69686 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations 

DEPARTMENT OF ENERGY 

10 CFR Part 431 

[EERE–2021–BT–STD–0027] 

RIN 1904–AD34 

Energy Conservation Program: Energy 

Conservation Standards for 

Commercial Water Heating Equipment 

AGENCY: Office of Energy Efficiency and 

Renewable Energy, Department of 

Energy. 

ACTION: Final rule. 

SUMMARY: The Energy Policy and 

Conservation Act, as amended 

(‘‘EPCA’’), prescribes energy 

conservation standards for various 

consumer products and certain 

commercial and industrial equipment, 

including Commercial Water Heating 

(‘‘CWH’’) equipment. EPCA also 

requires the U.S. Department of Energy 

(‘‘DOE’’) to periodically review 

standards. In this final rule, DOE is 

adopting amended energy conservation 

standards for CWH equipment. 

DATES: The effective date of this rule is 

December 5, 2023. Compliance with the 

amended standards established for CWH 

equipment in this final rule is required 

on and after October 6, 2026. 

ADDRESSES: The docket for this 

rulemaking, which includes Federal 

Register notices, public meeting 

attendee lists and transcripts, 

comments, and other supporting 

documents/materials, is available for 

review at www.regulations.gov. All 

documents in the docket are listed in 

the 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. 

The docket web page can be found at 

www.regulations.gov/docket/EERE2021-BT-STD-0027. The docket web 

page contains instructions on how to 

access all documents, including public 

comments, in the docket. 

For further information on how to 

review the docket, contact the 

Appliance and Equipment Standards 

Program staff at (202) 287–1445 or by 

email: ApplianceStandardsQuestions@

ee.doe.gov. 

FOR FURTHER INFORMATION CONTACT: 

Ms. Julia Hegarty, U.S. Department of 

Energy, Office of Energy Efficiency and 

Renewable Energy, Building 

Technologies Office, EE–5B, 1000 

Independence Avenue SW, Washington, 

DC 20585–0121. Telephone: (240) 597– 

6737. Email: 

ApplianceStandardsQuestions@

ee.doe.gov. 

Mr. Matthew Ring, U.S. Department of 

Energy, Office of the General Counsel, 

GC–33, 1000 Independence Avenue SW, 

Washington, DC 20585–0121. 

Telephone: (202) 586–2555. Email: 

Matthew.Ring@hq.doe.gov. 

SUPPLEMENTARY INFORMATION: 

Table of Contents 

I. Synopsis of the Final Rule 

A. Benefits and Costs to Consumers 

B. Impact on Manufacturers 

C. National Benefits and Costs 

D. Conclusion 

II. Introduction 

A. Authority 

B. Background 

1. Current Standards 

2. History of Standards Rulemaking for 

CWH Equipment 

C. Deviation From Appendix A 

III. General Discussion 

A. General Comments 

1. Clear and Convincing Threshold 

2. Analytical Structure and Inputs 

3. Final Selection of Standards Levels 

B. Scope of Coverage 

1. Oil-Fired Commercial Water Heating 

Equipment 

2. Unfired Hot Water Storage Tanks 

3. Electric Instantaneous Water Heaters 

4. Commercial Heat Pump Water Heaters 

5. Electric Storage Water Heaters 

6. Instantaneous Water Heaters and Hot 

Water Supply Boilers 

C. Test Procedure 

D. Technological Feasibility 

1. General 

2. Maximum Technologically Feasible 

Levels 

E. Energy Savings 

1. Determination of Savings 

2. Significance of Savings 

F. Economic Justification 

1. Specific Criteria 

a. Economic Impact on Manufacturers and 

Consumers 

b. Savings in Operating Costs Compared To 

Increase in Price (LCC and PBP) 

c. Energy Savings 

d. Lessening of Utility or Performance of 

Products 

e. Impact of Any Lessening of Competition 

f. Need for National Energy Conservation 

g. Other Factors 

2. Rebuttable Presumption 

G. Revisions to Notes in Regulatory Text 

H. Certification, Compliance, and 

Enforcement Issues 

IV. Methodology and Discussion of Related 

Comments 

A. Market and Technology Assessment 

1. Definitions 

2. Equipment Classes 

a. Storage-Type Instantaneous Water 

Heaters 

b. Venting for Gas-Fired Water Heating 

Equipment 

c. Tankless Water Heaters and Hot Water 

Supply Boilers 

d. Gas-Fired and Oil-Fired Storage Water 

Heaters 

e. Grid-Enabled Water Heaters 

3. Review of the Current Market for CWH 

Equipment 

4. Technology Options 

B. Screening Analysis 

1. Screened-Out Technologies 

2. Remaining Technologies 

C. Engineering Analysis 

1. Efficiency Analysis 

2. Cost Analysis 

3. Representative Equipment for Analysis 

4. Efficiency Levels for Analysis 

a. Thermal Efficiency Levels 

b. Standby Loss Levels 

c. Uniform Energy Efficiency Levels 

5. Standby Loss Reduction Factors 

6. Teardown Analysis 

7. Manufacturing Production Costs 

8. Manufacturing Markups and 

Manufacturer Selling Price 

9. Shipping Costs 

D. Markups Analysis 

1. Distribution Channels 

2. Comments on the May 2022 CWH ECS 

NOPR 

3. Markups Used in This Final Rule 

E. Energy Use Analysis 

F. Life-Cycle Cost and Payback Period 

Analysis 

1. Equipment Cost 

2. Installation Cost 

a. Data Sources 

b. Condensate Removal and Disposal 

c. Vent Replacement 

d. Extraordinary Venting Cost Adder 

e. Common Venting 

f. Vent Sizing/Material Cost 

g. Masonry Chimney/Chimney Relining 

h. Downtime During Replacement 

3. Annual Energy Consumption 

4. Energy Prices 

5. Maintenance and Repair Costs 

a. Maintenance Costs 

b. Repair Costs 

6. Product Lifetime 

7. Discount Rates 

8. Energy Efficiency Distribution in the NoNew-Standards Case 

9. Payback Period Analysis 

10. Embodied Emissions and Recycling 

Costs 

11. LCC Model Error Messages and Other 

G. Shipments Analysis 

1. Commercial Gas Fired and Electric 

Storage Water Heaters 

2. Residential-Duty-Gas-Fired Storage and 

Instantaneous Water Heaters 

3. Available Products Database and 

Equipment Efficiency Trends 

4. Electrification Trends 

5. Shipments to Residential Consumers 

6. Final Rule Shipment Model 

H. National Impact Analysis 

1. Product Efficiency Trends 

2. Fuel and Technology Switching 

3. National Energy Savings 

4. Net Present Value Analysis 

I. Consumer Subgroup Analysis 

1. Residential Sector Subgroup Analysis 

J. Manufacturer Impact Analysis 

1. Overview 

2. Government Regulatory Impact Model 

and Key Inputs 

a. Manufacturer Production Costs 

b. Shipments Projections 

c. Conversion Costs and Stranded Assets 

d. Manufacturer Markup Scenarios 

K. Emissions Analysis 

1. Air Quality Regulations Incorporated in 

DOE’s Analysis 


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1All references to EPCA in this document refer 

to the statute as amended through the Energy Act 

of 2020, Public Law 116–260 (Dec. 27, 2020), which 

reflect the last statutory amendments that impact 

Parts A and A–1 of EPCA. 

2For editorial reasons, upon codification in the 

U.S. Code, Part C was re-designated Part A–1. 

L. Monetizing Emissions Impacts 

1. Monetization of Greenhouse Gas 

Emissions 

a. Social Cost of Carbon 

b. Social Cost of Methane and Nitrous 

Oxide 

2. Monetization of Other Emissions 

Impacts 

M. Utility Impact Analysis 

N. Employment Impact Analysis 

V. Analytical Results and Conclusions 

A. Trial Standard Levels 

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. Direct Impacts on Employment 

c. Impacts on Manufacturing Capacity 

d. Impacts on Subgroups of 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 

8. Summary of Economic Impacts 

C. Conclusion 

1. Benefits and Burdens of TSLs 

Considered for CWH Equipment 

Standards 

2. Annualized Benefits and Costs of the 

Adopted Standards 

VI. Procedural Issues and Regulatory Review 

A. Review Under Executive Orders 12866 

and 13563 

B. Review Under the Regulatory Flexibility 

Act 

1. Need For, and Objectives of, the Rule 

2. Significant Issues Raised in Response to 

the IRFA 

3. Description and Estimate of the Number 

of Small Entities Affected 

4. Description and Estimate of Compliance 

Requirements 

5. Significant Alternatives to the Rule 

C. Review Under the Paperwork Reduction 

Act 

D. Review Under the National 

Environmental Policy Act of 1969 

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. Information Quality 

M. Congressional Notification 

VII. Approval of the Office of the Secretary 

I. Synopsis of the Final Rule 

The Energy Policy and Conservation 

Act, Public Law 94–163, as amended 

(‘‘EPCA’’),1 authorizes DOE to regulate 

the energy efficiency of a number of 

consumer products and certain 

industrial equipment. (42 U.S.C. 6291– 

6317) Title III, Part C of EPCA,2

established the Energy Conservation 

Program for Certain Industrial 

Equipment. (42 U.S.C. 6311–6317) Such 

equipment includes CWH equipment, 

the subject of this rulemaking. 

Pursuant to EPCA, DOE is to consider 

amending the energy efficiency 

standards for certain types of 

commercial and industrial equipment, 

including the equipment at issue in this 

document, whenever the American 

Society of Heating, Refrigerating, and 

Air-Conditioning Engineers 

(‘‘ASHRAE’’) amends the standard 

levels or design requirements prescribed 

in ASHRAE Standard 90.1, ‘‘Energy 

Standard for Buildings Except Low-Rise 

Residential Buildings,’’ (‘‘ASHRAE 

Standard 90.1’’), and at a minimum, 

every 6 years. (42 U.S.C. 6313(a)(6)(A)– 

(C)) 

In accordance with these and other 

statutory provisions discussed in this 

document, DOE analyzed the benefits 

and burdens of trial standard levels 

(TSLs) for CWH equipment. The TSLs 

and their associated benefits and 

burdens are discussed in detail in 

sections V.A–C of this section. As 

discussed in section V.C of this section, 

DOE has determined that TSL 3 

represents the maximum improvement 

in energy efficiency that is 

technologically feasible and 

economically justified. DOE is adopting 

amended energy conservation standards 

for certain classes of CWH equipment. 

The adopted standards, which are 

expressed in terms of thermal efficiency, 

standby loss, and uniform energy factor 

(‘‘UEF’’), are shown in Table I.1 and 

Table I.2. These adopted standards 

apply to all CWH equipment listed in 

Table I.1 and Table I.2, manufactured 

in, or imported into the United States 

starting on the date 3 years after the 

publication of the final rule for this 

rulemaking. DOE is also codifying 

standards for electric instantaneous 

CWH equipment from EPCA into the 

Code of Federal Regulations (‘‘CFR’’). 

Finally, DOE is amending the footnotes 

to tables of energy conservation 

standards at 10 CFR 431.110 to clarify 

existing regulations for CWH 

equipment. The adopted standards for 

electric instantaneous CWH equipment 

and changes to the footnotes are also 

shown in Table I.1. 

TABLE I.1—ADOPTED ENERGY CONSERVATION STANDARDS FOR COMMERCIAL WATER HEATING EQUIPMENT EXCEPT FOR

RESIDENTIAL-DUTY COMMERCIAL WATER HEATERS

Equipment Size 

Energy conservation standards (%) a

Minimum 

thermal 

efficiency b

(%) 

Maximum 

standby loss ** 

Gas-fired storage water heaters and storage-type instantaneous water 

heaters.

All ................... 95 0.86 × [Q/800 + 110(Vr)1⁄2] (Btu/h). 

Electric instantaneous water heaters c ........................................................... <10 gal ........... 80 N/A. 

≥10 gal ........... 77 2.30 + 67/Vm (%/h). 

Gas-fired instantaneous water heaters and hot water supply boilers except 

storage-type instantaneous water heaters.

<10 gal ...........

≥10 gal ...........

96 

96 

N/A. 

Q/800 + 110(Vr)1⁄2 (Btu/h). 

aVm is the measured storage volume, and Vr is the rated volume, both in gallons. Q is the rated input in Btu/h, as determined pursuant to 10 

CFR 429.44. bWater heaters and hot water supply boilers having more than 140 gallons of storage capacity need not meet the standby loss requirement if: 

(1) the tank surface area is thermally insulated to R–12.5 or more, (2) a standing pilot light is not used, and (3) for gas or oil-fired storage water 

heaters, they have a flue damper or fan-assisted combustion. cThe compliance date for these energy conservation standards is January 1, 1994. 


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3The average LCC savings refer to consumers that 

are affected by a standard and are measured relative 

to the efficiency distribution in the no-newstandards case, which depicts the market in the 

compliance year in the absence of new or amended 

standards (see section IV.F.8 of this document). The 

simple PBP, which is designed to compare specific 

efficiency levels, is measured relative to the 

baseline product (see section IV.F.9 of this 

document). 

4All monetary values in this document are 

expressed in 2022 dollars, and, where appropriate, 

are discounted to 2023 unless explicitly stated 

otherwise. 

5The quantity refers to full-fuel-cycle (‘‘FFC’’) 

energy savings. FFC energy savings include the 

energy consumed in extracting, processing, and 

transporting primary fuels (i.e., coal, natural gas, 

petroleum fuels), and, thus, presents a more 

complete picture of the impacts of energy efficiency 

standards. For more information on the FFC metric, 

see section IV.H.2 of this document. 

TABLE I.2—ADOPTED ENERGY CONSERVATION STANDARDS FOR GAS-FIRED RESIDENTIAL-DUTY COMMERCIAL WATER

HEATERS

Equipment Specification * Draw 

pattern ** Uniform energy factor † 

Gas-fired Residential-Duty Storage >75 kBtu/h and ≤105 kBtu/h and 

≤120 gal and ≤180 °F.

Very Small ....................................

Low ...............................................

Medium .........................................

High ..............................................

0.5374 ¥ (0.0009 × Vr). 

0.8062 ¥ (0.0012 × Vr). 

0.8702 ¥ (0.0011 × Vr). 

0.9297 ¥ (0.0009 × Vr). 

* Additionally, to be classified as a residential-duty water heater, a commercial water heater must meet the following conditions: (1) if requiring 

electricity, use single-phase external power supply; and (2) the water heater must not be designed to heat water at temperatures greater than 

180 °F. 

** Draw pattern is a classification of hot water use of a consumer water heater or residential-duty commercial water heater, based upon the 

first-hour rating. The draw pattern is determined using the Uniform Test Method for Measuring the Energy Consumption of Water Heaters in appendix E to subpart B of 10 CFR part 430. 

† Vr is the rated storage volume (in gallons), as determined pursuant to 10 CFR 429.44. 

A. Benefits and Costs to Consumers 

Table I.3 summarizes DOE’s 

evaluation of the economic impacts of 

the adopted standards on consumers of 

CWH equipment, as measured by the 

average life-cycle cost (‘‘LCC’’) savings 

and the simple payback period 

(‘‘PBP’’).3 The analysis inputs are 

described in section IV of this 

document. The average LCC savings are 

positive for all equipment classes, and 

the PBP is less than the average lifetime 

of CWH equipment, which is estimated 

to range from 10 years for commercial 

gas-fired storage water heaters to 25 

years for instantaneous water heaters 

and hot water supply boilers (see 

section IV.F.6 of this document). 

TABLE I.3—IMPACTS OF ADOPTED ENERGY CONSERVATION STANDARDS ON CONSUMERS OF CWH EQUIPMENT

Equipment 

Average LCC 

savings 

(2022$) 

Simple 

payback 

period 

(years) 

Commercial Gas-Fired Storage and Storage-Type Instantaneous ......................................................................... 367 5.8 

Residential-Duty Gas-Fired Storage ........................................................................................................................ 119 7.2 

Gas-Fired Instantaneous Water Heaters and Hot Water Supply Boilers ............................................................... 898 9.3 

—Instantaneous, Gas-Fired Tankless ..................................................................................................................... 120 8.9 

—Instantaneous Water Heaters and Hot Water Supply Boilers ............................................................................. 1,570 9.4 

DOE’s analysis of the impacts of the 

adopted standards on consumers is 

described in section IV.F of this 

document. 

B. 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 (2023–2055). Using a real 

discount rate of 9.1 percent, DOE 

estimates that the INPV for 

manufacturers of CWH equipment in the 

case without amended standards is 

$212.8 million in 2022$. Under the 

adopted standards, the change in INPV 

is estimated to range from ¥17.7 

percent to ¥8.3 percent, which is 

approximately equivalent to a decrease 

of $37.6 million to a decrease of $17.7 

million, respectively. In order to bring 

products into compliance with amended 

standards, it is estimated that the 

industry would incur total conversion 

costs of $42.7 million. 

DOE’s analysis of the impacts of the 

adopted standards on manufacturers is 

described in section IV.J of this 

document. The analytic results of the 

manufacturer impact analysis (‘‘MIA’’) 

are presented in section V.B.2 of this 

document. 

C. National Benefits and Costs 4

DOE’s analyses indicate that the 

adopted energy conservation standards 

for CWH equipment would save a 

significant amount of energy. Relative to 

the case without amended standards, 

the lifetime energy savings for CWH 

equipment purchased in the 30-year 

period that begins in the anticipated 

year of compliance with the amended 

standards (2026–2055) amount to 0.70 

quadrillion British thermal units 

(‘‘Btu’’), or quads.5 This represents a 

savings of 5.6 percent relative to the 

energy use of these products in the case 

without amended standards (referred to 

as the ‘‘no-new-standards case’’). 

The cumulative net present value 

(‘‘NPV’’) of total consumer benefits of 

the standards for CWH equipment 

ranges from $0.43 billion (at a 7-percent 

discount rate) to $1.43 billion (at a 3- 

percent discount rate). This NPV 

expresses the estimated total value of 

future operating cost savings minus the 

estimated increased product and 

installation costs for CWH equipment 

purchased in 2026–2055. 

In addition, the adopted standards for 

CWH equipment are projected to yield 

significant environmental benefits. DOE 

estimates that the standards would 

result in cumulative emission 

reductions (over the same period as for 

energy savings) of 38 million metric 


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6A metric ton is equivalent to 1.1 short tons. 

Results for emissions other than CO2 are presented 

in short tons. 7 DOE calculated emissions reductions relative to 

the no-new-standards case, which reflects key 

assumptions in the Annual Energy Outlook 2023 

(‘‘AEO2023’’). AEO2023 represents current Federal 

and State legislation and final implementation of 

regulations as of the time of its preparation. See 

section IV.K for further discussion of AEO2023 

assumptions that effect air pollutant emissions. 

8To monetize the benefits of reducing GHG 

emissions this analysis uses the interim estimates 

presented in the Technical Support Document: 

Social Cost of Carbon, Methane, and Nitrous Oxide 

Interim Estimates Under Executive Order 13990 

published in February 2021 by the Interagency 

Working Group on the Social Cost of Greenhouse 

Gases (IWG). 

9See Interagency Working Group on Social Cost 

of Greenhouse Gases, Technical Support Document: 

Social Cost of Carbon, Methane, and Nitrous Oxide. 

Interim Estimates Under Executive Order 13990, 

Washington, DC February 2021. 

www.whitehouse.gov/wp-content/uploads/2021/02/ 

TechnicalSupportDocument_

SocialCostofCarbonMethaneNitrousOxide.pdf? 

10Estimating the Benefit per Ton of Reducing 

PM2.5 Precursors from 21 Sectors. www.epa.gov/ 

benmap/estimating-benefit-ton-reducing-pm25- 

precursors-21-sectors. 

tons (‘‘Mt’’) 6 of carbon dioxide (‘‘CO2’’), 

0.10 thousand tons of sulfur dioxide 

(‘‘SO2’’), 103 thousand tons of nitrogen 

oxides (‘‘NOX’’), 479 thousand tons of 

methane (‘‘CH4’’), 0.08 thousand tons of 

nitrous oxide (‘‘N2O’’), and ¥0.001 tons 

of mercury (‘‘Hg’’).7 The estimated 

cumulative reduction in CO2 emissions 

through 2030 amounts to 1.5 million 

metric tons, which is equivalent to the 

emissions resulting from the annual 

electricity use of more than 295,000 

homes. 

DOE estimates the value of climate 

benefits from a reduction in greenhouse 

gases using four different estimates of 

the ‘‘social cost of carbon’’ (‘‘SC–CO2’’), 

the social cost of methane (‘‘SC–CH4’’), 

and the social cost of nitrous oxide 

(‘‘SC–N2O’’). Together these represent 

the social cost of greenhouse gases 

(‘‘SC–GHG’’).8 DOE used interim SC– 

GHG values developed by an 

Interagency Working Group on the 

Social Cost of Greenhouse Gases 

(‘‘IWG’’).9 The derivation of these values 

is discussed in section IV.L.1 of this 

document. For presentational purposes, 

the climate benefits associated with the 

average SC–GHG at a 3-percent discount 

rate over the 30-year analysis period is 

$2.30 billion. DOE does not have a 

single central SC–GHG point estimate, 

and it emphasizes the importance and 

value of considering the benefits 

calculated using all four SC–GHG 

estimates. 

DOE estimated the monetary health 

benefits from SO2 and NOX emissions 

reduction, using benefit per ton 

estimates from EPA’s Benefits Mapping 

and Analysis Program, as discussed in 

section IV.L of this document.10 DOE 

estimates the present value of the health 

benefits would be $1.36 billion using a 

7-percent discount rate, and $3.29 

billion using a 3-percent discount. DOE 

is currently only monetizing health 

benefits from changes in fine particulate 

matter (‘‘PM2.5’’) and (for NOX) ozone 

precursors, but will continue to assess 

the ability to monetize other effects such 

as health benefits from reductions in 

direct PM2.5 emissions. 

Table I.4 summarizes the monetized 

benefits and costs expected to result 

from the standards for CWH equipment. 

There are other important unquantified 

effects, including certain unquantified 

climate benefits, unquantified public 

health benefits from the reduction of 

toxic air pollutants and other emissions, 

unquantified energy security benefits, 

and distributional effects, among others. 

In the table, total benefits for both the 

3-percent and 7-percent cases are 

presented using the average GHG social 

costs with 3-percent discount rate. DOE 

does not have a single central SC–GHG 

point estimate and it emphasizes the 

importance and value of considering the 

benefits calculated using all four SC– 

GHG estimates. The estimated total net 

benefits using each of the four SC–GHG 

estimates are presented in section V.B.6 

of this document. 

TABLE I.4—PRESENT VALUE OF MONETIZED BENEFITS AND COSTS OF ADOPTED ENERGY CONSERVATION STANDARDS

FOR CWH EQUIPMENT

[TSL 3] 

Benefits Billion 2022$ 

3% Discount rate 

Consumer Operating Cost Savings ..................................................................................................................................................... 2.76 

Climate Benefits * ................................................................................................................................................................................. 2.30 

Health Benefits ** ................................................................................................................................................................................. 3.29 

Total Monetized Benefits † .................................................................................................................................................................. 8.35 

Consumer Incremental Product Costs ‡ .............................................................................................................................................. 1.33 

Net Monetized Benefits ....................................................................................................................................................................... 7.02 

Change in Producer Cashflow (INPV‡‡) ............................................................................................................................................ (0.04)–(0.02) 

7% Discount rate 

Consumer Operating Cost Savings ..................................................................................................................................................... 1.28 

Climate Benefits * (3% discount rate) .................................................................................................................................................. 2.30 

Health Benefits ** ................................................................................................................................................................................. 1.36 

Total Monetized Benefits † .................................................................................................................................................................. 4.94 

Consumer Incremental Product Costs ‡ .............................................................................................................................................. 0.85 

Net Monetized Benefits ....................................................................................................................................................................... 4.09 

Change in Producer Cashflow (INPV‡‡) ............................................................................................................................................ (0.04)–(0.02) 

Note: This table presents the present value of costs and benefits associated with commercial water heaters shipped in 2026–2055. These results include benefits (including climate and health benefits) to consumers which accrue after 2055 from the products shipped in 2026–2055. 

Numbers may not add due to rounding. 

* Climate benefits are calculated using four different estimates of the SC–CO2, SC–CH4, and SC–N2O (model average at 2.5 percent, 3 percent, and 5 percent discount rates; 95th percentile at 3 percent discount rate) (see section IV.L of this final rule). Together these represent the 

global SC–GHG. For presentational purposes of this table, the climate benefits associated with the average SC–GHG at a 3 percent discount 

rate are shown; however, DOE emphasizes the importance and value of considering the benefits calculated using all four sets of SC–GHG estimates. To monetize the benefits of reducing GHG emissions, this analysis uses the interim estimates presented in the Technical Support Document: Social Cost of Carbon, Methane, and Nitrous Oxide Interim Estimates Under Executive Order 13990 published in February 2021 by the 

IWG. 


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11To convert the time-series of costs and benefits 

into annualized values, DOE calculated a present 

value in 2023, the year used for discounting the 

NPV of total consumer costs and savings. For the 

benefits, DOE calculated a present value associated 

with each year’s shipments in the year in which the 

shipments occur (e.g., 2030), and then discounted 

the present value from each year to 2023. The 

calculation uses discount rates of 3 and 7 percent 

for all costs and benefits except for the value of CO2

reductions, for which DOE used case-specific 

discount rates, as shown in Table I.3. Using the 

present value, DOE then calculated the fixed annual 

payment over a 30-year period, starting in the 

compliance year, that yields the same present value. 

** Health benefits are calculated using benefit-per-ton values for NOX and SO2. DOE is currently only monetizing PM2.5 and (for NOX) ozone 

precursor health benefits, but will continue to assess the ability to monetize other effects such as health benefits from reductions in direct PM2.5

emissions. The health benefits are presented at real discount rates of 3 and 7 percent. See section IV.L of this document for more details. 

† Total and net benefits include consumer, climate, and health benefits. For presentation purposes, total and net benefits for both the 3-percent 

and 7-percent cases are presented using the average SC–GHG with 3-percent discount rate. 

‡ Costs include incremental equipment costs as well as installation costs. 

‡‡ Operating Cost Savings are calculated based on the life cycle costs analysis and national impact analysis as discussed in detail below. See 

sections IV.F and IV.H of this document. DOE’s NIA includes all impacts (both costs and benefits) along the distribution chain beginning with the 

increased costs to the manufacturer to manufacture the equipment and ending with the increase in price experienced by the consumer. DOE 

also separately conducts a detailed analysis on the impacts on manufacturers (the MIA). See section IV.J of this document. In the detailed MIA, 

DOE models manufacturers’ pricing decisions based on assumptions regarding investments, conversion costs, cashflow, and margins. The MIA 

produces a range of impacts, which is the rule’s expected impact on the INPV. The change in INPV is the present value of all changes in industry cash flow, including changes in production costs, capital expenditures, and manufacturer profit margins. Change in INPV is calculated using 

the industry weighted average cost of capital value of 9.1% that is estimated in the manufacturer impact analysis (see chapter 12 of the final rule 

TSD for a complete description of the industry weighted average cost of capital). For commercial water heaters, those values are ¥$38 million 

and ¥$18 million. DOE accounts for that range of likely impacts in analyzing whether a TSL is economically justified. See section V.C of this 

document. DOE is presenting the range of impacts to the INPV under two markup scenarios: the Preservation of Gross Margin scenario, which is 

the manufacturer markup scenario used in the calculation of Consumer Operating Cost Savings in this table, and the Preservation of Operating 

Profit Markup scenario, where DOE assumed manufacturers would not be able to increase per-unit operating profit in proportion to increases in 

manufacturer production costs. DOE includes the range of estimated INPV in the above table, drawing on the MIA explained further in section 

IV.J, of this document to provide additional context for assessing the estimated impacts of this rule to society, including potential changes in production and consumption, which is consistent with OMB’s Circular A–4 and E.O. 12866. If DOE were to include the INPV into the net benefit calculation for this final rule, the net benefits would range from $6.98 billion to $7.0 billion at 3-percent discount rate and would range from $4.05 

billion to $4.07 billion at 7-percent discount rate. Parentheses ( ) indicate negative values. 

The benefits and costs of the adopted 

standards can also be expressed in terms 

of annualized values. The monetary 

values for the total annualized net 

benefits are (1) the reduced consumer 

operating costs, minus (2) the increase 

in product purchase prices and 

installation costs, plus (3) the monetized 

value of the benefits of GHG, NOX, and 

SO2 emission reductions, all 

annualized.11

The national operating savings are 

domestic private U.S. consumer 

monetary savings that occur as a result 

of purchasing the covered products and 

are measured for the lifetime of CWH 

equipment shipped in 2026–2055. The 

climate benefits associated with reduced 

GHG emissions achieved as a result of 

the adopted standards are also 

calculated based on the lifetime of CWH 

equipment shipped in 2026–2055. Total 

benefits for both the 3-percent and 7- 

percent cases are presented using the 

average GHG social costs with 3-percent 

discount rate. Estimates of SC–GHG 

values are presented for all four 

discount rates in section V.B.6. DOE 

considered any lessening of competition 

that would be likely to result from new 

or amended standards. As discussed in 

section III.F.1.e of this document, EPCA 

directs the Attorney General of the 

United States (‘‘Attorney General’’) to 

determine the impact, if any, of any 

lessening of competition likely to result 

from a proposed standard and to 

transmit such determination in writing 

to the Secretary within 60 days of the 

publication of a proposed rule, together 

with an analysis of the nature and 

extent of the impact. To assist the 

Attorney General in making this 

determination, DOE provided the 

Department of Justice (‘‘DOJ’’) with 

copies of the proposed rule and the TSD 

for review. In its assessment letter 

responding to DOE, DOJ concluded that 

the proposed energy conservation 

standards for CWH equipment are 

unlikely to have a significant adverse 

impact on competition. DOE is 

publishing the Attorney General’s 

assessment at the end of this final rule. 

Table I.5 presents the total estimated 

monetized benefits and costs associated 

with the adopted standard, expressed in 

terms of annualized values. 

Using a 7-percent discount rate for 

consumer benefits and costs and health 

benefits from reduced SO2 and NOX

emissions, and the 3-percent discount 

rate case for climate benefits from 

reduced GHG emissions, the estimated 

monetized cost of the standards adopted 

in this rule is $78 million per year in 

increased equipment costs, while the 

estimated annual benefits are $118 

million in reduced equipment operating 

costs, $125 million in monetized 

climate benefits, and $125 million in 

monetized health benefits. In this case, 

the net monetized benefit would 

amount to $289 million per year. 

Using a 3-percent discount rate for all 

benefits and costs, the estimated 

monetized cost of the standards is $72 

million per year in increased equipment 

costs, while the estimated annual 

monetized benefits are $149 million in 

reduced operating costs, $125 million in 

monetized climate benefits, and $178 

million in monetized air pollutant 

health benefits. In this case, the net 

benefit would amount to $380 million 

per year. 

TABLE I.5—ANNUALIZED MONETIZED BENEFITS AND COSTS OF ADOPTED ENERGY CONSERVATION STANDARDS FOR CWH 

EQUIPMENT

[TSL 3] 

Category 

Million 2022$/year 

Primary 

estimate 

Low-netbenefits 

estimate 

High-netbenefits 

estimate 

3% Discount rate 

Consumer Operating Cost Savings ............................................................................................. 149 144 154 


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12Procedures, Interpretations, and Policies for 

Consideration in New or Revised Energy 

Continued 

TABLE I.5—ANNUALIZED MONETIZED BENEFITS AND COSTS OF ADOPTED ENERGY CONSERVATION STANDARDS FOR CWH 

EQUIPMENT—Continued 

[TSL 3] 

Category 

Million 2022$/year 

Primary 

estimate 

Low-netbenefits 

estimate 

High-netbenefits 

estimate 

Climate Benefits * ......................................................................................................................... 125 124 128 

Health Benefits ** ......................................................................................................................... 178 177 197 

Total Monetized Benefits † .......................................................................................................... 452 445 479 

Consumer Incremental Product Costs ‡ ...................................................................................... 72 72 74 

Net Monetized Benefits ............................................................................................................... 380 373 405 

Change in Producer Cashflow (INPV‡‡) .................................................................................... (4)–(2) (4)–(2) (4)–(2) 

7% Discount rate 

Consumer Operating Cost Savings ............................................................................................. 118 115 122 

Climate Benefits * (3% discount rate) .......................................................................................... 125 124 128 

Health Benefits ** ......................................................................................................................... 125 124.4 138.1 

Total Monetized Benefits † .......................................................................................................... 368 364 388 

Consumer Incremental Product Costs ‡ ...................................................................................... 78 78.2 80.0 

Net Monetized Benefits ............................................................................................................... 289 285 308 

Change in Producer Cashflow (INPV‡‡) .................................................................................... (4)–(2) (4)–(2) (4)–(2) 

Note: This table presents the annualized costs and benefits associated with CWH equipment shipped in 2026–2055. These results include

benefits to consumers which accrue after 2055 from the products purchased in 2026–2055. The primary, low net benefits, and high net benefits 

estimates utilize projections of energy prices from the AEO2023 Reference case, low economic growth case, and high economic growth case, respectively. Note that the benefits and costs may not sum to the net benefits due to rounding. 

* Climate benefits are calculated using four different estimates of the global SC–GHG (see section IV.L of this final rule). For presentational 

purposes of this table, the climate benefits associated with the average SC–GHG at a 3 percent discount rate are shown; however, DOE emphasizes the importance and value of considering the benefits calculated using all four sets of SC–GHG estimates. To monetize the benefits of reducing GHG emissions, this analysis uses the interim estimates presented in the Technical Support Document: Social Cost of Carbon, Methane, 

and Nitrous Oxide Interim Estimates Under Executive Order 13990 published in February 2021 by the IWG. 

** Health benefits are calculated using benefit-per-ton values for NOX and SO2. DOE is currently only monetizing PM2.5 and (for NOX) ozone 

precursor health benefits, but will continue to assess the ability to monetize other effects such as health benefits from reductions in direct PM2.5

emissions. The health benefits are presented at real discount rates of 3 and 7 percent. See section IV.L of this document for more details. 

† Total benefits for both the 3-percent and 7-percent cases are presented using the average SC–GHG with 3-percent discount rate.

‡ Costs include incremental equipment costs as well as installation costs. 

‡‡ Operating Cost Savings are calculated based on the life cycle costs analysis and national impact analysis as discussed in detail below. See 

sections IV.F and IV.H of this document. DOE’s NIA includes all impacts (both costs and benefits) along the distribution chain beginning with the 

increased costs to the manufacturer to manufacture the equipment and ending with the increase in price experienced by the consumer. DOE 

also separately conducts a detailed analysis on the impacts on manufacturers (the MIA). See section IV.J of this document. In the detailed MIA, 

DOE models manufacturers’ pricing decisions based on assumptions regarding investments, conversion costs, cashflow, and margins. The MIA 

produces a range of impacts, which is the rule’s expected impact on the INPV. The change in INPV is the present value of all changes in industry cash flow, including changes in production costs, capital expenditures, and manufacturer profit margins. The annualized change in INPV is 

calculated using the industry weighted average cost of capital value of 9.1% that is estimated in the manufacturer impact analysis (see chapter 

12 of the final rule TSD for a complete description of the industry weighted average cost of capital). For commercial water heaters, those values 

are ¥$4 million and ¥$2 million. DOE accounts for that range of likely impacts in analyzing whether a TSL is economically justified. See section 

V.C of this document. DOE is presenting the range of impacts to the INPV under two markup scenarios: the Preservation of Gross Margin scenario, which is the manufacturer markup scenario used in the calculation of Consumer Operating Cost Savings in this table, and the Preservation 

of Operating Profit Markup scenario, where DOE assumed manufacturers would not be able to increase per-unit operating profit in proportion to 

increases in manufacturer production costs. DOE includes the range of estimated annualized change in INPV in the above table, drawing on the 

MIA explained further in Section IV.J, to provide additional context for assessing the estimated impacts of this rule to society, including potential 

changes in production and consumption, which is consistent with OMB’s Circular A–4 and E.O. 12866. If DOE were to include the INPV into the 

annualized net benefit calculation for this final rule, the annualized net benefits would range from $376 million to $378 million at 3-percent discount rate and would range from $285 million to $287 million at 7-percent discount rate. Parentheses ( ) indicate negative values. 

DOE’s analysis of the national impacts 

of the adopted standards is described in 

sections IV.H, IV.K, and IV.L of this 

document. 

D. Conclusion 

DOE concludes, based on clear and 

convincing evidence as presented in the 

following sections, that the standards 

adopted in this final rule are 

technologically feasible and 

economically justified, and would result 

in significant additional conservation of 

energy. Specifically, with regards to 

technological feasibility, CWH 

equipment achieving the adopted 

standard levels are already 

commercially available for all 

equipment classes covered by this final 

rule. As for economic justification, 

DOE’s analysis shows that the benefits 

of the proposed standard exceed, to a 

great extent, the burdens of the adopted 

standards. Using a 7-percent discount 

rate for consumer benefits and costs and 

NOX and SO2 reduction benefits, and a 

3-percent discount rate case for GHG 

social costs, the estimated monetized 

cost of the proposed standards for CWH 

equipment is $78 million per year in 

increased equipment costs, while the 

estimated annual monetized benefits are 

$118 million in reduced equipment 

operating costs, $125 million in 

monetized climate benefits from GHG 

reductions, and $125 million in 

monetized air pollutant health benefits. 

In this case, the net monetized benefit 

would amount to $289 million per year. 

The significance of energy savings 

offered by a new or amended energy 

conservation standard cannot be 

determined without knowledge of the 

specific circumstances surrounding a 

given rulemaking.12 For example, some 


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69692 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations 

Conservation Standards and Test Procedures for 

Consumer Products and Commercial/Industrial 

Equipment, 86 FR 70892, 70901 (Dec. 13, 2021). 

13The clear and convincing threshold is a 

heightened standard, and would only be met where 

the Secretary has an abiding conviction, based on 

available facts, data, and DOE’s own analyses, that 

it is highly probable an amended standard would 

result in a significant additional amount of energy 

savings, and is technologically feasible and 

economically justified. American Public Gas 

Association v. U.S. Dep’t of Energy, 22 F.4th 1018, 

1025 (D.C. Cir. January 18, 2022) (citing Colorado 

v. New Mexico, 467 U.S. 310, 316, 104 S. Ct. 2433, 

81 L. Ed. 2d 247 (1984)). 

14 In relevant part, subparagraph (B) specifies 

that: (1) in making a determination of economic 

justification, DOE must consider, to the maximum 

extent practicable, the benefits and burdens of an 

amended standard based on the seven criteria 

described in EPCA; (2) DOE may not prescribe any 

standard that increases the energy use or decreases 

the energy efficiency of a covered product; and (3) 

DOE may not prescribe any standard that interested 

persons have established by a preponderance of 

evidence is likely to result in the unavailability in 

the United States of any 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. 6313(a)(6)(B)(ii)– 

(iii)) 

covered products and equipment have 

most of their energy consumption occur 

during periods of peak energy demand. 

The impacts of these products on the 

energy infrastructure can be more 

pronounced than products with 

relatively constant demand. 

Accordingly, DOE evaluates the 

significance of energy savings on a caseby-case basis. As previously mentioned, 

the standards are projected to result in 

estimated full-fuel cycle (‘‘FFC’’) 

national energy savings of 0.70 quad for 

equipment purchased in the 30-year 

period that begins in the anticipated 

year of compliance with the amended 

standards (2026–2055), the equivalent of 

the electricity use of approximately 28 

million homes in 1 year. In addition, 

they are projected to reduce CO2

emissions by 38 Mt. Based on these 

findings, DOE has determined the 

energy savings from the standard levels 

adopted in this final rule are 

‘‘significant’’ within the meaning of 42 

U.S.C. 6313(a)(6)(A)(ii)(II). A more 

detailed discussion of the basis for these 

conclusions is contained in the 

remainder of this document and the 

accompanying TSD. 

II. Introduction 

The following section briefly 

discusses the statutory authority 

underlying this final rule, as well as 

some of the relevant historical 

background related to the establishment 

of standards for CWH equipment. CWH 

equipment includes storage water 

heaters, instantaneous water heaters, 

and unfired hot water storage tanks. 

Such equipment (besides unfired hot 

water storage tanks, which only store 

hot water) may use gas, oil, or electricity 

to heat potable water. CWH equipment 

generally have higher input ratings than 

residential water heaters and are used in 

a wide variety of applications (including 

restaurants, hotels, multi-family 

housing, schools, convention centers, 

etc.). Some CWH equipment (in 

particular, residential-duty CWH) may 

also be used in certain residential 

applications. 

A. Authority 

EPCA authorizes DOE to regulate the 

energy efficiency of a number of 

consumer products and industrial 

equipment. Title III, Part C of EPCA, 

added by Public Law 95–619, Title IV, 

section 441(a) (42 U.S.C. 6311–6317, as 

codified), established the Energy 

Conservation Program for Certain 

Industrial Equipment, which sets forth a 

variety of provisions designed to 

improve energy efficiency. This 

equipment includes the classes of CWH 

equipment that are the subject of this 

final rule. (42 U.S.C. 6311(1)(K)) EPCA 

prescribed energy conservation 

standards for CWH equipment. (42 

U.S.C. 6313(a)(5)) Pursuant to EPCA, 

DOE is to consider amending the energy 

efficiency standards for certain types of 

commercial and industrial equipment, 

including CWH equipment, whenever 

ASHRAE amends the standard levels or 

design requirements prescribed in 

ASHRAE/IES Standard 90.1, and at a 

minimum, every 6 years. (42 U.S.C. 

6313(a)(6)(A)–(C)) 

The energy conservation program 

under EPCA consists essentially of four 

parts: (1) testing, (2) labeling, (3) the 

establishment of Federal energy 

conservation standards, and (4) 

certification and enforcement 

procedures. Relevant provisions of 

EPCA specifically include definitions 

(42 U.S.C. 6311), energy conservation 

standards (42 U.S.C. 6313), test 

procedures (42 U.S.C. 6314), labeling 

provisions (42 U.S.C. 6315), and the 

authority to require information and 

reports from manufacturers (42 U.S.C. 

6316). 

Federal energy efficiency 

requirements for covered equipment 

established under EPCA generally 

supersede State laws and regulations 

concerning energy conservation testing, 

labeling, and standards. (42 U.S.C. 

6316(a) and (b); 42 U.S.C. 6297) 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 EPCA. (See 42 U.S.C. 

6316(b)(2)(D)) 

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 covered 

equipment. Manufacturers of covered 

equipment must use the Federal test 

procedures as the basis for (1) certifying 

to DOE that their equipment complies 

with the applicable energy conservation 

standards adopted pursuant to EPCA (42 

U.S.C. 6316(b); 42 U.S.C. 6296), and (2) 

making representations about the 

efficiency of that equipment (42 U.S.C. 

6314(d)). Similarly, DOE uses these test 

procedures to determine whether the 

equipment complies with relevant 

standards promulgated under EPCA. 

The DOE test procedures for CWH 

equipment appear at part 431, subpart 

G. 

ASHRAE Standard 90.1 sets industry 

energy efficiency levels for small, large, 

and very large commercial package airconditioning and heating equipment, 

packaged terminal air conditioners, 

packaged terminal heat pumps, warm 

air furnaces, packaged boilers, storage 

water heaters, instantaneous water 

heaters, and unfired hot water storage 

tanks (collectively ‘‘ASHRAE 

equipment’’). For each type of listed 

equipment, EPCA directs that if 

ASHRAE amends Standard 90.1, DOE 

must adopt amended standards at the 

new ASHRAE efficiency level, unless 

DOE determines, supported by clear and 

convincing evidence,13 that adoption of 

a more stringent level would produce 

significant additional conservation of 

energy and would be technologically 

feasible and economically justified. (42 

U.S.C. 6313(a)(6)(A)(ii)) Under EPCA, 

DOE must also review energy efficiency 

standards for CWH equipment every 6 

years and either: (1) issue a notice of 

determination that the standards do not 

need to be amended as adoption of a 

more stringent level is not supported by 

clear and convincing evidence; or (2) 

issue a notice of proposed rulemaking 

including new proposed standards 

based on certain criteria and procedures 

in subparagraph (B) of 42 U.S.C. 

6313(a)(6).14 (42 U.S.C. 6313(a)(6)(C)) 

In deciding whether a more-stringent 

standard is economically justified, 

under either the provisions of 42 U.S.C. 

