured on or after January 1, 2015, compliance with the 
applicable provisions of this test procedure is required in order to 
determine compliance with energy conservation standards.

0
4. Appendix N to subpart B of part 430 is amended by:
0
a. Removing all references to ``POFF'' and adding in their 
place ``PW,OFF'' in sections 8.6.2, 9.0, and 10.9;
0
b. Removing all references to ``PSB'' and adding in their 
place ``PW,SB'' in sections 8.6.1, 8.6.2, 9.0, and 10.9; and
0
c. Revising the note after the heading.
    The revision reads as follows:

Appendix N to Subpart B of Part 430--Uniform Test Method for Measuring 
the Energy Consumption of Furnaces and Boilers

    Note:  The procedures and calculations that refer to off mode 
energy consumption (i.e., sections 8.6 and 10.9 of this appendix N) 
need not be performed to determine compliance with energy 
conservation standards for furnaces and boilers at this time. 
However, any representation related to standby mode and off mode 
energy consumption of these products made after April 18, 2011 must 
be based upon results generated under this test procedure, 
consistent with the requirements of 42 U.S.C. 6293(c)(2). For 
furnaces manufactured on or after May 1, 2013, compliance with the 
applicable provisions of this test procedure is required in order to 
determine compliance with energy conservation standards. For 
boilers, the statute requires that after July 1, 2010, any adopted 
energy conservation standard shall address standby mode and off mode 
energy consumption for these products, and upon the compliance date 
for such standards, compliance with the applicable provisions of 
this test procedure will be required.

* * * * *
0
5. Section 430.32 is amended by:
0
a. Revising paragraph (c)(2);
0
b. Adding paragraphs (c)(3), (c)(4), (c)(5), (c)(6);
0
c. Revising paragraphs (e)(1)(i) and (e)(1)(ii); and
0
d. Adding paragraphs (e)(1)(iii) and (e)(1)(iv).
    The additions and revisions read as follows:

Sec.  430.32  Energy and water conservation standards and their 
effective dates.

* * * * *
    (c) * * *
    (2) Central air conditioners and central air conditioning heat 
pumps manufactured on or after January 23, 2006, and before January 1, 
2015, shall have Seasonal Energy Efficiency Ratio and Heating Seasonal 
Performance Factor no less than:

------------------------------------------------------------------------
                                     Seasonal energy    Heating seasonal
           Product class             efficiency ratio     performance
                                          (SEER)         factor (HSPF)
------------------------------------------------------------------------
(i) Split-system air conditioners.                 13
(ii) Split-system heat pumps......                 13                7.7
(iii) Single-package air                           13
 conditioners.....................
(iv) Single-package heat pumps....                 13                7.7
(v)(A) Through-the-wall air                      10.9                7.1
 conditioners and heat pumps-split
 system \1\.......................
(v)(B) Through-the-wall air                      10.6                7.0
 conditioners and heat pumps-
 single package \1\...............
(vi) Small-duct, high-velocity                     13                7.7
 systems..........................
(vii)(A) Space-constrained                         12
 products--air conditioners.......
(vii)(B) Space-constrained                         12                7.4
 products--heat pumps.............
------------------------------------------------------------------------
\1\ The ``through-the-wall air conditioners and heat pump--split
  system'' and ``through-the-wall air conditioner and heat pump--single
  package'' product classes only applied to products manufactured prior
  to January 23, 2010. Products manufactured as of that date must be
  assigned to one of the remaining product classes listed in this table.
  The product class assignment depends on the product's characteristics.
  Product class definitions can be found in 10 CFR 430.2 and 10 CFR part
  430, subpart B, appendix M. DOE believes that most, if not all, of the
  historically-characterized ``through-the-wall'' products will be
  assigned to one of the space-constrained product classes.

    (3) Central air conditioners and central air conditioning heat 
pumps manufactured on or after January 1, 2015, shall have a Seasonal 
Energy Efficiency Ratio and Heating Seasonal Performance Factor not 
less than:

------------------------------------------------------------------------
                                     Seasonal energy    Heating seasonal
         Product class \1\           efficiency ratio     performance
                                          (SEER)         factor (HSPF)
------------------------------------------------------------------------
(i) Split-system air conditioners.                 13
(ii) Split-system heat pumps......                 14                8.2
(iii) Single-package air                           14
 conditioners.....................
(iv) Single-package heat pumps....                 14                8.0
(v) Small-duct, high-velocity                      13                7.7
 systems..........................
(vi)(A) Space-constrained                          12
 products--air conditioners.......

[[Page 37547]]

 
(vi)(B) Space-constrained                          12                7.4
 products--heat pumps.............
------------------------------------------------------------------------
\1\ The ``through-the-wall air conditioners and heat pump--split
  system'' and ``through-the-wall air conditioner and heat pump--single
  package'' product classes only applied to products manufactured prior
  to January 23, 2010. Products manufactured as of that date must be
  assigned to one of the remaining product classes listed in this table.
  The product class assignment depends on the product's characteristics.
  Product class definitions can be found in 10 CFR 430.2 and 10 CFR part
  430, subpart B, appendix M. DOE believes that most, if not all, of the
  historically-characterized ``through-the-wall'' products will be
  assigned to one of the space-constrained product classes.