6313(a)(6)(A) or 42 U.S.C. 6313(a)(6)(C), 

DOE must determine whether the 

benefits of the standard exceed its 

burdens. DOE must make this 

determination after receiving comments 

on the proposed standard, and by 

considering, to the greatest extent 

practicable, the following seven 

statutory factors: 


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(1) The economic impact of the 

standard on manufacturers and 

consumers of 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 equipment that 

are likely to result from the standard; 

(3) The total projected amount of 

energy savings likely to result directly 

from the standard; 

(4) Any lessening of the utility or the 

performance of the covered product 

likely to result from 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 standard; 

(6) The need for national energy 

conservation; and 

(7) Other factors the Secretary of 

Energy considers relevant. 

(42 U.S.C. 6313(a)(6)(B)(ii)(I)–(VII)) 

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 the standard 

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 

applicable test procedure. (42 U.S.C. 

6295(o)(2)(B)(iii)) However, while this 

rebuttable presumption analysis applies 

to most commercial and industrial 

equipment (42 U.S.C. 6316(a)), it is not 

a required analysis for ASHRAE 

equipment (42 U.S.C. 6316(b)(1)). 

Nonetheless, DOE included the analysis 

of rebuttable presumption in its 

economic analysis and presents the 

results in section V.B.1.c of this 

document. 

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. 

6313(a)(6)(B)(iii)(I)) 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 in 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. 

6313(a)(6)(B)(iii)(II)(aa)) 

B. Background 

1. Current Standards 

The current standards for all CWH 

equipment classes are set forth in DOE’s 

regulations at 10 CFR 431.110, except 

for electric instantaneous water heaters 

that are not residential duty, which are 

included in EPCA (the history of the 

standards for electric instantaneous 

water heaters is discussed in section 

III.B.3 of this document). (42 U.S.C. 

6313(a)(5)(D)–(E)) Table II.1 shows the 

current standards for all CWH 

equipment classes, except residentialduty commercial water heaters, which 

are shown in Table II.2 of this 

document. 

TABLE II.1—CURRENT FEDERAL ENERGY CONSERVATION STANDARDS FOR CWH EQUIPMENT EXCEPT FOR RESIDENTIALDUTY COMMERCIAL WATER HEATERS

Product Size 

Energy conservation standards * 

Minimum thermal 

efficiency 

(equipment 

manufactured on 

and after 

October 9, 

2015) ** *** 

(%) 

Maximum standby loss 

(equipment manufactured 

on and after October 29, 

2003) ** † 

Electric storage water heaters ................................................................. All ........................... N/A 0.30 + 27/Vm (%/h). 

Gas-fired storage water heaters .............................................................. ≤155,000 Btu/h .......

>155,000 Btu/h .......

80 

80 

Q/800 + 110(Vr)1⁄2 (Btu/h). 

Q/800 + 110(Vr)1⁄2 (Btu/h). 

Oil-fired storage water heaters ................................................................ ≤155,000 Btu/h .......

>155,000 Btu/h .......

*** 80 

*** 80 

Q/800 + 110(Vr)1⁄2 (Btu/h). 

Q/800 + 110(Vr)1⁄2 (Btu/h). 

Electric instantaneous water heaters ‡ .................................................... <10 gal ...................

≥10 gal ...................

80 

77 

N/A. 

2.30 + 67/Vm (%/h). 

Gas-fired instantaneous water heaters and hot water supply boilers ..... <10 gal ...................

≥10 gal ...................

80 

80 

N/A. 

Q/800 + 110(Vr)1⁄2 (Btu/h). 

Oil-fired instantaneous water heater and hot water supply boilers ......... <10 gal ...................

≥10 gal ...................

80 

78 

N/A. 

Q/800 + 110(Vr)1⁄2 (Btu/h). 

Minimum thermal insulation 

Unfired hot water storage tank ................................................................ All ........................... R–12.5 

* Vm is the measured storage volume, and Vr is the rated volume, both in gallons. Q is the nameplate input rate in Btu/h. 

** For hot water supply boilers with a capacity of less than 10 gallons: (1) the standards are mandatory for products manufactured on and after 

October 21, 2005 and (2) products manufactured prior to that date, and on or after October 23, 2003, must meet either the standards listed in 

this table or the applicable standards in subpart E of this part for a ‘‘commercial packaged boiler.’’ 

*** For oil-fired storage water heaters: (1) the standards are mandatory for equipment manufactured on and after October 9, 2015 and (2) 

equipment manufactured prior to that date must meet a minimum thermal efficiency level of 78 percent. 

† Water heaters and hot water supply boilers having more than 140 gallons of storage capacity need not meet the standby loss requirement if: 

(1) the tank surface area is thermally insulated to R–12.5 or more, (2) a standing pilot light is not used, and (3) for gas or oil-fired storage water 

heaters, they have a fire damper or fan-assisted combustion. 

‡Energy conservation standards for electric instantaneous water heaters are included in EPCA. (42 U.S.C. 6313(a)(5)(D)–(E)) The compliance 

date for these energy conservation standards is January 1, 1994. In this final rule, DOE codifies these standards for electric instantaneous water 

heaters in its regulations at 10 CFR 431.110. Further discussion of standards for electric instantaneous water heaters is included in section 

III.B.3 of this final rule. 


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15ASHRAE Standard 90.1–2013 also appeared to 

change the standby loss levels for four equipment 

classes (gas-fired storage water heaters, oil-fired 

storage water heaters, gas-fired instantaneous water 

heaters, and oil-fired instantaneous water heaters) 

to efficiency levels that surpassed the Federal 

energy conservation standard levels. However, 

upon reviewing the changes DOE concluded that all 

changes to standby loss levels for these equipment 

classes were editorial errors because they were 

identical to SI (International System of Units; 

metric system) formulas rather than I–P (InchPound; English system) formulas. As a result, DOE 

did not conduct an analysis of the potential energy 

savings from amended standby loss standards for 

this equipment in response to the ASHRAE 

updates. DOE did not receive any comments on this 

TABLE II.2—CURRENT ENERGY CONSERVATION STANDARDS FOR RESIDENTIAL-DUTY COMMERCIAL WATER HEATERS

Equipment Specification * Draw 

pattern ** Uniform energy factor Compliance date 

Gas-fired storage ......... >75 kBtu/h and ≤105 kBtu/h and ≤120 gal ...... Very Small ....

Low ...............

Medium .........

High ...............

0.2674 ¥ (0.0009 × Vr) .....

0.5362 ¥ (0.0012 × Vr) 

0.6002 ¥ (0.0011 × Vr) 

0.6597 ¥ (0.0009 × Vr) 

December 29, 2016. 

Oil-fired storage ........... >105 kBtu/h and ≤140 kBtu/h and ≤120 gal .... Very Small ....

Low ...............

Medium .........

High ..............

0.2932 ¥ (0.0015 × Vr) 

0.5596 ¥ (0.0018 × Vr) 

0.6194 ¥ (0.0016 × Vr) 

0.6740 ¥ (0.0013 × Vr) 

Electric instantaneous >12 kW and ≤58.6 kW and ≤2 gal ................... Very Small ....

Low ...............

Medium .........

High ...............

0.80 

0.80 

0.80 

0.80 

* Additionally, to be classified as a residential-duty water heater, a commercial water heater must meet the following conditions: (1) if requiring 

electricity, use single-phase external power supply; and (2) the water heater must not be designed to heat water at temperatures greater than 

180 °F. 

** Draw pattern is a classification of hot water use of a consumer water heater or residential-duty commercial water heater, based upon the 

first-hour rating. The draw pattern is determined using the Uniform Test Method for Measuring the Energy Consumption of Water Heaters in appendix E to subpart B of 10 CFR part 430. 

2. History of Standards Rulemaking for 

CWH Equipment 

As previously noted, EPCA 

established initial Federal energy 

conservation standards for CWH 

equipment that generally corresponded 

to the levels in ASHRAE Standard 90.1– 

1989. On October 29, 1999, ASHRAE 

released Standard 90.1–1999, which 

included new efficiency levels for 

numerous categories of CWH 

equipment. DOE evaluated these new 

standards and subsequently amended 

energy conservation standards for CWH 

equipment in a final rule published in 

the Federal Register on January 12, 

2001. 66 FR 3336 (‘‘January 2001 final 

rule’’). DOE adopted the levels in 

ASHRAE Standard 90.1–1999 for all 

classes of CWH equipment, except for 

electric storage water heaters. For 

electric storage water heaters, the 

standard in ASHRAE Standard 90.1– 

1999 was less stringent than the 

standard prescribed in EPCA and, 

consequently, would have increased 

energy consumption. 

Under those circumstances, DOE 

could not adopt the new efficiency level 

for electric storage water heaters in 

ASHRAE Standard 90.1–1999. 66 FR 

3336, 3350. In the January 2001 final 

rule, DOE also adopted the efficiency 

levels contained in the Addendum to 

ASHRAE Standard 90.1–1989 for hot 

water supply boilers, which were 

identical to the efficiency levels for 

instantaneous water heaters. 66 FR 

3336, 3356. 

On October 21, 2004, DOE published 

a direct final rule in the Federal 

Register (‘‘October 2004 direct final 

rule’’) that recodified the existing energy 

conservation standards, so that they are 

located contiguous with the test 

procedures that were promulgated in 

the same notice. 69 FR 61974. The 

October 2004 final rule also updated 

definitions for CWH equipment at 10 

CFR 431.102. 

The American Energy Manufacturing 

Technical Corrections Act 

(‘‘AEMTCA’’), Public Law 112–210 

(Dec. 18, 2012), amended EPCA to 

require that DOE publish a final rule 

establishing a uniform efficiency 

descriptor and accompanying test 

methods for covered consumer water 

heaters and some CWH equipment. (42 

U.S.C. 6295(e)(5)(B)) EPCA further 

required that the final rule must replace 

the energy factor (for consumer water 

heaters) and thermal efficiency and 

standby loss (for some commercial 

water heaters) metrics with a uniform 

efficiency descriptor. (42 U.S.C. 

6295(e)(5)(C)) Pursuant to 42 U.S.C. 

6295(e), on July 11, 2014, DOE 

published a final rule for test 

procedures for residential and certain 

commercial water heaters (‘‘July 2014 

final rule’’) that, among other things, 

established UEF, a revised version of the 

current residential energy factor metric, 

as the uniform efficiency descriptor 

required by AEMTCA. 79 FR 40542, 

40578. In addition, the July 2014 final 

rule defined the term ‘‘residential-duty 

commercial water heater,’’ an 

equipment category that is subject to the 

new UEF metric and the corresponding 

UEF test procedures. 79 FR 40542, 

40586–40588 (July 11, 2014). 

Conversely, CWH equipment that does 

not meet the definition of a residentialduty commercial water heater is not 

subject to the UEF metric or 

corresponding UEF test procedures. Id. 

Further details on the UEF metric and 

residential-duty commercial water 

heaters are discussed in section III.C of 

this document. 

In a notice of proposed rulemaking 

(‘‘NOPR’’) published on April 14, 2015 

(‘‘April 2015 NOPR’’), DOE proposed, 

among other things, conversion factors 

from thermal efficiency and standby 

loss to UEF for residential-duty 

commercial water heaters. 80 FR 20116, 

20143. Subsequently, in a final rule 

published on December 29, 2016 (the 

‘‘December 2016 conversion factor final 

rule’’), DOE specified standards for 

residential-duty commercial water 

heaters in terms of UEF. However, while 

the metric was changed from thermal 

efficiency and/or standby loss, the 

stringency was not changed. 81 FR 

96204, 96239 (Dec. 29, 2016). 

In ASHRAE Standard 90.1–2013, 

ASHRAE increased the thermal 

efficiency level for commercial oil-fired 

storage water heaters, thereby triggering 

DOE’s statutory obligation to 

promulgate an amended uniform 

national standard at those levels, unless 

DOE were to determine that there is 

clear and convincing evidence 

supporting the adoption of morestringent energy conservation standards 

than the ASHRAE levels.15 In a final 


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issue. 80 FR 1171, 1185 (January 8, 2015). The 

standby loss levels for these equipment classes were 

reverted to the previous levels in ASHRAE 

Standard 90.1–2016 and have not been updated 

since then. 

16The rulemaking for CWH equipment has been 

subject to multiple rounds of public comment, 

including public meetings, and extensive records 

have been developed in the relevant dockets. (See 

Docket Number EERE–2014–BT–STD–0042). 

Consequently, although the May 2016 CWH ECS 

NOPR was withdrawn, the information obtained 

through those earlier rounds of public comment, 

information exchange, and data gathering have been 

considered in this rulemaking. 

17On July 20, 2022, DOE published a notice that 

re-opened the comment period for the May 2022 

CWH ECS NOPR to allow comments to be 

submitted until August 1, 2022. 87 FR 43226. 

rule published on July 17, 2015 (‘‘July 

2015 ASHRAE equipment final rule’’), 

among other things, DOE adopted the 

standard for commercial oil-fired 

storage water heaters at the level set 

forth in ASHRAE Standard 90.1–2013, 

which increased the standard from 78 to 

80 percent thermal efficiency with 

compliance required starting on October 

9, 2015. 80 FR 42614 (July 17, 2015). 

Since that time ASHRAE has issued 2 

updated versions of Standard 90.1, 

90.1–2016 and 90.1–2019. However, 

DOE was not triggered to review 

amended standards for commercial 

water heaters by any updates in 

ASHRAE Standard 90.1–2016 or 

ASHRAE Standard 90.1–2019. Overall, 

DOE has not been triggered to review 

the standards for the equipment subject 

to this rulemaking (i.e., commercial 

water heating equipment other than 

commercial oil-fired storage water 

heaters) based on an update to the 

efficiency levels in ASHRAE Standard 

90.1 since the 1999 edition because 

ASHRAE has not updated the efficiency 

levels for such equipment since 1999. 

On October 21, 2014, DOE published 

a request for information (‘‘RFI’’) as an 

initial step for reviewing the energy 

conservation standards for CWH 

equipment. 79 FR 62899 (‘‘October 2014 

RFI’’). The October 2014 RFI solicited 

information from the public to help 

DOE determine whether more-stringent 

energy conservation standards for CWH 

equipment would result in a significant 

amount of additional energy savings, 

and whether those standards would be 

technologically feasible and 

economically justified. 79 FR 62899, 

62899–62900. DOE received a number 

of comments from interested parties in 

response to the October 2014 RFI. 

On May 31, 2016, DOE published a 

NOPR and notice of public meeting in 

the Federal Register (‘‘May 2016 CWH 

ECS NOPR’’) that addressed all of the 

comments received in response to the 

RFI and proposed amended energy 

conservation standards for CWH 

equipment. 81 FR 34440. The May 2016 

CWH ECS NOPR and the technical 

support document (‘‘TSD’’) for that 

NOPR are available at 

www.regulations.gov/docket?D=EERE2014-BT-STD-0042. 

On June 6, 2016, DOE held a public 

meeting at which it presented and 

discussed the analyses conducted as 

part of this rulemaking (e.g., engineering 

analysis, LCC, PBP, and MIA). In the 

public meeting, DOE presented the 

results of the analysis and requested 

comments from stakeholders on various 

issues related to the rulemaking in 

response to the May 2016 CWH ECS 

NOPR. 

On December 23, 2016, DOE 

published a notice of data availability 

(‘‘NODA’’) for energy conservation 

standards for CWH equipment 

(‘‘December 2016 CWH ECS NODA’’). 

81 FR 94234. The December 2016 CWH 

ECS NODA presented the thermal 

efficiency and standby loss levels 

analyzed in the May 2016 CWH ECS 

NOPR for residential-duty gas-fired 

storage water heaters in terms of UEF, 

using the updated conversion factors for 

gas-fired and oil-fired storage water 

heaters adopted in the December 2016 

conversion factor final rule (81 FR 

94234, 94237). 

On January 15, 2021, in response to a 

petition for rulemaking submitted by the 

American Public Gas Association, Spire, 

Inc., the Natural Gas Supply 

Association, the American Gas 

Association, and the National Propane 

Gas Association (83 FR 54883; Nov. 1, 

2018) DOE published a final interpretive 

rule (‘‘the January 2021 final 

interpretive rule’’) determining that, in 

the context of residential furnaces, 

commercial water heaters, and 

similarly-situated products/equipment, 

use of non-condensing technology (and 

associated venting) constitute a 

performance-related ‘‘feature’’ under 

EPCA that cannot be eliminated through 

adoption of an energy conservation 

standard. 86 FR 4776. Correspondingly, 

DOE withdrew the May 2016 CWH ECS 

NOPR.16 86 FR 3873 (Jan. 15, 2021). 

However, DOE has subsequently 

published a final interpretive rule that 

returns to the previous and longstanding interpretation (in effect prior to 

the January 15, 2021 final interpretive 

rule), under which the technology used 

to supply heated air or hot water is not 

a performance-related ‘‘feature’’ that 

provides a distinct consumer utility 

under EPCA. 86 FR 73947 (Dec. 29, 

2021). In conducting the analysis for 

this final rule, DOE evaluates 

condensing technologies and associated 

venting systems (i.e., trial standard 

levels (‘‘TSLs’’) 2, 3, and 4) in its 

analysis of potential energy 

conservation standards. Any adverse 

impacts on utility and availability of 

non-condensing technology options are 

considered in DOE’s analyses of these 

TSLs. 

On May 19, 2022, DOE published a 

NOPR (‘‘May 2022 CWH ECS NOPR’’) 

for CWH equipment, in which DOE 

proposed amended energy conservation 

standards for certain classes of CWH 

equipment and proposed to codify 

existing standards from EPCA for 

commercial electric instantaneous water 

heaters (except for residential-duty 

commercial electric instantaneous water 

heaters).17 87 FR 30610. DOE received 

28 comments in response to the May 

2022 CWH ECS NOPR from the 

interested parties listed in Table II.3. 

TABLE II.3—MAY 2022 CWH ECS NOPR WRITTEN COMMENTS

Commenter(s) Abbreviation 

Comment 

No. in the 

docket 

Commenter 

type * 

Sean Erwin ......................................................................................................................... Sean Erwin .................... 6 ................. I 

The American Gas Association (‘‘AGA’’), American Public Gas Association (‘‘AGPA’’), 

National Propane Gas Association (‘‘NPGA’’), Spire Inc., and ONE Gas, Inc.

Joint Gas Commenters .. 7, 14, 34 .... UA 

JJM Alkaline Technologies ................................................................................................. JJM Alkaline ................... 10 ............... M 

Atmos Energy Corporation ................................................................................................. Atmos Energy ................ 11, 36 ......... U 

American Public Gas Association ...................................................................................... APGA ............................. 13 ** ........... UA 

Bradford White Corporation ................................................................................................ Bradford White ............... 12, 23 ......... M 

Law Offices of Barton Day, PLLC (representing Spire) ..................................................... Barton Day Law ............. 13 ** ........... U 

American Society for Testing and Materials ....................................................................... ASTM ............................. 15 ............... EA 


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18The parenthetical reference provides a 

reference for information located in the docket of 

DOE’s rulemaking to develop energy conservation 

standards for CWH equipment. (Docket No. EERE– 

2021–BT–STD–0027, which is maintained at 

www.regulations.gov). The references are arranged 

as follows: (commenter name, comment docket ID 

number, page of that document). 

TABLE II.3—MAY 2022 CWH ECS NOPR WRITTEN COMMENTS—Continued 

Commenter(s) Abbreviation 

Comment 

No. in the 

docket 

Commenter 

type * 

Suburban Propane Partners, L.P ....................................................................................... Suburban Propane ......... 16 ............... U 

Center for Climate and Energy Solutions, Institute for Policy Integrity at New York University School of Law, Montana Environmental Information Center, Natural Resources Defense Council, Sierra Club, Union of Concerned Scientists.Joint Climate Commenters.19 ............... EA 

Bock Water Heaters, Inc .................................................................................................... Bock Water Heaters ...... 20 ............... M 

Northwest Power and Conservation Council ...................................................................... NWPCC ......................... 21 ............... EA 

A.O. Smith Corporation ...................................................................................................... A.O. Smith ..................... 22 ............... M 

Rheem Manufacturing Company ........................................................................................ Rheem ........................... 24 ............... M 

WM Technologies, LLC ...................................................................................................... WM Technologies .......... 25 ............... M 

Patterson-Kelley, LLC ......................................................................................................... Patterson-Kelley ............. 26 ............... M 

California Energy Commission ........................................................................................... CEC ............................... 27 ............... EA 

Plumbing-Heating-Cooling Contractors National Association ............................................ PHCC ............................. 28 ............... TA 

Appliance Standards Awareness Project (ASAP), American Council for an Energy-Efficient Economy (ACEEE), Natural Resources Defense Council (NRDC), and Rocky 

Mountain Institute (RMI).

Joint Advocates ............. 29 ............... EA 

New York State Energy Research and Development Authority ......................................... NYSERDA ...................... 30 ............... EA 

Air-Conditioning, Heating, and Refrigeration Institute ........................................................ AHRI .............................. 31 ............... TA 

The Aluminum Association; American Coke and Coal Chemicals Institute; American 

Farm Bureau Federation; American Gas Association; American Public Gas Association; Council of Industrial Boiler Owners; Independent Petroleum Association of 

America; National Mining Association; U.S. Chamber of Commerce.

The Associations ........... 32 ............... TA 

California Investor-Owned Utilities (Pacific Gas and Electric Company (PG&E), San 

Diego Gas and Electric (SDG&E), and the Southern California Edison (SCE)).

CA IOUs ......................... 33, 37 ......... UA 

Northwest Energy Efficiency Alliance ................................................................................. NEEA ............................. 35 ............... EA 

* TA: trade association, EA: efficiency/environmental advocate, IR: industry representative, M: manufacturer, OS: other stakeholder, U: utility, 

utilities filing jointly, or utility representative, UA: utility association, and I: individual. 

** Comments raised during the June 23, 2022 public meeting. Docket No. 13 refers to the public meeting transcript. 

A parenthetical reference at the end of 

a comment quotation or paraphrase 

provides the location of the item in the 

public record.18 To the extent that 

interested parties have provided written 

comments that are substantively 

consistent with any oral comments 

provided during the June 23, 2022 

public meeting, DOE cites the written 

comments throughout this final rule. 

Any oral comments provided during the 

webinar that are not substantively 

addressed by written comments are 

summarized and cited separately 

throughout this final rule. 

C. Deviation From Appendix A 

On June 21, 2023, DOE published a 

test procedure final rule for consumer 

water heaters and residential-duty 

commercial water heaters. 88 FR 40406. 

In accordance with section 3(a) of 10 

CFR part 430, subpart C, appendix A 

(‘‘appendix A’’), DOE notes that it is 

deviating from the provision in 

appendix A specifying that test 

procedures be finalized at least 180 days 

before new or amended standards are 

proposed for the same equipment. 10 

CFR part 430, subpart C, appendix A, 

section 8(d)(2). DOE is opting to deviate 

from this step because the DOE has 

determined that the test procedure 

amendments for residential-duty 

commercial water heaters will not 

impact the current efficiency ratings. 88 

FR 40406, 40412. See section III.C of 

this document for additional 

information on the test procedures for 

CWH equipment. 

III. General Discussion 

DOE developed this final rule after 

considering oral and written comments, 

data, and information from interested 

parties that represent a variety of 

interests. The following discussion 

addresses issues raised by these 

commenters. 

A. General Comments 

This section summarizes general 

comments received from interested 

parties regarding rulemaking timing and 

process. 

1. Clear and Convincing Threshold 

In response to the May 2022 CWH 

ECS NOPR in which DOE concluded 

that it had clear and convincing 

evidence to propose a standard more 

stringent than ASHRAE Standard 90.1, 

the Joint Gas Commenters stated that 

since CWH are included in ASHRAE 

Standard 90.1, DOE must presume that 

standards more stringent than the 

ASHRAE standards would not be 

desirable in the absence of clear and 

convincing evidence that they are 

justified. Therefore, the commenters 

argued that DOE must resolve doubts 

against the need for more stringent 

standards, but in developing the NOPR, 

the Joint Gas Commenters stated that 

DOE has done the opposite. (Joint Gas 

Commenters, No. 34 at pp. 15–16) The 

Joint Gas Commenters stated that DOE 

should follow the rulings of ASHRAE 

90.1, and noted that to date, the 

ASHRAE committee has not considered 

an increase in the energy efficiency of 

these commercial water heaters in order 

to lower overall energy consumption. 

(Joint Gas Commenters, No. 34 at p. 34) 

Contrary to the Joint Gas Commenters’ 

suggestion, EPCA does not require DOE 

to presume that standards more 

stringent than the ASHRAE standards 

would not be desirable in the absence of 

clear and convincing evidence that they 

are justified. As noted by the Joint Gas 

Commenters and as discussed in section 

II.A of this final rule, pursuant to EPCA, 

DOE must determine, supported by 

clear and convincing evidence, that 

amended standards for CWH equipment 

would result in significant additional 

conservation of energy and be 

technologically feasible and 

economically justified. (42 U.S.C. 

6313(a)(6)(A)(ii)(II); 42 U.S.C. 

6313(a)(6)(C)(i)) In making the 


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determination of economic justification 

of an amended standard, DOE must 

determine whether the benefits of the 

proposed standard exceed the burdens 

of the proposed standard by 

considering, to the maximum extent 

practicable, the seven criteria described 

in EPCA (see 42 U.S.C. 

6313(a)(6)(B)(ii)(I)–(VII)). The clear and 

convincing threshold is a heightened 

standard, and would only be met where 

the Secretary has an abiding conviction, 

based on available facts, data, and 

DOE’s own analyses, that it is highly 

probable an amended standard would 

result in a significant additional amount 

of energy savings, and is technologically 

feasible and economically justified. See 

American Public Gas Association v. 

U.S. Dept of Energy, 22 F. 4th at 1025 

(D.C. Cir. January 18, 2022) (citing 

Colorado v. New Mexico, 467 U.S. 310, 

316, 104 S.Ct. 2433, 81 L.Ed.2d 247 

(1984)). However, this standard does not 

require a presumption of desirability for 

the efficiency levels in ASHRAE 90.1. 

As noted previously, DOE has 

determined that there is clear and 

convincing evidence for standards for 

CWH equipment more stringent than 

those found in ASHARE 90.1. A 

discussion of DOE’s consideration of the 

statutory factors is contained in section 

V of this final rule. 

2. Analytical Structure and Inputs 

In response to both the withdrawn 

May 2016 CWH ECS NOPR and the May 

2022 CWH ECS NOPR, DOE received 

comments and information regarding 

the assumptions that it used for inputs 

in the rulemaking analyses. DOE 

considered these comments in 

appropriate analyses conducted in this 

final rule and modified its assumptions 

and inputs as necessary to account for 

the information or feedback provided by 

industry representatives. Section IV of 

this final rule provides details on DOE’s 

updates to its various analyses. 

Addressing the specific analysis that 

supports this rulemaking, Bradford 

White highlighted that some sources are 

as many as 14 years old and urged DOE 

to conduct updated surveys and studies 

in order to inform these major 

regulatory policy decisions. (Bradford 

White, No. 23 at p. 7) Additionally, the 

Joint Gas Commenters stated that in 

several cases, DOE lacks the data 

required to provide or support critical 

inputs to its analysis. (The Joint Gas 

Commenters, No. 34 at p. 16) In 

response, DOE uses the most recent data 

sources available at the time of the 

analysis whenever possible, as 

discussed further throughout section IV 

of this document. 

The Joint Gas Commenters urged DOE 

to implement recommendations from 

the recent National Academies of 

Sciences, Engineering, and Medicine 

(‘‘NASEM’’) report into all its appliance 

rulemakings, highlighting 

recommendations 2–2, 3–5, 4–1, 4–13, 

and 4–14 as the most pertinent. (Joint 

Gas Commenters, No. 34 at pp. 38–39) 

In response, the Department notes that 

the rulemaking process for standards of 

covered products and equipment are 

outlined at appendix A to subpart C of 

10 CFR part 430 (‘‘appendix A’’), and 

DOE periodically examines and revises 

these provisions in separate rulemaking 

proceedings. The recommendations in 

the NASEM report, which pertain to the 

processes by which DOE analyzes 

energy conservation standards, will be 

considered in a separate rulemaking 

considering all product categories. 

PHCC noted that this rule impacts the 

resources of PHCC; therefore, PHCC 

feels it is necessary to present the 

contractors’ perspective on these issues. 

PHCC stated that certain customers 

would bear extraordinary costs as a 

result of this rule, and claimed that 

PHCC’s members will ultimately be the 

ones to shoulder the effects to those 

consumers by finding economical 

solutions for their clients. (PHCC, No. 

28 at p. 11) In response, DOE recognizes 

that contractors play an important role 

in helping consumers purchase and 

install CWH equipment. DOE 

appreciates the perspective of all 

interested parties, including contractors 

and realizes that contractors will likely 

be responsible for characterizing the 

costs for new and replacement 

equipment installations to their 

customers as well as assisting in 

identifying and implementing 

economical solutions. DOE’s evaluation 

of the cost and benefits of this final rule 

is discussed in section V of this 

document, including impacts on certain 

consumers. 

3. Final Selection of Standards Levels 

DOE received several comments 

expressing general approval or 

disapproval for the proposed standards. 

The Joint Advocates, NYSERDA, the 

CA IOUs, and CEC supported the 

proposed standards. (Joint Advocates, 

No. 29 at p. 1; NYSERDA No. 30 at p. 

2; CEC, No. 27 at p. 1; CA IOUs, No. 33 

at p. 1) NYSERDA stated that DOE 

should act swiftly to finalize the 

proposed standards and noted that these 

standards will play an important role in 

meeting their State climate goals 

through decarbonization of the water 

heater market. (NYSERDA, No. 30 at pp. 

1–2) 

The CA IOUs expressed general 

support for DOE’s proposal to increase 

the efficiency requirements of 

commercial gas water heaters to 

condensing levels and suggested that 

market data show that the market is 

ready for this increase. (CA IOUs, No. 33 

at p. 1) NEEA also stated support for 

DOE’s proposal to increase the 

efficiency levels of CWH equipment to 

reflect condensing performance, and 

asserted that they find the DOE analysis 

to be sound. They similarly commented 

in support of DOE’s proposal to increase 

the efficiency requirements of gas-fired 

residential-duty commercial storage 

products. They explained that doing so 

will realize the energy efficiency goals 

that were intended with the residential 

standard, and would harmonize 

commercial and residential 

requirements. (NEEA, No. 35 at p. 1) 

The Joint Advocates echoed similar 

support for the proposed standards and 

mentioned that updated standards for 

commercial gas-fired water heaters are 

long overdue as they have not been 

amended since 2001. (The Joint 

Advocates, No. 29 at p. 1) 

The CEC stated that based on data 

from its Modernized Appliance 

Efficiency Database System 

(‘‘MAEDbS’’), CWH products meeting 

the proposed standard are already 

certified for sale in California; 50 

percent (969 out of 1936) meet the 

proposed requirement of 95 percent 

thermal efficiency and 24 percent (299 

out of 1259) of the instantaneous models 

meet the proposed 96 percent thermal 

efficiency. The CEC argues that these 

data indicate no market barrier to the 

proposed standards. (CEC, No. 27 at p. 

4) The CEC also encouraged DOE to 

finalize its proposal to phase out noncondensing technology, thus closing 

what they consider a significant 

loophole for standards of residentialduty CWHs. Id. at p. 3. Further, 

according to CEC, MAEDbS includes 

324 residential-duty commercial gas 

water heaters, and none have storage 

above 55 gallons. Therefore, CEC claims 

that residential water heaters in 

California’s market are exploiting this 

‘‘loophole’’ since consumer gas ratings 

with input ratings above 75,000 Btu/ 

hour would only be subject to a 

condensing standard if the storage 

volume is greater than 55 gallons. Id. 

The CA IOUs supported DOE’s 

proposed standards, and raised the same 

concern as CEC, stating that the energy 

efficiency standards for residential gas 

storage water heaters with a capacity 

greater than 55 gallons are currently 

higher than the requirements for 

commercial residential-duty gas storage 

heaters of similar capacity. As a result, 


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they claim that the greater-than-55- 

gallon-capacity segment of the 

residential gas storage water heater 

market is exclusively served by 

commercial residential-duty products. 

(CA IOUs, No. 33 at p. 2) Rheem also 

suggested that DOE evaluate the 

proposed efficiency levels for 

residential-duty commercial gas-fired 

storage water heaters to ensure more 

equitable treatment for these products 

and consumer water heaters with a rated 

storage volume greater than 55 gallons 

because, they said, these categories can 

be used for the same applications. 

(Rheem, No. 24 at pp. 3–4) 

Sean Erwin commented that DOE’s 

proposal is agreeable, but also explained 

various types of solar water heating 

systems that could be a cost-effective 

means of generating hot water. (Erwin, 

No. 6 at p. 1) 

A.O. Smith also commented noting 

support for DOE’s proposal to move the 

minimum energy conservation 

standards for CWH to a standard that 

will require the utilization of 

condensing technology for gas-fired 

equipment, inclusive of both the 

proposed thermal efficiency and 

standby loss levels, with some 

modifications. (A.O. Smith, No. 22 at 

pp. 2, 7) A.O. Smith commented that 

that the adoption of this equipment will 

not only assist in reducing greenhouse 

gas emissions, but will also help 

property and business owners save 

money on their monthly energy bills, as 

well as preserve flexibility for 

businesses to install water heating 

equipment that is the most economical 

to meet the intended utility. A.O. Smith 

also recommended that high-efficiency 

gas-fired water heating equipment 

remain available for commercial 

customers. Id. at pp. 2–3. A.O. Smith 

suggested several modifications to the 

standards proposed in the May 2022 

CWH ECS NOPR, which are discussed 

in the appropriate sections on this final 

rule. Id. at pp. 2–5. Additionally, Rheem 

raised concerns that many equipment 

sizes are not available at the proposed 

thermal efficiency levels and that, in 

some cases, the proposed levels are at 

the maximum technologically feasible 

(‘‘max-tech’’) levels evaluated. Rheem 

also stated that the DOE’s analysis has 

not shown that the proposed TSL is 

economically viable for the entire range 

of equipment sizes. (Rheem, No. 24 at p. 

2) 

Several commenters suggested that 

DOE should analyze a 94 percent 

thermal efficiency level for gas-fired 

water heaters (A.O. Smith, No. 22 at pp. 

2–4; AHRI, No. 31 at p. 2; Rheem, No. 

24 at p. 3). These comments, and DOE’s 

response, are discussed in more detail 

in section IV.C.4.a of this document. 

A.O. Smith also proposed an adjustment 

to the proposed efficiency level for gasfired residential-duty commercial water 

heaters, as discussed in section IV.C.4.c 

of this document. 

AHRI raised concerns that, because 

gas-fired storage and gas-fired 

instantaneous equipment are used in 

similar settings, setting higher efficiency 

standards for one class (i.e., gas-fired 

instantaneous water heaters and hot 

water supply boilers) inappropriately 

disadvantages that class in the 

marketplace compared to the other 

class(es). Therefore, AHRI requested the 

Department align the efficiency 

standards for all gas-fired water heaters. 

(AHRI, No. 31 at p. 2). Bock Water 

Heaters asserted their agreement with 

comments submitted by AHRI. (Bock 

Water Heaters, No. 20 at p. 2) DOE 

received a similar comment from 

Bradford White expressing concern that 

DOE has proposed more stringent 

requirements for gas-fired instantaneous 

water heaters, including hot water 

supply boilers, for greater than 10 

gallons. Bradford White recommended 

that the thermal efficiency requirements 

for gas-fired instantaneous and hot 

water supply boilers be harmonized 

with that for gas-fired storage water 

heaters. They further noted that this 

approach would allow DOE to avoid 

unfairly biasing the marketplace 

towards one technology over another. 

(Bradford White, No. 23 at p. 3) 

The Joint Gas Commenters argued that 

a condensing standard would have 

numerous adverse impacts on building 

owners, including required building 

modifications, impacts on other 

equipment, impacts on occupied spaces 

or building aesthetics, inconvenience or 

loss to business as a result of additional 

time spent replacing equipment, 

additional installation services, or 

overall impracticality. (Joint Gas 

Commenters, No. 34 at pp. 9–10) They 

added that the proposed standards 

would violate the ‘‘unavailability’’ 

provision of EPCA and would leave 

many purchasers without gas products 

suitable for their needs. (Joint Gas 

Commenters, No. 34 at p. 39) WM 

Technologies called on DOE to 

rigorously review the inputs and the 

calculations in the LCC analysis 

because, they suggest, under the antibacksliding provision of EPCA, the 

damage to the end user would be 

irreparable should the Department 

promulgate condensing requirements for 

commercial water heaters. WM 

Technologies asserted that such 

requirements would exceed the existing 

infrastructures’ ability to adapt to 

condensing products and appliances in 

many places across the country, 

resulting in the unavailability of the 

product due to an increase in the 

minimum efficiency, violating the 

unavailability clause of EPCA (EPACT). 

As an example, WM Technologies stated 

that row houses in many urban East 

Coast regions do not have the ability to 

vent through an outside wall, which is 

a requirement for many condensing 

products. (WM Technologies, No. 25 at 

pp. 5–6) Atmos Energy stated that DOE 

should allow the continued 

manufacture and availability of water 

heaters that meet consumer needs 

(including businesses) and suggested 

that the elimination of affordable 

products would undermine the goals of 

the energy efficiency program overall. 

(Atmos Energy, No. 36 at pp. 1–2) DOE 

has provided more specific responses to 

these comments throughout this 

document, but specifically, DOE 

addresses comments regarding the 

downtime during replacement in 

section IV.F.2.h of this document, 

comments regarding the unavailability 

of noncondensing commercial water 

heaters in section IV.A.2.b of this 

document and comments regarding the 

unavailability of certain equipment 

sizes in IV.C.4.a of this document. 

Because there are comments relating to 

regional differences, DOE would note 

that the analysis accounts for the impact 

of entering water temperature on loads 

by type of building, both of which are 

linked to region by the location 

variables included in the source 

databases (see section IV.E of this 

document). However, DOE would 

specifically note that row houses tend to 

be comprised of single family dwellings 

that DOE believes are far more likely to 

use consumer water heaters or 

potentially a consumer boiler with 

unfired storage tanks rather than the 

CWH equipment that is the subject of 

this final rule. 

Atmos Energy stated that where 

insufficient data exist, DOE should 

conclude it lacks evidence to support its 

proposed rule. It further offered its 

opinion that more data are needed to 

assess the proposed rule, including 

distributions of equipment by storage 

volume and input capacities, 

frequencies of installations that are 

infeasible or costly, installed costs, and 

customers’ annual fuel use. Atmos 

Energy stated that real-world data exist 

for this information and stated that DOE 

should collect actual data rather than 

relying on estimates, though Atmos 

Energy does not provide any such data 

or suggested sources. To ensure 

standards are economically justified, 

Atmos Energy stated DOE must fully 


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assess LCC, potential for fuel switching, 

economic benefits of efficiency 

improvements, and actual installation 

costs. (Atmos Energy, No. 36 at pp. 2, 

4) 

As already noted, DOE uses the most 

current data available when performing 

rulemaking analyses, such as this CWH 

analysis. Atmos Energy is correct in the 

assertion that considerable data exist, 

but overlooks the fact that much of these 

data exists in forms not in the public 

domain. For example, consumers 

receive quotes for installing new or 

replacement water heaters, but such 

information is proprietary to the parties 

involved, and even if not proprietary, 

DOE is unaware of any existing service 

or process that aggregates such 

information. Contrary to the position 

Atmos Energy takes the fact that this 

information may exist in some form 

does not make this information 

necessarily available or usable to the 

general public or to DOE. Some of the 

data that Atmos Energy claims DOE 

should collect and use are not 

reasonably available to DOE. DOE uses 

publicly available and referenceable 

cost data, along with information 

collected during manufacturer 

interviews, to develop models to 

estimate such information in a fashion 

reasonably consistent with installation 

practice. For example, DOE uses U.S. 

Census data for developing contractor 

markup for installation costs; 

manufacturer shipment, DOE’s 

Compliance Certification Management 

System, and Energy Star data to develop 

equipment efficiency distributions; and 

price data from RSMeans and/or from 

available and referenceable public 

sources. In short, DOE’s method is to 

collect and use the best current data that 

are available to DOE and to develop 

analyses to estimate in a reasonable 

fashion the costs and benefits of 

proposed energy conservation 

standards. The specific analyses listed 

by Atmos Energy are addressed within 

this final rule document. 

As a general response to the 

comments in this section, DOE notes 

that it may prescribe an energy 

conservation standard more stringent 

than the level for such equipment in 

ASHRAE Standard 90.1, as amended, 

only if ‘‘clear and convincing evidence’’ 

shows that a more-stringent standard 

would result in significant additional 

conservation of energy and is 

technologically feasible and 

economically justified. (42 U.S.C. 

6313(a)(6)(A)(ii)(II)) In determining 

whether a standard is economically 

justified, the Secretary must determine 

whether the benefits of the standard 

exceed its burdens by, to the greatest 

extent practicable, considering the 

seven statutory factors discussed 

previously. (42 U.S.C. 

6313(a)(6)(B)(ii)(I)–(VII) and 42 U.S.C. 

6313(a)(6)(C)(i)) As described in section 

V.A of this document, DOE typically 

evaluates potential amended standards 

for products and equipment by grouping 

individual efficiency levels for each 

class into TSLs. The use of TSLs allows 

DOE to identify and consider, among 

other things, market cross elasticity 

from consumer purchasing decisions 

that may change when different 

standard levels are set. DOE typically 

evaluates potential amended standards 

for products and equipment by grouping 

individual efficiency levels for each 

class into TSLs. Furthermore, as 

described in section V.C of this 

document, DOE considered the impacts 

of amended standards for CWH 

equipment at each TSL, with respect to 

the aforementioned criteria, and 

determined that there is clear and 

convincing evidence that the adopted 

standards are both technologically 

feasible and economically justified and 

save a significant amount of energy. The 

benefits and costs of the standard levels 

adopted in this final rule are discussed 

in section V.C.2 of this document. 

B. Scope of Coverage 

1. Oil-Fired Commercial Water Heating 

Equipment 

As discussed in the May 2022 CWH 

ECS NOPR, DOE has determined that 

amended efficiency standards (in terms 

of both thermal efficiency and standby 

loss) for commercial oil-fired storage 

water heaters (including residentialduty oil-fired storage water heaters) 

would not be warranted and did not 

analyze amended efficiency standards 

for this equipment in this final rule. 87 

FR 30610, 30622. 

Similarly, DOE did not analyze 

amended standards for commercial oilfired instantaneous water heaters and 

hot water supply boilers in the May 

2022 CWH ECS NOPR because the 

energy savings possible from amended 

standards for such equipment is 

expected to be negligible. Id. Based on 

this rationale and because DOE has not 

received information suggesting 

otherwise, DOE has continued to 

exclude commercial oil-fired water 

heating equipment from the analysis 

conducted for this final rule. 

2. Unfired Hot Water Storage Tanks 

Unfired hot water storage tanks are a 

class of CWH equipment. In response to 

the May 2022 CWH ECS NOPR, the CA 

IOUs stated that the efficiency 

requirements for unfired hot water 

storage tanks have been unrevised since 

2001 and recommended that DOE 

develop performance requirements for 

unfired hot water storage tanks, which 

they said are often incorporated into 

heat pump water heating systems. (The 

CA IOUs, No. 33 at pp. 3–4) The CA 

IOUs requested that DOE develop 

performance-based testing and 

standards for unfired hot water storage 

tanks, stating that a performance-based 

metric would allow for innovation and 

would reward manufacturers who 

insulate well. Id. 

On May 24, 2022, DOE published a 

notice of final determination not to 

amend energy conservation standards 

for unfired hot water storage tanks. 87 

FR 31359. Because amended energy 

conservation standards for unfired hot 

water storage tanks were considered as 

part of that proceeding, they were not 

considered further for this final rule. 

Similarly, amended test procedures for 

unfired hot water storage tanks and 

other CWH equipment will be 

considered in a separate rulemaking. 

3. Electric Instantaneous Water Heaters 

EPCA prescribes energy conservation 

standards for several classes of CWH 

equipment manufactured on or after 

January 1, 1994. (42 U.S.C. 6313(a)(5)) 

DOE codified these standards in its 

regulations for CWH equipment at 10 

CFR 431.110. However, when codifying 

these standards from EPCA, DOE 

inadvertently omitted the standards put 

in place by EPCA for electric 

instantaneous water heaters. 

Specifically, for instantaneous water 

heaters with a storage volume of less 

than 10 gallons, EPCA prescribes a 

minimum thermal efficiency of 80 

percent. For instantaneous water heaters 

with a storage volume of 10 gallons or 

more, EPCA prescribes a minimum 

thermal efficiency of 77 percent and a 

maximum standby loss, in percent/hour, 

of 2.30 + (67/measured volume (in 

gallons)). (42 U.S.C. 6313(a)(5)(D) and 

(E)) Although, DOE’s regulations at 10 

CFR 431.110 do not currently include 

energy conservation standards for 

electric instantaneous water heaters, 

these standards prescribed in EPCA are 

applicable. Therefore, in this final rule, 

DOE is codifying these standards in its 

regulations at 10 CFR 431.110. 

In the May 2022 CWH ECS NOPR, 

DOE also discussed allowing the use of 

a calculation-based method for 

determining storage volume of electric 

instantaneous water heaters that is the 

same as the method for gas-fired and oilfired instantaneous water heaters and 

hot water supply boilers found at 10 

CFR 429.72(e) (added at 81 FR 79261, 

79320 (Nov. 10, 2016)). DOE initially 


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19 In the May 2022 CWH ECS NOPR, DOE noted 

that it did not analyze amended energy 

conservation standards for residential-duty electric 

instantaneous water heaters (87 FR 30631), which 

are a separate equipment class within DOE’s 

regulations for CWH equipment. See 79 FR 40541, 

40588 (Jul. 11, 2014). Consistent with the May 2022 

CWH ECS NOPR, DOE did not analyze amended 

standards for residential-duty electric instantaneous 

water heaters in this final rule for similar reasons 

as those stated for not analyzing standards for 

electric instantaneous water heaters. 

concluded that the same rationale for 

including these provisions for gas-fired 

and oil-fired instantaneous water 

heaters and hot water supply boilers 

also applies to electric instantaneous 

water heaters (i.e., it may be difficult to 

completely empty the instantaneous 

water heater in order to obtain a dry 

weight measurement, which is needed 

in a weight-based test for an accurate 

representation of the storage volume). 

Therefore, DOE tentatively concluded 

that including electric instantaneous 

water heaters in these provisions would 

provide manufacturers with flexibility 

as to how the storage volume is 

determined. 87 FR 30622. However, 

DOE is considering these certification 

changes in a separate rulemaking. 

Therefore, DOE is not enacting any 

changes at 10 CFR 429.72(e) to allow the 

use of a calculation-based method for 

determining the storage volume of 

electric instantaneous water heaters in 

this final rule. 

Additionally, as discussed in the May 

2022 CWH ECS NOPR, DOE notes that 

because electric instantaneous water 

heaters typically use electric resistance 

heating, which is highly efficient, the 

thermal efficiency of these units already 

approaches 100 percent. DOE has also 

determined that there are no options for 

substantially increasing the rated 

thermal efficiency of this equipment, 

and the impact of setting thermal 

efficiency energy conservation 

standards for these products would be 

negligible. Similarly, the stored water 

volume is typically low, resulting in 

limited potential for reducing standby 

losses for most electric instantaneous 

water heaters. As a result, amending the 

standards for electric instantaneous 

water heaters established in EPCA 

would result in minimal energy savings. 

Even if DOE were to account for the 

energy savings potential of amended 

standards for electric instantaneous 

water heaters, the contribution of any 

potential energy savings from amended 

standards for these units would be 

negligible and not appreciably impact 

the energy savings analysis for CWH 

equipment. Therefore, DOE did not 

analyze amended energy conservation 

standards for electric instantaneous 

water heaters in this final rule.19

4. Commercial Heat Pump Water 

Heaters 

In response to the May 2022 CWH 

ECS NOPR, DOE received multiple 

comments regarding DOE’s proposal not 

to consider energy conservation 

standards for commercial heat pump 

water heaters. Rheem supported DOE’s 

decision not to consider heat pump 

technology in the current analysis but 

encouraged DOE to review and amend 

the equipment class structure to include 

heat pump water heaters as a technology 

option for specific applications in a 

future rulemaking. (Rheem, No. 24 at p. 

5) In contrast, NEEA and the CA IOUs 

requested that DOE include heat pump 

water heaters in its analysis. Both NEEA 

and the CA IOUs mentioned that these 

technologies represent the current maxtech efficiency levels for CWH. (NEEA, 

No. 35 at p. 2; the CA IOUs, No. 33 at 

p. 3) NEEA also stated that an analysis 

of current commercial water heating is 

incomplete without this consideration. 

(NEEA, No. 35 at p. 2) Further, NEEA, 

the CA IOUs, and the Joint Advocates 

noted that many commercial-duty heat 

pump products from several different 

manufacturers are available on the 

market already, and NEEA and the CA 

IOUs provided numerous citations to 

specific models. (NEEA, No. 35 at p. 2; 

the CA IOUs, No. 33 at p. 3; Joint 

Advocates, No. 29 at p. 14) The CA 

IOUs further commented that 

commercial electric heat pump water 

heaters have already been successfully 

and efficiently providing hot water to 

commercial buildings across the country 

and can include electric resistance 

elements that allow them to deliver 

comparable peak demand performance 

to commercial electric-resistance-only 

storage water heaters. (CA IOUs, No. 33 

at p. 3) 

WM Technologies and PattersonKelley argued that they are not aware of 

compressor-based water heating 

products which can operate at the water 

temperatures required to achieve 

commercial hot water flow rate at 

adequate temperatures, let alone 

sanitizing conditions, and added that if 

such products become available, the 

sizing of various internal components 

would be significantly different than 

heat pumps utilized for other 

applications. (WM Technologies, No. 25 

at p. 7; Patterson-Kelley, No. 26 at p. 5) 

WM Technologies and Patterson-Kelley 

also stated that if available, those 

products should be required to meet the 

efficiencies at operating conditions of 

adequate hot water flow rate at the 

required temperature. Id. Furthermore, 

WM Technologies said, if any part of the 

heat pump system is located in 

unconditioned spaces, that portion of 

the heat pump should be maintained at 

the worst-case national temperature at 

which the product may experience 

during efficiency testing. (WM 

Technologies, No. 25 at p. 7) 

Rheem, AHRI, and Bradford White 

additionally suggested that it may be 

difficult to meet the same hot water 

loads with an integrated heat pump as 

with a commercial electric storage water 

heater. (AHRI, No. 31 at pp. 3–4; Rheem, 

No. 24 at p. 5; Bradford White, No. 23 

at pp. 7–8) The commenters further 

noted that heat pump water heaters 

typically have a slower recovery time 

than commercial electric storage water 

heaters and may also have difficulty 

reaching the same temperatures as 

commercial electric storage water 

heaters without backup resistance 

elements. Id. Further, Rheem and AHRI 

noted in particular that integrated heat 

pump water heaters may have difficulty 

reaching sanitizing temperatures. 

(AHRI, No. 31 at pp. 3–4; Rheem, No. 

24 at p. 5) Rheem also noted that the 

larger footprint may limit replacement 

opportunities and may result in a 

decrease in workspace (such as kitchen 

space) as opposed to a decrease in 

mechanical room space. (Rheem, No. 24 

at p. 5) Furthermore, Bradford White 

stated that given that most heat pump 

water heaters recover at a much slower 

rate, additional storage capacity must be 

added to the hot water system, which 

likely means that a split system heat 

pump water heater would be used 

instead of an integrated heat pump 

water heater. (Bradford White, No. 23 at 

p. 7) 

DOE did not consider commercial 

integrated heat pump water heaters in 

this final rule. DOE found only one such 

model on the market, at a single storage 

volume and heating capacity. Given the 

wide range of capacities and stored 

water volumes in products currently on 

the market, which are required to meet 

hot water loads in commercial 

buildings, it is unclear based on this 

single model whether heat pump water 

heater technology would be suitable to 

meet the range of load demands on the 

market. Similarly, based on the 

information currently available and 

comments regarding the performance of 

heat pump water heaters as compared to 

electric resistance water heaters in 

commercial settings, it is uncertain if 

split-system heat pump water heaters 

can serve all the applications currently 

filled by electric instantaneous water 

heaters. Therefore, DOE is not analyzing 

this equipment in the current analysis. 

However, DOE may analyze commercial 

heat pump water heaters in a future 

rulemaking, at which time DOE will 


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20On November 10, 2016, DOE published a final 

rule amending the test procedures for certain CWH 

equipment (‘‘November 2016 CWH TP final rule’’). 

81 FR 79261. DOE adopted a definition for ‘‘storagetype instantaneous water heater’’ in the November 

2016 CWH TP final rule. Id. at 79289–79290. 

Storage-type instantaneous water heaters are 

discussed in section IV.A.2.a of this final rule. 

consider the appropriate equipment 

class structure for commercial electric 

water heaters, including commercial 

heat pump water heaters. 

5. Electric Storage Water Heaters 

In this rulemaking, DOE did not 

analyze thermal efficiency standards for 

electric storage water heaters. Electric 

storage water heaters are not currently 

subject to a thermal efficiency standard 

under 10 CFR 431.110. Electric storage 

water heaters typically use electric 

resistance heating elements, which are 

highly efficient. The thermal efficiency 

of these units already approaches 100 

percent. As discussed in section III.B.4 

of this document, DOE did not consider 

commercial integrated heat pump water 

heaters as the max-tech for electric 

storage water heaters at this time. 

In the May 2022 CWH ECS NOPR, 

DOE concluded that the only technology 

option that DOE analyzed in the 

engineering analysis as providing 

standby loss reduction for electric 

storage water heaters (i.e., increasing 

tank foam insulation thickness to 3 

inches) is already currently included in 

some models rated at or near the current 

standby loss standard. Consequently, 

DOE did not analyze any technology 

options for reducing standby loss below 

(i.e., more stringent than) the current 

standard. In response to the May 2022 

CWH ECS NOPR, Bock Water Heaters 

indicated support for not amending the 

standby loss standard for electric storage 

water heaters. (Bock Water Heaters, No. 

20 at p. 1) Bradford White similarly 

supported DOE’s decision not to change 

standards for commercial electric 

storage, as there is no electric resistance 

or insulation technology that would 

allow them to comply with more 

stringent standards. (Bradford White, 

No. 23 at p. 3) DOE maintains its 

conclusion originally stated in the May 

2022 CWH ECS NOPR and therefore, in 

this final rule, DOE did not further 

analyze and is not adopting amended 

standby loss standards for electric 

storage water heaters. 

6. Instantaneous Water Heaters and Hot 

Water Supply Boilers 

Other than storage-type instantaneous 

water heaters, DOE did not include 

instantaneous water heaters and hot 

water supply boilers in its analysis of 

potential amended standby loss 

standards.20 Instantaneous water heaters 

and hot water supply boilers (other than 

storage-type instantaneous water 

heaters) with greater than 10 gallons of 

water stored have a standby loss 

requirement under 10 CFR 431.110. 

However, DOE did not analyze more 

stringent standby loss standards for 

these units because it has determined 

that such amended standards would 

result in minimal energy savings. Even 

if DOE were to account for the energy 

savings potential of amended standby 

loss standards for instantaneous water 

heaters and hot water supply boilers 

(other than storage-type instantaneous 

water heaters) with greater than 10 

gallons of water stored CWH equipment, 

the contribution of any potential energy 

savings from amended standards for 

these units would be negligible and not 

appreciably impact the energy savings 

analysis for CWH equipment. 

DOE has determined that 

instantaneous water heaters (other than 

storage-type instantaneous water 

heaters) and hot water supply boilers 

with less than 10 gallons of water stored 

would not have significantly different 

costs and benefits as compared to 

instantaneous water heaters (other than 

storage-type instantaneous water 

heaters) and hot water supply boilers 

with greater than or equal to 10 gallons 

of water stored. (See section IV.C.7 of 

this document for further discussion of 

the costs for instantaneous water heaters 

and hot water supply boilers.) 

Therefore, DOE analyzed both 

equipment classes of instantaneous 

water heaters and hot water supply 

boilers (less than 10 gallons and greater 

than or equal to 10 gallons stored 

volume) together for thermal efficiency 

standard levels in this final rule, which 

is discussed further in section IV.C.3 of 

this document. 

DOE also determined that establishing 

standby loss standards for instantaneous 

water heaters and hot water supply 

boilers with less than or equal to 10 

gallons water stored would result in 

minimal energy savings. Even if DOE 

were to account for the energy savings 

potential of amended standby loss 

standards for instantaneous water 

heaters and hot waters supply boilers 

with less than or equal to 10 gallons of 

water stored, the contribution any 

potential energy savings from amended 

standards for these units would be 

negligible and not appreciably impact 

the energy savings analysis for CWH 

equipment. Bradford White commented 

in support of DOE’s determination not 

to establish standby loss standards for 

gas-fired instantaneous and hot water 

supply boilers less than 10 gallons. 

(Bradford White, No. 23 at p. 3) For 

instantaneous water heaters and hot 

water supply boilers (other than storagetype instantaneous water heaters), DOE 

has not found and did not receive any 

information or data suggesting that DOE 

should analyze amended standby loss 

standards. 

Bradford White commented that there 

is confusion in how different types of 

products are characterized by DOE and 

stated that there appears to be overlap 

in the structure of the proposed 

standards. (Bradford White, No. 23 at p. 

1) In particular, Bradford White stated 

that gas-fired storage-type instantaneous 

water heaters and gas-fired 

instantaneous water heaters are handled 

differently and that certain products 

appear to fall into the two different 

categories with two different sets of 

energy conservation standards. Id. AHRI 

stated that it understands that the 

Department’s intent is for the equipment 

class of ‘‘instantaneous water heaters 

and hot water supply boilers greater 

than 10 gallons’’ to refer specifically to 

hot water supply boilers with storage 

tanks and circulating water heaters with 

an external storage tank. AHRI stated 

that including separate standards for 

‘‘gas-fired storage water heaters and 

storage-type instantaneous water 

heaters’’ and ‘‘gas-fired instantaneous 

water heaters with a storage capacity 

greater than or equal to 10 gallons’’ in 

Table 1 to 10 CFR 431.110(a) of the May 

2022 CWH ECS NOPR could cause 

market confusion by creating 

unintentional overlap between these 

product types. (AHRI, No. 31 at pp. 2– 

3) 

In response, DOE clarifies that in this 

final rule, it is adopting a minimum 

thermal efficiency of 95 percent for gasfired storage-instantaneous water 

heaters and a minimum thermal 

efficiency of 96 percent for tankless 

water heaters and circulating water 

heaters and hot water supply boilers. As 

discussed in section IV.A.2.a of this 

document, gas-fired storage-type 

instantaneous water heaters were 

analyzed together with gas-fired storage 

water heaters because of the similarity 

of these types of equipment. 

Additionally, as discussed in section 

IV.A.2.c of this document, DOE 

analyzed tankless water heaters and 

circulating water heaters and hot water 

supply boilers as two separate kinds of 

representative equipment for this 

rulemaking analysis, to reflect the 

differences between these types of 

equipment, but they are part of the same 

equipment class (gas-fired instantaneous 

water heaters and hot water supply 

boilers), and DOE is adopting the same 


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21 ‘‘Thermal efficiency’’ for an instantaneous 

water heater, a storage water heater or a hot water 

supply boiler means the ratio of the heat transferred 

to the water flowing through the water heater to the 

amount of energy consumed by the water heater as 

measured during the thermal efficiency test 

procedure prescribed in this subpart. ‘‘Standby 

loss’’ means: (1) For electric commercial water 

heating equipment (not including commercial heat 

pump water heaters), the average hourly energy 

required to maintain the stored water temperature 

expressed as a percent per hour (%/h) of the heat 

content of the stored water above room temperature 

and determined in accordance with appendix B or 

D to subpart G of part 431 (as applicable), denoted 

by the term ‘‘S’’; or (2) For gas-fired and oil-fired 

commercial water heating equipment, the average 

hourly energy required to maintain the stored water 

temperature expressed in British thermal units per 

hour (Btu/h) based on a 70 °F temperature 

differential between stored water and ambient room 

temperature and determined in accordance with 

appendix A or C to subpart G of part 431 (as 

applicable), denoted by the term ‘‘SL.’’ 10 CFR 

431.102. 

minimum efficiency requirements for 

these equipment in this final rule. 

Similarly, DOE notes that storage-type 

instantaneous water heaters are 

instantaneous water heaters that include 

a storage tank with a storage volume 

greater than or equal to 10 gallons. 

Other instantaneous water heaters may 

also have greater than or equal to 10 

gallons but if that storage volume is 

included within the heat exchanger 

itself rather than a storage tank, they are 

not considered storage-type 

instantaneous water heaters. 

C. Test Procedure 

EPCA sets forth generally applicable 

criteria and procedures for DOE’s 

adoption and amendment of test 

procedures. (42 U.S.C. 6314(a)) 

Manufacturers of covered products must 

use these test procedures to certify to 

DOE that their product complies with 

energy conservation standards and to 

quantify the efficiency of their product. 

DOE’s current test procedures for 

CWH equipment are specified at 10 CFR 

431.106 and provide mandatory 

methods for determining the thermal 

efficiency, standby loss, and UEF, as 

applicable, of CWH equipment.21 As 

discussed in the May 2022 CWH ECS 

NOPR, DOE analyzed standards for 

residential-duty gas-fired storage water 

heaters in terms of UEF. However, on 

January 11, 2022, DOE published a test 

procedure NOPR for consumer water 

heaters and residential-duty commercial 

water heaters. 87 FR 1554. 

Subsequently, on July 14, 2022, DOE 

published a supplemental NOPR 

(‘‘SNOPR’’) (‘‘the July 2022 SNOPR’’) 

proposing to amend the test procedure 

for consumer water heaters and 

residential-duty commercial water 

heaters. 87 FR 42270. Finally, on June 

21, 2023, DOE published the final rule 

(‘‘the June 2023 TP Final Rule’’) 

amending the test procedure for 

consumer water heaters and residentialduty commercial water heaters. 88 FR 

40406. 

In response to the May 2022 CWH 

ECS NOPR, DOE received several 

comments relating to the proposed test 

procedure amendments. A.O. Smith 

stated that they do not anticipate any 

meaningful impact on future energy 

efficiency ratings for residential-duty 

commercial water heaters resulting from 

the proposed changes. (A.O. Smith, No. 

22 at p. 5) However, DOE also received 

several comments stating that the 

proposed changes could cause impacts 

to the efficiency ratings of residentialduty commercial water heaters. In 

particular, AHRI expressed concern 

about changes to how effective storage 

volume is calculated, how internal tank 

temperature is determined, the 

ramifications of overheating on ratings, 

and the definition of demand response. 

(AHRI, No. 31 at p. 3) Bradford White 

commented that they were still 

assessing the potential impacts of the 

proposed test procedure amendments 

but noted that a few of the proposed 

changes could possibly greatly impact 

the efficiency ratings. (Bradford White, 

No. 23 at p. 7). Rheem similarly raised 

concerns that the test procedure 

amendments proposed in the July 2022 

SNOPR could impact efficiency ratings 

for residential-duty water heaters, and 

encouraged DOE to issue the final rule 

of the consumer water heater test 

procedure at least 180 days prior to the 

issuance of a CWH energy conservation 

standards rule, as recommended by the 

Process Rule provisions in section 

(8)(d)(10) of appendix A to subpart C of 

part 430. (Rheem, No. 24 at p. 4) The 

Joint Gas Commenters stated that 

completing the residential-duty gas 

storage water heater test procedure 

rulemaking before completing the CWH 

standards rulemaking may be required 

by the Process Rule. (Joint Gas 

Commenters, No. 34 at p. 37) 

In response, as discussed in the June 

2023 TP Final Rule, DOE has concluded 

that the test procedure changes that 

were adopted in the June 2023 Final 

Rule will not alter the UEF ratings of 

residential-duty water heaters. 88 FR 

40406, 40412. In addition, DOE notes 

that it has discretion to deviate from the 

procedures in appendix A in certain 

cases. DOE’s rationale for deviating from 

the 180day requirement in appendix A 

is discussed in section II.C of this 

document. 

D. Technological Feasibility 

1. General 

In each energy conservation standards 

rulemaking, DOE conducts a screening 

analysis based on information 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 an 

analysis, DOE develops a list of 

technology options for consideration in 

consultation with manufacturers, design 

engineers, and other interested parties. 

DOE then determines which of those 

means for improving efficiency are 

technologically feasible. DOE considers 

technologies incorporated in 

commercially available products or in 

working prototypes to be 

technologically feasible. See generally 

10 CFR 431.4; sections 6(b)(3)(i) and 

7(b)(1) of appendix A to 10 CFR part 430 

subpart C (‘‘Process Rule’’). 

After DOE has determined that 

particular technology options are 

technologically feasible, it further 

evaluates each technology option in 

light of the following additional 

screening criteria: (1) practicability to 

manufacture, install, and service; (2) 

adverse impacts on product utility or 

availability; (3) adverse impacts on 

health or safety and (4) unique-pathway 

proprietary technologies. See generally 

10 CFR 431.4; 10 CFR part 430, subpart 

C, appendix A, sections 6(c)(3)(ii)–(v) 

and 7(b)(2)–(5). Section IV.B of this 

document discusses the results of the 

screening analysis for CWH equipment, 

particularly the designs DOE 

considered, those it screened out, and 

those that are the basis for the standards 

considered in this rulemaking. For 

further details on the screening analysis 

for this rulemaking, see chapter 4 of the 

final rule TSD. 

2. Maximum Technologically Feasible 

Levels 

When DOE proposes to adopt an 

amended standard for a type or class of 

covered equipment, it determines the 

maximum improvement in energy 

efficiency or maximum reduction in 

energy use that is technologically 

feasible for such equipment. 

Accordingly, in the engineering 

analysis, DOE determined the max-tech 

improvements in energy efficiency for 

CWH equipment, using the design 

parameters for the most efficient 

products available on the market or in 

working prototypes. The max-tech 

levels that DOE determined for this 

rulemaking are described in section 

IV.C.4 of this final rule and in chapter 

5 of the final rule TSD. 


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22 DOE also presents a sensitivity analysis that 

considers impacts for equipment shipped in a 9- 

year period. 

23The FFC metric is discussed in DOE’s 

statement of policy and notice of policy 

amendment. 76 FR 51282 (Aug. 18, 2011), as 

amended at 77 FR 49701 (Aug. 17, 2012). 

24Natural gas and electricity were the energy 

types analyzed in the FFC calculations. 

25 In setting a more stringent standard for 

ASHRAE equipment, DOE must have ‘‘clear and 

convincing evidence’’ that doing so ‘‘would result 

in significant additional conservation of energy’’ in 

addition to being technologically feasible and 

economically justified. 42 U.S.C. 

6313(a)(6)(A)(ii)(II). This language indicates that 

Congress had intended for DOE to ensure that, in 

addition to the savings from the ASHRAE 

standards, DOE’s standards would yield additional 

energy savings that are significant. In DOE’s view, 

this statutory provision shares the requirement with 

the statutory provision applicable to covered 

products and non-ASHRAE equipment that 

‘‘significant conservation of energy’’ must be 

present (42 U.S.C. 6295(o)(3)(B))—and supported 

with ‘‘clear and convincing evidence’’—to permit 

DOE to set a more stringent requirement than 

ASHRAE. 

26The numeric threshold for determining the 

significance of energy savings established in a final 

rule published on February 14, 2020 (85 FR 8626, 

8670) was subsequently eliminated in a final rule 

published on December 13, 2021 (86 FR 70892). 

E. Energy Savings 

1. Determination of Savings 

For each TSL, DOE projected energy 

savings from application of the TSL to 

CWH equipment purchased in the 30- 

year period that begins in the year of 

compliance with the amended standards 

(2026–2055 for gas-fired CWH 

equipment).22 The savings are measured 

over the entire lifetime of CWH 

equipment purchased in the 30-year 

analysis period. DOE quantified the 

energy savings attributable to each TSL 

as the difference in energy consumption 

between each standards case and the nonew-standards case. The no-newstandards case represents a projection of 

energy consumption that reflects how 

the market for a product would likely 

evolve in the absence of amended 

energy conservation standards. 

DOE used its national impact analysis 

(‘‘NIA’’) spreadsheet models to estimate 

national energy savings (‘‘NES’’) from 

potential amended standards for CWH 

equipment. The NIA spreadsheet model 

(described in section IV.H of this 

document) calculates energy savings in 

terms of site energy, which is the energy 

directly consumed by products at the 

locations where they are used. For 

electricity, DOE reports NES in terms of 

primary energy savings, which is the 

savings in the energy that is used to 

generate and transmit the site 

electricity. For natural gas, the primary 

energy savings are considered to be 

equal to the site energy savings because 

they are supplied to the user without 

transformation from another form of 

energy. 

DOE also calculates NES in terms of 

FFC energy savings. The FFC metric 

includes the energy consumed in 

extracting, processing, and transporting 

primary fuels (i.e., coal, natural gas, 

petroleum fuels), and thus presents a 

more complete picture of the impacts of 

energy conservation standards.23 DOE’s 

approach is based on the calculation of 

an FFC multiplier for each of the energy 

types used by covered equipment.24 For 

more information on FFC energy 

savings, see section IV.H.3 of this 

document. 

2. Significance of Savings 

To adopt any new or amended 

standards for a covered product, DOE 

must determine that such action would 

result in significant energy savings. (See 

42 U.S.C. 6313(a)(6)(C)(i); 42 U.S.C. 

6313(a)(6)(A)(ii)(II)) 25

The significance of energy savings 

offered by a new or amended energy 

conservation standard cannot be 

determined without knowledge of the 

specific circumstances surrounding a 

given rulemaking.26 For example, some 

covered products and equipment have 

most of their energy consumption occur 

during periods of peak energy demand. 

The impacts of this equipment on the 

energy infrastructure can be more 

pronounced than equipment with 

relatively constant demand. 

Accordingly, DOE evaluates the 

significance of energy savings on a caseby-case basis, taking into account the 

significance of cumulative FFC national 

energy savings, the cumulative FFC 

emissions reductions, and the need to 

confront the global climate crisis, among 

other factors. 

As stated, the standard levels adopted 

in this final rule are projected to result 

in national energy savings of 0.70 quads. 

Based on the amount of FFC savings, the 

corresponding reduction in emissions, 

and need to confront the global climate 

crisis, DOE has determined (based on 

the methodology described in section 

IV.E of this document and the analytical 

results presented in section V.B.3.a of 

this document) that there is clear and 

convincing evidence that the energy 

savings from the standard levels 

adopted in this final rule are 

‘‘significant’’ within the meaning of 42 

U.S.C. 6313(a)(6)(A)(ii)(II). 

F. Economic Justification 

1. Specific Criteria 

As noted previously, EPCA provides 

seven factors to be evaluated in 

determining whether a potential energy 

conservation standard is economically 

justified. (42 U.S.C. 6313(a)(6)(B)(ii)(I)– 

(VII) and (C)(i)) The following sections 

discuss how DOE has addressed each of 

those seven factors in this rulemaking. 

a. Economic Impact on Manufacturers 

and Consumers 

EPCA requires DOE to consider the 

economic impact of a standard on 

manufacturers and the consumers of the 

products subject to the standard. (42 

U.S.C. 6313(a)(6)(B)(I) and (C)(i)) In 

determining the impacts of potential 

amended standards on manufacturers, 

DOE conducts an MIA, as discussed in 

section IV.J of this document. For the 

MIA, DOE first uses an annual cash-flow 

approach to determine the quantitative 

impacts. This step includes both a shortterm assessment—based on the cost and 

capital requirements during the period 

between when a regulation is issued and 

when entities must comply with the 

regulation—and a long-term assessment 

over a 30-year period. The industrywide impacts analyzed include: (1) 

INPV, which values the industry on the 

basis of expected future cash flows; (2) 

cash flows by year; (3) changes in 

revenue and income; and (4) other 

measures of impact, as appropriate. 

Second, DOE analyzes and reports the 

impacts on different types of 

manufacturers (manufacturer 

subgroups), including 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 

cumulative impacts of various DOE 

regulations and other regulatory 

requirements on manufacturers. 

For individual consumers, measures 

of economic impact include the changes 

in LCC and PBP associated with new or 

amended standards. These measures are 

discussed further in the following 

section. For consumers in the aggregate, 

DOE also calculates the national NPV of 

the economic impacts applicable to a 

particular rulemaking. DOE also 

evaluates the impacts of potential 

standards on identifiable subgroups of 

consumers that may be affected 

disproportionately by a national 

standard. 

b. Savings in Operating Costs Compared 

to Increase in Price (LCC and PBP) 

EPCA requires DOE to consider the 

savings in operating costs throughout 

the estimated average life of CWH 

equipment compared to any increase in 

the price of, or in the initial charges for, 

or maintenance expenses of, the covered 

product that are likely to result from a 


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27As discussed in section IV.L of this document, 

for the purpose of complying with the requirements 

of E.O. 12866, DOE also estimates the economic 

value of emissions reductions resulting from the 

considered TSLs. DOE calculates this estimate 

using a measure of the social cost (‘‘SC’’) of each 

pollutant (e.g., SC–CO2). Although this estimate is 

calculated for the purpose of complying with E.O. 

12866, the Seventh Circuit Court of Appeals 

confirmed in 2016 that DOE’s consideration of the 

social cost of carbon in energy conservation 

standards rulemakings is permissible under EPCA. 

Zero Zone v. Dept of Energy, 832 F.3d 654, 678 (7th 

Cir. 2016). 

standard. (42 U.S.C. 6313(a)(6)(B)(ii)(II); 

42 U.S.C. 6313(a)(6)(C)(i)) DOE conducts 

this comparison in its LCC and PBP 

analysis. 

The LCC is the sum of the purchase 

price of a piece of equipment (including 

its installation and sales tax) and the 

operating expense (including energy, 

maintenance, and repair expenditures) 

discounted over the lifetime of the 

equipment. The LCC analysis requires a 

variety of inputs, such as product 

prices, product energy consumption, 

energy prices, maintenance and repair 

costs, product lifetime, and discount 

rates appropriate for consumers. To 

account for uncertainty and variability 

in specific inputs, such as equipment 

lifetime and discount rate, DOE uses a 

distribution of values, with probabilities 

attached to each value. For its analysis, 

DOE assumes that consumers will 

purchase the covered equipment in the 

first full year of compliance with 

amended standards. 

The PBP is the estimated amount of 

time (in years) it takes consumers to 

recover the increased purchase cost 

(including installation) of a moreefficient product through lower 

operating costs. DOE calculates the PBP 

by dividing the change in purchase cost 

due to a more-stringent standard by the 

change in annual operating cost for the 

year that standards are assumed to take 

effect. 

The LCC savings for the considered 

efficiency levels are calculated relative 

to the no-new-standards case that 

reflects projected market trends in the 

absence of new or amended standards. 

DOE identifies the percentage of 

consumers estimated to receive LCC 

savings or experience an LCC increase, 

in addition to the average LCC savings 

associated with a particular standard 

level. DOE’s LCC and PBP analysis is 

discussed in further detail in section 

IV.F of this document. 

c. Energy Savings 

Although significant conservation of 

energy is a separate statutory 

requirement for adopting an energy 

conservation standard, EPCA 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. 

6313(a)(6)(B)(ii)(III)) As discussed in 

section IV.H of this document and 

chapter 10 of the final rule TSD, DOE 

uses the NIA spreadsheet models to 

project national energy savings. 

d. Lessening of Utility or Performance of 

Products 

In establishing classes of equipment, 

and in evaluating design options and 

the impact of potential standard levels, 

DOE must consider any lessening of the 

utility or performance of the considered 

equipment likely to result from the 

standard. (42 U.S.C. 

6313(a)(6)(B)(ii)(IV)) Based on data 

available to DOE, the standards in this 

document would not reduce the utility 

or performance of the products under 

consideration in this rulemaking. As 

discussed in section IV.A.2.b of this 

document, DOE considered whether 

different venting technologies should be 

considered a necessary feature. 

Although the standards in this final 

rule would effectively eliminate noncondensing technology (and associated 

venting), DOE has recently published a 

final interpretive rule that returns to the 

previous and long-standing 

interpretation (in effect prior to the 

January 15, 2021 final interpretive rule), 

under which the technology used to 

supply heated air or hot water is not a 

performance-related ‘‘feature’’ that 

provides a distinct utility under EPCA. 

86 FR 73947 (Dec. 29, 2021). Therefore, 

for the purpose of the analysis 

conducted for this rulemaking, DOE has 

determined that it is not prohibited from 

setting energy conservation standards 

that preclude non-condensing 

technology and did not analyze separate 

equipment classes for non-condensing 

and condensing CWH equipment in this 

final rule. A more detailed explanation 

of DOE’s determination may be found in 

section IV.A.2 of this document. 

e. Impact of Any Lessening of 

Competition 

EPCA directs DOE to consider the 

impact of any lessening of competition, 

as determined in writing by the 

Attorney General, that is likely to result 

from a standard. (See 42 U.S.C. 

6313(a)(6)(B)(ii)(V)) To assist the 

Department of Justice (‘‘DOJ’’) in making 

such a determination, DOE transmitted 

copies of its proposed rule and the 

NOPR TSD to the Attorney General for 

review, with a request that the DOJ 

provide its determination on this issue. 

In its assessment letter responding to 

DOE, DOJ concluded that the proposed 

energy conservation standards for CWH 

equipment are unlikely to have a 

significant adverse impact on 

competition. DOE is publishing the 

Attorney General’s assessment at the 

end of this final rule. 

f. Need for National Energy 

Conservation 

DOE also considers the need for 

national energy and water conservation 

in determining whether a new or 

amended standard is economically 

justified. (42 U.S.C. 6313(a)(6)(B)(ii)(VI)) 

The energy savings from the adopted 

standards are likely to provide 

improvements to the security and 

reliability of the Nation’s energy system. 

Reductions in the demand for electricity 

also may result in reduced costs for 

maintaining the reliability of the 

Nation’s electricity system. DOE 

conducts a utility impact analysis to 

estimate how standards may affect the 

Nation’s needed power generation 

capacity, as discussed in section IV.M of 

this document. 

DOE maintains that environmental 

and public health benefits associated 

with the more efficient use of energy are 

important to take into account when 

considering the need for national energy 

conservation. The adopted standards are 

likely to result in environmental 

benefits in the form of reduced 

emissions of air pollutants and 

greenhouse gases (‘‘GHGs’’) associated 

with energy production and use. As part 

of the analysis of the need for national 

energy and water conservation, DOE 

conducts an emissions analysis to 

estimate how potential standards may 

affect these emissions, as discussed in 

section IV.K of this document; the 

estimated emissions impacts are 

reported in section V.B.6 of this 

document.27 DOE also estimates the 

economic value of emissions reductions 

resulting from the considered TSLs, as 

discussed in section IV.L of this 

document. DOE emphasizes that the 

SC–GHG analysis presented in this final 

rule and TSD was performed in support 

of the cost-benefit analyses required by 

Executive Order (‘‘E.O.’’) 12866, and is 

provided to inform the public of the 

impacts of emissions reductions 

resulting from this rule. The SC–GHG 

estimates were not factored into DOE’s 

EPCA analysis of the need for national 

energy and water conservation. 


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28The eCFR is available at ecfr.gov. 

g. Other Factors 

In determining whether an energy 

conservation standard is economically 

justified, DOE may consider any other 

factors that the Secretary deems to be 

relevant. (42 U.S.C. 6313(a)(6)(B)(ii)(VII) 

and (C)(i)) DOE did not consider other 

factors for this document. 

2. Rebuttable Presumption 

EPCA creates 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 is less than three times the 

value of the first year’s energy savings 

resulting from the standard, as 

calculated under the applicable DOE 

test procedure. DOE’s LCC and PBP 

analyses generate values used to 

calculate the effects that potential 

amended energy conservation standards 

would have on the PBP for consumers. 

These analyses include, but are not 

limited to, the 3-year PBP contemplated 

under the rebuttable presumption test. 

In addition, DOE routinely conducts 

an economic analysis that considers the 

full range of impacts to consumers, 

manufacturers, the Nation, and the 

environment, as required under 42 

U.S.C. 6313(a)(6)(B)(ii) and 42 U.S.C. 

6313(a)(6)(C)(i). The results of this 

analysis serve as the basis for DOE’s 

evaluation of the economic justification 

for a potential standard level (thereby 

supporting or rebutting the results of 

any preliminary determination of 

economic justification). The rebuttable 

presumption payback calculation is 

discussed in section V.B.1.c of this 

document. 

G. Revisions to Notes in Regulatory Text 

In the May 2022 CWH ECS NOPR, 

DOE proposed to modify the three notes 

to the table of energy conservation 

standards in 10 CFR 431.110. 87 FR 

30610, 30626–30627. First, DOE 

proposed to modify the note to the table 

of energy conservation standards 

denoted by subscript ‘‘a’’ to replace the 

term ‘‘nameplate input rate’’ with the 

term ‘‘rated input.’’ DOE noted that this 

change ensures consistency in 

nomenclature throughout DOE’s 

regulations for CWH equipment. Id. 

DOE also proposed in the May 2022 

CWH ECS NOPR to remove the note to 

the table of energy conservation 

standards denoted by subscript ‘‘b.’’ 

This note clarifies the compliance date 

for energy conservation standards for 

hot water supply boilers with capacity 

less than 10 gallons. However, the note 

is no longer needed because the specific 

compliance date for hot water supply 

boilers with less than 10 gallons of 

storage is well in the past, with all such 

equipment being required to meet the 

standards in the table in 10 CFR 431.110 

since October 21, 2005. Id. 

In the May 2022 CWH ECS NOPR, 

DOE also proposed to modify the note 

to the table of energy conservation 

standards denoted by subscript ‘‘c,’’ 

which establishes design requirements 

for water heaters and hot water supply 

boilers having more than 140 gallons of 

storage capacity that do not meet the 

standby loss standard. DOE proposed to 

replace the phrase ‘‘fire damper’’ with 

the phrase ‘‘flue damper,’’ because ‘‘flue 

damper’’ was more consistent with 

commonly used terminology and likely 

the intended meaning, and that ‘‘fire 

damper’’ was a typographical error. 87 

FR 30610, 30626–30627. This revised 

footnote, new footnote b on Table 1 to 

10 CFR 431.110(a), was inadvertently 

omitted in the May 2022 CWH ECS 

NOPR. DOE did not intend to remove 

this footnote and is retaining that 

footnote in this final rule. 

Finally, in the May 2022 CWH ECS 

NOPR, DOE proposed to add a footnote 

to Table 1 at 10 CFR 431.110(a) (new 

footnote c) to clarify that the compliance 

date for energy conservation standards 

for electric instantaneous water heaters 

is January 1, 1994. 87 FR 30610, 306728. 

As discussed in section III.B.3 of this 

document, DOE is codifying standards 

for electric instantaneous water heaters 

that were originally set by EPCA but 

were inadvertently omitted in DOE’s 

regulations at 10 CFR 431.110. 

In response to the May 2022 CWH 

ECS NOPR, Bradford White stated that 

they support DOE’s decision not to 

change the requirements for a model’s 

rated input. (Bradford White, No. 23 at 

p. 8) WM Technologies and PattersonKelley also indicated support for using 

the term ‘‘rated input’’, as long as the 

method to determine this value is 

unchanged. They also encouraged DOE 

to maintain the ‘‘b’’ and ‘‘c’’ subscripts 

for posterity to maintain chronological 

information. (WM Technologies, No. 25 

at p. 7; Patterson-Kelley No. 26 at p. 5) 

In response, DOE notes that the 

Electronic Code of Federal Regulations 

(eCFR) 28 allows users to access 

historical versions of the CFR by using 

the ‘‘Timeline’’ or ‘‘Go to Date’’ 

functions when viewing a page of the 

CFR. Therefore, because chronological 

information about changes to the CFR 

remain available to the public, DOE 

does not consider it necessary to retain 

these notes in the current version of the 

CFR. 

In footnote b(1), DOE is amending the 

text to refer to the existing definition of 

R-value in § 431.102, rather than refer 

directly to industry standards in this 

note. This does not change the 

standards regarding standby loss, or the 

thermal insulation requirement as 

detailed in this note, but improves 

consistency and prevents future 

discrepancies between § 431.102 and 

§ 431.110. DOE is adopting the changes 

to notes ‘‘b’’ and ‘‘c’’ as proposed in the 

May 2022 CWH ECS NOPR, with this 

editorial revision. 

H. Certification, Compliance, and 

Enforcement Issues 

In the withdrawn May 2016 CWH ECS 

NOPR, DOE proposed to add 

requirements to its certification, 

compliance, and enforcement 

regulations at 10 CFR 429.44 that the 

rated value of storage volume must 

equal the mean of the measured storage 

volume of the units in the sample. 81 FR 

34440, 34458 (May 31, 2016). 

Additionally, in the withdrawn May 

2016 CWH ECS NOPR, DOE proposed 

changes to the equations for maximum 

standby losses that would be consistent 

with the proposed changes to DOE’s 

certification, compliance, and 

enforcement regulations. 81 FR 34440, 

34458–34459. In the May 2022 CWH 

ECS NOPR, DOE explained that after 

considering comments from 

stakeholders related to this topic, it 

decided not to propose changes to the 

requirements regarding certification of 

storage volume or the related changes to 

the equations for maximum standby 

loss. 87 FR 30610, 30628. 

Bock and Bradford White indicated 

support for DOE’s proposal not to 

change the requirements regarding 

certification of storage volume for 

storage-type water heaters. (Bock, No. 20 

at p. 1; Bradford White, No. 23 at p. 8) 

After considering the comments, DOE is 

not adopting any changes to the 

requirements regarding certification of 

storage volume in this final rule. 

Additionally, in response to the May 

2022 CWH ECS NOPR, Rheem 

recommended that the certification 

criteria at 10 CFR 429.44(c)(2) be 

amended to require manufacturers to 

state whether a basic model is a 

‘‘storage-type instantaneous water 

heater.’’ Rheem also recommended that 

DOE should publish an example 

certification template. (Rheem, No. 24 at 

p. 3) In response, DOE notes that 

manufacturers of commercial gas-fired 

and oil-fired instantaneous water 

heaters and hot water supply boilers 

with storage capacity greater than or 

equal to 10 gallons are already required 

to certify whether the water heater 


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29 DOE uses a third spreadsheet tool, the 

Government Regulatory Impact Model (‘‘GRIM’’), to 

assess the financial impacts of potential new or 

amended standards on manufacturers. 

includes a storage tank with a storage 

volume greater than or equal to 10 

gallons. 10 CFR 429.44(c)(2)(iv). Such 

units that include a storage tank with a 

storage volume greater than or equal to 

10 gallons would meet DOE’s definition 

of storage-type water heaters as set out 

at 10 CFR 431.102. 

Lastly, in the May 2022 CWH ECS 

NOPR, DOE stated that it was not 

proposing to establish equipmentspecific certification requirements for 

electric instantaneous water heaters, but 

may propose to establish certification 

requirements for electric instantaneous 

water heaters in future rulemakings. 87 

FR 30610, 30628. DOE did not receive 

any comments related to this topic and 

is not establishing certification 

requirements specific to electric 

instantaneous water heaters in this final 

rule. 

IV. Methodology and Discussion of 

Related Comments 

This section addresses the analyses 

DOE has performed for this rulemaking 

with regard to CWH equipment. 

Separate subsections address each 

component of DOE’s analyses. 

In overview, DOE used several 

analytical tools to estimate the impact of 

the standards considered in this 

document. The first tool is a spreadsheet 

that calculates the LCC savings and PBP 

of potential amended or new energy 

conservation standards. The NIA uses a 

second spreadsheet set that provides 

shipments forecasts and calculates NES 

and NPV resulting from potential new 

or amended energy conservation 

standards.29 These spreadsheet tools are 

available on the DOE website for this 

rulemaking: www1.eere.energy.gov/ 

buildings/appliance_standards/ 

standards.aspx?productid=36. 

Additionally, DOE used output from the 

latest version of the Energy Information 

Administration’s (‘‘EIA’s’’) Annual 

Energy Outlook (‘‘AEO’’) for the 

emissions and utility impact analyses. 

A. Market and Technology Assessment 

For the market and technology 

assessment for CWH equipment, DOE 

gathered information in the market and 

technology assessment that provides an 

overall picture of the market for the 

equipment concerned, including the 

purpose of the equipment, the industry 

structure, manufacturers, market 

characteristics, and technologies used in 

the equipment. This activity includes 

both quantitative and qualitative 

assessments, based primarily on 

publicly-available information. The 

subjects addressed in the market and 

technology assessment for this 

rulemaking include the following: (1) a 

determination of the scope of the 

rulemaking and equipment classes, (2) 

manufacturers and industry structure, 

(3) types and quantities of CWH 

equipment sold, (4) existing efficiency 

programs, and (5) technologies that 

could improve the energy efficiency of 

CWH equipment. The key findings of 

DOE’s market assessment are 

summarized in the following sections. 