    (4) In addition to meeting the applicable requirements in paragraph 
(c)(3) of this section, products in product class (i) of that paragraph 
(i.e., split-system air conditioners) that are manufactured on or after 
January 1, 2015, and installed in the States of Alabama, Arkansas, 
Delaware, Florida, Georgia, Hawaii, Kentucky, Louisiana, Maryland, 
Mississippi, North Carolina, Oklahoma, South Carolina, Tennessee, 
Texas, or Virginia, or in the District of Columbia, shall have a 
Seasonal Energy Efficiency Ratio not less than 14.
    (5) In addition to meeting the applicable requirements in 
paragraphs (c)(3) of this section, products in product classes (i) and 
(iii) of paragraph (c)(3) (i.e., split-system air conditioners and 
single-package air conditioners) that are manufactured on or after 
January 1, 2015, and installed in the States of Arizona, California, 
Nevada, or New Mexico shall have a Seasonal Energy Efficiency Ratio not 
less than 14 and have an Energy Efficiency Ratio (at a standard rating 
of 95 [deg]F dry bulb outdoor temperature) not less than the following:

------------------------------------------------------------------------
                                                       Energy efficiency
                    Product class                         ratio (EER)
------------------------------------------------------------------------
(i) Split-system rated cooling capacity less than                   12.2
 45,000 Btu/hr.......................................
(ii) Split-system rated cooling capacity equal to or                11.7
 greater than 45,000 Btu/hr..........................
(iii) Single-package systems.........................               11.0
------------------------------------------------------------------------

    (6) Central air conditioners and central air conditioning heat 
pumps manufactured on or after January 1, 2015, shall have an average 
off mode electrical power consumption not more than the following:

------------------------------------------------------------------------
                                                        Average off mode
                    Product class                      power consumption
                                                         PW,OFF (watts)
------------------------------------------------------------------------
(i) Split-system air conditioners....................                 30
(ii) Split-system heat pumps.........................                 33
(iii) Single-package air conditioners................                 30
(iv) Single-package heat pumps.......................                 33
(v) Small-duct, high-velocity systems................                 30
(vi) Space-constrained air conditioners..............                 30
(vii) Space-constrained heat pumps...................                 33
------------------------------------------------------------------------

* * * * *
    (e) * * *
    (1) * * *
    (i) The Annual Fuel Utilization Efficiency (AFUE) of residential 
furnaces shall not be less than the following for non-weatherized 
furnaces manufactured before May 1, 2013, and weatherized furnaces 
manufactured before January 1, 2015:

------------------------------------------------------------------------
                                                         AFUE (percent)
                    Product class                             \1\
------------------------------------------------------------------------
(A) Furnaces (excluding classes noted below).........                 78
(B) Mobile Home furnaces.............................                 75
(C) Small furnaces (other than those designed solely   .................
 for installation in mobile homes) having an input
 rate of less than 45,000 Btu/hr.....................
(1) Weatherized (outdoor)............................                 78
(2) Non-weatherized (indoor).........................                 78
------------------------------------------------------------------------
\1\ Annual Fuel Utilization Efficiency, as determined in Sec.
  430.23(n)(2) of this part.

    (ii) The AFUE of residential non-weatherized furnaces manufactured 
on or after May 1, 2013, and weatherized gas and oil-fired furnaces 
manufactured on or after January 1, 2015 shall be not less than the 
following:

------------------------------------------------------------------------
                                                         AFUE (percent)
                    Product class                             \1\
------------------------------------------------------------------------
(A) Non-weatherized gas furnaces (not including                       80
 mobile home furnaces)...............................
(B) Mobile Home gas furnaces.........................                 80
(C) Non-weatherized oil-fired furnaces (not including                 83
 mobile home furnaces)...............................
(D) Mobile Home oil-fired furnaces...................                 75

[[Page 37548]]

 
(E) Weatherized gas furnaces.........................                 81
(F) Weatherized oil-fired furnaces...................                 78
(G) Electric furnaces................................                 78
------------------------------------------------------------------------
\1\ Annual Fuel Utilization Efficiency, as determined in Sec.
  430.23(n)(2) of this part.

    (iii) In addition to meeting the applicable requirements in 
paragraph (e)(1)(ii) of this section, products in product classes (A) 
and (B) of that paragraph (i.e., residential non-weatherized gas 
furnaces (including mobile home furnaces)) that are manufactured on or 
after May 1, 2013, and installed in the States of 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, shall have an AFUE not less than 
90 percent.
    (iv) Furnaces manufactured on or after May 1, 2013, shall have an 
electrical standby mode power consumption (PW,SB) and 
electrical off mode power consumption (PW,OFF) not more than 
the following:

------------------------------------------------------------------------
                                     Maximum standby
                                     mode electrical    Maximum off mode
           Product class                  power         electrical power
                                       consumption,       consumption,
                                      PW,SB (watts)      PW,OFF(watts)
------------------------------------------------------------------------
(A) Non-weatherized gas furnaces                   10                 10
 (including mobile home furnaces).
(B) Non-weatherized oil-fired                      11                 11
 furnaces (including mobile home
 furnaces)........................
(C) Electric furnaces.............                 10                 10
------------------------------------------------------------------------

* * * * *
[FR Doc. 2011-14557 Filed 6-24-11; 8:45 am]
BILLING CODE 6450-01-P
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