See chapter 3 of the final rule TSD for 

further discussion of the market and 

technology assessment. 

1. Definitions 

EPCA includes the following 

categories of CWH equipment as 

covered industrial equipment: storage 

water heaters, instantaneous water 

heaters, and unfired hot water storage 

tanks. EPCA defines a ‘‘storage water 

heater’’ as a water heater that heats and 

stores water internally at a 

thermostatically-controlled temperature 

for use on demand. This term does not 

include units that heat with an input 

rating of 4,000 Btu per hour or more per 

gallon of stored water. EPCA defines an 

‘‘instantaneous water heater’’ as a water 

heater that heats with an input rating of 

at least 4,000 Btu per hour per gallon of 

stored water. Lastly, EPCA defines an 

‘‘unfired hot water storage tank’’ as a 

tank that is used to store water that is 

heated external to the tank. (42 U.S.C. 

6311(12)(A)–(C)) 

DOE first codified the following more 

specific definitions for CWH equipment 

at 10 CFR 431.102 in the October 2004 

direct final rule. 69 FR 61974, 61983. 

Several of these definitions were 

subsequently amended in the November 

2016 CWH TP final rule. 81 FR 79261, 

79287–79288 (Nov. 10, 2016). 

Specifically, DOE now defines ‘‘hot 

water supply boiler’’ in 10 CFR 431.102 

as a packaged boiler that is industrial 

equipment and that (1) has an input 

rating from 300,000 Btu/h to 12,500,000 

Btu/h and of at least 4,000 Btu/h per 

gallon of stored water; (2) is suitable for 

heating potable water; and (3) meets 

either or both of the following 

conditions: (i) it has the temperature 

and pressure controls necessary for 

heating potable water for purposes other 

than space heating; or (ii) the 

manufacturer’s product literature, 

product markings, product marketing, or 

product installation and operation 

instructions indicate that the boiler’s 

intended uses include heating potable 

water for purposes other than space 

heating. 

DOE also defines an ‘‘instantaneous 

water heater’’ in 10 CFR 431.102 as a 

water heater that uses gas, oil, or 

electricity, including: (1) gas-fired 

instantaneous water heaters with a rated 

input both greater than 200,000 Btu/h 

and not less than 4,000 Btu/h per gallon 

of stored water; (2) oil-fired 

instantaneous water heaters with a rated 

input both greater than 210,000 Btu/h 

and not less than 4,000 Btu/h per gallon 

of stored water; and (3) electric 

instantaneous water heaters with a rated 

input both greater than 12 kW and not 

less than 4,000 Btu/h per gallon of 

stored water. 

DOE defines a ‘‘storage water heater’’ 

in 10 CFR 431.102 as a water heater that 

uses gas, oil, or electricity to heat and 

store water within the appliance at a 

thermostatically-controlled temperature 

for delivery on demand including: (1) 

gas-fired storage water heaters with a 

rated input both greater than 75,000 

Btu/h and less than 4,000 Btu/h per 

gallon of stored water; (2) oil-fired 

storage water heaters with a rated input 

both greater than 105,000 Btu/h and less 

than 4,000 Btu/h per gallon of stored 

water; and (3) electric storage water 

heaters with a rated input both greater 

than 12 kW and less than 4,000 Btu/h 

per gallon of stored water. 

Lastly, DOE defines an ‘‘unfired hot 

water storage tank’’ in 10 CFR 431.102 

as a tank used to store water that is 

heated externally, and that is industrial 

equipment. 

Relating to these definitions, Rheem 

recommended that the definition of 

‘‘storage-type instantaneous water 

heater’’ at 10 CFR 431.102 should be 

based on ‘‘rated storage volume’’ and 

that the certification criteria at 10 CFR 

429.44 be amended to be based on 

‘‘measured storage volume.’’ (Rheem, 

No. 24 at p. 3) DOE agrees that basing 

the categorizations of storage-type 

instantaneous water heaters based on 

the rated storage volume is consistent 

with the criteria DOE uses to identify 

such equipment. Therefore, DOE is 

amending the definition of ‘‘storage-type 

instantaneous water heater’’ at 10 CFR 

431.102 to clarify that the storage 

volume refers to the rated storage 

volume. However, as discussed in 

section III.H of this document, DOE has 

decided not to amend its requirements 

regarding certification of storage volume 

of commercial water heaters (including 

storage-type instantaneous water 

heaters) in this final rule. Rheem also 

suggested that DOE’s requirements for 

non-storage-type commercial gas-fired 

instantaneous water heaters at 10 CFR 

429.44(C)(2)(iv) be changed so that 

manufacturers are required to state 

whether a calculation-based method 


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30Consumer water heaters are separately covered 

products that are distributed in commerce for 

personal use or consumption by individuals, as 

opposed to commercial applications. These 

products generally have lower input ratings than 

commercial water heaters. Energy conservation 

standards for consumer water heaters can be found 

at 10 CFR 430.32(d), and the test procedure for 

these products can be found at appendix E to 

subpart B of 10 CFR part 430. Residential-duty 

commercial water heaters are commercial water 

heater that meet additional criteria, including using 

only single-phase electrical power (if they use 

electricity) and not being designed to heat water at 

temperatures greater than 180 °F, as discussed in 

the footnotes to Table IV.2 of this document. 

was used to determine the ‘‘rated 

storage volume’’ instead of the 

‘‘measured storage volume.’’ (Rheem, 

No. 24 at p. 3) Consistent with its 

decision not to address certification 

requirements in this final rule, DOE is 

not making such clarification in this 

final rule. However, DOE may consider 

a clarification to this certification 

language in a separate rulemaking. 

2. Equipment Classes 

When evaluating and establishing 

energy conservation standards, DOE 

divides covered equipment into 

equipment classes by the type of energy 

used. DOE will also establish separate 

equipment classes if a group of 

equipment has a capacity or other 

performance-related feature that other 

equipment within such type do not have 

and such feature justifies a different 

standard. (42 U.S.C. 6295(q); 42 U.S.C. 

6316(a)) In determining whether a 

performance-related feature justifies a 

different standard, DOE considers such 

factors as the utility to the consumers of 

the feature and other factors DOE 

determines are appropriate. 

CWH equipment classes are divided 

based on the energy source, equipment 

category (i.e., storage vs. instantaneous 

and hot water supply boilers), and size 

(i.e., input capacity and rated storage 

volume). Unfired hot water storage 

tanks are also included as a separate 

equipment class, but as discussed in 

section III.B.2 of this rulemaking, were 

considered as part of a separate 

proceeding and therefore were not 

analyzed for this final rule. Table IV.1 

shows the current equipment classes 

and energy conservation standards for 

CWH equipment other than residentialduty commercial water heaters, and 

Table IV.2 shows DOE’s current 

equipment classes and energy 

conservation standards for residentialduty commercial water heaters.30

TABLE IV.1—CURRENT EQUIPMENT CLASSES AND ENERGY CONSERVATION STANDARDS FOR CWH EQUIPMENT EXCEPT

FOR RESIDENTIAL-DUTY COMMERCIAL WATER HEATERS

Equipment class Size 

Energy conservation standards * 

Minimum thermal 

efficiency 

(equipment 

manufactured 

on and after 

October 9, 

2015)** *** 

(%) 

Maximum standby 

loss (equipment 

manufactured 

on and after 

October 29, 

2003)** ‡ 

Electric storage water heaters .................................................................. All ........................... N/A 0.30 + 27/Vm (%/h). 

Gas-fired storage water heaters ............................................................... ≤155,000 Btu/h .......

>155,000 Btu/h .......

80 

80 

Q/800 + 110(Vr)1⁄2 (Btu/h). 

Q/800 + 110(Vr)1⁄2 (Btu/h). 

Oil-fired storage water heaters ................................................................. ≤155,000 Btu/h .......

>155,000 Btu/h .......

*** 80 

*** 80 

Q/800 + 110(Vr)1⁄2 (Btu/h). 

Q/800 + 110(Vr)1⁄2 (Btu/h). 

Electric instantaneous water heaters ‡ ..................................................... <10 gal ...................

≥10 gal ...................

80 

77 

N/A. 

2.30 + 67/Vm (%/h). 

Gas-fired instantaneous water heaters and hot water supply boilers ..... <10 gal ...................

≥10 gal ...................

80 

80 

N/A. 

Q/800 + 110(Vr)1⁄2 (Btu/h). 

Oil-fired instantaneous water heater and hot water supply boilers ......... <10 gal ...................

≥10 gal ...................

80 

78 

N/A. 

Q/800 + 110(Vr)1⁄2 (Btu/h). 

Minimum thermal insulation. 

Unfired hot water storage tank ................................................................. All ........................... R–12.5. 

* Vm is the measured storage volume, and Vr is the rated volume, both in gallons. Q is the nameplate input rate in Btu/h. 

** For hot water supply boilers with a capacity of less than 10 gallons: (1) the standards are mandatory for products manufactured on and after 

October 21, 2005 and (2) products manufactured prior to that date, and on or after October 23, 2003, must meet either the standards listed in 

this table or the applicable standards in subpart E of part 431 for a ‘‘commercial packaged boiler.’’ 

*** For oil-fired storage water heaters: (1) the standards are mandatory for equipment manufactured on and after October 9, 2015 and (2) 

equipment manufactured prior to that date must meet a minimum thermal efficiency level of 78 percent. 

† Water heaters and hot water supply boilers having more than 140 gallons of storage capacity need not meet the standby loss requirement if: 

(1) the tank surface area is thermally insulated to R–12.5 or more, (2) a standing pilot light is not used, and (3) for gas or oil-fired storage water 

heaters, they have a fire damper or fan-assisted combustion. 

‡ Energy conservation standards for electric instantaneous water heaters are included in EPCA. In this rule, DOE codifies these standards for 

electric instantaneous water heaters in its regulations at 10 CFR 431.110. Further discussion of standards for electric instantaneous water heaters is included in section III.B.3 of this document. 


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TABLE IV.2—CURRENT EQUIPMENT CLASSES AND ENERGY CONSERVATION STANDARDS FOR RESIDENTIAL-DUTY

COMMERCIAL WATER HEATERS

Equipment Specification * Draw 

pattern ** Uniform energy factor 

Gas-fired storage ........................... >75 kBtu/h and .............................

≤105 kBtu/h and ...........................

≤120 gal and .................................

≤180 °F .........................................

Very Small ....................................

Low ...............................................

Medium .........................................

High ..............................................

0.2674 ¥ (0.0009 × Vr). 

0.5362 ¥ (0.0012 × Vr). 

0.6002 ¥ (0.0011 × Vr). 

0.6597 ¥ (0.0009 × Vr). 

Oil-fired storage ............................. >105 kBtu/h and ...........................

≤140 kBtu/h and ...........................

≤120 gal and .................................

≤180 °F .........................................

Very Small ....................................

Low ...............................................

Medium .........................................

High ..............................................

0.2932 ¥ (0.0015 × Vr). 

0.5596 ¥ (0.0018 × Vr). 

0.6194 ¥ (0.0016 × Vr). 

0.6740 ¥ (0.0013 × Vr). 

Electric instantaneous .................... >12 kW and ..................................

≤58.6 kW and ...............................

≤2 gal and .....................................

≤180 °F .........................................

Very Small ....................................

Low ...............................................

Medium .........................................

High ..............................................

0.80 

0.80 

0.80 

0.80. 

* To be classified as a residential-duty water heater, a commercial water heater must, if requiring electricity, use single-phase external power 

supply; and not be designed to heat water at temperatures greater than 180 °F. 

** Draw pattern is a classification of hot water use of a consumer water heater or residential-duty commercial water heater, based upon the 

first-hour rating. The draw pattern is determined using the Uniform Test Method for Measuring the Energy Consumption of Water Heaters in appendix E to subpart B of 10 CFR part 430. 

The following subsections include 

further discussion of comments received 

on equipment classes and DOE’s 

approach to equipment classes for this 

final rule. 

a. Storage-Type Instantaneous Water 

Heaters 

Based on a review of equipment on 

the market, DOE has found that gas-fired 

storage-type instantaneous water heaters 

are very similar to gas-fired storage 

water heaters, but with a higher ratio of 

input rating to tank volume. This higher 

input-volume ratio is achieved with a 

relatively larger heat exchanger paired 

with a relatively smaller tank. 

Increasing either the input capacity or 

storage volume increases the hot water 

delivery capacity of the water heater. 

However, through a review of product 

literature, DOE did not identify any 

significant design differences that 

would warrant different energy 

conservation standard levels (for either 

thermal efficiency or standby loss) 

between models in these two equipment 

classes. Therefore, DOE grouped the two 

equipment classes together in the May 

2022 CWH ECS NOPR analyses and 

proposed the same standard levels for 

each equipment class. 87 FR 30610, 

30631–30632. 

Barton Day Law questioned whether 

gas-fired storage water heaters and 

storage-type instantaneous water heaters 

can be categorized as the same product 

within the analysis, and whether the 

same numbers can be used to represent 

both product types. (Barton Day Law, 

Public Meeting Transcript No. 13 at p. 

23) However, Barton Day Law did not 

provide any specific reasons that these 

products are functionally different. In 

contrast, the Joint Advocates agreed 

with DOE’s methodology for analyzing 

equipment types and stated that it was 

appropriate to analyze commercial gasfired storage and storage-type 

instantaneous water heaters together 

due to the commonalities in design and 

shared features. (The Joint Advocates, 

No. 29 at pp. 1, 2) 

As noted, DOE has found that gasfired storage-type instantaneous water 

heaters have a higher ratio of input 

rating to tank volume than gas-fired 

storage water heaters (i.e., the ratio 

exceeds the 4,000 Btu/h per gallon of 

stored water threshold included in the 

definition of instantaneous water 

heaters at 10 CFR 431.102). However, 

through a review of product literature, 

neither DOE nor any commenters 

identified any significant design 

differences that would warrant different 

energy conservation standard levels (for 

either thermal efficiency or standby 

loss) between models in these two 

equipment classes. Therefore, DOE 

continued to group the two equipment 

classes together in this final rule. 

The standard levels considered in this 

document reflect the similarity of these 

types of equipment, with the same 

standard levels considered for both 

storage water heaters and storage-type 

instantaneous water heaters. 

b. Venting for Gas-Fired Water Heating 

Equipment 

In response to the May 2022 CWH 

ECS NOPR, Patterson-Kelley and WM 

Technologies stated that increasing 

efficiencies beyond the capabilities of 

Category I Venting as defined in the 

National Fuel Gas Code NFPA 54 will 

result in the unavailability of products 

that use category I venting. (PattersonKelley, No. 26 at pp. 1–2; WM 

Technologies, No. 25 at p. 2) PattersonKelley explained that converting to 

Category I appliances may be costly and 

application prohibitive in 

establishments in densely populated 

areas. (Patterson-Kelley, No. 26 at p. 2) 

The Joint Gas Commenters stated that 

DOE’s treatment of venting issues raised 

by condensing-level standards is 

unreasonable and contrary to law. 

Specifically, the Joint Gas Commenters 

described that the imposition of 

standards that non-condensing products 

cannot achieve would raise significant 

practical, economic, and legal issues. 

Cumulatively, they said, inaccurate 

assumptions undermine the May 2022 

CWH ECS NOPR’s economic evaluation 

and its estimate of the market impacts 

of the proposed standards. (The Joint 

Gas Commenters, No. 34 at p. 3) 

Similarly, the Joint Gas Commenters 

argued that venting type is indeed a 

performance feature and pointed to the 

January 2021 Final Rule for Residential 

Furnaces and Commercial Water 

Heaters that agreed with this logic but 

has since been withdrawn. (Joint Gas 

Commenters, No. 34 at p. 10) PattersonKelley and WM Technologies agreed 

and commented that they maintain the 

same justification per 42 U.S.C. 

6295(q)(l) documented in the Final 

Interpretive Rule provided in 86 FR 

4776 applies to fuel-fired commercial 

water heaters. As such, Patterson-Kelley 

and WM Technologies also continue to 

support DOE’s January 2021 acceptance 

of the Gas Industry Petition to recognize 

non-condensing as a product feature per 

EPCA. (WM Technologies, No. 25 at p. 

2; Patterson-Kelly, No. 26 at pp. 1–2) 

WM Technologies believes that 42 

U.S.C. 6313(a)(6)(B)(II)(aa) prohibits the 

elimination of non-condensing water 

heaters. (WM Technologies, No. 25 at p. 


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31Repair costs are based on annual failure rates 

of combustion systems and controls. Increased 

repair costs reflect increased costs for combustion 

systems and controls found in high efficiency CWH 

equipment, as well as increased frequency of repair 

for high efficiency controls. Heat exchanger 

replacement was also considered for commercial 

gas-fired instantaneous circulating water heaters 

and hot water supply boilers. 

1) The Joint Gas Commenters further 

claimed that DOE should recognize the 

compatibility of a product with the 

existing atmospheric venting systems is 

a performance-related feature that 

would require separate standards for 

condensing and non-condensing 

products if standards specific to 

condensing products are justified. (The 

Joint Gas Commenters, No. 34 at p. 11) 

They explained that DOE is precluded 

by EPCA from amending standards in 

such a way that renders existing venting 

systems unusable by eliminating 

products consistent with the venting 

type. (Joint Gas Commenters, No. 34 at 

p. 10) The Joint Gas Commenters stated 

that Congress understood that buildings 

are designed to accommodate standard 

installations and sought to ensure that 

standards would not deprive consumers 

of the utility and convenience of 

products that can be installed without 

the need to modify the existing 

buildings to accommodate them. Id. The 

Joint Gas Commenters drew parallels 

between the question of vent-type 

consistency and other instances in 

which DOE avoided setting standards 

that would make it impossible for 

consumers to install a space constrained 

product. Id. The Joint Gas Commenters 

requested that any final rule in this 

proceeding include a written finding 

that interested persons have established 

by a preponderance of the evidence that 

the proposed standards are likely to 

result in the unavailability in the United 

States of commercial water heaters with 

‘‘performance characteristics (including 

reliability, features, sizes, capacities, 

and volumes) that are substantially the 

same as those generally available in the 

United States’’ on the date any such rule 

issues. (Joint Gas Commenters, No. 34 at 

p. 11) 

PHCC similarly noted that they have 

on prior occasion expressed concern for 

the elimination of non-condensing 

technology for commercial gas fire water 

heaters. They believe that there are 

numerous parts of the May 2022 CWH 

ECS NOPR that are overly optimistic, do 

not reflect current market conditions, 

make inaccurate assumptions, and 

minimize installation issues for 

condensing type products. (PHCC, No. 

28 at p. 1) 

Patterson-Kelley stated that 

hybridization of standard efficiency and 

high efficiency products would be a 

low-cost migration to the efficiencies 

the DOE is looking for, while mitigating 

the cost of full conversions of the 

system. They noted that this would also 

allow for proper analysis of the correctly 

sized equipment for the space 

commercially and would further 

increase the system level efficiency, 

which is the ultimate goal. (PattersonKelley, No. 26 at p. 2) Addressing many 

of the same concepts as the Joint Gas 

Commenters, the CA IOUs instead 

expressed support for DOE’s arguments; 

they agreed with analyzing both venting 

and condensing gas water heaters 

together, and with DOE’s withdrawal of 

the Condensing Products Interpretive 

Rule. The commenters added that their 

commissioned research with other 

utility partners shows it is always 

possible to retrofit a non-condensing gas 

water heater with a condensing product. 

(CA IOUs, No. 33 at p. 5) The CEC also 

indicated support for DOE’s analysis, 

noting that DOE’s application of its rule 

interpreting EPCA’s ‘‘features 

provision’’ is lawful. (CEC, No. 27 at p. 

3) 

Under EPCA, DOE may not prescribe 

an amended standard if interested 

persons have established by a 

preponderance of the evidence that a 

standard is likely to result in the 

unavailability in the United States in 

any 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. 

6313(a)(6)(B)(iii)(II)). Commenters have 

not provided, and DOE has not found, 

any evidence that eliminating CHWs 

that use category I venting would result 

in the unavailability of CWH models of 

substantially the same reliability, sizes, 

capacities, or volumes as those generally 

available in the current market. As 

demonstrated in chapter 3 of the TSD 

accompanying this final rule, 

condensing-level CWH equipment is 

generally available in the same 

capacities and volumes as 

noncondensing CWH equipment. With 

respect to reliability, all available data 

that DOE has reviewed suggest that the 

lifetimes of condensing CWH equipment 

are substantially the same as 

noncondensing CWH equipment. DOE 

notes that it does have, and has 

incorporated, data regarding increased 

repair costs for individual component 

failures that may occur in higherefficiency condensing equipment, as 

discussed in section IV.F.5.b of this 

document.31 However, the increased 

repair costs are largely related to the 

increased component cost and even in 

the case of heat exchangers where DOE 

cites a higher failure rate, such does not 

translate directly to decreased product 

life. Moreover, DOE has not found a 

decrease in product performance over 

the life of condensing models dissimilar 

from what would be expected in 

noncondensing CWH equipment. As 

discussed in IV.F.6 of this document, 

DOE has found that, within each 

equipment class, the average lifetime of 

all equipment covered by this 

rulemaking is the same for all thermal 

efficiency levels, from baseline through 

max-tech. Thus, DOE believes the 

reliability of condensing and 

noncondensing CWH equipment, in 

terms of equipment performance and 

ability to serve the hot water loads and 

in terms of overall lifetime, is 

substantially the same, and that there 

are no known reliability concerns 

endemic to condensing technology. 

With respect to commenters’ 

statements that category I venting itself 

is a performance characteristic that 

DOE’s standards cannot make 

unavailable, DOE first notes that 

venting, like a gas burner or heat 

exchanger, is one of the basic 

components found in every gas-fired 

water heater (condensing or 

noncondensing). As such, assuming 

venting is a performance characteristic, 

a standard would have to eliminate all 

vented gas-fired water heaters on the 

market—i.e., both condensing and noncondensing models—to run afoul of the 

unavailability provision in EPCA. Thus, 

in order to meet the unavailability 

requirements in 42 U.S.C. 

6313(a)(6)(B)(iii)(II), Joint Gas 

Commenters and others are requesting 

DOE determine that a specific type of 

venting is a performance characteristic. 

In response, DOE first notes that 

almost every component of a covered 

product or equipment could be broken 

down further by any of a number of 

factors. For example, heat exchangers, 

which are used in a variety of covered 

equipment and products, could be 

divided further by geometry or material; 

refrigerator compressors could be 

further divided by single-speed or 

variable-speed, and air-conditioning 

refrigerants could be further divided by 

global warming potential. As a general 

matter, energy conservation standards 

save energy by removing the leastefficient technologies and designs from 

the market. For example, DOE set 

energy conservation standards for 

furnace fans at a level that effectively 

eliminated permanent split capacitor 

(PSC) motors from several product 

classes, but which could be met by 

brushless permanent magnet (BPM) 

motors, which are more efficient. 79 FR 


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38130 (July 3, 2014). As another 

example, DOE set energy conservation 

standards for microwave oven standby 

mode and off mode at a level that 

effectively eliminated the use of linear 

power supplies, but which could be met 

by switch-mode power supplies, which 

exhibit significantly lower standby 

mode and off mode power consumption. 

78 FR 36316 (June 17, 2013). The 

energy-saving purposes of EPCA would 

be completely frustrated if DOE were 

required to set standards that maintain 

less-efficient covered products and 

equipment in the market based simply 

on the fact that they use a specific type 

of (less efficient) heat exchanger, motor, 

power supply, etc. 

As discussed in the December 2021 

final interpretive rule, DOE believes that 

a consumer would be aware of 

performance-related features of a 

covered product or equipment and 

would recognize such features as 

providing additional benefits during 

operation of the covered product or 

equipment. 86 FR 73955. Using the 

previous example of furnace fan motors, 

if an interested person had wanted to 

preserve furnace fans with PSC motors 

in the market, they would have had to 

show that furnace fans with PSC motors 

offered some additional benefit during 

operation as compared to furnace fans 

with BPM motors. Refrigerator-freezers, 

on the other hand, are an example of 

where DOE determined that a specific 

type of performance-related feature 

offered additional benefit during 

operation. Some refrigerator-freezers 

have automatic icemakers. Additionally, 

some automatic icemakers offer 

through-the-door ice service, which 

provides consumers with an additional 

benefit during operation. As such, DOE 

further divided refrigerator-freezers into 

product classes based on the specific 

type of automatic icemaker (i.e., 

whether the automatic icemaker offers 

through-the-door ice service). See 10 

CFR 430.32(a). 

Joint Gas Commenters and others 

have not pointed to any additional 

benefits during operation offered by 

CWHs that use Category I venting as 

compared to CWHs that use other types 

of venting. Instead, these commenters 

cite the January 2021 final interpretive 

rule and economic considerations as 

reasons why Category I venting should 

be considered a performance 

characteristic for the purposes of 

EPCA’s unavailability provision. With 

regards to the January 2021 final rule, 

DOE cited the potential for increased 

fuel switching and the potential need 

for significant modifications during 

installation as support for revising the 

Department’s long-standing 

interpretation that Category 1 venting is 

not a performance-related feature. 86 FR 

4816. DOE’s response to these issues 

remains largely the same from the 

December 2021 final interpretive rule. 

First, as explained in the December 

2021 final interpretive rule, the 

potential for increased fuel switching is 

simply not a performance characteristic 

that could serve as the basis for an 

unavailability finding under EPCA. 

Second, with regards to the potential 

need for significant modifications 

during installation, this argument 

overlaps with other comments focused 

on the economic impacts of installation 

scenarios where existing Category I 

venting systems need to be replaced 

with a venting system suitable for a 

condensing CWH. DOE acknowledges 

that a condensing water heater may not 

be operated if installed with a noncondensing venting system, and that 

potentially complex replacement or 

modification of these venting systems 

will typically be required at a cost (as 

discussed in more detail in sections 

IV.F.2.c and IV.F.2.d. of this document). 

However, while using existing venting 

can reduce installation costs, it does not 

provide the consumer with any 

additional benefits during operation. 

Further, EPCA specifically directs DOE 

to consider installation and operating 

costs as part of the Department’s 

determination of economic justification 

(see 42 U.S.C. 6313(a)(6)(B)(ii)(II)). As a 

result, there is a clear distinction in 

EPCA between the purposes of the 

unavailability provision in 42 U.S.C. 

6313(a)(6)(B)(iii)(II)—to preserve 

performance-related features in the 

market—and the economic justification 

requirement in 42 U.S.C. 

6313(a)(6)(B)(ii)—to determine whether 

the benefits (e.g., reduced fuel costs for 

an appliance) of a proposed standard 

exceed the burdens (e.g., increased 

installed cost). Thus, the appropriate 

analysis to determine whether lessefficient, non-condensing CWHs that 

use Category I venting should remain in 

the market is the economic justification 

analysis under 42 U.S.C. 

6313(a)(6)(B)(ii). Accordingly, DOE has 

conducted such an analysis as part of 

the standards amendment process for 

this rulemaking. DOE analyzed 

ventilation installation and cost issues 

in the May 2022 CWH ECS NOPR, and 

does so again in this final rule. DOE’s 

consideration of these issues and 

responses to associated comments may 

be found in section IV.F.2 of this 

document. 

For these reasons, DOE disagrees with 

commenters that eliminating 

noncondensing CWHs that use Category 

I venting from the market would violate 

EPCA’s ‘‘unavailability’’ provision as 

that technology does not provide unique 

utility to consumers that is not 

substantially the same as that provided 

by condensing CWH equipment. 

Accordingly, for the purpose of the 

analysis conducted for this rulemaking, 

DOE did not analyze separate 

equipment classes for non-condensing 

and condensing CWH equipment in this 

final rule. 

c. Tankless Water Heaters and Hot 

Water Supply Boilers 

In the May 2022 CWH ECS NOPR, 

DOE analyzed ‘‘tankless water heaters’’ 

and ‘‘circulating water heaters and hot 

water supply boilers’’ as two separate 

kinds of representative equipment in the 

gas-fired instantaneous water heaters 

equipment class, in order to reflect the 

differences in design and application 

between these kinds of equipment. DOE 

also presented analytical results 

separately for the two types of 

representative equipment. 87 FR 30610, 

30632. In the June 23, 2022 public 

meeting, Barton Day Law questioned 

whether commercial instantaneous 

water heaters and hot water supply 

boilers can be appropriately categorized 

as the same product within DOE’s 

analysis. (Barton Day Law, Public 

Meeting Transcript No. 13 at pp. 18–22) 

In response, DOE notes that its 

analysis does account for the differences 

between these product types by 

including different installation costs for 

each. Tankless water heaters are 

typically flow-activated, wall-mounted, 

used without a storage tank, and capable 

of higher temperature rises. Circulating 

water heaters and hot water supply 

boilers, conversely, are typically used 

with a storage tank and recirculation 

loop, thermostatically-activated, and 

typically floor-mounted. However, 

despite these differences, tankless water 

heaters and hot water supply boilers are 

grouped in the same equipment category 

because they share basic fundamental 

similarities: both kinds of equipment 

supply hot water in commercial 

applications with an input rate of at 

least 4,000 Btu/h per gallon of stored 

water, and both include heat exchangers 

through which incoming water flows 

and is heated by combustion flue gases 

that flow around the heat exchanger 

tubes. 

Therefore, for this final rule, DOE 

maintained its approach of analyzing 

‘‘tankless water heaters’’ and 

‘‘circulating water heaters and hot water 

supply boilers’’ as two separate kinds of 

representative equipment in the gasfired instantaneous water heaters 

equipment class, and presents analytical 

results separately for the two types of 


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32 In the May 2022 CWH ECS NOPR, DOE 

responded to comments on the May 2016 CWH ECS 

NOPR. DOE received comments suggesting that 

DOE should split up the equipment class for gasfired instantaneous water heaters and hot water 

supply boilers by input capacity, similar to DOE’s 

current energy conservation standards for 

commercial packaged boilers. 87 FR 30633. As 

noted in the May 2022 CWH ECS NOPR, ASHRAE 

90.1 does not divide the equipment classes for 

commercial gas-fired instantaneous water heaters 

and hot water supply boilers by input capacity. 

Therefore, DOE did not, in the NOPR, and has not 

in this final rule, analyzed separate classes for gasfired instantaneous water heaters and hot water 

supply boilers equipment class by input capacity. 

33Last accessed on March 4, 2021 and available 

at www.ahridirectory.org. 

34Last accessed on March 4, 2021 and available 

at cacertappliances.energy.ca.gov/Pages/ 

ApplianceSearch.aspx. 

35Last accessed on February 26, 2021 and 

available at www.regulations.doe.gov/certificationdata/. 

representative equipment in section V of 

this final rule, although DOE is not 

proposing to restructure the equipment 

classes.32

d. Gas-Fired and Oil-Fired Storage 

Water Heaters 

In the May 2022 CWH ECS NOPR, 

DOE proposed to consolidate 

commercial gas-fired and oil-fired 

storage water heater equipment classes 

that are currently divided by input rates 

of 155,000 Btu/h into two equipment 

classes without an input rate 

distinction: (1) gas-fired storage water 

heaters and (2) oil-fired storage water 

heaters. DOE noted that this class 

structure would be consistent with the 

equipment class structure in the latest 

version of ASHRAE Standard 90.1. 87 

FR 30610, 30633. In response Bradford 

White agreed with combining the 

classes for gas-fired storage water 

heaters above and below 155,000 Btu/h 

and noted that the historical reasons for 

the requirements being separated are no 

longer applicable. (Bradford White, No. 

23 at p. 1) Bock Water Heaters and 

Rheem similarly indicated support for 

DOE removing the 155,000 Btu sizing 

categories from the energy conservation 

standards tables. (Bock Water Heaters, 

No. 20 at p. 1; Rheem, No. 24 at p. 2) 

AHRI also expressed support for the 

proposal and noted that these categories 

had no efficiency differences and 

separating them adds unnecessary 

complexity. (AHRI, No. 31 at p. 3) DOE 

is adopting this proposal in this final 

rule and is removing the input rate size 

distinctions for commercial gas-fired 

and oil-fired storage water heaters. 

e. Grid-Enabled Water Heaters 

In the May 2022 CWH ECS NOPR, 

DOE explained that it was not proposing 

to establish a separate equipment class 

for grid-enabled electric storage water 

heaters (i.e., electric storage water 

heaters that can receive and react to 

commands sent from local utilities and 

which could at a minimum reduce their 

instantaneous power consumption in 

response) because DOE did not propose 

to amend the standard for commercial 

electric storage water heaters, and 

because a grid-enabled water heater 

would not be differentially impacted by 

a standby loss standard. 87 FR 30610, 

30633. Bradford White agreed with 

DOE’s decision not to establish a 

separate class for grid-enabled water 

heaters. (Bradford White, No. 23 at p. 1) 

DOE maintains its position from the 

May 2022 CWH ECS NOPR and is not 

establishing a separate class for gridenabled water heaters. 

3. Review of the Current Market for 

CWH Equipment 

In order to gather information needed 

for the market assessment for CWH 

equipment, DOE consulted a variety of 

sources, including manufacturer 

literature, manufacturer websites, the 

AHRI Directory of Certified Product 

Performance,33 the CEC Appliance 

Efficiency Database,34 and DOE’s 

Compliance Certification Database.35

DOE used these sources to compile a 

database of CWH equipment that served 

as resource material throughout the 

analyses conducted for this rulemaking. 

This database contained the following 

counts of unique models for which DOE 

analyzed for amended thermal 

efficiency standards: 431 commercial 

gas-fired storage water heaters, 44 

residential-duty commercial gas-fired 

storage water heaters, 111 commercial 

gas-fired storage-type instantaneous 

water heaters (tank-type water heaters 

with greater than 4,000 Btu/h per gallon 

of stored water), 22 gas-fired tankless 

water heaters, and 280 gas-fired 

circulating water heaters and hot water 

supply boilers. Chapter 3 of the final 

rule TSD provides more information on 

the CWH equipment currently available 

on the market, including a full 

breakdown of these units into their 

equipment classes and graphs showing 

performance data. 

4. Technology Options 

As part of the market and technology 

assessment, DOE uses information about 

commercially-available technology 

options and prototype designs to help 

identify technologies that manufacturers 

could use to improve energy efficiency 

for CWH equipment. This effort 

produces an initial list of all the 

technologies that are technologically 

feasible. This assessment provides the 

technical background and structure on 

which DOE bases its screening and 

engineering analyses. 

In response to the May 2022 CWH 

ECS NOPR, the Joint Advocates 

encouraged DOE to evaluate heat pump 

technology as a technology option for 

electric storage water heaters. (The Joint 

Advocates, No. 29 at p. 4) The Joint 

Advocates and the CA IOUs both noted 

that commercial integrated heat pump 

water heaters on the market have 

electric resistance elements that allow 

them to meet required hot water 

demand when heat-pump-only 

operation would not suffice, and the CA 

IOUs cited such products. (The Joint 

Advocates, No. 29 at p. 4; CA IOUs, No. 

33 at pp. 4–5) The Joint Advocates 

further cited that when both backup 

elements and the heat pump compressor 

are operating together in hybrid mode, 

this unit can achieve almost twice the 

heating capacity of a 12 kW commercial 

electric resistance water heater. (The 

Joint Advocates, No. 29 at p. 4) The 

Joint Advocates stated that they are not 

aware of any reason why commercial 

heat pump water heaters could not meet 

the same hot water loads as commercial 

electric storage water heaters. Id. 

NYSERDA similarly urged DOE to 

include commercial heat pump water 

heaters in the analysis. They cited a 

recent New York Commercial Baseline 

Study that found that between 1 and 4 

percent of commercial water heaters 

were classified as heat pumps across a 

variety of applications. Therefore, 

NYSERDA recommended that DOE 

acknowledge heat pumps in subsequent 

rulemakings, both as a max-tech option 

and as a technology across the board. 

(NYSERDA, No. 30, pp. 1–2) 

NWPCC also commented in support 

of DOE including commercial heat 

pump water heaters as the max-tech in 

the analysis. NWPCC stated that the 

analysis is incomplete without this 

consideration as there are already many 

commercial-duty heat pump products 

available on the market from several 

manufacturers. (NWPCC, No. 21 at p. 1) 

They explained that heat pump water 

heaters are of interest to the Northwest 

region, as the Regional Technical Forum 

estimates between 20 and 30 average 

megawatts of energy saving potential for 

unitary commercial heat pump water 

heaters and an additional 15 megawatts 

of potential for consumer heat pump 

water heaters in commercial 

applications. Id. In contrast, A.O. Smith 

added that inlet water temperature will 

vary across regions of the country and 

climate zones for air-source heat pump 

water heaters and noted that heat-pump 

water heaters may require backup 

heating in certain scenarios. A.O. Smith 

also stated that an integrated heat pump 


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water heater may not be the correct 

technology option for applications that 

require very large loads. (A.O. Smith, 

No. 22 at p. 6) 

In response to these comments, DOE 

notes that, as discussed in section III.B.4 

of this document, it did not consider 

commercial heat pump water heaters in 

this final rule because of the limited 

number of units on the market, but may 

analyze commercial heat pump water 

heaters in a future rulemaking. 

Because thermal efficiency, standby 

loss, and UEF are the relevant 

performance metrics in this rulemaking, 

DOE did not consider technologies that 

have no significant effect on these 

metrics. However, DOE does not 

discourage manufacturers from using 

these other technologies because they 

might reduce annual energy 

consumption in the field. The following 

list includes the technologies that DOE 

did not consider because they would 

not significantly affect efficiency as 

measured by the DOE test procedure. 

Chapter 3 of the final rule TSD provides 

details and reasoning for the exclusion 

from further consideration of each 

technology option, as listed here: 

• Plastic tank 

• Direct vent 

• Timer controls 

• Intelligent and wireless controls 

• Modulating combustion 

• Self-cleaning. 

DOE also did not consider 

technologies as options for increasing 

efficiency if they are included in 

baseline equipment, as determined from 

an assessment of units on the market. 

DOE’s research suggests that 

electromechanical flue dampers and 

electronic ignition are technologies 

included in baseline equipment for 

commercial gas-fired storage water 

heaters; therefore, they were not 

included as technology options for that 

equipment class. However, 

electromechanical flue dampers and 

electronic ignition were not identified 

on baseline units for residential-duty 

gas-fired storage water heaters, and 

these options were, therefore, 

considered for increasing efficiency of 

residential-duty gas-fired storage water 

heaters. DOE also considered insulation 

of fittings around pipes and ports in the 

tank to be included in baseline 

equipment; therefore, such insulation 

was not considered as a technology 

option for the analysis. 

The technology options that were 

considered for improving the energy 

efficiency of CWH equipment for this 

final rule are as follows: 

• Improved insulation (including 

increasing jacket insulation, 

insulating tank bottom, advanced 

insulation types, and foam insulation) 

• Mechanical draft (including induced 

draft (also known as power vent) and 

forced draft) 

• Condensing heat exchanger (for all 

gas-fired equipment classes and 

including optimized flue geometry) 

• Condensing pulse combustion 

• Improved heat exchanger design 

(including increased surface area and 

increased baffling) 

• Sidearm heating and two-phase 

thermosiphon technology 

• Electronic ignition systems 

• Improved heat pump water heaters 

(including gas absorption heat pump 

water heaters) 

• Premix burner (including submerged 

combustion chamber for gas-fired 

storage water heaters and storage-type 

instantaneous water heaters) 

• Electromechanical flue damper 

• Modulating combustion. 

Chapter 3 of the final rule TSD 

includes descriptions of all technology 

options identified for this equipment. 

B. Screening Analysis 

DOE uses the following screening 

criteria to determine which technology 

options are suitable for further 

consideration in an energy conservation 

standards rulemaking: 

(1) Technological feasibility. 

Technologies that are not incorporated 

in commercial products or in 

commercially viable, existing prototypes 

will not be considered further. 

(2) Practicability to manufacture, 

install, and service. If it is determined 

that mass production of a technology in 

commercial products and reliable 

installation and servicing of the 

technology could not be achieved on the 

scale necessary to serve the relevant 

market at the time of the projected 

compliance date of the standard, then 

that technology will not be considered 

further. 

(3) Impacts on product utility. If a 

technology is determined to have a 

significant adverse impact on the utility 

of the product to subgroups of 

consumers, or 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 be considered 

further. 

(4) Safety of technologies. If it is 

determined that a technology would 

have significant adverse impacts on 

health or safety, it will not be 

considered further. 

(5) Unique-pathway proprietary 

technologies. If a technology has 

proprietary protection and represents a 

unique pathway to achieving a given 

efficiency level, it will not be 

considered further, due to the potential 

for monopolistic concerns. 

10 CFR 431.4; 10 CFR part 430, subpart 

C, appendix A, sections 6(c)(3) and 7(b). 

In sum, if DOE determines that a 

technology, or a combination of 

technologies, fails to meet one or more 

of the listed five criteria, it will be 

excluded from further consideration in 

the engineering analysis. 

1. Screened-Out Technologies 

Technologies that pass through the 

screening analysis are subsequently 

examined in the engineering analysis for 

consideration in DOE’s downstream 

cost-benefit analysis. In the May 2022 

CWH ECS NOPR, DOE screened out gas 

absorption heat pump water heaters due 

to concerns about their practicability to 

manufacture, install, and service. In 

response, the Joint Advocates 

encouraged DOE to evaluate this 

technology as a potential max-tech 

efficiency level for commercial gas 

storage water heaters. The Joint 

Advocates explained that there appear 

to be gas-fired heat pump models on the 

market that can provide both space and 

water heating capabilities, and cited one 

such example. (The Joint Advocates, No. 

29 at p. 2) The CA IOUs and NEEA also 

stated that DOE should evaluate gas heat 

pump water heaters as a max-tech level, 

and cited several examples. (CA IOUs, 

No. 33 at p. 3; NEEA, No. 35, pp. 2–3) 

DOE notes that the examples cited by 

the Joint Advocates and the CA IOUs do 

not meet the input rating requirements 

to be considered CWH equipment by the 

definitions in 10 CFR 431.102. However, 

other examples provided by 

commenters do appear to meet the 

requirements to be considered CWH 

equipment, but have low maximum 

output water temperatures and may not 

be suitable for all applications. 

Therefore, DOE does not have adequate 

information at this time to determine if 

these products would result in adverse 

impacts on consumer utility. 

Additionally, DOE is not aware of any 

demonstration of this technology as 

being suitable for commercial 

applications or as being practicable to 

manufacture, install, and service on the 

scale necessary to serve the CWH 

equipment market at the time of the 

effective date of this adopted standard. 

Accordingly, that technology remains 

screened out. 

Based upon a review under the above 

factors, DOE screened out the design 

options listed in Table IV.3 for the 


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reasons provided. Chapter 4 of the final 

rule TSD contains additional details on 

the screening analysis, including a 

discussion of why each technology 

option was screened out. 

TABLE IV.3—SUMMARY OF SCREENED-OUT TECHNOLOGY OPTIONS

Excluded technology option Applicable equipment 

classes * 

Reasons for exclusion 

Technological 

feasibility 

Practicability 

to 

manufacture, 

install, 

and service 

Adverse 

impacts on 

product utility 

Adverse 

impacts on 

health or 

safety 

Uniquepathway 

proprietary 

technology 

Advanced insulation types .. All storage water heaters ... X X ........................ ........................ ........................

Condensing pulse combustion.All gas-fired equipment 

classes.

........................ X ........................ ........................ ........................

Sidearm heating .................. All gas-fired storage ........... ........................ X ........................ ........................ ........................

Two-phase thermosiphon 

technology.

All gas-fired storage ........... ........................ X ........................ ........................ ........................

Gas absorption heat pump 

water heaters.

Gas-fired instantaneous 

water heaters.

........................ X ........................ ........................ ........................

* All mentions of storage water heaters in this column refer to both storage water heaters and storage-type instantaneous water heaters. 

In this final rule, DOE concludes that 

none of the identified technology 

options are proprietary. However, in the 

engineering analysis, DOE included the 

manufacturer production costs 

associated with multiple designs of 

condensing heat exchangers used by a 

range of manufacturers, which represent 

the vast majority of the condensing gasfired storage water heater market, to 

account for intellectual property rights 

surrounding specific designs of 

condensing heat exchangers. 

2. Remaining Technologies 

After screening out or otherwise 

removing from consideration certain 

technologies, the remaining 

technologies are passed through for 

consideration in the engineering 

analysis. Table IV.4 presents identified 

technologies for consideration in the 

engineering analysis. Chapter 3 of the 

final rule TSD contains additional 

details on the technology assessment 

and the technologies analyzed. 

TABLE IV.4—TECHNOLOGY OPTIONS CONSIDERED FOR ENGINEERING ANALYSIS

Equipment Mechanical 

draft 

Condensing 

heat 

exchanger 

Increased heat 

exchanger 

area, 

baffling 

Electronic 

ignition 

Premix 

burner 

Electromechanical 

flue damper 

Commercial gas-fired storage water 

heaters and storage-type instantaneous water heaters ............................. X X X ........................ X ........................

Residential-duty gas-fired storage water 

heaters .................................................. X X X X X X 

Gas-fired instantaneous water heaters 

and hot water supply boilers ................ X X X ........................ X ........................

DOE determined that these 

technology options are technologically 

feasible because they are being used or 

have previously been used in 

commercially-available products or 

working prototypes. DOE also finds that 

all of the remaining technology options 

meet the other screening criteria (i.e., 

practicable to manufacture, install, and 

service and do not result in adverse 

impacts on consumer utility, product 

availability, health, or safety). For 

additional details, see chapter 4 of the 

final rule TSD. 

C. Engineering Analysis 

The purpose of the engineering 

analysis is to establish the relationship 

between the efficiency and cost of CWH 

equipment. There are two elements to 

consider in the engineering analysis; the 

selection of efficiency levels to analyze 

(i.e., the ‘‘efficiency analysis’’) and the 

determination of product cost at each 

efficiency level (i.e., the ‘‘cost 

analysis’’). In determining the 

performance of higher-efficiency 

equipment, DOE considers technologies 

and design option combinations not 

eliminated by the screening analysis. 

For each equipment category, DOE 

estimates the baseline cost, as well as 

the incremental cost for the equipment 

at efficiency levels above the baseline. 

The output of the engineering analysis 

is a set of cost-efficiency ‘‘curves’’ that 

are used in downstream analyses (i.e., 

the LCC and PBP analyses and the NIA). 

1. Efficiency Analysis 

DOE typically uses one of two 

approaches to develop energy efficiency 

levels for the engineering analysis: (1) 

relying on observed efficiency levels in 

the market (i.e., the efficiency-level 

approach), or (2) determining the 

incremental efficiency improvements 

associated with incorporating specific 

design options to a baseline model (i.e., 

the design-option approach). Using the 

efficiency-level approach, the efficiency 

levels established for the analysis are 

determined based on the market 

distribution of existing products (in 

other words, based on the range of 

efficiencies and efficiency level 

‘‘clusters’’ that already exist on the 

market). Using the design option 

approach, the efficiency levels 

established for the analysis are 

determined through detailed 

engineering calculations and/or 

computer simulations of the efficiency 


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improvements from implementing 

specific design options that have been 

identified in the technology assessment. 

DOE may also rely on a combination of 

these two approaches. For example, the 

efficiency-level approach (based on 

actual products on the market) may be 

extended using the design option 

approach to interpolate to define ‘‘gap 

fill’’ levels (to bridge large gaps between 

other identified efficiency levels) and/or 

to extrapolate to the max-tech level 

(particularly in cases where the maxtech level exceeds the maximum 

efficiency level currently available on 

the market). 

For the analysis of thermal efficiency 

and UEF levels, DOE identified the 

efficiency levels for the analysis based 

on market data (i.e., the efficiency level 

approach). For the analysis of standby 

loss levels, DOE identified efficiency 

levels for analysis based on market data, 

commonly used technology options 

(e.g., electronic ignition), and testing 

data (i.e., a combination of the 

efficiency level approach and the design 

option approach). DOE’s selection of 

efficiency levels for this final rule is 

discussed in additional detail in section 

IV.C.4 of this document. 

2. Cost Analysis 

The cost analysis portion of the 

engineering analysis is conducted using 

one or a combination of cost 

approaches. The selection of cost 

approach depends on a suite of factors, 

including the availability and reliability 

of public information, characteristics of 

the regulated product, the availability 

and timeliness of purchasing the 

equipment on the market. The cost 

approaches are summarized as follows: 

• Physical teardowns: Under this 

approach, DOE physically dismantles a 

commercially available product, 

component-by-component, to develop a 

detailed bill of materials (‘‘BOM’’) for 

the product. 

• Catalog teardowns: In lieu of 

physically deconstructing a product, 

DOE identifies each component using 

parts diagrams (available from 

manufacturer websites or appliance 

repair websites, for example) to develop 

the BOM for the product. 

• Price surveys: If neither a physical 

nor catalog teardown is feasible (for 

example, for tightly integrated products 

such as fluorescent lamps, which are 

infeasible to disassemble and for which 

parts diagrams are unavailable) or costprohibitive and otherwise impractical 

(e.g., large commercial boilers), DOE 

conducts price surveys using publicly 

available pricing data published on 

major online retailer websites and/or by 

soliciting prices from distributors and 

other commercial channels. 

For this final rule, DOE conducted the 

cost analysis using a combination of 

physical teardowns and catalog 

teardowns. The resulting BOMs from 

physical and catalog teardowns provide 

the basis for the manufacturer 

production cost (‘‘MPC’’) estimates. 

To account for manufacturers’ nonproduction costs and profit margin, DOE 

applies a non-production cost multiplier 

(the manufacturer markup) to the MPC. 

The resulting manufacturer selling price 

(‘‘MSP’’) is the price at which the 

manufacturer distributes a unit into 

commerce. DOE developed an average 

manufacturer markup by examining the 

annual Securities and Exchange 

Commission (‘‘SEC’’) 10–K reports filed 

by companies that manufacturer CWH 

equipment, and information gathered 

from manufacturers as part of the 

analytic process for the May 2016 CWH 

ECS NOPR. Chapter 5 of the final rule 

TSD includes further detail on the 

engineering analysis. 

In the May 2022 CWH ECS NOPR, 

DOE chose the physical and catalog 

teardown approach over the price 

survey approach, based upon several 

factors. 87 FR 30635–30636. In response 

to the May 2022 CWH ECS NOPR, 

Bradford White suggested that DOE 

conduct additional interviews given that 

previous interviews were conducted 

over 6 years ago, meaning the data 

would not have taken into account the 

national and international impacts of 

the global pandemic. (Bradford White, 

No. 23 at p. 8) Bradford White and 

Rheem both indicated interest in 

participating in confidential interviews 

to provide further feedback. (Bradford 

White, No. 23 at p. 8, Rheem, No. 24 at 

p. 1) PHCC also encouraged the DOE to 

revise its production cost information 

due to recent market conditions, stating 

that projections based on the value of 

the U.S. dollar in 2020 do not accurately 

capture the effects of supply chain 

issues and the increase in steel prices. 

(PHCC, No. 28 at p. 9) PHCC stated that 

inflationary pressures have 

tremendously changed prices recently. 

However, PHCC acknowledged that as 

an association, anti-trust regulations 

limit their ability to gather or distribute 

pricing information; therefore, their 

analysis is based on available sources 

such as online retailers in order to gauge 

current market realities. Id. 

In response to this feedback, DOE 

conducted additional interviews after 

the publication of the May 2022 CWH 

ECS NOPR to better understand 

manufacturer’s concerns regarding the 

proposals of the May 2022 CWH ECS 

NOPR and gathered additional feedback 

to inform its updated MPC estimates. 

Additionally, DOE updated all its part 

prices to reflect more recent data, as 

discussed in section IV.C.7 of this 

document. 

The MPCs presented in this final rule 

take into account the feedback received 

from manufacturers, which DOE has 

found to be a valuable tool for ensuring 

the accuracy of its cost estimates. 

Without adequate safeguards, 

manufacturers would likely be 

unwilling to share information relevant 

to the rulemaking, which would have 

correspondingly negative impacts on the 

rulemaking process. In the present case, 

as is generally the case in appliance 

standards rulemakings, manufacturer 

and equipment specific data are 

presented in aggregate. Additionally, as 

discussed in more detail in section 

IV.C.7 of this document, prices for raw 

materials and purchased parts have 

been updated to the most recent market 

estimates to create the current MPCs, 

resulting in increased MPCs as 

compared to the results presented in the 

May 2022 CWH ECS NOPR. 

3. Representative Equipment for 

Analysis 

For the engineering analysis, DOE 

reviewed all CWH equipment categories 

analyzed in this rulemaking (see section 

III.B of this document for discussion of 

rulemaking scope) and examined each 

one separately. Within each equipment 

category, DOE analyzed the 

distributions of input rating and storage 

volume of models available on the 

market and held discussions with 

manufacturers to determine appropriate 

representative equipment. DOE notes 

that representative equipment was 

selected which reflects the most 

common capacity and/or storage volume 

for a given equipment category. While a 

single representative equipment 

capacity can never perfectly represent a 

wide range of input capacities or storage 

volumes, DOE reasons that analyzing a 

representative capacity and storage 

volume that was selected using 

manufacturer feedback is sufficiently 

representative of the equipment 

category while also allowing for a 

feasible analysis. 

For storage water heaters, the volume 

of the tank is a significant factor for 

costs and efficiency. Water heaters with 

larger volumes have higher materials, 

labor, and shipping costs. A larger tank 

volume is likely to lead to a larger tank 

surface area, thereby increasing the 

standby loss of the tank (assuming other 

factors are held constant, e.g., same 

insulation thickness and materials). The 

current standby loss standards for 

storage water heaters are, in part, a 


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function of volume to account for this 

variation with tank size. The 

incremental cost of increasing 

insulation thickness varies as the tank 

volume increases, and there may be 

additional installation concerns for 

increasing the insulation thickness on 

larger tanks. Installation concerns are 

discussed in more detail in section 

IV.F.2.b of this final rule. DOE 

examined specific storage volumes for 

storage water heaters and storage-type 

instantaneous water heaters (referred to 

as representative storage volumes). 

Because DOE lacked specific 

information on shipments, DOE used its 

CWH equipment database (discussed in 

section IV.A.3 of this final rule) to 

examine the number of models at each 

rated storage volume to determine the 

representative storage volume, and also 

solicited feedback from manufacturers 

during manufacturer interviews as to 

which storage volumes corresponded to 

the most shipments. Table IV.5 shows 

the representative storage volumes that 

DOE determined best characterize each 

equipment category. 

For all CWH equipment categories, 

the input capacity is also a significant 

factor for cost and efficiency. Water 

heaters with higher input capacities 

typically have higher materials costs 

and may also have higher labor and 

shipping costs. Gas-fired storage water 

heaters with higher input capacities 

may have additional heat exchanger 

length to transfer more heat. This leads 

to higher material costs and may require 

the tank to expand to compensate for 

the displaced volume. Gas-fired tankless 

water heaters, circulating water heaters, 

and hot water supply boilers require 

larger heat exchangers to transfer more 

heat with a higher input capacity. In the 

May 2022 CWH ECS NOPR, DOE 

examined input capacities for models in 

all gas-fired CWH equipment categories 

to determine representative input 

capacities. Because the gas-fired 

instantaneous water heaters and hot 

water supply boilers equipment class 

includes several types of equipment that 

is technologically disparate, DOE 

selected representative input capacities 

that would represent both tankless 

water heaters and circulating water 

heaters and hot water supply boilers 

within this broader equipment class. 

DOE did not receive any shipments data 

for specific input capacities, and, 

therefore, DOE considered the number 

of models at each input capacity in the 

database of models it compiled (based 

on DOE’s Compliance Certification 

Database, the AHRI Directory, the CEC 

Appliance Database, and manufacturer 

literature), as well as feedback from 

manufacturer interviews in determining 

the appropriate representative input 

capacities for this final rule. 

In response to the May 2022 CWH 

ECS NOPR, the Joint Advocates agreed 

that DOE’s approach of using a 

representative capacity chosen based on 

discussions with manufacturers allows 

the analysis to be both feasible and 

sufficiently representative. (The Joint 

Advocates, No. 29 at p. 2) A.O. Smith 

commented that based on their analysis, 

the most popular size of residential-duty 

commercial water heater units is 75 and 

100 gallon non-condensing models. 

(A.O. Smith, No. 22 at p. 4) DOE agrees 

with A.O. Smith that the most popular 

size of residential-duty CWH units is 75 

and 100 gallons but notes that 75 gallon 

size is the most common size in its 

database. Therefore, DOE continued to 

use 75 gallons as the representative 

storage volume for residential-duty 

commercial water heaters in this final 

rule. 

Bradford White questioned how DOE 

found similar costs for instantaneous 

and hot water supply boilers with 

storage volumes greater than or equal to 

10 gallons and those with storage 

volumes less than 10 gallons. Bradford 

White stated that DOE assumed heat 

exchanger costs will increase as input 

and surface area increase; however, 

Bradford White suggested that this 

relationship changes at larger inputs 

where manufacturers cannot necessarily 

justify automating the manufacturing of 

heat exchangers or some part of them. 

They also added that combustion 

systems and other non-heat-exchanger 

costs will increase stepwise at a certain 

point. (Bradford White, No. 23 at p. 5) 

DOE agrees that MPCs related to the 

combustion and heat exchange 

subsystems for condensing circulating 

water heaters and hot water supply 

boilers typically follows a step-like 

pattern as input capacities increase. 

DOE’s research suggests that within a 

set input capacity range, circulating 

water heaters and hot water supply 

boilers feature many of the same 

components. For example, a largercapacity condensing circulating water 

heater or hot water supply boiler may 

feature one or more heat exchangers, 

each of which features a separate 

premix burner, gas valve, and blower 

system. Thus, within a given range of 

input capacities, the MPC of the 

combustion and heat exchange system 

will not change materially until an 

input/efficiency limit is reached; at that 

point, manufacturers typically add 

another parallel combustion path to the 

system (requiring a burner, heat 

exchanger, blower, and associated 

controls) or turn to a wholly new 

combustion system. As previously 

noted, DOE conducted this engineering 

analysis using a representative capacity 

and storage volume for each equipment 

category that was determined to be 

sufficiently representative of the 

category as a whole while also allowing 

for a feasible analysis. However, no 

representative storage volume was 

chosen for the instantaneous water 

heaters and hot water supply boilers 

equipment class because only gas-fired 

instantaneous water heaters and hot 

water supply boilers with greater than 

or equal to 10 gallons of storage volume 

have standby loss standards but 

amended standby loss standards for this 

equipment were not analyzed in this 

final rule (as discussed in section III.B.6 

of this document). Given the similarities 

in thermal efficiency performance and 

the technologies that could be used to 

improve thermal efficiency of 

circulating water heaters and hot water 

supply boilers with storage volumes 

greater than or equal to 10 gallons and 

those with storage volumes less than 10 

gallons, DOE concluded that a single 

representative input capacity would 

sufficiently represent this entire 

equipment category for the analysis of 

amended thermal efficiency levels. 

Additionally, Barton Day Law argued 

that DOE’s categorization of products is 

inappropriate in the context of the LCC 

analysis, claiming that some LCC inputs 

would be different for products within 

the same category. In particular, Barton 

Day Law noted that there is only one 

LCC analysis for four separate standards 

for residential-duty water heaters with 

different draw patterns. (Barton Day 

Law, Public Meeting Transcript, No. 13 

at pp. 29–30) In response to the 

comments from Barton Day Law, as 

described in section V.A of this final 

rule, DOE groups various efficiency 

levels for each equipment class into 

TSLs in order to examine the combined 

impact that amended standards for all 

analyzed equipment classes would have 

on an industry. This approach also 

allows DOE to capture the effects on 

manufacturers of amended standards for 

all classes, better reflecting the burdens 

for manufacturers that produce 

equipment across several equipment 

classes. Additionally, DOE is only aware 

of residential-duty water heaters in the 

high draw pattern group at the time of 

the current analysis. Therefore, DOE’s 

analysis used representative storage 

volumes and input capacities that 

reflect this draw pattern group but DOE 

then applied its findings to other draw 

patterns. 

The representative input capacities 

used in the analyses for this final rule 

are shown in Table IV.5. The 


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representative volume and input 

capacities shown in Table IV.5 are the 

same as those used for May 2022 CWH 

ECS NOPR. 

TABLE IV.5—REPRESENTATIVE STORAGE VOLUMES AND INPUT CAPACITIES

Equipment Specifications 

Representative 

rated storage 

volume 

(gal) 

Representative 

input capacity 

(kBtu/h) 

Commercial gas-fired storage water heaters and 

gas-fired storage-type instantaneous water heaters *.

>105 kBtu/h or >120 gal ........................................... 100 199 

Residential-duty gas-fired storage water heaters ** ≤105 and ≤120 gal ................................................... 75 76 

Gas-fired instantaneous water heaters and hot 

water supply boilers: 

Tankless water heaters ..................................... <10 gal ...................................................................... ............................ 250 

Circulating water heaters and hot water supply 

boilers.

All *** ......................................................................... ............................ 399 

* Any commercial gas storage water heater that does not meet the definition of a residential-duty storage water heater is a commercial gasfired storage water heater regardless of whether it meets the specifications listed. 

** To be classified as a residential-duty water heater, a commercial water heater must, if requiring electricity, use single-phase external power 

supply, and not be designed to heat water at temperatures greater than 180 °F. 79 FR 40542, 40586 (July 11, 2014). 

*** For the engineering analysis, circulating water heaters and hot water supply boilers with storage volume <10 gallons and ≥10 gallons were 

analyzed in the same equipment class. Amended standby loss standards for circulating water heaters and hot water supply boilers with storage 

volume ≥10 gallons were not analyzed in this final rule, as discussed in section III.B.6 of this final rule. Therefore, no representative storage volume was chosen for the instantaneous water heaters and hot water supply boilers equipment class. 

In the May 2022 CWH ECS NOPR, in 

response to commenters’ concerns about 

the use of a representative input 

capacity in its analysis of circulating 

water heaters and hot water boilers, 

DOE stated that the increase in price of 

a purchased part used in the 

construction of an especially highcapacity circulating water heater or hot 

water supply boiler and purchased at 

low volumes would be offset by the 

many instances in which the production 

costs remain fixed regardless of input 

capacity. 87 FR 30610, 30638. Bradford 

White requested that DOE clarify how 

fixed costs would offset an increase in 

the cost of other purchased parts. 

(Bradford White, No. 23 at p. 5) In 

response, DOE notes that the statement 

was not intended to suggest that fixed 

costs could lead to negative cost impacts 

that offset higher purchased part costs. 

However, the increase in cost due to 

those specialized components that must 

be purchased at lower volumes is 

expected to be a relatively small fraction 

of the overall cost of the unit, and 

would not significantly impact the 

overall product cost (but would result in 

a small increase). 

4. Efficiency Levels for Analysis 

For each equipment category, DOE 

analyzed multiple efficiency levels and 

estimated manufacturer production 

costs at each efficiency level. The 

following subsections provide a 

description of the full efficiency level 

range that DOE analyzed from the 

baseline efficiency level to the max-tech 

efficiency level for each equipment 

category. 

Baseline equipment is used as a 

reference point for each equipment 

category in the engineering analysis and 

the LCC and PBP analyses, which 

provides a starting point for analyzing 

potential technologies that provide 

energy efficiency improvements. 

Generally, DOE considers ‘‘baseline’’ 

equipment to refer to a model or models 

having features and technologies that 

just meet, but do not exceed, the Federal 

energy conservation standard and 

provide basic consumer utility. 

DOE conducted a survey of its CWH 

equipment database and manufacturers’ 

websites to determine the highest 

thermal efficiency or UEF levels on the 

market for each equipment category. 

a. Thermal Efficiency Levels 

In establishing the baseline thermal 

efficiency levels for this analysis, DOE 

used the current energy conservation 

standards for CWH equipment to 

identify baseline units. The baseline 

thermal efficiency levels used for the 

analysis in this final rule are presented 

in Table IV.6. 

TABLE IV.6—BASELINE THERMAL EFFICIENCY LEVELS FOR CWH EQUIPMENT

Equipment 

Thermal 

feiciency 

(%) 

Commercial gas-fired storage water heaters and storage-type instantaneous water heaters ........................................................... 80 

Gas-fired instantaneous water heaters and hot water supply boilers ................................................................................................. 80 

For both the commercial gas-fired 

storage water heaters and gas-fired 

instantaneous water heaters and hot 

water supply boilers equipment 

categories, DOE analyzed several 

thermal efficiency levels and 

determined the manufacturing cost at 

each of these levels. For this final rule, 

DOE developed thermal efficiency 

levels based on a review of equipment 

currently available on the market. As 

noted previously, DOE compiled a 

database of CWH equipment to 

determine what types of equipment are 

currently available to consumers. For 

each equipment class, DOE surveyed 

various manufacturers’ equipment 

offerings to identify the commonly 

available thermal efficiency levels. By 

identifying the most prevalent thermal 

efficiency levels in the range of 

available equipment and examining 

models at these levels, DOE established 

a technology path that manufacturers 


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36 DOE identified two models in CCMS with 

thermal efficiency levels of 98 percent but could not 

find any manufacturer literature for those models 

that would indicate whether they are tankless water 

heaters or hot water supply boilers. Because DOE 

was unable to confirm the type of construction for 

these water heaters and because they were not 

among the models listed as being available on the 

manufacturer’s website, 98 percent was not 

considered the max-tech level. 

typically use to increase the thermal 

efficiency of CWH equipment. 

Consistent with the approach in the 

May 2022 CWH ECS NOPR, in this final 

rule, DOE established intermediate 

thermal efficiency levels for each gasfired equipment category (aside from 

residential-duty gas-fired storage water 

heaters, which as noted previously were 

analyzed using UEF). The intermediate 

thermal efficiency levels are 

representative of the most common 

efficiency levels and those that 

represent significant technological 

changes in the design of CWH 

equipment. For commercial gas-fired 

storage water heaters and for 

commercial gas-fired instantaneous 

water heaters and hot water supply 

boilers, DOE chose four thermal 

efficiency levels between the baseline 

and max-tech levels for analysis. DOE 

selected the highest thermal efficiency 

level identified on the market (99 

percent) as the ‘‘max-tech’’ level for 

commercial gas-fired storage water 

heaters and storage-type instantaneous 

water heaters. For gas-fired 

instantaneous water heaters and hot 

water supply boilers, DOE identified hot 

water supply boilers with thermal 

efficiency levels of up to 99 percent and 

tankless instantaneous water heaters 

with thermal efficiency levels of up to 

97 percent available on the market.36

However, the tankless water heaters 

with thermal efficiencies of 97 percent 

were at a single input capacity and it is 

unclear whether this thermal efficiency 

is achievable at other input capacities. 

As discussed in section IV.A.2.c of this 

document, DOE analyzed tankless water 

heaters and circulating water heaters 

and hot water supply boilers as two 

separate kinds of representative 

equipment for this rulemaking analysis, 

but they are part of the same equipment 

class (gas-fired instantaneous water 

heaters and hot water supply boilers). 

Therefore, because DOE did not find 

evidence that 97 percent would be an 

appropriate max-tech level for tankless 

instantaneous water heaters that is 

achievable across the range of product 

inputs currently available, DOE 

analyzed 96 percent thermal efficiency 

as the max-tech level for the gas-fired 

instantaneous water heaters and hot 

water supply boilers equipment class. 

The selected thermal efficiency levels 

used in the current final rule analysis 

are shown in Table IV.7 of this 

document. 

In response to the May 2022 CWH 

ECS NOPR, DOE received several 

comments from stakeholders about the 

thermal efficiency levels it analyzed. 

Rheem stated concerns with the 

inconsistent levels proposed for the 

different equipment classes, which can 

be used in the same applications. 

Rheem recommended that a lower 

condensing thermal efficiency level that 

does not exceed ENERGY STAR levels 

be applied uniformly across the four 

equipment classes. (Rheem, No. 24 at p. 

2) Similarly, A.O. Smith stated that DOE 

should reconsider setting new minimum 

energy conservation standards for all 

commercial gas-fired water heaters 

(excepting residential-duty commercial 

water heaters) at 94 percent thermal 

efficiency or, in the alternative setting, 

a 95 percent thermal efficiency level 

across all product types, and added that 

either outcome will result in significant 

energy savings. However, A.O. Smith 

stated that a 94 percent thermal 

efficiency level would afford a broader 

set of product options for CWH 

consumers, while at the same time 

provide a more level playing field upon 

which manufacturers can compete, 

foster innovation, and allow for 

continued incentivizing of the market 

adoption of high-efficiency gas-fired 

CWH equipment. (A.O. Smith, No. 22 at 

pp. 2–4) AHRI requested that a 94 

percent thermal efficiency be adopted if 

a condensing-only standard is set based 

on its review of market data, and noted 

that this efficiency aligns with the 

current ENERGY STAR levels and 

captures the main distribution of 

condensing models by market share. 

AHRI stated that its research indicates 

there is a misalignment between the 

market data and the available product 

data in terms of the market shares. 

(AHRI, No. 31 at p. 2) Rheem also 

argued that all commercial gas-fired 

storage-type instantaneous water heaters 

with a rated storage volume less than 

100 gallons, as listed in the Compliance 

Certification Management System 

(‘‘CCMS’’), will not meet the proposed 

energy conservation standard of 95 

percent thermal efficiency. Rheem 

further stated that it is unproven if the 

proposed efficiency level can be 

achieved, given the design constraints 

for this product size, and recommended 

that DOE reevaluate EL3 for gas-fired 

storage-type instantaneous water heaters 

and add a 94 percent thermal efficiency 

level, consistent with ENERGY STAR. 

(Rheem, No. 24 at p. 3) Similarly, 

Rheem stated that all but two hot water 

supply boilers with input rates above 

500 kBtu/h and 200 Btu/h per gallon of 

storage volume will not meet the 

proposed energy conservation standard 

of 96 percent thermal efficiency, and 

added that given the design constraints, 

it is unproven that the proposed 

efficiency level can be achieved for 

these product sizes as well. Id. Rheem 

recommended that DOE reevaluate EL3 

and EL4 for gas-fired hot water supply 

boilers with input rates above 500 kBtu/ 

h and 200 kBtu/h per gallon of storage 

volume, which is consistent with 

Version 2.0 of the Energy Star Program 

Requirements Product Specification for 

Commercial Water Heaters. Id. 

A.O. Smith stated that the ENERGY 

STAR program has been a significant 

driver of the CWH market’s adoption of 

high efficiency equipment. They added 

that the ENERGY STAR market 

penetration stood at 51 percent in 2020, 

according to a report by ENERGY STAR. 

(A.O. Smith, No. 22 at p. 2, 3) Similarly, 

A.O. Smith added that while CWH 

customers continue to adopt high 

efficiency (e.g., condensing) commercial 

gas-fired water heaters, the ENERGY 

STAR 94 percent thermal efficiency 

level for commercial gas-fired water 

heaters continues to be a catalyst. They 

explain that this standard still affords 

consumers a large range of high 

efficiency product options for the 

intended utility, which is especially 

important for small business owners 

who operate their enterprises on very 

small margins. In contrast, this range of 

options at or above 94 percent would 

become smaller if, as proposed, the 

Department sets new minimum energy 

conservation standards above the 

ENERGY STAR level. Id. 

In response to these comments, DOE 

reviewed the distributions of products 

on the market. As initially shown in 

chapter 3 of the May 2022 CWH ECS 

NOPR TSD and updated in chapter 3 of 

the current final rule TSD, the market 

distributions show the greatest number 

of unique basic models within the 

condensing range at 96 percent for gasfired storage water heaters and storage 

type-instantaneous water heaters, gasfired tankless water heaters, and gasfired circulating water heaters and hot 

water supply boilers. There are more 

models at this level than at either 95 or 

94 percent for each product category. 

Although setting the standard at 94 

percent would increase the potential for 

product differentiation at efficiency 

levels above the standard level, DOE 

anticipates that there is still room for 

product differentiation for both gas-fired 

storage water heaters (for which 

products above 95 percent efficiency 


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currently exist at 96, 97, 98, and 99 

percent), tankless water heaters (for 

which products exist at 97 percent 

efficiency), and circulating water 

heaters and hot water supply boilers (for 

which products exist at 97, 98, and 99 

percent). Furthermore, because most 

condensing gas water heaters are 

already at or above 95 percent (for gas 

storage water heaters) and 96 percent 

(for gas-fired instantaneous water 

heaters) and the equipment designs are 

similar at 94 percent but would result in 

less energy savings, DOE did not find a 

strong justification for analyzing a 94 

percent efficiency level in this final 

rule. Additionally, because storage 

water heaters and storage-type 

instantaneous water heaters provide 

different consumer utility than 

instantaneous water heaters other than 

storage-type instantaneous water heaters 

(i.e., tankless water heaters and 

circulating water heaters and hot water 

supply boilers can provide a continuous 

supply of hot water on demand, while 

storage water heaters are often better 

suited to handle large initial demands 

for hot water, and are also more likely 

to have energy losses associated with 

hot water storage), DOE does not agree 

that inconsistent efficiency levels across 

these equipment categories will 

disadvantage certain markets. Therefore, 

DOE continued to use the same 

efficiency levels in this final rule as 

were analyzed in the May 2022 CWH 

ECS NOPR. 

TABLE IV.7—BASELINE, INTERMEDIATE, AND MAX-TECH THERMAL EFFICIENCY LEVELS FOR REPRESENTATIVE CWH 

EQUIPMENT

Equipment 

Thermal efficiency levels 

Baseline— 

Et EL0 

Et EL1 

(%) 

Et EL2 

(%) 

Et EL3 

(%) 

Et EL4 

(%) 

Et EL5 * 

(%) 

Commercial gas-fired storage water heaters and storage-type instantaneous water heaters ................................................................................... 80 82 90 92 95 99 

Gas-fired instantaneous water heaters and hot water supply boilers ........... 80 82 84 92 94 96 

* Et EL5 is the max-tech efficiency level for commercial gas-fired storage water heaters and storage-type instantaneous water heaters, as well 

as for gas-fired instantaneous water heaters and hot water supply boilers. 

b. Standby Loss Levels 

DOE used the current energy 

conservation standards for standby loss 

to set the baseline standby loss levels. 

Table IV.8 shows these baseline standby 

loss levels for representative 

commercial gas-fired storage water 

heaters and storage-type instantaneous 

water heaters. 

TABLE IV.8—BASELINE STANDBY LOSS LEVELS FOR REPRESENTATIVE CWH EQUIPMENT

Equipment 

Representative 

rated 

storage 

volume 

(gal) 

Representative 

input 

capacity 

(kBtu/h) 

Baseline 

standby loss 

level 

(Btu/h) 

Commercial gas-fired storage water heaters and storage-type instantaneous water heaters ...................................................................................................................................... 100 199 1349 

Standby loss is a function of storage 

volume and input capacity for gas-fired 

and oil-fired storage water heaters, and 

is affected by many aspects of the design 

of a water heater. Additionally, standby 

loss is not widely reported in 

manufacturer literature so DOE relied 

on current and past data obtained from 

DOE’s Compliance Certification 

Database and the AHRI Directory. There 

is significant variation in reported 

standby loss values in these databases 

(e.g., standby loss values for commercial 

gas storage water heaters range from 33 

percent to 100 percent of the maximum 

allowable standby loss standard for 

those units). However, most 

manufacturers do not disclose the 

presence of technology options that 

affect standby loss, including insulation 

thickness and type, and baffle design, in 

their publicly-available literature. 

Because most manufacturers do not 

disclose the presence of such options, 

DOE was unable to determine the 

standby loss reduction from standbyloss-reducing technology options using 

market-rated standby loss data. 

As discussed in the May 2022 CWH 

ECS NOPR, for all commercial gas-fired 

storage water heater levels, the only 

standby loss reduction analyzed 

corresponds to the inherent standby loss 

reduction from increasing thermal 

efficiency. (DOE notes that for noncondensing residential-duty gas-fired 

storage water heaters, an 

electromechanical flue damper and 

electronic ignition were considered 

which would improve UEF by reducing 

standby losses. This is discussed further 

in section IV.C.4.c of this document.) 

DOE did not analyze improved tank 

insulation as a technology option for 

reducing standby loss in this final rule 

because such insulation improvements 

would not be a viable standby loss 

reducing option for all models on the 

market. 

Standby loss is measured in the test 

procedure predominantly as a function 

of the fuel used to heat the stored water 

during the standby loss test, with a 

small contribution of electric power 

consumption (if the unit requires a 

power supply). Because standby loss is 

calculated using the fuel consumed 

during the test to maintain the water 

temperature, the standby loss is 

dependent on the thermal efficiency of 

the water heater. DOE used data from 

independent testing of CWH equipment 

at a third-party laboratory to estimate 

the fraction of standby loss that can be 

attributed to fuel consumption or 

electric power consumption. DOE then 

scaled down (i.e., made more stringent) 

the portion of the standby loss 

attributable to fuel consumption as 

thermal efficiency increased to estimate 

the inherent improvement in standby 

loss associated with increasing thermal 

efficiency. Chapter 5 of the final rule 

TSD explains these calculations, and the 


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interdependence of thermal efficiency 

and standby loss are explained in more 

detail. 

Standby loss levels for each 

equipment category are shown in the 

following sections in terms of Btu/h for 

the representative equipment. However, 

to analyze potential amendments to the 

current Federal standard, factors 

(‘‘standby loss reduction factors’’) were 

developed to multiply by the current 

maximum standby loss equation for 

each equipment class, based on the ratio 

of standby loss at each efficiency level 

to the current standby loss standard. 

The translation from standby loss values 

to maximum standby loss equations is 

described in further detail in section 

IV.C.4 of this final rule. 

In response to the May 2022 CWH 

ECS NOPR, Bock indicated support for 

DOE to set the reduction in standby loss 

to a level inherent with the proposed 

thermal efficiency. (Bock, No. 20 at p. 1) 

Rheem also commented in support of 

DOE’s use of one standby loss level for 

each efficiency level, but stated that 

DOE did not clarify which technologies 

were used at the baseline and how these 

would be scaled across the various 

equipment sizes for any of the four 

equipment classes analyzed. (Rheem, 

No. 24 at p. 2) 

Bradford White requested that DOE 

reevaluate their assumptions that only 

changes in thermal efficiency will 

impact the standby loss level achieved. 

Bradford White stated that the 

relationship between standby loss and 

thermal efficiency can be impacted by 

the difference between the ambient and 

average tank temperatures during the 

test and by the time or total duration of 

the test, which is a function of the water 

heater’s differential (i.e., the 

temperature below the setpoint where 

the control will call for heat). (Bradford 

White, No. 23 at p. 9) Additionally, 

Bradford White raised concerns with the 

limited number of units tested to 

develop the standby loss reduction 

factors for commercial gas storage water 

heaters. Bradford White also noted that 

DOE did not elaborate on what type of 

heat exchangers were in the products 

that were evaluated, which would 

impact the observed results. For 

example, the commenter explained that 

a multi-pass heat exchanger is more 

likely to have greater standby loss as 

compared to a coiled heat exchanger 

that is only a single pass. Bradford 

White recommended that DOE analyze 

a greater number of units, as well as 

account for the types of heat exchangers 

when further refining the standby loss 

reduction factors. (Bradford White, No. 

23 at p. 3) 

As discussed in Chapter 5 of the TSD 

accompanying this final rule, DOE notes 

that it conducted testing prior to the 

withdrawn May 2016 CWH ECS NOPR 

to estimate the fraction of standby loss 

that can be attributed to fuel 

consumption or electric power 

consumption, and this fraction does not 

necessarily depend on the overall level 

of standby loss associated with each 

unit. Further, the units tested 

incorporated both multi-pass and coiled 

heat exchangers. Additionally, DOE’s 

research regarding rated standby loss 

values showed that the majority of 

models at a given thermal efficiency 

level already meet the standby loss level 

associated with the standby loss 

reduction factor being applied for that 

level. In addition, because the majority 

of models on the market that meet each 

thermal efficiency level being analyzed 

also meet the corresponding standby 

loss level, further validating the standby 

loss levels by testing models on the 

market or by building water heater 

prototypes is not necessary and was not 

done for this final rule. 

Table IV.9 presents the examined 

standby loss levels in this final rule for 

commercial gas-fired storage water 

heaters and storage-type instantaneous 

water heaters (other than residentialduty gas-fired storage water heaters, 

which are addressed in the next 

section). As discussed, these levels 

reflect only the reduction in standby 

loss that is achieved by increasing 

thermal efficiency. 

TABLE IV.9—STANDBY LOSS LEVELS FOR COMMERCIAL GAS-FIRED STORAGE WATER HEATERS AND STORAGE-TYPE

INSTANTANEOUS WATER HEATERS, 100 GALLON RATED STORAGE VOLUME, 199,000 BTU/H INPUT CAPACITY

Thermal efficiency level 

Thermal 

efficiency 

(%) 

Standby loss 

(Btu/h) 

(%) 

Et EL0 ...................................................................................................................................................................... 80 1349 

Et EL1 ...................................................................................................................................................................... 82 1316 

Et EL2 ...................................................................................................................................................................... 90 1223 

Et EL3 ...................................................................................................................................................................... 92 1197 

Et EL4 ...................................................................................................................................................................... 95 1160 

Et EL5 ...................................................................................................................................................................... 99 1115 

c. Uniform Energy Efficiency Levels 

DOE conducted all analyses of 

potential amended standards for 

residential-duty commercial water 

heaters in this document in terms of 

UEF to reflect the current test procedure 

and metric. 

UEF standards are draw patternspecific (i.e., there are separate 

standards for very small, low, medium, 

and high draw patterns) and are 

expressed by an equation as a function 

of the stored water volume. DOE 

analyzed increased standards in terms 

of increases to the constant term of the 

UEF equations and did not consider 

changes to the slopes of the volumedependent term. Based on a review of 

the rated UEF and storage volume for 

products currently on the market, DOE 

determined that the existing slopes of 

the equations are representative of the 

relationship between UEF and stored 

volume across the range of efficiency 

levels, and thus, DOE did not find 

justification to consider varying the 

slope. Additionally, because all 

residential-duty gas-fired storage water 

heaters on the market are in the high 

draw pattern, the analysis was done for 

the high draw pattern and the same step 

increase are applied to all other 

residential-duty gas-fired storage water 

heater draw patterns. For residentialduty gas-fired storage water heaters, 

DOE chose four UEF levels between the 

baseline and max-tech levels for 

analysis. 

To determine the max-tech level, DOE 

analyzed the difference between UEF 

ratings of residential-duty gas-fired 

storage water heaters in its database (see 

section IV.A.3 of this document) and the 

minimum UEF allowed for each model 

based on their rated volumes. The 

maximum step increase (rounded to the 

nearest hundredth) was 0.35. However, 

this level was only achieved at a single 

storage volume and has not been 

demonstrated as being achievable across 

a range of storage volumes. As a result, 


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DOE considered the max-tech step 

increase to be 0.34, a level that has been 

demonstrated achievable by residentialduty gas-fired storage water heaters at a 

range of volumes. 

In response to the May 2022 CWH 

ECS NOPR, A.O. Smith stated that 

DOE’s proposed condensing levels 

(including near max-tech (EL5) for the 

high draw pattern) for residential-duty 

gas-fired storage water heaters are 

disconnected from the current 

marketplace for this product category 

and may have the unintended 

consequence of severely restricting 

product availability, which will increase 

costs to consumers for this product type. 

A.O. Smith stated that manufacturers of 

residential-duty water heaters made 

capital investments and design 

improvements to this product class to 

meet the current ENERGY STAR 4.0 

specification (e.g., UEF ≥ 0.80) and will 

need to potentially make additional 

investments in this product class given 

the ENERGY STAR program’s recent 

publication of its final residential water 

heater version 5.0 specification, which 

sets a minimum of 0.86 UEF value for 

gas fired RDC products effective April 

28, 2023. A.O. Smith recommended that 

the appropriateness of setting a 

minimum energy conservation standard 

at the condensing EL4 level for gas-fired 

residential-duty commercial water 

heaters be reconsidered, and suggested 

that the UEF standard for this 

equipment in the high draw pattern be 

calculated as 0.9297¥(0.0016 × Vr). 

(A.O. Smith, No. 22 at pp. 4–5) 

However, as noted previously, DOE 

has found that the existing slopes of the 

equations are representative of the 

relationship between UEF and stored 

volume across the range of efficiency 

levels. A.O. Smith did not provide an 

explanation of why a slope of 0.0016 is 

more appropriate than 0.0009, and thus, 

DOE did not find justification to 

consider varying the slope. 

Additionally, the impacts of each EL are 

considered in DOE’s subsequent 

analyses and discussed in detail in 

section V of this final rule. However, 

DOE notes that, for each affected 

equipment class, existing equipment 

across a broad range of storage volumes 

and input capacities meets or exceeds 

the minimum efficiency levels adopted 

in this final rule. DOE does not agree 

that consumer choice will be restricted 

as a result of the revised energy 

conservation standards. Additionally, as 

discussed in section V.C, DOE has 

concluded that the energy conservation 

standards adopted in this final rule are 

economically justified. 

The four intermediate UEF levels are 

representative of common efficiency 

levels and those that represent 

significant technological changes in the 

design of CWH equipment. Table IV.10 

shows the examined UEF levels in this 

final rule for residential-duty gas-fired 

storage water heaters in terms of the 

incremental step increase and the 

resulting equation for high draw pattern 

models. 

TABLE IV.1—BASELINE, INTERMEDIATE, AND MAX-TECH UEF LEVELS FOR RESIDENTIAL-DUTY GAS-FIRED STORAGE

WATER HEATERS

UEF level Incremental 

step increase 

UEF 

(high draw pattern) * 

EL0—Baseline ....................................................................................................................... 0 0.6597¥(0.0009 × Vr). 

EL1 ........................................................................................................................................ 0.02 0.6797¥(0.0009 × Vr). 

EL2 ........................................................................................................................................ 0.09 0.7497¥(0.0009 × Vr). 

EL3 ........................................................................................................................................ 0.18 0.8397¥(0.0009 × Vr). 

EL4 ........................................................................................................................................ 0.27 0.9297¥(0.0009 × Vr). 

EL5 ........................................................................................................................................ 0.34 0.9997¥(0.0009 × Vr). 

* UEF standards vary based on the test procedure draw pattern that is used to determine the UEF rating. For simplicity and because all residential-duty gas-fired storage water heaters on the market are in the high draw pattern, only the high draw pattern efficiency levels are shown. 

5. Standby Loss Reduction Factors 

As part of the engineering analysis for 

commercial gas-fired storage water 

heaters, DOE reviewed the maximum 

standby loss equations that define the 

existing Federal energy conservation 

standards for gas-fired storage water 

heaters. The equations allow DOE to 

expand the analysis on the 

representative rated input capacity and 

storage volume to the full range of 

values covered under the existing 

Federal energy conservation standards. 

DOE uses equations to characterize 

the relationship between rated input 

capacity, rated storage volume, and 

standby loss. The equations allow DOE 

to account for the increases in standby 

loss as input capacity and tank volume 

increase. As the tank storage volume 

increases, the tank surface area 

increases, resulting in higher jacket 

losses. As the input capacity increases, 

the surface area of flue tubes may 

increase, thereby providing additional 

area for standby heat loss through the 

flue tubes. The current equations show 

that for gas-fired storage water heaters, 

the allowable standby loss increases as 

the rated storage volume and input 

rating increase. The current form of the 

standby loss standard (in Btu/h) for 

commercial gas-fired and oil-fired water 

heaters is shown in the multivariable 

equation below, depending upon both 

rated input (Q, Btu/h) and rated storage 

volume (Vr, gal). 

In order to consider amended standby 

loss standards for commercial gas-fired 

storage water heaters, DOE needed to 

revise the current standby loss standard 

equation to correspond to the decreased 

standby loss value, in Btu/h, determined 

for the representative capacity. 

DOE analyzed more-stringent standby 

loss standards by multiplying the 

current maximum standby loss equation 

by reduction factors. The use of 


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Eq.1 
Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations 69721 

reduction factors maintains the 

structure of the current maximum 

standby loss equation and does not 

change the dependence of maximum 

standby loss on rated input and rated 

storage volume, but still allows DOE to 

consider increased stringency for 

standby loss standards. The standby loss 

reduction factor is calculated by 

dividing each standby loss level (in Btu/ 

h) by the current standby loss standard 

(in Btu/h) for the representative input 

capacity and storage volume. 

Table IV.11 shows the standby loss 

reduction factors determined in this 

final rule for commercial gas-fired 

storage water heaters for each thermal 

efficiency level. As discussed in section 

IV.C.4.b of this final rule, the standby 

loss reductions associated with 

commercial gas-fired storage water 

heaters result from increased thermal 

efficiency. Chapter 5 of the final rule 

TSD includes more detail on the 

calculation of the standby loss reduction 

factor. 

TABLE IV.11—STANDBY LOSS REDUCTION FACTORS FOR COMMERCIAL GAS-FIRED STORAGE WATER HEATERS

Thermal efficiency level 

Thermal 

efficiency 

(%) 

Standby loss 

reduction factor 

Et EL0 .............................................................................................................................................................. 80 1.00 

Et EL1 .............................................................................................................................................................. 82 0.98 

Et EL2 .............................................................................................................................................................. 90 0.91 

Et EL3 .............................................................................................................................................................. 92 0.89 

Et EL4 .............................................................................................................................................................. 95 0.86 

Et EL5 .............................................................................................................................................................. 99 0.83 

6. Teardown Analysis 

After selecting a representative input 

capacity and representative storage 

volume (for storage water heaters) for 

each equipment category, DOE selected 

equipment near both the representative 

values and the selected efficiency levels 

for its teardown analysis. DOE gathered 

information from these teardowns to 

create detailed BOMs that included all 

components and processes used to 

manufacture the equipment. For the 

analysis of residential-duty gas-fired 

storage water heaters DOE identified the 

UEF ratings of previously torn-down 

models, wherever possible, and used 

information from those existing 

teardowns to inform its analyses. To 

assemble the BOMs and to calculate the 

MPCs of CWH equipment, DOE 

disassembled multiple units into their 

base components and estimated the 

materials, processes, and labor required 

for the manufacture of each individual 

component, a process known 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 ‘‘catalog teardown,’’ 

which examines published 

manufacturer catalogs and 

supplementary component data to allow 

DOE to estimate the major differences 

between equipment that was physically 

disassembled and similar equipment 

that was not. For catalog teardowns, 

DOE gathered product data such as 

dimensions, weight, and design features 

from publicly-available information 

(e.g., manufacturer catalogs and 

manufacturer websites). DOE also 

obtained information and data not 

typically found in catalogs, such as fan 

motor details or assembly details, from 

physical teardowns of similar 

equipment or through estimates based 

on industry knowledge. The teardown 

analysis performed for the withdrawn 

May 2016 CWH ECS NOPR used data 

from 11 physical teardowns and 22 

catalog teardowns to inform 

development of cost estimates for CWH 

equipment. In the current final rule 

analysis, DOE included results from 11 

additional physical teardowns of water 

heaters and hot water supply boilers. 

These additional physical teardowns 

replaced several of the virtual and 

physical teardowns conducted for the 

2016 NOPR analysis to ensure that the 

MPC estimates better reflect designs of 

models on the market by including 

physical teardowns of models from 

additional manufacturers at numerous 

efficiency levels. Chapter 5 of the final 

rule TSD provides further detail on the 

CWH equipment units that were torn 

down. 

The teardown analysis allowed DOE 

to identify the technologies that 

manufacturers typically incorporate into 

their equipment, along with the 

efficiency levels associated with each 

technology or combination of 

technologies. As noted previously, the 

end result of each teardown is a 

structured BOM, which DOE developed 

for each of the physical and catalog 

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 to 

calculate the MPCs for each type of 

equipment that was torn down. The 

MPCs resulting from the teardowns 

were then used to develop an industry 

average MPC for each efficiency level 

and equipment category analyzed. 

Chapter 5 of the final rule TSD provides 

more details on BOMs and how they 

were used in determining the 

manufacturing cost estimates. 

During the manufacturer interviews 

conducted prior to the withdrawn May 

2016 CWH ECS NOPR as well as in 

advance of this final rule, DOE 

requested feedback on its engineering 

analysis. DOE used the information it 

gathered from those interviews, along 

with the information obtained through 

the teardown analysis, to refine the 

assumptions and data used to develop 

MPCs. Chapter 5 of the final rule TSD 

provides additional details on the 

teardown process. 

During the teardown process, DOE 

gained insight into the typical 

technology options manufacturers use to 

reach specific efficiency levels. DOE 

also determined the efficiency levels at 

which manufacturers tend to make 

major technological design changes. 

Table IV.12 through Table IV.15 show 

the major technology options DOE 

observed and analyzed for each 

efficiency level and equipment category. 

DOE notes that in equipment above the 

baseline, and sometimes even at the 

baseline efficiency, additional features 

and functionalities that do not impact 

efficiency are often used to address nonefficiency-related consumer demands 

(e.g., related to comfort or noise when 

operating). DOE did not include the 

additional costs for options such as 

advanced building communication and 


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control systems that are included in 

many of the high-efficiency models 

currently on the market, as they do not 

improve efficiency but do add cost to 

the model. In other words, DOE 

assumed the same level of nonefficiency related features and 

functionality at all efficiency levels. 

Chapter 5 of the final rule TSD includes 

further detail on the exclusion of costs 

for non-efficiency-related features from 

DOE’s MPC estimates. 

TABLE IV.12—TECHNOLOGIES IDENTIFIED AT EACH THERMAL EFFICIENCY LEVEL FOR COMMERCIAL GAS-FIRED STORAGE

WATER HEATERS

Thermal 

efficiency 

level 

Thermal 

efficiency(%) Design changes * 

Et EL0 ............... 80 

Et EL1 ............... 82 Increased heat exchanger area. 

Et EL2 ............... 90 Condensing heat exchanger, forced draft blower, premix burner. 

Et EL3 ............... 92 Condensing heat exchanger, forced draft blower, premix burner, increased heat exchanger surface area. 

Et EL4 ............... 95 Condensing heat exchanger, forced draft blower, premix burner, increased heat exchanger surface area. 

Et EL5 ............... 99 Condensing heat exchanger, forced draft blower, premix burner, increased heat exchanger surface area. 

* The condensing heat exchanger surface area incrementally increases at each EL from Et EL2 to Et EL5. 

TABLE IV.13—TECHNOLOGIES IDENTIFIED AT EACH THERMAL EFFICIENCY LEVEL FOR RESIDENTIAL-DUTY GAS-FIRED

STORAGE WATER HEATERS

UEF level UEF (high draw pattern) * Design changes ** 

EL0—Baseline .. 0.6597 ¥ (0.0009 × Vr).

EL1 .................... 0.6797 ¥ (0.0009 × Vr) ............................................................ Increased heat exchanger area. 

EL2 .................... 0.7497 ¥ (0.0009 × Vr) ............................................................ Electronic ignition, electromechanical flue damper or power 

venting; increased heat exchanger area. 

EL3 .................... 0.8397 ¥ (0.0009 × Vr) ............................................................ Electronic ignition; condensing heat exchanger; power venting. 

EL4 .................... 0.9297 ¥ (0.0009 × Vr) ............................................................ Electronic ignition; condensing heat exchanger; power venting; premix burner; increased heat exchanger area. 

EL5 .................... 0.9997 ¥ (0.0009 × Vr) ............................................................ Electronic ignition; condensing heat exchanger; power venting; premix burner; increased heat exchanger area. 

* UEF standards vary based on the test procedure draw pattern that is used to determine the UEF rating. For simplicity and because all residential-duty gas-fired storage water heaters on the market are in the high draw pattern, only the high draw pattern efficiency levels are shown. 

** The condensing heat exchanger surface area incrementally increases at each EL from EL3 to EL5. 

TABLE IV.14—TECHNOLOGIES IDENTIFIED AT EACH THERMAL EFFICIENCY LEVEL FOR GAS-FIRED TANKLESS WATER

HEATERS

Thermal 

efficiency 

level 

Thermal 

efficiency 

(%) 

Design changes * 

Et EL0 .......... 80 

Et EL1 .......... 82 Increased heat exchanger area. 

Et EL2 .......... 84 Increased heat exchanger area. 

Et EL3 .......... 92 Secondary condensing heat exchanger. 

Et EL4 .......... 94 Secondary condensing heat exchanger, increased heat exchanger surface area. 

Et EL5 .......... 96 Secondary condensing heat exchanger, increased heat exchanger surface area. 

* The heat exchanger surface area incrementally increases at each EL from Et EL0 to Et EL2 and from Et EL3 to Et EL5. 

TABLE IV.15—TECHNOLOGIES IDENTIFIED AT EACH THERMAL EFFICIENCY LEVEL FOR GAS-FIRED CIRCULATING WATER

HEATERS AND HOT WATER SUPPLY BOILERS

Thermal 

efficiency 

level 

Thermal 

efficiency 

(%) 

Design changes * 

Et EL0 ............... 80 

Et EL1 ............... 82 Increased heat exchanger area. 

Et EL2 ............... 84 Increased heat exchanger area, induced draft blower. 

Et EL3 ............... 92 Condensing heat exchanger, forced draft blower, premix burner. 

Et EL4 ............... 94 Condensing heat exchanger, forced draft blower, premix burner, increased heat exchanger surface area. 

Et EL5 ............... 96 Condensing heat exchanger, forced draft blower, premix burner, increased heat exchanger surface area. 

* The heat exchanger surface area incrementally increases at each EL from Et EL0 to Et EL2 and from Et EL3 to Et EL5. 


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37 In a multi-pass condensing heat exchanger 

design, the flue gases are forced through flue tubes 

that span the length of the tank multiple times. 

Typically, the flue gases are re-directed back 

through the tank via return plenums located above 

and below the tank. 

Rheem expressed doubt as to whether 

achieving 82 percent thermal efficiency 

is possible across the entire range of 

input rates and storage volumes without 

the addition of power venting 

technology. Rheem suggested that 

power venting technology should be 

included in the analysis at baseline and 

82 percent thermal efficiency levels to 

reflect the regions requiring ultra-low 

NOX CWHs. (Rheem, No. 24 at p. 2) 

However, DOE has identified multiple 

non-condensing ultra-low NOX units 

that do not include power venting, 

which span a range of volumes and 

capacities. Therefore, contrary to 

Rheem’s assertion, DOE does not expect 

that power venting would be necessary 

to achieve ultra-low NOX operation and 

did not include a power vent for those 

levels. 

Additionally, in response to the May 

2022 CWH ECS NOPR, Bradford White 

commented that they disagree with 

DOE’s assumption that unsophisticated 

controls can be used in condensing 

systems, stating that the controls need to 

be able to drive a blower, typically at 

different fan speeds, and provide 

diagnostics capability in order to 

provide the same reliability as noncondensing systems. Additionally, 

Bradford White stated that they disagree 

with the assumption that an increase in 

thermal efficiency would not affect heat 

loss because, they said, an increase in 

heat exchanger surface area will 

necessitate an increase in overall tank 

size to make up for lost storage volume 

and would likely lead to an increase in 

penetrations to the tank. (Bradford 

White, No. 23 at p. 2) Bradford White 

also noted that more sophisticated 

controls, a blower, different combustion 

components, and additional anodes are 

required to achieve condensing levels, 

and ensure a similar lifetime as noncondensing systems. (Bradford White, 

No. 23 at p. 5) Bradford White stated 

that there are some features in 

condensing water heaters that should 

have been included in DOE’s cost 

analysis because these are necessary 

features to ensure that the product has 

comparable reliability to noncondensing water heaters, especially if 

condensing water heaters are assumed 

to have the same lifetime as noncondensing water heaters. Id. 

As noted in the May 2022 CWH ECS 

NOPR, many condensing gas-fired 

storage water heaters currently on the 

market are often marketed as premium 

products and include non-efficiencyrelated features. Some of these features, 

such as built-in diagnostics and run 

history information, may require user 

interfaces, but a user interface is not 

necessary for operation of a condensing 

gas-fired storage water heater. DOE 

research suggests that condensing 

appliances may feature as little as a 

push button and several light-emitting 

diodes on the control board to 

communicate the status of the unit, 

error codes, and so on. Some 

condensing models on the market also 

include modulating burners and gas 

valves, which do require more 

sophisticated controls. However, 

modulation is not required to achieve 

condensing operation for gas-fired 

storage water heaters and does not affect 

efficiency as measured by DOE’s test 

procedure. Many condensing gas-fired 

storage water heaters currently on the 

market do not include modulating 

combustion systems or the 

corresponding more sophisticated 

controls. While a condensing 

combustion assembly (comprising a gas 

valve, blower, and premix burner) may 

require calibration by the manufacturer 

(the costs for which DOE accounts in its 

development of cost estimates), DOE 

does not believe that a technician would 

need a user interface included within 

the water heater in order to be able to 

successfully diagnose and service a gasfired storage water heater with a nonmodulating combustion assembly. In 

order to accurately assess the costs of 

adopting a more-stringent standard, 

DOE only considers costs of 

components that are necessary for 

models to achieve each efficiency level 

as measured by DOE’s test procedure. 87 

FR 30610, 30647. In response to 

Bradford White’s assertion that 

increased thermal efficiency levels 

would necessitate increased storage 

volumes, DOE notes that its analysis 

was conducted for a fixed storage 

volume and DOE did account for slight 

adjustments to tank dimensions in its 

analysis of different efficiency levels. 

Therefore, DOE continued to not 

include the costs of features such as 

modulation and more sophisticated 

controls in its costs for high-efficiency 

products. However, for the final rule 

analysis, DOE included powered anode 

rods in its cost models for some 

condensing gas-fired storage water 

heaters, in response to manufacturer 

feedback during interviews that these 

components may be necessary due to 

space constraints. In the May 2022 CWH 

ECS NOPR, DOE stated that the welds 

inside a storage water heater are 

typically the primary source of concern 

for corrosion inside a storage water 

heater. Further, DOE noted that a 

condensing gas-fired storage water 

heater with a multi-pass heat exchanger 

design 37 will typically have more flue 

pipes and, therefore, more welds 

(joining the flue pipe and tank top or 

bottom) than would a non-condensing 

gas-fired storage water heater. To 

account for the fact that condensing gasfired storage water heaters may require 

an additional anode rod to compensate 

for the additional welds, for the May 

2022 CWH ECS NOPR analysis, DOE 

included the costs of an additional 

anode rod for residential-duty and 

commercial gas-fired storage water 

heaters with a multi-pass condensing 

heat exchanger design. 87 FR 30610, 

30647. Manufacturer feedback during 

interviews conducted after the May 

2022 CWH ECS NOPR suggested that in 

some cases adding additional 

(unpowered) anode rods is impractical 

due to internal geometry and therefore 

powered anode rods are required. DOE 

therefore included the additional costs 

for powered anode rods and associated 

controls for a subset of condensing gasfired storage water heaters. Chapter 5 of 

the final rule TSD includes further 

detail on the exclusion of costs for nonefficiency-related features from DOE’s 

MPC estimates and on the assumptions 

relating to anode rods. 

In addition, Bradford White disagreed 

with DOE’s assumption that a blower on 

top of a heat exchanger prevents hot air 

from escaping out of the flue like a flue 

damper. They stated that based on their 

testing and experience, a blower reduces 

standby loss but does not altogether 

prevent it as a damper would. (Bradford 

White, No. 23 at p. 2) In response, DOE 

notes that there are several residentialduty gas storage water heaters on the 

market that meet or exceed the 

efficiency of EL2 and include a blower 

but do not include a flue damper. 

Therefore, based on its review of the 

market, DOE expects that either 

technology option can be used to meet 

that efficiency level. 

Additionally, for the May 2022 CWH 

ECS NOPR, DOE estimated that 20 

percent of commercial gas-fired storage 

water heater shipments are 

manufactured with ASME construction, 

based on feedback from manufacturer 

interviews. For this share of the market, 

DOE applied a multiplier of 1.2 to the 

MPC to account for the various costs 

associated with ASME construction 

(e.g., materials, labor, testing). 87 FR 

30610, 30648. Bradford White 

commented in support of DOE’s 

adjustment of its MPC estimates for 


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38Table 5.12.2 presents DOE’s estimated MPC, 

MSP, and shipping costs for residential-duty gasfired storage water heaters at the representative 

rated storage volume of 75 gallons and 

representative input capacity of 76,000 Btu/h. Table 

5.12.4 presents DOE’s estimated MPC, MSP, and 

shipping costs for gas-fired circulating water heaters 

and hot water supply boilers at the representative 

input capacity of 399,000 Btu/h. 

39Table IV.16 presents the MPC for commercial 

gas fires storage water heaters at the representative 

rated storage volume of 100 gallons and 

representative input capacity of 199,000 Btu/h. 

commercial gas-fired storage water 

heaters for this final rule to account for 

the costs of American Society of 

Mechanical Engineers (‘‘ASME’’) 

construction. (Bradford White, No. 23 at 

p. 5) Chapter 5 of the final rule TSD 

includes additional details on DOE’s 

analysis of ASME construction for 

commercial gas-fired storage water 

heaters. 

7. Manufacturing Production Costs 

After calculating the cost estimates for 

all the components in each torn-down 

unit, DOE totaled the cost of materials, 

labor, depreciation, and direct overhead 

used to manufacture each type of 

equipment in order to calculate the 

MPC. DOE used the results of the 

teardowns on a market-share weighted 

average basis to determine the industry 

average cost increase to move from one 

efficiency level to the next. DOE reports 

the MPCs in aggregated form to 

maintain confidentiality of sensitive 

component data. DOE obtained input 

from manufacturers during the 

manufacturer interview process on the 

MPC estimates and assumptions. 

DOE estimated the MPC at each 

efficiency level considered for 

representative equipment of each 

equipment category. DOE also 

calculated the percentages attributable 

to each element of total production costs 

(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. Chapter 5 of the final rule 

TSD contains additional details on how 

DOE developed the MPCs and related 

results. 

In response to the May 2022 CWH 

ECS NOPR, DOE received multiple 

comments regarding its MPC estimates. 

Rheem commented that the MPC 

estimates scaled from the May 2016 

CWH ECS NOPR do not accurately 

reflect material supply chain issues and 

inflationary cost increases. (Rheem, No. 

24 at p. 2) Rheem asserted that the 

MPCs presented in Table 5.12.2 of the 

May 2022 CWH ECS NOPR TSD are 

significantly underestimated and 

similarly stated that the MPCs in Table 

5.12.4 of the May 2022 CWH ECS NOPR 

TSD are also significantly 

underestimated across all efficiency 

levels.38 Specifically, they stated that in 

Table 5.12.2 of the May 2022 CWH ECS 

NOPR TSD, the incremental cost to shift 

from non-condensing to condensing, 

EL2 to EL3, is especially significant, 

though the non-condensing MPC 

estimates are more reasonable. (Rheem, 

No. 24 at p. 4) Rheem added that the 

incremental cost from non-condensing 

to condensing in Table 5.12.4 of the 

May 2022 CWH ECS NOPR TSD, while 

low, is a reasonably accurate 

incremental increase. Id. Along the 

same lines, Rheem stated that the MPCs 

for all efficiency levels of commercial 

gas-fired storage water heaters are also 

significantly understated, and that the 

incremental cost between EL1 and EL2 

should be much greater than $106. 

Rheem commented that DOE is not fully 

accounting for the differences between 

consumer (residential-duty) and 

commercial water heaters. Id. at p. 4. 

(Rheem, No. 24 at p. 4) Bradford White 

also stated that the increase in cost 

between EL1 and EL2 should be greater 

than $106 and cited the number of 

construction changes and components 

required to achieve condensing levels as 

rationale to support their assertion. 

(Bradford White, No. 23 at p. 5) 

Bock Water Heaters stated that in 

Table IV.16 of the May 2022 CWH ECS 

NOPR,39 the difference in cost between 

EL0 and condensing levels, specifically 

EL4, for commercial gas-fired storage 

water heaters is substantially 

understated. Bock Water Heaters also 

stated that the magnitude of the MPC 

estimates in Table IV.16 in the May 

2022 CWH ECS NOPR were not 

representative of actual costs incurred 

by small manufacturers such as 

themselves. The commenter noted that 

although economies of scale will drive 

differences in MPC by manufacturer, the 

values presented in Table IV.16 of the 

May 2022 CWH ECS NOPR should be 

closer to an average representation of all 

manufacturers. (Bock Water Heaters, No. 

20 at pp. 1–2) 

A.O. Smith stated that there is a 

meaningful delta (e.g., about 40 percent) 

in DOE’s estimated MPCs for the 

referenced 75 gallon product category 

versus what manufacturers submitted to 

the Department’s contractor during 

confidential interviews. (A.O. Smith, 

No. 22 at p. 4) 

PHCC commented that DOE’s analysis 

has undervalued product costs at higher 

efficiency levels by omitting costs for 

additional features. They feel that the 

net effect is a significant cost increase 

relative to the NOPR projections even if 

market pressures and streamlining of 

inventories leads to savings and lowers 

prices. (PHCC, No. 28 at p. 9) PHCC 

generally noted that they believe there 

are gaps in the economic analysis. 

(PHCC, No. 28 at p. 2) PHCC stated that 

according to a nationally known online 

plumbing wholesaler, one model of noncondensing 100-gallon 199,000 Btu 

water heater would sell for about $8,100 

(for product costs only) and the 

condensing version of that capacity 

would sell for about $10,000. (PHCC, 

No. 28 at p. 10) 

A.O. Smith expressed concern about 

the impacts of these inaccurate MPCs on 

the downstream analysis. (A.O. Smith, 

No. 22 at p. 4) Bock Water Heaters and 

Rheem expressed similar concern, and 

specifically noted that the understated 

MPC values may have affected the 

accuracy of the LCC analysis and PBP 

analysis. (Bock Water Heaters, No. 20 at 

pp. 1–2; Rheem, No. 24 at p. 1) 

Bock Water Heaters, AHRI, Rheem, 

and PHCC also encouraged DOE to reengage with manufacturers to verify its 

product cost information. (Bock Water 

Heaters, No. 20 at p. 2; AHRI, No. 31 at 

p. 5; Rheem, No. 24 at p. 1; PHCC, No. 

28 at p. 10) Specifically, AHRI requested 

that additional manufacturer interviews 

be conducted relating to manufacturing 

processes, costs, and capacity 

constraints as well as impacts on small 

manufacturers and shipping costs. 

(AHRI, No. 31 at p. 5) Bradford White 

requested that DOE explain how it 

determined that improved economies of 

scale will offset other costs, noting that 

these other costs must be accounted for, 

will ideally be recovered, and will result 

from a more stringent standard (e.g., 

capital conversion costs). (Bradford 

White, No. 23 at p. 6) 

In response to these comments, DOE 

notes that it developed its MPC 

estimates based on teardowns of CWH 

equipment from a variety of 

manufacturers. DOE conducted several 

rounds of manufacturer interviews and 

follow-up interviews with all CWH 

equipment manufacturers that 

responded to DOE’s requests for 

interviews, including additional 

interviews conducted after the 

publication of the May 2022 CWH ECS 

NOPR. As part of the manufacturer 

interview process, DOE sought feedback 

on its MPC estimates, as well as 

feedback on specific component, 

material, labor, and assembly costs. 

DOE’s methodology for developing MPC 

estimates involves estimating the 

material, labor, depreciation, and 

overhead costs for every part and 

assembly within a unit. DOE agrees that 


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prices for many parts have increased in 

recent years. Component costs were also 

updated for this final rule analysis, to 

reflect recent fluctuations and trends in 

cost values. 

Conducting the analysis to this level 

of detail allows DOE to estimate the cost 

of units that were not physically torn 

down, or to estimate the costs of making 

slight design changes such as adding an 

inch of insulation or increasing heat 

exchanger size. In the interviews 

conducted prior to the withdrawn May 

2016 CWH ECS NOPR, DOE presented 

manufacturers with MPC estimates 

broken down by each assembly (e.g., 

burner and gas valve, heat exchanger, 

controls) of the water heater, or even a 

BOM of a torn-down unit from that 

manufacturer for specific feedback on 

the estimated costs for every single part 

within the torn-down unit. 

Regarding the incremental costs 

between non-condensing and 

condensing levels, DOE first notes that 

the incremental MPC estimate reflects 

the additional components needed to 

build a condensing product while 

subtracting components that are either 

replaced or obviated. For example, 

condensing gas-fired storage water 

heaters require a mechanical draft 

combustion system, while baseline noncondensing models do not. Conversely, 

baseline non-condensing commercial 

water heaters typically include an 

electromechanical flue damper, while 

condensing models do not because they 

have a mechanical-draft combustion 

system that obviates the need for a flue 

damper. 

Additionally, as discussed in section 

IV.C.6 of this final rule, DOE 

standardized non-efficiency-related 

features across all efficiency levels. This 

may cause DOE’s incremental MPC 

estimates to seem lower than that of 

equipment currently on the market, 

because in many cases condensing 

equipment is currently marketed as a 

premium product and includes features 

(e.g., advanced controls or modulating 

gas valves) that are not necessary for 

condensing operation and do not affect 

efficiency as measured by DOE’s test 

procedure. However, as discussed in 

section IV.C.6, based on feedback 

received during manufacturer 

interviews, DOE did update its cost 

models for a subset of condensing gasfired storage water heaters to include 

powered anode rods. The updates to 

part prices as well as the other changes 

that DOE implemented increased the 

cost delta between noncondensing and 

condensing gas-fired storage water 

heaters from $106.41 to $120.65. 

Chapter 5 of the final rule TSD includes 

further detail on the exclusion of costs 

for non-efficiency-related features from 

DOE’s MPC estimates. 

The MPC estimates presented in this 

final rule and chapter 5 of the final rule 

TSD are market-shared weighted 

average MPCs, which will not 

necessarily be representative for every 

design pathway used by every 

manufacturer (i.e., they reflect the 

industry average cost). DOE research 

suggests that the absolute and 

incremental MPCs between baseline and 

condensing levels are higher for some 

manufacturers than others. Therefore, 

DOE included multiple design pathways 

that are used by a range of 

manufacturers and that represent the 

vast majority of models on the market in 

the market-share weighted average cost 

estimates, both in absolute as well as 

incremental terms. Similarly, in 

response to comments about its 

production volumes, DOE notes that its 

model incorporates different production 

volumes (which are also informed by 

manufacturer feedback) when 

developing the production cost 

estimates from different manufacturers. 

DOE then combined the resulting 

production cost estimates from different 

manufacturers into its market-share 

weighted average cost estimates. 

Finally, in response to PHCC’s 

comment suggesting that publiclyavailable costs are much higher than 

DOE’s MPCs, DOE notes that these 

MPCs do not account for any 

subsequent markups, such as from 

manufacturers, wholesalers, or 

mechanical contractors, that will 

increase the price for end consumers. 

Manufacturer markups are discussed in 

more detail in section IV.C.8 and other 

markups are discussed in section IV.D. 

For the reasons summarized 

previously, DOE has concluded that its 

methodology for developing MPC 

estimates presented in the May 2022 

CWH ECS NOPR is sound and has 

maintained a similar methodology for 

this final rule. Additionally, as 

discussed, DOE understands that many 

component prices have been increasing 

recently and DOE revised inputs to the 

development of MPC estimates based on 

updated information (including pricing 

for raw materials and purchased parts) 

received from manufacturers after the 

May 2022 CWH ECS NOPR. These 

changes resulted in increased MPCs. 

Depending on the specific product 

categories and efficiency levels, these 

changes increased MPCs by between 9 

percent and 27 percent as compared to 

the May 2022 CWH ECS NOPR. Because 

prices continue to fluctuate, and the 

analyses for this final rule are in 2022$ 

(thus reflecting average values in 2022), 

there may continue to be discrepancies 

between the MPCs and the current 

prices at the time of publication. Using 

5-year averages for raw metals (as 

discussed in chapter 5 of this final rule 

TSD) is also expected to smooth out 

spikes in raw metal costs. Table IV.16, 

Table IV.17, and Table IV.18 of this 

document show the MPC for each 

combination of thermal efficiency and 

standby loss levels for each equipment 

category. 

TABLE IV.16—MANUFACTURER PRODUCTION COSTS FOR COMMERCIAL GAS-FIRED STORAGE WATER HEATERS, 100- 

GALLON RATED STORAGE VOLUME, 199,000 BTU/H INPUT CAPACITY

Thermal efficiency level Thermal 

efficiency 

MPC 

2022$ 

Et EL0 ...................................................................................................................................................................... 80 $1,453.78 

Et EL1 ...................................................................................................................................................................... 82 1,489.43 

Et EL2 ...................................................................................................................................................................... 90 1,610.08 

Et EL3 ...................................................................................................................................................................... 92 1,629.39 

Et EL4 ...................................................................................................................................................................... 95 1,666.24 

Et EL5 ...................................................................................................................................................................... 99 1,733.86 


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40U.S. Securities and Exchange Commission, 

Annual 10–K Reports (Various Years) (Available at 

sec.gov). 

TABLE IV.17—MANUFACTURER PRODUCTION COSTS FOR RESIDENTIAL-DUTY GAS-FIRED STORAGE WATER HEATERS, 75- 

GALLON RATED STORAGE VOLUME, 76,000 BTU/H INPUT CAPACITY

Efficiency level UEF 

(high draw pattern) * 

MPC 

2022$ 

EL0 ............................................................................................. 0.6597¥(0.0009 × Vr) ................................................................ $403.91 

EL1 ............................................................................................. 0.6797¥(0.0009 × Vr) ................................................................ 410.90 

EL2 ............................................................................................. 0.7497¥(0.0009 × Vr) ................................................................ 512.22 

EL3 ............................................................................................. 0.8397¥(0.0009 × Vr) ................................................................ 581.66 

EL4 ............................................................................................. 0.9297¥(0.0009 × Vr) ................................................................ 770.60 

EL5 ............................................................................................. 0.9997¥(0.0009 × Vr) ................................................................ 801.30 

* UEF standards vary based on the test procedure draw pattern that is used to determine the UEF rating. For simplicity and because all residential-duty gas-fired storage water heaters on the market are in the high draw pattern, only the high draw pattern efficiency levels are shown. 

TABLE IV.18—MANUFACTURER PRODUCTION COSTS FOR GAS-FIRED INSTANTANEOUS WATER HEATERS AND HOT WATER

SUPPLY BOILERS

Thermal efficiency level 

Thermal 

efficiency 

(%) 

MPC 

2022$ 

Gas-fired 

tankless water 

heaters 

Gas-fired 

circulating 

water heaters 

and hot water 

supply boilers 

250,000 Btu/h 399,000 Btu/h 

Et EL0 .......................................................................................................................................... 80 $566.87 $1,259.70 

Et EL1 .......................................................................................................................................... 82 575.83 1,270.95 

Et EL2 .......................................................................................................................................... 84 584.62 1,355.79 

Et EL3 .......................................................................................................................................... 92 686.29 3,146.59 

Et EL4 .......................................................................................................................................... 94 709.22 3,329.25 

Et EL5 .......................................................................................................................................... 96 741.13 3,511.91 

8. Manufacturing Markups and 

Manufacturer Selling Price 

To account for manufacturers’ nonproduction costs and profit margin, DOE 

applies a non-production cost multiplier 

(the manufacturer markup) to the full 

MPC. The resulting MSP is the price at 

which the manufacturer can recover all 

production and non-production costs 

and earn a profit. To calculate the 

manufacturer markups, DOE used data 

from 10–K reports 40 submitted to the 

U.S. Securities and Exchange 

Commission (‘‘SEC’’) by the three 

publicly-owned companies that 

manufacture CWH equipment. DOE 

averaged the financial figures spanning 

the years 2008 to 2013 in order to 

calculate the initial estimate of markups 

for CWH equipment for this rulemaking. 

During interviews conducted ahead of 

the withdrawn May 2016 CWH ECS 

NOPR, DOE discussed the manufacturer 

markup with manufacturers and used 

the feedback to modify the manufacturer 

markup calculated through review of 

SEC 10–K reports. DOE considers the 

manufacturer markup published in the 

May 2016 CWH ECS NOPR to be the 

best publicly available information. In 

this final rule, DOE is maintaining the 

manufacturer markups used previously 

in the May 2016 CWH ECS NOPR, as 

DOE has not received any additional 

information or data to indicate that a 

change would be warranted. 

To calculate the MSP for CWH 

equipment, DOE multiplied the 

calculated MPC at each efficiency level 

by the manufacturer markup. See 

chapter 12 of the final rule TSD for more 

details about the manufacturer markup 

calculation and the MSP calculations. 

9. Shipping Costs 

Manufacturers of CWH equipment 

typically pay for shipping to the first 

step in the distribution chain. Freight is 

not a manufacturing cost, but it is a 

substantial cost incurred by the 

manufacturer that is passed through to 

consumers. Therefore, DOE accounted 

for shipping costs of CWH equipment 

separately from other non-production 

costs. 

DOE research suggests that trailers 

either cube-out (i.e., run out of floor 

space or storage volume) or weigh-out 

(i.e., reach their allowed weight limits). 

Because storage water heaters are filled 

with air during shipping and 

instantaneous water heaters and hot 

water supply boilers are typically lighter 

than commercial storage water heaters, 

DOE research suggests that trailers filled 

with CWH equipment will typically 

cube-out before they weigh-out. 

Additionally, because the space above 

and around the CWH equipment can be 

filled with smaller and/or lighter 

products, DOE understands that trailers 

are typically filled in a way that 

maximizes the available storage space. 

As a result, changes to the cubic volume 

of the product are just as critical as 

changes to the footprint in determining 

the change to the shipping cost as unit 

size increases. DOE’s shipping cost 

analysis only includes estimates of the 

shipping costs for CWH equipment, not 

for other products that may be included 

in the same truckload, although CWH 

equipment is likely to be shipped 

alongside other products, presumably to 

make efficient use of the space in 

shipping trailers. 

Therefore, in this rulemaking, 

shipping costs for all classes of CWH 

equipment were determined based on 

the cubic volume occupied by the 

representative units. DOE first 

calculated the cost per usable unit 

volume of a trailer, using the standard 

dimensions of a volume of a 53-foot 

trailer and an estimated 5-year average 

cost per shipping load that 

approximates the cost of shipping the 

equipment from the middle of the 


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41Because the projected price of standardscompliant products is typically higher than the 

price of baseline products, using the same markup 

for the incremental cost and the baseline cost would 

result in higher per-unit operating profit. While 

such an outcome is possible, DOE maintains that in 

markets that are reasonably competitive it is 

unlikely that standards would lead to a sustainable 

increase in profitability in the long run. 

42Heating Air-conditioning & Refrigeration 

Distributors International. Heating, AirConditioning & Refrigeration Distributors 

International 2013 Profit Report. 

43Air Conditioning Contractors of America 

(ACCA). Cool Insights 2020: ACCA’s Contractor 

Financial & Operating Performance Report (Based 

on 2018 Operations). 2020. 

44U.S. Census Bureau. 2017 Economic Census 

Data. 2020. Available at www.census.gov/programssurveys/economic-census.html. The 2017 Economic 

Census is the most recent census available. The 

next census, the 2022 Economic Census, is 

scheduled to begin releasing results in 2024. 

country to either coast. Based on its 

experience with other rulemakings, DOE 

recognizes that trailers are rarely 

shipped completely full and, in 

calculating the cost per cubic foot, 

assumed that shipping loads would be 

optimized such that on average 80 

percent of the volume of a shipping 

container would be filled with cargo. 

The calculated cost to ship each unit 

was the ratio of the unit’s total volume 

(including packaging) divided by the 

volume of the shipping container 

expected to be filled with cargo and 

multiplied by the total cost of shipping 

the trailer. DOE recognizes that its 

shipping costs do not necessarily reflect 

how every unit of CWH equipment is 

shipped, that it is possible that units are 

shipped differently, and that the 

corresponding shipping costs may differ 

from DOE’s estimates based on a variety 

of factors such as composition of the 

units in a given shipping load and the 

actual manufacturing location and 

shipment destination. However, DOE’s 

analysis is intended to provide an 

estimate of the shipping cost that is 

representative of the cost to ship the 

majority of CWH equipment shipments 

and cannot feasibly account for the 

shipping costs of every individual unit 

shipped. Chapter 5 of the final rule TSD 

contains additional details about DOE’s 

shipping cost assumptions and DOE’s 

shipping cost estimates. 

Rheem expressed support for DOE’s 

method of calculating a representative 

shipping cost, and notes that a trailer 

volume of 80 percent is reasonably 

conservative. (Rheem, No. 24 at p. 8) 

However, Bradford White suggested that 

DOE’s use of a 5-year average in 

shipping costs is not accurate due to 

dramatic increases in shipping costs in 

the past 2 to 3 years. (Bradford White, 

No. 23 at p. 6). 

In response, for this final rule DOE 

used the most current shipping costs 

available at the time of the analysis to 

determine the per unit shipping cost, 

rather than a 5-year average. DOE agrees 

with Bradford White that this more 

accurately reflects current costs. 

D. Markups Analysis 

The markups analysis develops 

appropriate markups in the distribution 

chain (e.g., retailer markups, distributer 

markups, contractor markups, and sales 

taxes) to convert the estimates of 

manufacturer selling price derived in 

the engineering analysis to consumer 

prices, which are then used in the LCC 

and PBP analysis and in the 

manufacturer impact analysis. At each 

step in the distribution channel, 

companies mark up the price of the 

product to cover business costs and 

profit margin. 

DOE developed baseline and 

incremental markups for each actor in 

the distribution chain. DOE developed 

supply chain markups in the form of 

multipliers that represent increases 

above equipment purchase costs for key 

market participants, including CWH 

equipment wholesalers/distributors, 

retailers, and mechanical contractors 

and general contractors working on 

behalf of consumers. Baseline markups 

are applied to the price of products with 

baseline efficiency, while incremental 

markups are applied to the difference in 

price between baseline and higherefficiency models (the incremental cost 

increase). The incremental markup is 

typically less than the baseline markup 

and is designed to maintain similar perunit operating profit before and after 

new or amended standards.41

1. Distribution Channels 

Four different markets exist for CWH 

equipment: (1) new construction in the 

residential buildings sector, (2) new 

construction in the commercial 

buildings sector, (3) replacements in the 

residential buildings sector, and (4) 

replacements in the commercial 

buildings sector. DOE developed eight 

distribution channels to address these 

four markets. 

For the residential and commercial 

buildings sectors, DOE characterizes the 

replacement distribution channels as 

follows: 

• Manufacturer → Wholesaler → 

Mechanical Contractor → Consumer 

• Manufacturer → Manufacturer 

Representative → Mechanical 

Contractor → Consumer 

• Manufacturer → Retailer → 

Mechanical Contractor → Consumer 

DOE characterizes the new 

construction distribution channels for 

the residential and commercial 

buildings sectors as follows: 

• Manufacturer → Wholesaler → 

Mechanical Contractor → General 

Contractor → Consumer 

• Manufacturer → Manufacturer 

Representative → Mechanical 

Contractor → General Contractor → 

Consumer 

• Manufacturer → Retailer → General 

Contractor → Consumer 

In addition to these distribution 

channels, there are scenarios in which 

manufacturers sell CWH equipment 

directly to a consumer through a 

national account, or a consumer 

purchases the equipment directly from 

a retailer. These scenarios occur in both 

new construction and replacements 

markets and in both the residential and 

commercial sectors. In these instances, 

installation is typically accomplished by 

site personnel. These distribution 

channels are depicted as follows: 

• Manufacturer → Consumer 

• Manufacturer → Retailer → 

Consumer. 

2. Comments on the May 2022 CWH 

ECS NOPR 

Joint Gas Commenters note that while 

markups vary between new and 

replacement, there is very little 

difference between the values. (Joint Gas 

Commenters, No. 34 at p. 19) DOE relies 

on U.S. Census and other sources of 

data, some of which cannot be separated 

accurately into new and replacement 

segments, or when it can be separated 

the differences are small. When 

component pieces are combined to form 

markups, the new and replacement 

markup factors incorporate either the 

same inputs or inputs with small 

variations. 

3. Markups Used in This Final Rule 

Consistent with the May 2022 CWH 

ECS NOPR, to develop markups for this 

final rule, DOE utilized several sources, 

including the following: (1) The 

Heating, Air-Conditioning & 

Refrigeration Distributors International 

(‘‘HARDI’’) 2013 Profit Report 42 to 

develop wholesaler markups; (2) the 

2020 ACCA Cool Insights document 

containing financial analysis for the 

heating, ventilation, air-conditioning, 

and refrigeration (‘‘HVACR’’) 

contracting industry 43 to develop 

mechanical contractor markups; (3) the 

U.S. Census Bureau’s 2017 Economic 

Census data 44 for the commercial and 

institutional building construction 

industry to develop mechanical and 

general contractor markups; and (4) the 

U.S. Census Bureau’s 2017 Annual 


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45U.S. Census Bureau. 2017 Annual Retail Trade 

Survey. 2019. Available at www.census.gov/retail/. 46The Sales Tax Clearing House. 2022. Available 

at www.thestc.com/STrates.stm. Last accessed 

December 4, 2022. 

47U.S. Department of Energy—Office of Energy 

Efficiency and Renewable Energy. Commercial 

Prototype Building Models. 2013. Available at 

www.energycodes.gov/prototype-building-models. 

48Such commercial building types included the 

following: small office, medium office, large office, 

stand-alone retail, strip mall, primary school, 

secondary school, outpatient healthcare, hospital, 

small hotel, large hotel, warehouse, quick service 

restaurant, and full-service restaurant. 

49U.S. Energy Information Administration (EIA). 

2018 Commercial Building Energy Consumption 

Survey (CBECS) Data. 2018. Available at 

www.eia.gov/consumption/commercial/data/2018/. 

50U.S. Department of Energy—Office of Energy 

Efficiency and Renewable Energy. Final Rule 

Technical Support Document: Energy Conservation 

Standards for Residential Water Heaters, Direct 

Heating Equipment, and Pool Heaters. April 8, 

2010. EERE–2006–STD–0129–0149. Available at 

www.regulations.gov/#!documentDetail;D=EERE2006-STD-0129-0149. 

51U.S. Energy Information Administration (EIA). 

2009 Residential Energy Consumption Survey 

(RECS) Data. 2009. Available at www.eia.gov/ 

consumption/residential/data/2009/. 

Retail Trade Survey 45 data to develop 

retail markups. 

In addition to markups of distribution 

channel costs, DOE derived State and 

local taxes from data provided by the 

Sales Tax Clearinghouse.46 Because 

both distribution channel costs and 

sales tax vary by State, DOE developed 

its markups to vary by State. Chapter 6 

of the final rule TSD provides additional 

detail on markups. 

E. Energy Use Analysis 

The purpose of the energy use 

analysis is to assess the energy 

requirements (i.e., annual energy 

consumption) of CWH equipment 

described in the engineering analysis for 

a representative sample of building 

types that utilize the equipment, and to 

assess the energy-savings potential of 

increased equipment efficiencies. The 

energy use analysis estimates the range 

of energy use of CWH equipment in the 

field (i.e., as the equipment is actually 

used by consumers). The energy use 

analysis provides the basis for other 

analyses DOE performed, particularly 

assessments of the energy savings and 

the savings in consumer operating costs 

that could result from adoption of 

amended or new standards. 

The energy use for commercial water 

heaters varies by type of commercial or 

residential building, by region, and by 

type and size of CWH equipment. As 

explained in more detail below, and in 

the NOPR, for this rulemaking, the 

energy use for water heaters is estimated 

by identifying the various commercial 

buildings or residential buildings in 

EIA’s 2020 CBECS or 2009 RECS that 

utilize natural gas for water heating and, 

for these buildings, estimating the hot 

water used in gallons per day, taking 

into account the building type and the 

presence of specific building activities. 

At the same time, DOE identified from 

the same sample those buildings with 

estimated peak hot water loads large 

enough to need commercial water 

heaters of the type examined in this 

rulemaking. DOE’s assessment of peak 

hot water loads considered 

characteristics of the individual 

building including occupancy, building 

type, floorspace, and other specific 

sampled data that are used in sizing 

water heating systems, e.g. number of 

rooms in hotel or dormitory, beds in a 

health care facility, seats in a restaurant, 

etc. When considering multifamily 

residential, only buildings that indicate 

the use of central hot water systems 

serving multiple apartments are 

considered candidates for commercial 

water heaters. For those buildings with 

large enough peak hot water demand, 

DOE used the estimated annual hot 

water usage (gallons/day) for each of the 

buildings within the sample, the 

incoming water temperatures, by month, 

derived for the location, and the 

expected hot water delivery temperature 

to calculate the annual hot water load 

(Btu/yr) for the building, including 

additional piping circulation energy 

losses where appropriate. DOE converts 

this to an average hot water load in 

(Btu/day). 

For each type of commercial water 

heater, DOE calculates the output 

capacity of the representative size water 

heater at design conditions and at the 

baseline efficiency level, taking into 

account the usable storage volume, 

where applicable, and the length of the 

peak sizing period in hours based upon 

industry sizing guidance. Then for each 

of the above buildings, DOE divides the 

daily hot water load requirements by the 

hourly capacity of the water heater over 

the sizing period to get the daily average 

burner operating hours necessary to 

meet the above hot water load for the 

baseline unit at full output. Then for the 

remaining hours in the day, DOE uses 

the water heater hourly standby energy 

loss rate to calculate daily average 

standby loss energy consumption. The 

daily energy consumption at baseline 

efficiency is calculated as the operating 

hours to meet the building hot water 

load times the full load input of the 

water heater plus the daily energy 

consumed to meet the water heater 

standby loss. The average daily energy 

for the equipment is then multiplied by 

the number of days in a year to get 

annual energy consumption. 

For the rulemaking, DOE is assessing 

the effect efficiency improvements have 

on energy consumption. For the 

representative equipment in each class, 

the burner operating hours to meet the 

building load requirements decreases 

with improved efficiency. DOE uses the 

decreased operating hours to calculate 

the annual energy consumption for the 

water heater at each higher efficiency 

level considered. Chapter 7, appendix 

7A, and appendix 7B present further 

detail regarding the water sizing 

methodology and estimation of building 

hot water loads and corresponding 

energy consumption by efficiency level. 

DOE estimated the annual energy 

consumption of CWH equipment at 

specified energy efficiency levels across 

a range of commercial and multifamily 

residential buildings in different climate 

zones, with different building 

characteristics, and including different 

water heating applications. The annual 

energy consumption includes use of 

natural gas (or liquefied petroleum gas 

(‘‘LPG’’)) as well as use of electricity for 

auxiliary components. 

DOE developed representative hot 

water volumetric loads and water 

heating energy usage for the selected 

representative products for each 

equipment category and building type 

combination and efficiency level 

analyzed. This approach used by DOE 

captures the variability in CWH 

equipment use due to factors such as 

building activity, schedule, occupancy, 

tank losses, and distribution system 

piping losses. 

CWH equipment analyzed in this 

rulemaking is used in commercial 

building applications and certain 

residential applications, particularly 

multifamily buildings. For commercial 

sector buildings, DOE used the daily 

load schedules and normalized peaks 

from the 2013 DOE Commercial 

Prototype Building Models 47 to develop 

gallons-per-day hot water loads for the 

analyzed commercial building types.48

For this final rule, DOE assigned the 

corresponding hot water loads on a 

square-foot basis to associated 

commercial building records in the 

EIA’s 2018 CBECS 49 in accordance with 

their detailed principal building activity 

subcategories. For residential building 

types, DOE used the hot water loads 

model developed by Lawrence Berkeley 

National Laboratory (‘‘LBNL’’) for the 

2010 rulemaking for ‘‘Energy 

Conservation Standards for Residential 

Water Heaters, Direct Heating 

Equipment, and Pool Heaters.’’ 50 For 

this final rule, DOE applied this model 

to the residential building records in the 

EIA’s 2009 Residential Energy 

Consumption Survey (‘‘RECS’’).51 For 


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52 DOE used 8.29 gallons per pound. 

53 DOE used 1.000743 Btu per pound per degree 

Fahrenheit. 

54U.S. Department of Energy—Office of Energy 

Efficiency and Renewable Energy. EnergyPlus 

Energy Simulation Software. TMY3 data. 

55Hendron, R. Building America Research 

Benchmark Definition, Updated December 15, 2006. 

January 2007. National Renewable Energy 

Laboratory: Golden, CO. Report No. TP–550–40968. 

Available at www.nrel.gov/docs/fy07osti/40968.pdf. 

56A.O. Smith. Pro-Size Water Heater Sizing 

Program. Available at www.hotwatersizing.com/. 

Last accessed in December 20, 2022. 

57PVI Industries Inc. ‘‘Water Heater Sizing Guide 

for Engineers,’’ Section X, pp. 18–19. Available at 

oldsizing.pvi.com/ 

pv592%20sizing%20guide%2011-2011.pdf. 

the May 2022 CWH ECS NOPR DOE 

decided not to use the 2015 RECS 

because it lacked information including 

the number of apartments and the 

number of floors in the building of 

apartment observations, and other 

information such as householder age 

distributions was less robust than in the 

2009 RECS dataset. Because of the data 

issues with the 2015 RECS and because 

the 2020 RECS was not yet final at the 

time the final rule analysis was 

completed, DOE maintained use of the 

2009 RECS. For RECS housing records 

in multi-family buildings, DOE focused 

only on apartment units that share water 

heaters with other units in the building. 

Since the LBNL model was developed 

in part to analyze individual apartment 

hot water loads, DOE had to modify it 

for the analysis of shared water heater/ 

whole building loads. DOE established 

statistical average occupancy of RECS 

apartment unit records when 

determining the individual apartment 

unit’s load. DOE also developed 

individual apartment loads as if each 

were equipped with a storage water 

heater in accordance with LBNL’s 

methodology. Then, DOE multiplied the 

apartment unit’s load by the number of 

representative units in the building to 

determine the building’s total hot water 

load. 

DOE converted daily volumetric hot 

water loads into daily Btu energy loads 

by using an equation that multiplies a 

building’s gallons-per-day consumption 

of hot water by the density of water,52

specific heat of water,53 and the hot 

water temperature rise. To calculate 

temperature rise, DOE developed 

monthly dry bulb temperature estimates 

for each U.S. State using typical mean 

year (‘‘TMY’’) temperature data as 

captured in location files provided for 

use with the DOE EnergyPlus Energy 

Simulation Software.54 Then, these dry 

bulb temperatures were used to develop 

inlet water temperatures using an 

equation and methodology developed 

by the National Renewable Energy 

Laboratory (‘‘NREL’’).55 DOE took the 

difference between the building’s water 

heater set point temperature used in its 

energy analysis and the inlet 

temperature to determine temperature 

rise (see chapter 7 of the final rule TSD 

for more details). In addition, DOE 

developed building-specific Btu load 

adders to account for the heat losses of 

building types that typically use 

recirculation loops to distribute hot 

water to end uses. DOE converted daily 

average hot water building loads 

(calculated for each month using 

monthly inlet water temperatures) to 

annual water heater loads for use in 

determining annual energy use for the 

representative water heaters at each 

efficiency level analyzed. 

DOE developed a maximum hot water 

loads methodology for buildings for 

determining the number of 

representative equipment needed using 

the data and calculations from a major 

water heater manufacturer’s sizing 

calculator.56 DOE notes that the sizing 

calculator used was generally more 

comprehensive and transparent in its 

maximum hot water load calculations 

than other publicly available sizing 

calculators identified. For the final rule 

this methodology was applied to 

selected commercial building records in 

2018 CBECS and residential building 

records in 2009 RECS to determine peak 

gallons-per-hour requirements, 

assuming a temperature rise specific to 

the building, for sizing of the water 

heater system. For buildings with sizing 

based greater than one hour sizing 

periods, the average gallons per hour 

requirement during the peak was 

developed. DOE divided these peak 

hourly hot water loads by the average 

hourly hot water delivery capability of 

the baseline representative model of 

each equipment category over the sizing 

period, including in the case of 

circulating water heaters and boilers the 

usable hot water storage of external 

storage tanks over that period, to 

determine the number of representative 

water heater units required to service 

the maximum load. For each 

representative unit of the CWH 

equipment analyzed for the final rule, 

DOE examined the individual CBECS 

and RECS building peak hot water loads 

to find those building observations 

whose loads indicated a need of at least 

0.9 water heaters, based on the 

representative model analyzed, to fulfill 

their maximum load requirements. Due 

to the maximum input capacity and 

storage specifications of residential-duty 

commercial gas-fired storage water 

heaters, DOE limited the buildings 

sample of this equipment class to 

building records requiring four or fewer 

representative water heaters to fulfill 

maximum load since larger maximum 

load requirements are more likely 

served by larger capacity equipment. 

For gas-fired tankless water heaters, a 

similar limit of four units per building 

was set. For the commercial gas-fired 

storage and the instantaneous water 

heaters and hot water supply boiler 

equipment classes, DOE set an upper 

limit at 40 units. DOE recognizes that 

these two equipment classes cover a 

wide range of capacities, and 40 units is 

equivalent to a much smaller of very 

large units in the same equipment 

classes. This limit had the effect of 

eliminating a small number of 

exceptionally large loads from 

consideration. In addition, for gas-fired 

tankless water heaters, an adjustment 

factor was applied to the first-hour 

capability to account for the shorter 

time duration for sizing this equipment, 

given its minimal stored water volume. 

DOE used the Modified Hunter’s Curve 

method,57 which estimates a maximum 

water demand of a building accounting 

for statistical probabilities for 

simultaneous fixture use for sizing of 

instantaneous water heaters to develop 

the adjustment factors for commercial 

gas-fired tankless water heaters. The 

applied adjustment factor modifies the 

first hour delivery capability 

calculations of commercial gas-fired 

tankless water heaters to account for the 

shorter time duration used to size for a 

very short ‘‘instantaneous’’ peak for this 

equipment, given the minimal volume 

of stored water to buffer meeting short 

duration peaks during the 1-hour 

maximum load period used for the first 

hour rating. Gas-fired circulating water 

heaters and hot water supply boilers as 

a class were teamed with unfired storage 

tanks to determine their first-hour 

capabilities since this is the 

predominant installation approach for 

this equipment. (See appendix 7B of the 

final rule TSD). 

For each equipment type being 

examined, DOE sampled all RECS and 

CBECS buildings that were deemed 

suitable for the development of the 

representative loads for that equipment 

type using a Monte Carlo analysis in the 

LCC model; the Monte Carlo analysis 

randomly generates values for uncertain 

variables from expected distributions of 

these variables to simulate input 

variability in a model (see appendix 8B 

of the final rule TSD for a more detailed 

description). For each building sampled, 

DOE divided the buildings daily average 

hot water demand, in Btu, including 

pipe circulating losses, by the product 


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58U.S. Energy Information Administration (EIA). 

2015 Consumption and Expenditures Technical 

Documentation Summary. May 2018. Available at 

www.eia.gov/consumption/residential/reports/ 

2015/methodology/pdf/2015C&EMethodology.pdf. 

of the output hot water heating 

capability of the representative water 

heater unit examined and the total 

number of representative units required 

for the sampled building to provide 

estimate the average daily hours of full 

load operation to serve the building hot 

water needs for that representative unit. 

The remainder of the hours in the day 

represent hours of standby mode. For 

DOE’s analysis, the number of water 

heaters allocated to a specific building 

was held constant at the baseline 

efficiency level, but as the heating 

output of each representative unit 

increases with thermal efficiency, a 

water heater’s hours of operation 

decreased as its thermal efficiency 

improved. This decrease in operating 

hours, in combination with changes in 

standby hours and standby loss 

performance at each efficiency level, 

results in changes in energy 

consumption at each efficiency level 

above the baseline. In the case of 

residential-duty gas-fired storage water 

heaters, DOE estimated the thermal 

efficiency and standby loss levels for 

each UEF level developed in the 

Engineering Analysis using the same 

methodology as for the NOPR. This 

conversion is discussed in Chapter 7 of 

the final rule TSD. Section IV.C.4 of this 

final rule and chapter 5 of the final rule 

TSD include additional details on the 

thermal efficiency, standby loss, and 

UEF levels identified in the engineering 

analysis. 

DOE received multiple comments on 

the use of CBECS and RECS data in its 

energy use analysis presented in the 

May 2022 CWH ECS NOPR. For the 

NOPR, DOE’s analysis used the 2012 

CBECS and 2009 RECS in developing 

building samples. Multiple stakeholders 

stated that DOE should use newer data, 

pointing specifically to the availability 

of CBECS 2018 and RECS 2020 data. 

(AHRI, No. 31 at p. 2; Joint Gas 

Commenters, No. 34 at p. 33; Rheem, 

No. 24 at p. 2) Patterson-Kelley stated 

that they reviewed the most current 

versions of RECS and CBECS with the 

understanding that these would be used 

in the final rule. (Patterson-Kelley, No. 

26 at p. 4) CA IOUs indicated support 

for DOE’s proposed minimum efficiency 

standards if DOE updated the analyses 

with newer data including specifically 

the more recent CBECS. (CA IOUs, No. 

33 at p. 1) Similarly, the Joint Gas 

Commenters urged DOE to use the most 

current available data and stated DOE 

should halt the rulemaking until this 

data was appropriately evaluated. (Joint 

Gas Commenters, No. 34 at p. 33) 

In response to comments that DOE 

should use the latest CBECS and RECS, 

for the final rule, DOE used the 2018 

CBECS, but maintained use of the 2009 

RECS data. The CBECS 2018 data is the 

most current CBECS dataset for which 

the commercial building characteristics 

data used by DOE is available. DOE 

considered using the RECS 2015 and 

2020 datasets. Both datasets lack the 

number of floors and the number of 

apartments in apartment buildings, as 

well as some disaggregated data 

concerning the ages of building 

occupants, all of which are needed for 

the analysis and which were included 

in the 2009 RECS. Additionally, the 

2020 RECS was not finalized when the 

final rule analysis was being completed, 

meaning that data could change after the 

final rule analysis was completed which 

could complicate third-party review of 

DOE’s models and data after the final 

rule is published. Because both the 2015 

RECS and 2020 RECS lack key data 

fields, and additionally because the 

2020 RECS dataset was not yet finalized, 

DOE used 2009 RECS data for this final 

rule. It should be noted that the update 

to CBECS 2018 did not represent a 

change in the methodology or tools used 

to generate results. Rather, using the 

more recent CBECS data set is 

functionally little different than 

updating other data sets such as using 

2022 RSMeans labor rates rather than 

2021 RSMeans labor rates. DOE 

replaced the CBECS data in the LCC 

model with little difficulty given that all 

relevant data fields existed in the new 

CBECS data. 

Patterson-Kelley questioned the use of 

RECS and CBECS given concerns about 

the appropriateness of the data. 

(Patterson-Kelley, No. 26 at p. 4) WM 

Technologies expressed certain 

concerns with the appropriateness of 

DOE’s use of RECS and CBECS data sets 

in its analysis and provided several 

comments, particularly examining the 

2015 RECS and 2018 CBECS data, 

which was the most recent available at 

that time. In particular they commented 

that (1) the RECS process normalized 

data toward the median values through 

a process referred to as minimum 

variance estimation and therefore the 

variation in the data was minimized, (2) 

RECS data do not agree with other 

surveys on energy use due to how 

questions were asked and data edited, 

and (3) that more than one half of the 

2015 RECS square footage data were 

estimated using an imputation method, 

and the overall imputation rate of these 

data was 65.6 percent. WM 

Technologies further states that the 

documented variation in the published 

RECS data was not included in the LCC 

analysis, which is expected to become 

significant when the department 

reviews subgroups and must be 

corrected to assure an accurate analysis. 

With respect to CBECS, WM 

Technologies stated that the primary 

sampling unit for major cities focused 

on areas with significant commercial 

activity while other primary sampling 

units were selected at random and that 

this biased building selection toward 

high revenue generating areas. The 

noted sampling rates for large buildings 

were higher than small buildings and 

thus overstates energy consumption for 

the LCC, that subgroups within CBECS 

with highly variable energy 

consumption were sampled at a higher 

rate than subgroups with less variable 

energy consumption, and finally the 

energy consumption from CBECS is an 

estimate at best and includes a category 

of end use as other, resulting in 

significant uncertainty in results. (WM 

Technologies, No. 25 at pp. 3–4) 

DOE considered the comments from 

WM Technologies on the use of RECS 

and CBECS data sets; however, DOE 

disagrees with the WM Technologies 

conclusions with regard to DOE’s 

analysis. 

Regarding the discussion of the RECS 

use of minimum variance estimation, 

this is discussed in EIA’s 2015 

Consumption and Expenditures 

Technical Documentation Summary 58

when calibrating the end use estimates 

from modeling end uses for each 

household to the measured annual 

energy use totals that are collected by 

EIA in the development of RECS. It is 

not clear from the WM Technologies 

comment exactly what is the concern 

with EIA’s use of this in calibration; 

however, DOE’s use of RECS for this 

rulemaking is as a source for household 

characteristics data used for the 

generation of hot water loads. DOE is 

not using the 2015 RECS and does not 

use energy end use estimates from the 

2015 RECS. Thus, DOE does not believe 

this discussion of minimum variance 

estimation is relevant to this 

rulemaking. 

WM Technologies also notes that 

2015 RECS data do not agree with other 

surveys on energy use due to how 

questions were asked and data edited, 

and cites EIA’s web page for the 

discussion of this, although generally 

not providing detail on why this 

variation was considered problematic 

except expressing the concern with the 

high ratio of imputed data for household 

square footage. In response to these 

points, DOE notes that the 2015 RECS 


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Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations 69731 

was not used in this final rule and to 

this extent the comments are not 

applicable to the final rule analysis. In 

reviewing the cited discussion from 

EIA, DOE notes that much of the 

discussion is focusing on end use 

estimation. In fact, in the discussion 

from EIA comparing against previous 

RECS analysis, EIA specifically notes 

that it believes the updated modeling 

and calibration method are an 

improvement over previous RECs 

estimation methods. However, other 

differences noted by EIA were that it 

was a smaller sample than the 2009 

RECS and that it relied extensively on 

self-administered web and paper 

questionnaires to supplement the 

traditional, computer-assisted personal 

interview and indicated that where 

household data relied exclusively on 

web and paper inputs, all square footage 

estimates for homes were imputed. 

There is discussion provided by EIA 

comparing or contrasting RECS with 

other Federal studies that may provide 

insight into residential energy demand. 

In this discussion, EIA provides a very 

clear note that these studies are 

optimized to serve a different purpose 

from the RECS and so their results for 

similar items may vary from the RECS. 

The RECS study is designed specifically 

for the analysis of current U.S. 

household energy consumption, unlike 

the other studies it is contrasted with. 

With regard to the WM Technologies 

concern that CBECS and the building 

sampling are biased toward large 

buildings in commercial areas, resulting 

in overstating consumption in the 

LCC—there are several reasons why this 

is incorrect. First, CBECS samples are 

assigned weights where the assignment 

process uses data from other larger 

building data ‘‘frames’’ and sources so 

that the weight represents the building 

itself and other similar buildings within 

the U.S. population. As the samples are 

in fact weighted and DOE uses these 

weights when sampling within the LCC, 

the oversampling of large buildings does 

not translate to a bias in the final CBECS 

weighted sample. Second, DOE’s use of 

CBECS for this rulemaking is for the 

development of building characteristics 

data and not based on the end use 

energy estimates. In its review, DOE 

does not feel that the concerns 

expressed by WM technologies 

regarding RECS or CBECS are important 

or relevant to the use of these data sets 

in the final rule analysis. 

DOE notes that the analysis accounts 

for recirculation loop losses in average 

daily hot water loads. In its final rule 

analysis, DOE assigned insulated 

supply, return, and riser recirculation 

loop piping to sampled buildings with 

a year of construction of 1970 or later. 

For buildings constructed prior to 1970, 

DOE assigned uninsulated supply 

piping to 25 percent of sampled 

buildings and uninsulated return piping 

to 25 percent of sampled buildings. DOE 

acknowledges that its energy use 

analysis may not account for the extent 

of all possible heat losses such as from 

poor control of circulating system flow, 

uninsulated or poorly insulated piping, 

leaks or other higher than expected tap 

flows, and poor water heater 

performance due to aging. These issues 

may result in higher hot water energy 

use than predicted by DOE’s models. 

Due to the lack of field data on the 

magnitude of these energy losses across 

building applications, vintage, and 

location, DOE did not further attempt to 

include them into its analysis. DOE 

develops daily hot water loads for each 

building analyzed and normalizes 

building hot water loads to the hot 

water service capacity of the 

representative products using industry 

sizing tools and methodologies. DOE 

acknowledges that its approach for a 

given building loads treats multiple 

units for CWH equipment as equally 

sharing the hot water load. 

To the extent that commenters may be 

concerned whether the analysis fairly 

represents individual water heater 

operation for water heaters in buildings 

in which multiple representative model 

units operate to meet the building’s 

load, DOE notes that this would be 

system and building specific and its 

analysis may not capture the extremes 

of hot water loading on an individual 

water heater in all applications but 

would capture the average hot water 

loads on the equipment in those 

building. DOE notes that its analysis 

examines maximum sizing hot water 

loads and average daily hot water loads 

of 17 commercial building applications 

and 4 residential building applications, 

with additional variability in terms of 

specific end uses where identified in the 

CBECS or RECS data including 

variability based on inputs such as 

occupants, water fixtures, clothes 

washers, dishwashers, and food service 

as well as water main inlet and outlet 

temperatures for estimating hot water 

loads. It also includes estimates of 

piping losses in circulating systems. 

Chapter 7 and appendix 7B in the final 

rule TSD describe the calculation of hot 

water loads in the building. Appendix 

7B also provides a table of building 

types that DOE assumed to use 

recirculation loops, as well as the 

operation hours of the recirculation 

loops. 

All of this variability is accounted for 

in the weighted results of the Monte 

Carlo analysis. While there may be 

further variability in hot water loads 

between multiple, individual water 

heaters operating in unison to meet a 

building’s hot water load, DOE’s 

analysis focuses on equipment 

operation over longer timeframes and 

developing representative loads for the 

equipment in the building. Equipment 

operated in unison in a building will 

experience, on average and over large 

populations represented, energy use 

reflecting the per-unit averaged building 

hot water load. As such, DOE did not 

directly account for the variability in 

operation of individual equipment 

when multiple units are installed and 

operated in tandem. DOE notes that 

with condensing equipment in 

particular, operation in parallel under 

part-load conditions can result in higher 

thermal efficiencies than those obtained 

under rated conditions, which reflect 

peak load thermal efficiencies. 

However, due to lack of detail of actual 

multiple water heaters installations 

exist the sampled buildings, DOE did 

not take this potential increase in fieldefficiency into account. 

DOE notes that its sizing methodology 

was based on industry sizing tools and 

guidelines and was used to establish 

peak water heat loads that would reflect 

the anticipated peak in the buildings 

based on those guidelines and known or 

estimated building characteristics. 

These peaks were then used to establish 

the number of representative units (by 

CWH type) that would be installed to 

meet the anticipated peak loads, with 

the hot water load apportioned across 

the estimated number of representative 

units needed. DOE notes that its sizing 

methodology was customized to the 

building application, size, and 

accounted for building size, occupancy, 

and specific end uses. For the hot water 

delivery capability of each equipment 

category, DOE uses representative 

equipment designs. The representative 

design of each equipment category has 

a specific input capacity and volume as 

shown in Table IV.5 of this document. 

These representative specifications are 

used in a calculation of hot water 

delivery capability. For each equipment 

category, DOE sampled CBECS and 

RECS building loads in need of at least 

0.9 water heaters of the representative 

capacity, based on the representative 

model analyzed, to fulfill their 

maximum load requirements, and 

allows multiple representative units to 

serve the building load. As a result, DOE 

does not adjust input capacity and 


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59American Society of Heating, Refrigerating and 

Air-Conditioning Engineers, Inc. (ASHRAE). 

ASHRAE Handbook of HVAC Applications: 

Chapter 51 (Service Water Heating). 2019. pp. 51.1– 

51.37. Available at www.ashrae.org/resources-- 

publications/handbook. 

60U.S. Department of Energy—Office of Energy 

Efficiency and Renewable Energy. EnergyPlus 

Energy Simulation Software. TMY3 data. Available 

at apps1.eere.energy.gov/buildings/energyplus/cfm/ 

weather_data3.cfm/region=4_north_and_central_

america_wmo_region_4/country=1_usa/ 

cname=USA. Last accessed October 2014. 

61Hendron, R. Building America Research 

Benchmark Definition, Updated December 15, 2006. 

January 2007. National Renewable Energy 

Laboratory: Golden, CO. Report No. TP–550–40968. 

Available at www.nrel.gov/docs/fy07osti/40968.pdf. 

volume of equipment for a given 

building application. 

In addition, DOE assumed the 

circulating water heater equipment class 

is equipped with a storage tank since 

this is the predominant installation 

configuration for this equipment. For 

this equipment class and representative 

input capacity, the analysis used a 

variable storage tank size of 250 to 350 

gallons in volume, based on a triangle 

distribution consistent with 

manufacturer literature guidance as to 

typical storage tanks for the 

representative equipment input rating. 

However, DOE recognizes that for this 

equipment class as well, further 

variation in the storage tank sized with 

the equipment might also occur based 

on each individual building owner’s 

preferences. DOE retained this use of 

representative installation practices for 

the final rule analysis. Chapter 7 of the 

final rule TSD provides more 

information on the hot water delivery 

calculations for circulating water 

heaters. 

DOE’s energy use analysis used the 

A.O. Smith Pro Size Water Heating 

Sizing Program as a primary resource in 

determining the type, size, and number 

of water heaters needed to meet the hot 

water demand load applications. DOE 

did not identify a universal industry 

sizing methodology and reviewed a 

number of online sizing tools prior to its 

decision to use A.O. Smith’s online 

sizing tool as the basis for its water 

heater sizing methodology. Based on 

DOE’s initial review, the chosen sizing 

tool was most appropriate because of its 

transparency allowing it to be evaluated 

for fixture flow assumptions and other 

industry-accepted sizing methodologies. 

This tool provided peak-hour delivery 

in its sizing output, whereas several 

others manufacturing sizing tools 

reviewed provided equipment 

recommendations and/or equipment 

sizes only in their outputs. DOE 

reviewed the relationships between 

input data and outputs for this tool in 

detail for use in establishing the basis 

for its sizing calculations and made 

certain adjustments to improve the 

accuracy of its maximum load 

determinations, as shown in detail in 

appendix 7B. 

DOE utilized the Modified Hunter’s 

Curve approach for developing hot 

water delivery adjustment factors, or 

divisors, to adapt the sizing 

methodology for water heaters with 

storage to a methodology suitable for 

sizing water heaters without storage. 

DOE used the PVI Industries ‘‘Water 

Heater Sizing Guide for Engineers’’ 

which implements the Modified 

Hunter’s Curve approach to develop the 

adjustment factors for sizing tankless 

water heaters. DOE’s research indicates 

that mechanical contractors and design 

engineers commonly rely on this general 

sizing methodology for determining 

appropriately-sized equipment to install 

in commercial and residential buildings, 

and the PVI tool captures the need and 

general industry methodology required 

to size tankless water heating equipment 

to address short-duration loads peaks. In 

addition, DOE consulted the ASHRAE 

Handbook of HVAC Applications,59

which provides guidance for sizing 

tankless and instantaneous water 

heaters. While the ASHRAE guidance 

also illustrates the Modified Hunter’s 

Curve methodology, it was not as clear 

in application as the guidance provided 

by PVI tool. In this area of CWH 

equipment selection, DOE research 

indicates that manufacturer sizing tools 

are more commonly used than ASHRAE 

handbooks. Because of the lack of 

storage and the need to meet 

instantaneous building loads at subhour intervals, the sizing strategy for 

instantaneous water heaters results in a 

lower hot water service and lower 

energy consumption per unit of input 

capacity than is the case for either 

storage water heaters, or equipment like 

circulating water heaters and hot water 

boilers where separate storage tanks are 

typically used. 

To clarify how DOE developed the 

inlet water temperature, DOE conducted 

its energy use analysis using a Monte 

Carlo approach, selecting commercial 

building records from CBECS and 

residential building records from RECS 

in the development of maximum and 

daily hot water loads. Daily hot water 

loads were converted to energy use 

based on the equipment operation 

necessary to meet the load. Each 

building record’s location is associated 

with geographic regions composed of 

one or multiple U.S. States in the case 

of RECS (referred to herein as 

‘‘reportable domains’’), and a Census 

Division in the case of CBECS. Using 

this location, DOE assigned an average 

monthly inlet temperature for the 

location the building resided in using 

monthly dry bulb temperature estimates 

for each location based on the TMY 

temperature data as captured in location 

files provided for use with the DOE 

EnergyPlus energy simulation 

software,60 along with an equation and 

methodology developed by NREL.61

Where CBECS data are used, DOE used 

weighted average data across the states 

within the division, with data being 

weighted by State population. Where 

RECS data are used, DOE used weighted 

average data across the states within the 

reportable domain, with data being 

weighted by State population. DOE then 

summed the daily hot water loads of 

each month to determine the monthly 

hot water loads. DOE then summed the 

monthly hot water loads to determine 

annual hot water loads. For a given hot 

water usage, as inlet temperature is 

colder, energy use increases, since the 

water heater must impart more heat to 

bring the inlet temperature to the set 

point temperature. Chapter 7 of the final 

rule TSD provides detailed information 

on how energy use was calculated using 

inlet water temperature. 

As stated, DOE developed daily hot 

water loads for building applications 

using the building service water heating 

schedules in the 2013 DOE commercial 

prototype building models. While there 

may be greater variation of individual 

usage schedules in the general 

population even within a building type, 

DOE’s use of these typical schedules 

and weighting by the relative frequency 

of the buildings in the general 

population is appropriate for the energy 

use analysis. 

DOE notes that there is limited actual 

data on commercial hot water usage in 

the field. To the extent that stakeholders 

feel that DOE’s analysis may under or 

overstate hot water usage, DOE notes 

that the analysis reflects both variation 

in direct hot water loads, inlet and 

outlet temperatures and piping/ 

recirculation losses with a referenced 

estimating procedure. While DOE 

recognizes that additional energy losses 

can occur in the field, to the extent that 

these losses occur, it suggests that the 

results of DOE’s energy use analysis are 

conservative. In this final rule, DOE 

used schedules and loads from ASHRAE 

prototype models with augmented data 

reflecting recent standards affecting 

water heater used by commercial 

appliances and equipment. The 

commercial building hot water loads 

based on the daily schedules and square 

footage from the scorecards of the 2013 

DOE commercial prototype building 


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62A manufactured home is defined as ‘‘a 

structure, transportable in one or more sections, 

which in the traveling mode is 8 body feet or more 

in width or 40 body feet or more in length or which 

when erected on-site is 320 or more square feet, and 

which is built on a permanent chassis and designed 

to be used as a dwelling with or without a 

permanent foundation when connected to the 

required utilities, and includes the plumbing, 

heating, air-conditioning, and electrical systems 

contained in the structure. . . .’’ 24 CFR Subtitle 

B Chapter XX Part 3280. Available at www.ecfr.gov/ 

current/title-24/subtitle-B/chapter-XX/part-3280 

(last accessed April 21, 2023). 

models and corresponding normalized 

peak water heater loads from the DOE 

EnergyPlus energy simulation input 

decks for these prototypes were vetted 

by the ASHRAE 90.1 Committee. DOE 

developed residential building hot 

water loads using the hot water loads 

model created by the LBNL for the 2010 

final rule for Energy Conservation 

Standards for Residential Water Heaters, 

Direct Heating Equipment, and Pool 

Heaters. 75 FR 20112 (April 16, 2010). 

These data sources reflect expected hot 

water use at the time of their 

publication, including reductions of 

typical hot water use for certain 

appliances and commercial equipment 

based upon amended Federal standards 

and certain voluntary programs where 

those appliances are identified as part of 

the end use. DOE notes that its analysis 

and any eventual CWH standards are 

dominated by existing buildings and 

influenced by a lesser extent by 

shipments to new construction. 

Furthermore, DOE notes that to the 

extent that regulatory standards have or 

will reduce water loads, manufacturer 

sizing tools (as used in DOE’s analysis 

for sizing water heaters in different 

applications) should also reflect the 

reduction in water usage for sizing 

purposes, thereby minimizing the 

impact of reduced hot water loads 

resulting from DOE regulation on the 

overall economic evaluation of higher 

standards. 

With regards to the use of CWH 

equipment in residential buildings, DOE 

clarifies here that the only residential 

building type specifically excluded from 

the analysis of CWH equipment was 

manufactured housing,62 since DOE 

determined that manufactured housing 

is not suitable for any CWH equipment 

installation or use. A manufactured 

home would have hot water loads 

which require a commercial water 

heater. Otherwise, for all other 

residential and commercial building 

types, if the estimated maximum sizing 

load of a sampled building was not at 

least 90 percent of the hot water 

delivery capability of the baseline 

representative model for any analyzed 

equipment category, then the building 

was not sampled since the building’s 

maximum load is deemed not large 

enough to warrant the installation of the 

specific CWH equipment to service the 

load. Chapter 7 of the final rule TSD 

provides details of DOE’s energy use 

analysis and sizing. 

In response to the May 2022 CWH 

ECS NOPR, Bradford White noted that 

certain CWH equipment is designed to 

work within a limited delta T range (i.e., 

temperature difference between the inlet 

and outlet of the water heater) in order 

to hit the rated efficiency and meet the 

needs of the application. Therefore, a 

160 °F setpoint temperature will, in fact, 

decrease efficiency, as a limited delta T 

(e.g., 20 °F) will keep the inlet to the 

water heater high enough that 

condensing will not occur. (Bradford 

White, No. 23 at p. 9) PHCC commented 

that to achieve condensing in practice, 

water temperatures must be below 

140 °F and while this is easier to obtain 

in furnaces, with water products the 

storage temperature may be close to or 

exceed that temperature. Manufacturers 

of boilers will typically show an 

efficiency curve with return water 

temperature and show a transition 

between when a unit is condensing or 

not condensing. They further state that 

either way, if a consumer elects to have 

water temperatures of 140 °F or higher, 

the performance of the heater will not 

hit the 95 percent efficiency level. 

Perhaps the test method sets parameters 

that make 95 percent achievable but in 

the real world, that will not be the case. 

Furthermore, they note that a 140 °F 

consideration is very likely for kitchens 

and laundries. In addition, due to 

biofilm and legionella concerns, many 

facilities are moving toward higher 

storage temperatures to combat 

contaminants. (PHCC, No. 28 at p. 3) 

In response to the comment by 

Bradford White, DOE is aware that 

certain instantaneous water heaters are 

designed as commercial booster water 

heaters and that some of these units may 

in fact be operated with high inlet water 

temperatures that would not allow 

condensing. While many booster water 

heaters are electric resistance units, 

DOE is aware that certain gas water 

heater products are on the market and 

examined several of these products. The 

units examined however appear to be 

capable of a wide range of temperature 

rise operation and not designed solely 

for low temperature rise applications. 

This appears to be more application 

specific choice on the part of the 

commercial user than a limitation of the 

water heater itself. Several of these units 

examined were rated as condensing 

water heaters. DOE understands that it 

is possible that in certain applications a 

unit like this may not condense, but it 

does not appear that this is a limitation 

of the water heater. Further, DOE 

believes that such products represent a 

niche market in the general class of gas 

instantaneous water heaters. 

DOE is unaware of equipment rated as 

instantaneous water heaters that are 

capable of operation only under low 

temperature rise (e.g., 20 °F temperature 

rise) application. In general, hot water 

supply boilers, circulators, and volume 

water heaters designed to work with 

separate storage tanks also appear to be 

both tested according to the DOE test 

procedure and the available literature 

reviewed by DOE indicated were 

capable of operating at higher (e.g., 

70 °F) temperature differentials between 

inlet and outlet. As discussed 

previously, that such equipment could 

be placed in an application in which it 

would not condense is possible, 

however it also appears that in many 

cases piping arrangements in such an 

application could be designed such that 

when cold inlet water enters the system 

(occurring whenever hot water is 

removed from the system), mixing 

valves or mixing stations can ensure 

that water going to the water heater is 

low enough to provide for condensing to 

occur. Many volume water heaters 

already provide for condensing 

efficiencies. 

DOE further notes that water heaters 

are generally different than hydronic, 

space heating boilers in that where hot 

water is removed from the circulating 

system, cold water at the water main 

temperature is introduced into the 

system. While PHCC has suggested that 

at 140 °F storage temperature or higher, 

the performance of the heater will not 

hit 95 percent efficiency, DOE notes that 

the DOE test procedure for commercial 

water heaters presumes a 140 °F leaving 

water temperature already (and 

therefore, a similar storage temperature) 

and models are tested at that 

temperature and at full rated input 

capacity and many achieve thermal 

efficiencies higher than 95 percent. 

While there may be some degradation in 

performance at higher leaving water 

temperatures, DOE believes that with 

modern water heater designs, entering 

water temperature is the primary 

limitation on whether condensation 

occurs, not leaving water temperature. 

Further DOE notes that many 

commercial water heaters are designed 

with modulating burners, which further 

lower the burner heat output and 

increase the equipment efficiency 

beyond what may be envisioned at full 

rated output as per the DOE test 

procedure. 


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DOE is aware of a variety of opinions 

on the handling of legionella, but again 

notes that cool water will need to be 

heated in any water heating system and 

notes that the heating of such water is 

the majority of the hot water load on the 

water heaters in DOE’s analysis. 

PHCC expressed concern that the 

estimated annual unit energy for 

commercial water heaters is 

understated. To perform a simple check 

on the estimates, PHCC divided unit 

energy by the input rating and the 

number of days per year, a calculation 

that yields the daily average hours of 

operation. PHCC notes that when these 

products are installed, restaurants, 

hotels, dormitories, hospitals, and such, 

it is hard to believe that these water 

heaters only operate for a few hours a 

day. PHCC believes that the basis for the 

energy use is understated for all 

categories of CWH products. (PHCC, No. 

28 at p. 3) 

In response, DOE notes that the 

primary inputs affecting the operating 

hours per day are the hot water load, 

including any circulation energy losses 

and the sizing of the water heater to 

meet the peak building needs. Standby 

losses from the water heater itself are 

also important but generally would 

result in only approximately 15–20 

minutes of operation on a given day for 

a commercial gas storage or residentialduty water heater respectively even if 

the unit was in standby for the entire 

day. In addition, while restaurants, 

hotels, hospitals and dormitories would 

be expected to be high utilization end 

uses, commercial water heaters can also 

serve office and retail applications 

which might have comparatively small 

hot water loads per unit of water heater 

capacity. DOE’s analysis has tried to 

incorporate both industry sizing tools 

(which potentially could be 

conservative) and estimates of hot water 

load across a wide variety of building 

applications, and represents relative 

frequency of use in these application 

through the use of CBECS and RECS 

sampling of buildings that could use the 

various classes of CWH equipment as 

described previously and in detail in the 

final rule TSD. DOE recognizes that in 

the end, however, operating hours, 

which provide a normalized 

representation of the energy 

consumption for a given size of 

purchased equipment, are a principle 

driver in the economics of DOE’s lifecycle cost and other downstream 

analysis and to the extent that any class 

of commercial water heater operates on 

average more hours in a day than 

estimated by DOE, it would generally 

result in larger energy use and all else 

the same, correspondingly larger energy 

savings than estimated by DOE. 

PHCC noted that at the 2022 Emerging 

Water Technology Symposium, Dr. Janet 

Stout, a noted infectious disease 

microbiologist from the University of 

Pittsburgh, answered a question related 

to the setting of water heaters by saying 

140 °F should be the minimum 

temperature. They state that if that is the 

case, the assumed 95 percent water 

heater may in reality be no better than 

87 to 88 percent most of the time. It is 

unclear if the proposed rule makes any 

allowance for this situation, but it will 

have a large impact on the projected 

energy savings. (PHCC, No. 28 at p. 3) 

NYSERDA supports DOE’s analytical 

approaches for temperature settings and 

DOE’s acknowledgement that in the real 

world multiple setpoints are used. 

(NYSERDA, No. 30 at p. 2) 

Bradford White noted that in the 

analysis for circulating water heaters, 

DOE assumed a storage tank size of 250 

to 350 gallons. While this overall size 

can be used, Bradford White noted that 

this is highly dependent on the 

application that the product is installed 

in. Also, if too much storage is used in 

the wrong application, it can lead to 

condensing where you do not want it. 

(Bradford White, No. 23 at p. 9). CA 

IOUs noted a water heating system is 

often composed of multiple hot water 

sources and separate hot water storage 

tanks. Separate hot water systems are 

usually needed to meet the primary 

make-up load, hot water load, and the 

secondary recirculating hot water loop 

load. Therefore, in future analysis, the 

CA IOUs recommend that DOE consider 

the interplay of these components when 

assessing heat pump water heaters. (CA 

IOUs, No. 33 at pp. 2–3) 

In response to PHCC, DOE recognizes 

that there is debate over water heater set 

points and concern with legionella 

growth in hot water systems, and there 

have been different approaches in 

practice regarding set points and 

controls for CWH systems. DOE agrees 

with comments by NYSERDA that, in 

practice, there will be some range of set 

points used. DOE also reiterates that 

that the Federal test procedure for 

commercial gas storage water heaters 

and commercial gas instantaneous water 

heaters rates the thermal efficiency of 

these products at a flow rate that 

provides for essentially a 140 °F outlet 

temperature and to provide for that in 

practice, the setpoint is set 

approximately at that temperature. 

While DOE is cognizant of the concerns 

raised by PHCC, DOE does not believe 

that a recommendation to use setpoints 

near but above 140 °F will result in the 

dramatic change in thermal efficiency 

indicated by PHCC. As previously 

stated, DOE believes that, for current 

condensing water heater designs, it is 

inlet temperature that will have a bigger 

effect on efficiency and more attention 

may need to be paid to modulating heat 

capability and how inlet water is 

introduced to systems with 

recirculation. Regarding the Bradford 

White observation on storage tank 

sizing, DOE reviewed equipment 

manuals to try to establish a reasonable 

range of storage tank sizes that would be 

typical selections for the representative 

circulating water heaters and hot water 

supply boilers units input rate 

developed unit from the engineering 

analysis. The range of storage tank sizes 

was the same as was used in the 

withdrawn May 2016 CWH ECS NOPR 

and DOE did not receive comment on 

how it could improve this selection. 

DOE appreciates the comment that there 

may be engineering aspects to the use of 

larger storage tanks but believes that its 

selection of this size range was prudent 

for the representative equipment input 

rate based on manufacturer literature 

reviewed. In a similar vein, DOE 

appreciates the comment from CA IOUs 

in terms of their understanding of the 

use of multiple and types of CWH 

equipment in developing commercial 

hot water systems and their comment 

that DOE should consider the interplay 

among these components when 

assessing heat pump water heaters. DOE 

did not consider energy conservation 

standards for commercial heat pump 

water heaters in this final rule because 

of the limited number of units on the 

market. However, DOE may analyze 

standards for commercial heat pump 

water heaters in a future rulemaking, at 

which time DOE will consider how to 

address the interplay among these 

different components in evaluating 

standards including commercial heat 

pump water heaters. 

F. Life-Cycle Cost and Payback Period 

Analysis 

DOE conducted LCC and PBP 

analyses to evaluate the economic 

impacts on individual consumers of 

potential energy conservation standards 

for CWH equipment. The effect of new 

or amended energy conservation 

standards on individual consumers 

usually involves a reduction in 

operating cost and an increase in 

purchase cost. DOE used the following 

two metrics to measure consumer 

impacts: 

• The LCC is the total consumer 

expense of equipment over the life of 

that equipment, consisting of total 

installed cost (manufacturer selling 

price, distribution chain markups, sales 


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63 DOE’s web page for CWH equipment is 

available at www1.eere.energy.gov/buildings/ 

appliance_standards/standards.aspx?productid=36. 

Last accessed on December 15, 2022. 

64Crystal BallTM is commercially-available 

software tool to facilitate the creation of these types 

of models by generating probability distributions 

and summarizing results within Excel, available at 

www.oracle.com/middleware/technologies/ 

crystalball/ (last accessed December 15, 2022). 

65More information on the types of buildings 

considered is discussed later in this section. 

CBECS: www.eia.gov/consumption/commercial/ 

data/2018/. Link last accessed on December 15, 

2022. 

66To reiterate, DOE’s web page for CWH 

equipment is available at www1.eere.energy.gov/ 

buildings/appliance_standards/ 

standards.aspx?productid=36. 

67The model being discussed in this section, the 

LCC, has no known locked cells and it is 

unprotected, meaning all cells are available for 

editing by users as stated in the text. DOE does in 

some cases lock cells and worksheets in order to 

protect proprietary data. Such is not the case with 

the LCC model used in this rulemaking, so users 

should be able to edit assumptions in this model. 

tax, 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 equipment. 

• The PBP is the estimated amount of 

time (in years) it takes consumers to 

recover the increased purchase cost 

(including installation) of a moreefficient type of equipment through 

lower operating costs. DOE calculates 

the PBP by dividing the change in 

purchase cost at higher efficiency levels 

by the change in annual operating cost 

for the year that amended or new 

standards are assumed to take effect. 

For any given efficiency level, DOE 

measures the change in LCC relative to 

the LCC in the no-new-standards case, 

which reflects the estimated efficiency 

distribution of CWH equipment in the 

absence of new or amended energy 

conservation standards. In contrast, the 

PBP for a given efficiency level is 

measured relative to the baseline 

equipment. 

DOE conducted the LCC and PBP 

analyses using a commercially available 

spreadsheet tool and a purpose-built 

spreadsheet model, available on DOE’s 

website.63 This spreadsheet model 

developed by DOE accounts for 

variability in energy use and prices, 

installation costs, repair and 

maintenance costs, and energy costs. As 

a result, the LCC results are also 

displayed as distributions of impacts 

compared to the no-new-standards-case 

(without amended standards) 

conditions. The results of DOE’s LCC 

and PBP analysis are summarized in 

section V.B.1.a of this final rule and 

described in detail in chapter 8 of the 

final rule TSD. 

As previously noted, DOE’s LCC and 

PBP analyses generate values that 

calculate the PBP for consumers of 

potential energy conservation standards, 

which includes, but is not limited to, 

the 3-year PBP contemplated under the 

rebuttable presumption test. However, 

DOE routinely conducts a full economic 

analysis that considers the full range of 

impacts, including those to the 

consumer, manufacturer, Nation, and 

environment, as required under 42 

U.S.C. 6313(a)(6)(ii). The results of this 

analysis serve as the basis for DOE to 

evaluate the economic justification for a 

potential standard level (thereby 

supporting or rebutting the results of 

any preliminary determination of 

economic justification). 

DOE expressed the LCC and PBP 

results for CWH equipment on a single, 

per-unit basis, and developed these 

results for each thermal efficiency and 

standby loss level, or UEF level, as 

appropriate. In addition, DOE reported 

the LCC results by the percentage of 

CWH equipment consumers 

experiencing negative economic impacts 

(i.e., LCC savings of less than 0, 

indicating net cost). 

DOE modeled uncertainty for specific 

inputs to the LCC and PBP analysis by 

using Monte Carlo simulation coupled 

with the corresponding probability 

distributions, including distributions 

describing efficiency of units shipped in 

the no-new-standards case. The Monte 

Carlo simulations randomly sample 

input values from the probability 

distributions and CWH equipment user 

samples. For this rulemaking, the Monte 

Carlo approach is implemented in MS 

Excel together with the Crystal BallTM

add-on.64 Then, the model calculated 

the LCC and PBP for equipment at each 

efficiency level for the 10,000 

simulations using the sampled inputs. 

More details on the incorporation of 

uncertainty and variability in the LCC 

are available in appendix 8B of the final 

rule TSD. 

For the May 2022 CWH ECS NOPR, 

DOE analyzed the potential for 

variability by performing the LCC and 

PBP calculations on a nationally 

representative sample of individual 

commercial and residential buildings. 

This same general process was used for 

this final rule analysis, however, with 

updates to the data set. One update was 

switching to CBECS 2018 consistent 

with DOE’s general practice of relying 

on updated data sources to the extent 

practicable and appropriate.65 The 

CBECS 2018 microdata needed for its 

analysis were not available when DOE 

conducted the May 2022 CWH ECS 

NOPR analysis; hence, DOE used 

CBECS 2012 (the most recent available 

version at the time) for the 2022 CWH 

ECS NOPR analysis. In this final rule, 

DOE updated its LCC model to use EIA’s 

CBECS 2018 microdata. 

Following is a discussion of the 

development and validation of DOE’s 

LCC model. Across its energy 

conservation standards rulemakings, 

DOE incorporates tools that enable 

stakeholders to reproduce DOE’s 

published rulemaking results. DOE 

routinely utilizes Monte Carlo 

simulations using Crystal Ball for LCC 

model simulation purposes. More 

specifically, utilizing a spreadsheet 

program with Crystal Ball enables DOE 

to test the combined variability in 

different input parameters on the final 

life-cycle performance of the equipment. 

The CWH LCC model specifically 

includes macros to run the standards 

analysis with default settings that 

enable stakeholders to download the 

LCC model, run it on their own 

computers, and reproduce results 

published in this final rule.66 To 

validate models, DOE develops models 

with contractors familiar with Crystal 

Ball and Monte Carlo tools and other 

models generally, and regularly tests the 

models during development, both at 

average and atypical (extreme) 

conditions. DOE further notes that the 

LCC model using the Crystal Ball 

software can output the assumed values 

and results of each assumption and 

provide forecasted results for each 

iteration in the Monte Carlo simulation, 

if desired by stakeholders to review or 

trace the output. In addition, it is 

possible to directly modify the 

assumption cells in the model to 

examine impacts of changes to 

assumptions on the LCC, and, in fact, 

DOE relies on both of these techniques 

for model testing.67 DOE additionally 

seeks expert validation by going through 

a comprehensive stakeholder review of 

the assumptions and making its models 

and TSD publicly available during the 

comment period during each phase of 

its regulatory proceedings. DOE uses the 

Monte Carlo models for predicting the 

impact of future standards, a use 

different than many other uses that are 

envisioned generally for Monte Carlo 

tools (like industrial process 

examination), so direct validation 

against data demonstrating the impact of 

future standards is not possible. With 

regard to specifying correlations 

between inputs as part of modeling 

practices, DOE notes that while one can 

specify correlation parameters between 

two variables where such correlation 


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68 Damodaran Online. Commercial Applications. 

Available at pages.stern.nyu.edu/∼adamodar/New_

Home_Page/home.htm. Last accessed on December 

16, 2022. 

69The real interest rates data for the six income 

groups (residential sector) were estimated using 

data from the Federal Reserve Board’s Survey of 

Consumer Finances (1989, 1992, 1995, 1998, 2001, 

2004, 2007, 2010, 2013, 2016, and 2019). Available 

at www.federalreserve.gov/pubs/oss/oss2/ 

scfindex.html. Last accessed on December 16, 2022. 

and the data to provide for the level of 

correlation are known, specifying such 

correlations is not necessary to maintain 

the general integrity and accuracy of the 

analytical framework. Variable values 

may be selected based on other coding 

decisions unique to each iteration (e.g., 

correlation with building type or 

location or vintage) without specific 

reference to correlation variables, and 

DOE does this routinely. For instance, 

entering water temperature and fuel 

costs are effectively correlated based on 

data and the use of the geographic 

region, which impacts both through the 

available data or models. The use of 

explicit correlations between Crystal 

Ball variables, where data are available 

to determine or represent a degree of 

correlation, absent other influences, 

would be useful, but often, DOE’s 

experience is that the data to express the 

degree of correlation are not available 

and are influenced by other factors 

already dealt with explicitly in the 

model framework. 

DOE calculated the LCC and PBP for 

all consumers as if each would purchase 

a new CWH unit in the year that 

compliance with amended standards is 

required. As previously discussed, DOE 

is conducting this rulemaking pursuant 

to its 6-year-lookback authority under 

42 U.S.C. 6313(a)(6)(C). At the time of 

preparation of the final rule analyses, 

the anticipated final rule publication 

date was 2023. Thus, for the purposes 

of the LCC modeling DOE relied on 

2023 as the expected publication date of 

a final rule. EPCA states that amended 

standards prescribed under this 

subsection shall apply to equipment 

manufactured after a date that is the 

later of (I) the date that is 3 years after 

publication of the final rule establishing 

a new standard or (II) the date that is 6 

years after the effective date of the 

current standard for a covered 

equipment. (42 U.S.C. 6313(a)(6)(C)(iv)) 

Therefore, for the purposes of its LCC 

analysis for this final rule, DOE used 

January 1, 2026 as the beginning of 

compliance with potential amended 

standards for CWH equipment. 

Recognizing that each consumer that 

uses CWH equipment is unique, DOE 

analyzed variability and uncertainty by 

performing the LCC and PBP 

calculations on a nationally 

representative stock of commercial and 

residential buildings. Commercial 

buildings can be categorized based on 

their specific activity, and DOE 

considered commercial buildings such 

as offices (small, medium, and large), 

stand-alone retail and strip-malls, 

schools (primary and secondary), 

hospitals and outpatient healthcare 

facilities, hotels (small and large), 

warehouses, restaurants (quick service 

and full service), assemblies, nursing 

homes, and dormitories. These 

encompass 93 percent of the total 

sample of commercial building stock in 

the United States. The residential 

buildings can be categorized based on 

the type of housing unit, and DOE 

considered single-family (attached and 

detached) and multi-family (with 2–4 

units and 5+ units) buildings in its 

analysis. This encompassed 95.5 

percent of the total sample of residential 

building stock in the United States, 

though not all of this sample would use 

CWH equipment. DOE developed 

financial data appropriate for the 

consumers in each business and 

building type. Each type of building has 

typical consumers who have different 

costs of financing because of the nature 

of the business. DOE derived the 

financing costs based on data from the 

Damodaran Online website.68 For 

residential applications, the entire 

household population was categorized 

into six income bins, and DOE 

developed the probability distribution 

of real interest rates for each income bin 

by using data from the Federal Reserve 

Board’s Survey of Consumer Finances.69

The LCC analysis used the estimated 

annual energy use for each CWH 

equipment category described in section 

IV.C of this final rule. Aside from energy 

use, other important factors influencing 

the LCC and PBP analyses are energy 

prices, installation costs, and equipment 

distribution markups. At the national 

level, the LCC spreadsheets explicitly 

model both the uncertainty and the 

variability in the model’s inputs, using 

probability distribution functions. 

As mentioned earlier, DOE generated 

LCC and PBP results for individual 

CWH consumers, using business type 

data aligned with building type and by 

geographic location, and DOE 

developed weighting factors to generate 

national average LCC savings and PBPs 

for each efficiency level. As there is a 

unique LCC and PBP for each calculated 

combination of building type and 

geographic location, the outcomes of the 

analysis can also be expressed as 

probability distributions with a range of 

LCC and PBP results. A distinct 

advantage of this type of approach is 

that DOE can identify the percentage of 

consumers achieving LCC savings or 

attaining certain PBP values due to an 

increased efficiency level, in addition to 

the average LCC savings or average PBP 

for that efficiency level. 

DOE calculates energy savings for the 

LCC and PBP analysis using only onsite 

electricity and natural gas usage. For 

determination of consumer cost savings, 

the onsite electricity and natural gas 

usage are estimated separately with 

appropriate electricity and natural gas 

prices, or marginal prices, applied to 

each. Primary and FFC energy savings 

are not used in the LCC analysis. 

For each efficiency level that DOE 

analyzed, the LCC analysis required 

input data for the total installed cost of 

the equipment, its operating cost, and 

the discount rate. Table IV.19 

summarizes the inputs and key 

assumptions DOE used to calculate the 

consumer economic impacts of all 

energy efficiency levels analyzed in this 

rulemaking. A more detailed discussion 

of the inputs follows. 

TABLE IV.19—SUMMARY OF INPUTS AND KEY ASSUMPTIONS USED IN THE LCC AND PBP ANALYSES

Inputs Description 

Affecting Installed Costs 

Product Cost ........................ Derived by multiplying manufacturer sales price or MSP (calculated in the engineering analysis) by distribution 

channel markups, as needed, plus sales tax from the markups analysis. 

Installation Cost .................... Installation cost includes installation labor, installer overhead, and any miscellaneous materials and parts, derived 

principally from RSMeans 2018 through 2022 data booksABC and converted to 2022$. 


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TABLE IV.19—SUMMARY OF INPUTS AND KEY ASSUMPTIONS USED IN THE LCC AND PBP ANALYSES—Continued 

Inputs Description 

Affecting Operating Costs 

Annual Energy Use .............. Annual unit energy consumption for each class of equipment at each efficiency and standby loss level estimated 

at different locations and by building type using building-specific load models and a population-based mapping 

of climate locations. The geographic scale used for commercial and residential applications are Census Divisions and reportable domains respectively. 

Electricity Prices, Natural 

Gas Prices.

DOE developed average residential and commercial electricity prices based on EIA Form 861M, using data for 

2022.D Future electricity prices are projected based on AEO2023. DOE developed residential and commercial 

natural gas prices based on EIA State-level prices in EIA Natural Gas Navigator, using data for 2022.E Future 

natural gas prices are projected based on AEO2023. 

Maintenance Cost ................ Annual maintenance cost did not vary as a function of efficiency. 

Repair Cost .......................... DOE determined that the materials portion of the repair costs for gas-fired equipment changes with the efficiency 

level for products. The different combustion systems varied among different efficiency levels, which eventually 

led to different repair costs. 

Affecting Present Value of Annual Operating Cost Savings 

Product Lifetime ................... Table IV.21 provides lifetime estimates by equipment category. DOE estimated that the average CWH equipment 

lifetimes range between 10 and 25 years, with the average lifespan dependent on equipment category based 

on estimates cited in available literature.F

Discount Rate ....................... Mean real discount rates (weighted) for all buildings range from 3.2% to 5.0%, for the six income bins relevant to 

residential applications. For commercial applications, DOE considered mean real discount rates (weighted) 

from 10 different commercial sectors, and the rates ranged between 3.2% and 7.2%. 

Analysis Start Year .............. Start year for LCC is 2026, which would be the anticipated compliance year for adopted standards. 

Analyzed Efficiency Levels 

Analyzed Efficiency Levels .. DOE analyzed baseline efficiency levels and up to five higher thermal efficiency levels for commercial gas-fired 

storage water heaters, commercial gas-fired tankless water heaters, and commercial gas-fired instantaneous 

circulating water heaters and hot water supply boilers. For residential-duty gas-fired storage, DOE analyzed 

baseline and up to five higher UEF levels which combine thermal efficiency and standby loss improvements. 

See the engineering analysis for additional details on selections of efficiency levels and costs. 

A RSMeans. 2017 through 2022 Plumbing Costs with RSMeans Data. RSMeans data available at www.rsmeans.com/products/books, though 

when last accessed, the 2022 books no longer appeared to be available. B RSMeans. 2022 Facilities Maintenance & Repair Costs with RSMeans Data. RSMeans data available at www.rsmeans.com/products/books. C RSMeans. Estimating Costs with RSMeans Data, CostWorks CD, Mechanical Costs for 2021 and 2022, and 2018 through 2020 Mechanical

Cost with RSMeans Data. Available www.rsmeans.com/2022-mechanical-cost-data-cd. RSMeans links last accessed on April 19, 2023. D U.S. Energy Information Administration (EIA). Average Retail Price of Electricity (Form EIA–861M). Available at www.eia.gov/electricity/ 

data.php. Last accessed on March 31, 2023. E U.S. Energy Information Administration (EIA). Average Price of Natural Gas Sold to Commercial Consumers—by State. Available at 

www.eia.gov/dnav/ng/ng_pri_sum_a_EPG0_PCS_DMcf_a.htm. Prices for Residential Consumers are available at the same site using the Data 

Series menu. EIA data last updated March 31, 2023, and accessed on March 31, 2023. FAmerican Society of Heating, Refrigerating, and Air-Conditioning Engineers. 2011 ASHRAE Handbook: Heating, Ventilating, and Air-Conditioning Applications. 2011. Available at www.ashrae.org/resources—publications. Last accessed on October 16, 2016. 

In response to the May 2022 CWH 

ECS NOPR, DOE received numerous 

general comments related to the LCC 

and PBP analysis. Atmos Energy and 

Joint Gas Commenters state that DOE 

should break storage and instantaneous 

water heaters out separately for 

purposes of LCC and PBP analysis. 

(Atmos Energy, No. 36 at pp. 4–5; Joint 

Gas Commenters, No. 34 at p. 33) In 

section III.B.6, DOE discusses the 

determination that commercial gas-fired 

storage water heaters and storage-type 

gas-fired instantaneous water heaters 

would be treated jointly for purposes of 

the final rule. Because they are being 

treated jointly, modeling them 

separately in the LCC and PBP analysis 

was seen as confusing and unnecessary. 

As noted in section IV.E, many 

commenters said DOE should update to 

more recent RECS and CBECS data. CA 

IOUs indicated support for DOE’s 

proposed minimum efficiency standards 

if DOE updated the analyses with newer 

data including specifically the more 

recent CBECS and RSMeans data. AHRI 

stated their concern about DOE is using 

older CBECS and RECS data which they 

termed ‘‘outdated data,’’ and that this 

could cause DOE to underestimate the 

true impacts to consumers. AHRI 

recommended that DOE conduct 

updated analysis where existing data 

sources are out of date. (CA IOUs, No. 

33 at p. 1; AHRI, No. 31 at p. 2) DOE 

acknowledges the CA IOUs and AHRI 

comments and notes that the LCC and 

PBP analysis has been updated to 

include the 2018 CBECS, but as 

discussed in section IV.E, DOE 

maintained use of the 2009 RECS. 

PHCC believes that the economic 

analysis has several deficient factors 

and as a result it would be difficult to 

rely on the projected energy savings, 

cost of materials, labor costs and times 

presented by DOE to do certain aspects 

of the work. PHCC encourages DOE to 

update the basic information in the LCC 

model to reflect current 2022 conditions 

in the marketplace. (PHCC, No. 28 at pp. 

10–11) As discussed in the subsections 

below, DOE has updated a large number 

of the inputs used in the LCC and PBP 

analyses. Some inputs such as the U.S. 

Economic Census underlying the 

Markups Analysis cannot be updated 

because the 2017 census remains the 

most recent census. 

Patterson-Kelley stated concerns that 

the methodology to generate the RECS 

and CBECS data sets marginalizes large 

portions of the country. (PattersonKelley, No. 26 at p. 2) WM Technologies 

expressed a similar concern adding the 

data exhibit a bias toward larger revenue 

generating areas and larger buildings. By 

doing so they believe CBECS exhibits an 

unrecognized bias against underserved 

communities and populations. 

Buildings and homes in rural and lower 


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revenue areas typically have less 

insulation while larger cities typically 

have more exacting building codes and 

enforcement. Therefore, the current 

CBECS approach also erroneously 

minimizes actual variation in the LCC 

results, with the largest errors in the 

impact to disadvantaged and 

underserved communities and small 

businesses. WM Technologies also 

called on DOE to provide the impact to 

the results from using different sources 

of information than RECS and CBECS 

and provide realistic modeling by 

accounting for documented 

uncertainties and variation to the inputs 

used in the analysis. (WM Technologies, 

No. 25, at pp. 4–5) Patterson-Kelley and 

WM Technologies stated that any LCC 

modeling must include the variation in 

the CBECS and RECS data sets, 

consistently relating to all references to 

the location-specific information of the 

home or building modeled as this will 

better utilize the variation and energy 

usage on average, identified in the 

national energy surveys noted in the 

2015 RECS comparison with other 

studies. (Patterson-Kelly, No. 26, at pp. 

2, 4; WM Technologies, No. 25 at p. 4– 

5) DOE disagrees with the conclusions 

reached in WM Technologies’ and 

Patterson-Kelley’s comments, as was 

pointed out in section III.E in which 

DOE addressed the majority of WM 

Technologies and Patterson-Kelley’s 

comment. CBECS and RECS datasets are 

nationally representative datasets 

available for public use. Since the 

commenters did not suggest specific 

different sources of information when 

calling on DOE to provide the impacts 

from using different sources of 

information, this suggestion seems to 

not be feasible to DOE. DOE agrees that 

the EIA sampled major cities with 

certainty as stated by WM Technologies 

and Patterson-Kelly, but questions 

whether electing to not take the chance 

that a major commercial hub like 

Chicago would be excluded from CBECS 

samples due to pure random chance in 

the sampling selection represents bias as 

alleged in these comments. Regardless, 

at the end of the process EIA assigns 

weights to buildings. So, a large 

building in downtown New York City 

receives a low building weight because 

there are very few such buildings, while 

smaller buildings characteristic of rural 

areas get much higher weights because 

there are large numbers of them across 

the country. 

The Joint Gas Commenters offered 

several reactions to DOE’s discussion of 

LCC and claimed that they overall 

believe the standards are not 

economically justified nor supported by 

clear and convincing evidence. Firstly, 

they stated that DOE’s LCC results 

shows that consumers barely break even 

with LCC savings ranging from 0.58 to 

1.25 percent of total LCC. They further 

offered their opinion that because DOE 

has addressed some variability of inputs 

in the model but has not addressed all 

uncertainties about the ranges and 

distributions of inputs to the model, the 

proposed standards could impose net 

costs, and that this does not provide the 

clear and convincing evidence needed 

to amend the standards. (Joint Gas 

Commenters, No. 34 at pp. 14–15) 

Additionally, they noted that DOE 

performed the analysis by building up 

to the price that consumers pay for 

products and their installation and 

related costs, rather than collecting 

‘‘actual’’ data. They pointed to 

assumptions made and offered their 

opinion that DOE must locate suitable 

data, and lacking such, must resolve 

against amending the standards. (Joint 

Gas Commenters, No. 34 at pp. 16–17) 

In response, DOE addresses similar 

‘‘clear and convincing evidence’’ 

comments in section III.A of this 

document. 

DOE notes that the LCC savings 

presented in the 2022 CWH ECS NOPR 

represent an overall average, reflecting 

the fractions of consumers that are 

better off and that are worse off due to 

the proposed standard, as well as a 

significant percentage of consumers for 

whom the standard has no effect 

because they already purchase 

equipment that meet the standard. In 

this final rule, the LCC savings represent 

an average of the affected consumers 

only, excluding those for whom the 

standard has no effect. The LCC savings 

in the final rule also reflect changes 

DOE has made to address comments 

received on the NOPR. For example, 

given stakeholder comments on the 

withdrawn 2016 CWH ECS NOPR that 

there may be consumer with 

extraordinary installation costs, the 

2022 CWH ECS NOPR introduced an 

extraordinary cost factor which resulted 

in increased installation costs by a 

factor from 200 to 300 percent for a 

small percentage of customers. For the 

2022 CWH ECS NOPR that percentage of 

consumers was 2 percent, a figure that 

DOE retained in the final rule analysis. 

In the final rule analysis, DOE has 

increased the fraction of consumers that 

install condensate pumps and increased 

the fractions of consumers installing 

condensate neutralizers. In addition, 

DOE updated the installation costs and 

venting materials costs based on the 

most current available data. These 

changes and other are discussed in 

IV.F.2 of this document. 

DOE notes that while Joint Gas 

Commenters are correct that the relative 

LCC savings may be small, DOE 

considers other factors when assessing 

whether there is clear and convincing 

evidence that a standard is 

economically justified, such as PBP and 

the NIA. For example, a major reason for 

the small LCC savings is the cost of 

associated venting (discussed more in 

section IV.F.2 of this document). 

However, DOE believes it reasonable to 

assume that once the venting has been 

installed, it will also be usable in the 

future when the CWH equipment is 

replaced. This benefit is captured in the 

longer-term NIA, which includes 

replacement of water heaters as they 

reach the end of their useful life. 

However, DOE did not capture the 

residual value of the venting system in 

the LCC analysis as the LCC analysis 

ends at the end of the useful life of the 

CWH unit. Moreover, DOE notes that, 

for each equipment type, the simple 

payback period is shorter than the 

equipment life, particularly for the 

instantaneous products where the 

payback period is approximately half of 

the expected equipment lifetime. So, 

while Joint Gas Commenters are correct 

that the relative LCC savings may be 

small due to the standard, that fact 

alone is not the end of DOE’s economic 

justification analysis. Further discussion 

of the results of all of DOE’s economic 

analyses and DOE’s conclusions may be 

found in section V of this document. 

DOE disagrees that there are 

unresolved uncertainties, and has 

determined the issues raised in 

comments on the May 2022 CWH ECS 

NOPR have been sufficiently addressed 

to resolve any alleged uncertainties. As 

for whether ‘‘building up costs’’ is a 

reasonable approach, DOE relied 

primarily on data from RSMeans and 

other nationally recognized sources to 

develop its cost analyses. These 

resources provided itemized data at 

each step of the process and in 

particular to the LCC discussions, on the 

installation and removal costs of both 

equipment and venting systems, as well 

as the installation costs of condensate 

drainage systems, electrical outlets, and 

chimney relining. The itemization of 

these costs was at the component level 

for both labor and material, and in both 

the commercial and residential sectors, 

which allowed DOE to develop an 

appropriate set of installation scenarios 

to factor into the lifecycle cost analysis. 

The use of these resources also provided 

DOE with a consistent evaluation of 

costs with a consistent set of location 

adjustments for each residential and 


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70 DOE notes that RSMeans publishes data books 

in November or December for use the following 

year; hence, the 2022 data book has a 2021 

copyright date. 

71Whitestone Research. The Whitestone Facility 

Maintenance and Repair Cost Reference 2012–2013 

(17th Annual edition). 2012. Whitestone Research: 

Santa Barbara, CA. 

commercial region included in the 

analysis. For these reasons, DOE 

believes the sources relied upon were 

valid and appropriate for the 

development of installed equipment 

costs. Moreover, DOE notes that surveys 

of existing contractor quotes may not 

adequately separate equipment costs 

from installation costs since installing 

contractors would commonly be selling 

and marking up equipment as well as 

installation labor. DOE has observed 

that contractor quotes are often lump 

sum prices and getting contractors to 

disaggregate such prices has historically 

been difficult. Thus, use of surveys 

would not provide the level of detailed 

information needed to assess 

installation costs. 

1. Equipment Cost 

To calculate consumer equipment 

costs, DOE multiplied the MSCs 

developed in the engineering analysis 

by the markups described previously 

(along with sales taxes) in section IV.D 

of this document. DOE used different 

markups for baseline equipment and 

higher-efficiency equipment because 

DOE applies an incremental markup to 

the increase in MSP associated with 

higher-efficiency products. For each 

equipment category, the engineering 

analysis provided equipment costs for 

the baseline equipment and up to five 

higher equipment efficiencies. For the 

withdrawn 2016 CWH ECS NOPR, DOE 

examined whether available data 

suggested that equipment costs for CWH 

equipment would change over time in 

constant real dollar terms, indicating the 

potential for a ‘‘learning’’ or 

‘‘experience’’ curve in equipment prices 

that might indicate further reductions in 

equipment price might be expected. In 

the data reviewed, DOE did not identify 

a clear long term historical price trend 

for CWH equipment.. As DOE has seen 

no direct evidence to overturn that 

earlier decision, DOE used costs 

established in the engineering analysis 

directly for determining 2026 

equipment costs and future equipment 

costs (equipment is purchased by the 

consumer during the first year in 2026 

at the estimated equipment price, after 

which the equipment price remains 

constant in real dollars). See chapter 10 

of the final rule TSD for more details. 

The markup is the percentage increase 

in cost as the CWH equipment passes 

through distribution channels. As 

explained in section IV.D of this final 

rule, CWH equipment is assumed to be 

delivered by the manufacturer through a 

variety of distribution channels. There 

are several distribution pathways that 

involve different combinations of the 

costs and markups of CWH equipment. 

The overall resulting markups in the 

LCC analysis are weighted averages of 

all of the relevant distribution channel 

markups. 

2. Installation Cost 

Installation cost includes labor, 

overhead, and any miscellaneous 

materials and parts needed to install the 

CWH equipment. Total installed cost 

includes the retail cost of the CWH 

equipment and its corresponding 

installation costs. Installation costs vary 

by efficiency level, primarily due to 

venting costs. For new construction 

installations, the installation cost is 

added to the equipment cost to arrive at 

a total installed cost. For replacement 

installations, the costs to remove the 

previous equipment (including venting 

when necessary) and the installation 

costs for new equipment, including 

venting and additional expenses, are 

added to the product cost to arrive at the 

total replacement installation cost. 

DOE derived national average 

installation costs for commercial 

equipment from data provided in 

RSMeans data books.70 RSMeans 

provides estimates for installation costs 

for CWH units by equipment capacity, 

as well as cost indices that reflect the 

variation in installation costs for 295 

cities in the United States. The 

RSMeans data identify several cities in 

each of the 50 States, as well as the 

District of Columbia. DOE incorporated 

location-based cost indices into the 

analysis to capture variation in 

installation costs, depending on the 

location of the consumer. Based upon 

the RSMeans data, relationships were 

developed for each product subcategory 

to relate the amount of labor to the size 

of the product—either the storage 

volume or the input rate. Generally, the 

RSMeans data were in agreement with 

other national sources, such as the 

Whitestone Facility Maintenance and 

Repair Cost Reference.71

DOE calculated venting costs for each 

building in the CBECS and RECS. A 

variety of installation parameters impact 

venting costs; among these, DOE 

simulated the type of installation (new 

construction or retrofit), water heater 

type, draft type (atmospheric venting or 

power venting), building vintage, 

number of stories, and presence of a 

chimney. A combination of Crystal Ball 

variable distributions and Microsoft 

Excel macros and spreadsheet 

calculations are used to address the 

identified variables to determine the 

venting costs for each instance of 

equipment for each building within the 

Monte Carlo analysis. With regard to the 

venting material for condensing 

equipment, the primary assumptions 

used in this logic are listed as follows: 

• 25 percent of commercial buildings 

built prior to 1980 were assumed to 

have a masonry chimney, and 25 

percent of masonry chimneys required 

relining. 

• Condensing equipment with vent 

diameters smaller than 5 inches were 

modeled using PVC (polyvinyl chloride) 

as the vent material. 

• Condensing equipment with vent 

diameters of 8 inches or greater were 

assigned AL29–4C (superferritic 

stainless steel) as the vent material. 

• Condensing equipment with vent 

diameters of 5 inches and up to 8 inches 

were assigned vent material based on a 

random selection process in which, on 

average, 50 percent of installations 

received PVC as the vent material and 

the remaining received AL29–4C. 

• 5 percent of all condensing CWH 

equipment installations were modeled 

as direct vent installations. The intake 

air pipe material for condensing 

products was modeled as PVC. 

Additional details of the venting logic 

sequence are found in chapter 8 and 

appendix 8D of the final rule TSD. 

a. Data Sources 

For this final rule analysis, DOE used 

the most recent datasets available at the 

time the analysis was conducted. DOE 

routinely updates data to the most 

recent datasets available at its various 

rulemaking stages and has updated the 

CWH equipment LCC model with the 

most recent data estimates available for 

this final rule, including use of the 2018 

CBECs and 2022 RSMeans data 

(including 2022 RSMeans Plumbing 

Costs Data, 2022 RSMeans Mechanical 

Cost Data, and 2022 RSMeans Facility 

Maintenance and Repair Costs). In 

reviewing the 2022 RSMeans cost books, 

DOE noted a rapid escalation of prices 

from 2021 to 2022 for installation 

materials including PVC pipes and 

related connectors and hangers, Type B 

venting and associated materials, and 

stainless steel. The 2022 escalation in 

these prices relative to 2021 exceeded 

the escalation seen in previous years’ 

prices. DOE believes the 2022 escalation 

is related to the Covid-19 pandemic and 

the supply chain bottleneck arising 

during the pandemic. Because these 

input materials are generally 

undifferentiated between manufacturers 

and subject to supply and demand 


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forces much like other construction 

materials like lumber or commodities 

such as steel, DOE believes that prices 

will eventually revert to something akin 

to historical trends. To capture prices 

more consistent with long-term 

escalation trends, DOE used a 5-year 

average of prices for PVC and Type B 

venting and related components, and for 

Series 300 stainless steel venting 

materials derived from RSMeans 2018 

through 2022 data books. For AL29–4C 

stainless steel, DOE had access to 4 

years of data from the source that DOE 

has used in this rulemaking, for the 

years 2018 and 2020 through 2022. For 

AL29–4C, DOE used an average of these 

4 years. For the RSMeans data and the 

AL29–4C data, all prices not originally 

denominated in 2022$ were inflated to 

2022$ using the GDP Implicit Price 

Deflator. 

Bradford White disagreed that 

installation or removal cost does not 

vary with thermal efficiency as more 

efficient products are typically heavier 

than their less efficient counterparts. 

They stated this translates into more 

people and/or equipment being required 

to position the new water heater, which 

will drive up installation costs. Bradford 

White also noted that condensate 

removal must be accounted for at 

condensing levels. Bradford White also 

suggested that equipment costs will 

influence installation costs, although 

that may not be detailed as such on the 

invoice. (Bradford White, No. 23 at p. 8) 

DOE, in response to Bradford White’s 

comments, notes that it did not explore 

relative weights between noncondensing and condensing equipment 

of the same capacity but notes that the 

data sources used by DOE indicated 

installation labor was a function of the 

input rating of the equipment which 

will in turn determine the size 

(dimensions) of the equipment. DOE 

based the labor assumption on the input 

rates of the representative models, and 

because the input rate does not change 

by EL, DOE’s estimated labor also does 

not change by EL. Commercial water 

heaters are generally large and already 

require multiple persons during the 

installation, and DOE believes the size 

differences between ELs would 

generally be small enough to be unlikely 

to impact the number of people needed 

to install or remove equipment. DOE 

agrees that condensate disposal is a 

factor leading to differing installation 

costs, and addresses the cost of 

condensate removal in IV.F.2.b of this 

document. To the extent that a 

contractor bases the installation cost on 

equipment costs, the contractor is likely 

applying a markup to the equipment to 

recover their own costs. DOE does 

include contractor markups in the 

determination of retail price as well as 

markups embedded in other inputs to 

the process such as the labor costs. 

Beyond that, DOE was not provided 

with sufficiently specific data for DOE 

to assess whether there is basis on 

which to account for such markups. 

Bradford White stated the labor rate 

DOE used for the commercial sector 

used, at $89 per hour, is in their opinion 

more representative of the top end of the 

residential sector labor rates, and 

commercial sector rates are in excess of 

$125 per hour. They also stated DOE is 

correct that regional adjustments need 

to be made to this value, but the low 

end for North and South Carolina is too 

low at 0.59. (Bradford White, No. 23 at 

p. 8) PHCC also believes that the labor 

rates used by DOE are significantly 

understated. PHCC notes that the U.S. 

Department of Labor (‘‘DOL’’) publishes 

information about prevailing wage rates 

for localities across the country, and the 

Biden Administration through DOL has 

made efforts to expand the use of such 

information in hopes of promoting fair 

and equitable employment 

opportunities. It would seem that using 

this information would align with the 

goals of the Biden Administration 

through DOE as well, PHCC stated. 

PHCC does express concern that the 

labor assumptions made by DOE are 

outdated, that the labor market has 

changed post COVID–19 with worker 

shortages driving up pay and benefits 

and that DOE should evaluate its 

assumptions. PHCC provided to DOE a 

sample table of commercial building 

plumber rates, with employer costs and 

markups for each State as an example to 

DOE, with a resulting average cost of 

$106/hr. While the sample table PHCC 

provided used a random county in each 

State, PHCC notes that a weighted 

scheme should be incorporated to 

accurately gauge State averages as 

plumber rates in high population areas 

would apply to a greater fraction of the 

population or sales. (PHCC, No. 28 at p. 

10) DOE acknowledges the information 

provided by Bradford White and PHCC, 

and notes that the data source used by 

DOE for labor rates and for the regional 

indexes is a nationally recognized 

source for labor rates. Using the regional 

adjustment factors for individual states, 

four states meet or exceed Bradford 

White’s $125 value. The State factors 

developed by DOE are a weighted 

average of individual city rates. Thus, 

depending on where Bradford White 

observed the rates they are citing, they 

are well within the range used by DOE. 

Additionally, DOE’s regional multipliers 

for North and South Carolina are 

consistent with other southern states. 

With respect to PHCC’s suggestion about 

the prevailing wage, DOE uses the 

RSMeans values because they are from 

a nationally recognized source, 

collected by surveys. With this in mind, 

DOE elected to continue to use 

RSMeans data with the only change 

being to update to the current RSMeans 

values available when the analysis was 

performed. 

Joint Gas Commenters stated that 

labor costs for CWH replacements are 

typically not standard rates but are 

premium rates due to overnight hours. 

Joint Gas Commenters also stated DOE 

inadequately accounted for uncertainty 

about labor costs. (Joint Gas 

Commenters, No. 23, at pp. 14 and 18) 

In response, while Joint Gas 

Commenters suggested that labor costs 

for CWH replacements are typically not 

standard rates, they did not provide data 

to support this. DOE is aware that some 

businesses that rely on water heaters for 

production (e.g., food service) might opt 

for a night replacement. However, many 

other building types (offices, retail, 

schools) can and do readily make 

changes such as replacing water heaters 

during the day as the outage, while 

inconvenient, does not limit operations. 

Two other large users are hotels and 

health care facilities. All hotels and 

many health care facilities (e.g., 

hospitals) are already 24/7 facilities, and 

it is unclear that an over-night water 

heater replacement is an improvement 

over a day-time replacement from the 

viewpoint of providing for hot water. 

Many of these facilities rely on multiple 

water heater plants so hot water can be 

available at some level if problems arise 

with a given unit (as is pointed out later 

by the Joint Gas Commenters in their 

comments). DOE believes many larger 

food service business may do the same 

and where they do not use multiple 

water heaters, both non-condensing and 

condensing units may be replaced at 

night (i.e., efficiency of the units is not 

particularly relevant to timing of 

installation). Further, most food service 

buildings are relatively small low rise 

one or two-story buildings commonly 

with the water heater associated with 

the kitchen space and typically on a 

separate, outside portion from the 

dining space and with floor drains 

already in close proximity. This 

minimizes or eliminates factors 

potentially leading to difficult 

installations, namely, most food service 

buildings will not be many-storied 

buildings with difficult vertical venting 

installations and in fact many may be 

able to use less costly and simpler 

horizontal venting. In addition, where 


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72See www.iccsafe.org/content/internationalplumbing-code-ipc-home-page/. The model 

International Plumbing Code has been adopted 35 

States for State or local plumbing codes. 

73 International Code Council. 2018 International 

Plumbing Code (IPC). Available from 

www.iccsafe.org. 74 International Association of Plumbing & 

Mechanical Officials (IAMPO). 2021 Uniform 

Plumbing Code. Available from iapmo.org. 

water heaters are installed in 

commercial kitchen areas, floor drains 

will typically exist already for code and 

safety reasons. DOE believes that 

installation of condensing water heater 

venting may in fact be less difficult for 

food service buildings than in other 

buildings, meaning that the installation 

time will be more manageable. To the 

extent the replacement needs to take 

place at night, such would occur 

regardless of the efficiency of the 

equipment. Accordingly, for the final 

rule, DOE did not apply any factor to 

increase the labor costs above what was 

available in RSMeans. 

b. Condensate Removal and Disposal 

In the May 2022 CWH ECS NOPR, 

DOE based assumptions concerning the 

need for condensate removal and 

disposal in part on DOE’s understanding 

of the International Plumbing Code.72

The International Plumbing Code calls 

for temperature and pressure relief 

valves to be piped to drain, which 

means that non-condensing CWH 

equipment should already have an 

existing drainage system. An additional 

factor underlying DOE’s assumptions is 

the fact that a condensate neutralizer is 

not required in certain jurisdictions, 

though it is good design practice. 

In response to these underlying 

factors the May 2022 CWH ECS NOPR 

analysis assumed a condensate 

neutralizer was assigned to 12.5 percent 

of replacement installations (which was 

unchanged from the assumption used in 

the withdrawn May 2016 CWH ECS 

NOPR). The cost of heat tape was 

assigned to 10 percent of replacement 

installations, and the cost of an 

electrical outlet specifically for heat 

tape was added for 10 percent of 

instances in which heat tape was 

installed. 

JJM Alkaline stated that DOE’s 

assumption of 12.5 percent of water 

heater installations needing condensate 

neutralizers for condensing equipment 

is too low, noting that the U.S. 

Environmental Protection Agency 

(‘‘EPA’’) and many municipalities have 

codes regarding acidic condensate 

discharge into public works and the 

acidic condensate from heating 

appliances is generally 2.9 to 4.0 pH, 

which is below the threshold of 5.0 pH. 

(JJM Alkaline, No. 10 at p. 1) Bradford 

White recommended increasing the 

percentage of installations that utilize a 

condensate neutralizer, stating that for 

installations that are over 200,000 Btu/ 

hr, the percentage is closer to 75 percent 

(because those installations are more 

likely to be inspected due to pressure 

vessel requirements) while for 

installations under 200,000 Btu/hr, the 

percentage is above the estimated 12.5 

percent and growing. (Bradford White, 

No. 23 at p. 8) 

Regarding the comments on the use of 

condensate neutralizers from JJM 

Alkaline and Bradford White, DOE 

reviewed the applicable IPC73 and 

Uniform Plumbing Code (‘‘UPC’’) 74 as 

the two most widely used model 

plumbing codes in the United States. 

Both documents have relevant sections. 

The IPC requirement (IPC 2019 section 

803.2) is titled ‘‘Neutralizing device 

required for corrosive wastes’’ and is a 

more general requirement for ‘‘Corrosive 

liquids, spent acids or other harmful 

chemicals that destroy or injure drain, 

sewer, soil or waste piping, or create 

noxious or toxic fumes or interfere with 

sewage treatment processes.’’ Where 

such harmful chemicals exist (as 

determined by the authority having 

jurisdiction), the IPC requires such 

corrosive wastes to be diluted or 

neutralized using an ‘‘approved’’ 

dilution or a neutralizing device. The 

UPC (UPC 2021 803.2) by contrast refers 

specifically to condensate from fuel 

burning condensing appliances, and 

where such condensate is discharged 

into a drain, the material in the drainage 

system must be cast-iron, galvanized 

iron, plastic, or other material approved 

for this use. DOE examination of these 

suggests that the IPC and similar local 

code requirements would be more likely 

to result in the use of condensate 

neutralizers, particularly in new 

construction. DOE evaluated the 

population weighting of States subject 

to the IPC or UPC and determined that 

approximately 73 percent of the U.S. 

population would be in States or 

jurisdictions that fall under the IPC or 

similar code requirements. DOE also 

reviewed available data on States that 

require ASME stamps and ASMErelated inspections for water heating 

equipment and what thresholds are 

used but recognizes that such 

inspections are safety inspections of the 

equipment and would not generally 

address condensate disposal issues. 

Based on its analysis of the language of 

these requirements and discussions 

with others in the industry, DOE revised 

the estimate of equipment using 

condensate neutralizer upwards, using 

an average for new construction of 60 

percent and separately 30 percent for 

replacement equipment in the LCC 

analysis. Both the assumed prevalence 

of condensate neutralization equipment 

and the expected cost of such 

equipment are discussed in chapter 8 of 

the final rule TSD. 

PHCC stated its members are 

concerned with the need for condensate 

disposal with higher efficiency 

equipment, noting DOE reduced the 

instances where additional work would 

be required assuming that the 

International Plumbing Code requires a 

floor drain. PHCC disagrees, stating 

section 502 of the code does not require 

a drain; instead, it requires the relief 

valve to discharge to a suitable location 

such as a floor, water heater drain pan, 

waste receptor, or outdoors. In addition, 

it requires that relief valves, as 

emergency devices, are allowed to 

discharge to the floor and in most cases 

that is what they do. Service personnel 

are directed to solve the problem. 

Condensate however is an ongoing 

discharge, and a method of disposal is 

required per section 314.1 of the 

International Plumbing Code (‘‘IPC’’). 

Further they note that while in some 

instances existing installation floor 

drains may be present, additional piping 

may be required to get to the drain 

location, and if that presents a trip 

hazard, owners may elect to have a 

pump installed regardless. They 

comment that this situation will impact 

more than 10 percent of installations 

and likely more than 50 percent. PHCC 

also noted that in a new installation 

without new standards, consumers 

currently do not have to purchase 

condensing products. (PHCC, No. 28 at 

pp. 6–7) PHCC agrees that many new 

installations opt for high efficiency 

products already, but perhaps 25 

percent to 30 percent would not. As 

such, some allowance should be 

included in new installations for 

additional condensate disposal 

expenses. (PHCC, No. 28 at pp. 6–7) 

Joint Gas Commenters noted many 

commercial buildings with noncondensing equipment were not 

designed with plumbing systems to 

dispose of condensate. (Joint Gas 

Commenters, No. 34 at p. 4) 

DOE interprets the comment from 

Joint Gas Commenters regarding existing 

buildings not designed with plumbing 

systems to dispose of condensate to 

refer to both condensate neutralization, 

which DOE addressed previously, and 

condensate disposal which is discussed 

here. With regard to the point raised by 

PHCC, DOE reviewed the language in 

the IPC and agrees with PHCC that the 

code does not require a floor drain be 


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75See www.nyc.gov/assets/buildings/apps/pdf_

viewer/viewer.html?file=2022FGC_Chapter5_

ChimneysVentsWB.pdf§ion=conscode_2022, p. 

7. 

present in spaces where a water heater 

exists and allows for other means of 

dealing with discharge. In locations 

where drainage from the T&P valve 

could cause damage, it requires a pan 

and some method of disposal (either to 

the exterior of the building, a sump, or 

a floor drain). In a situation where 

discharge would not cause damage, 

water release could be handled as a 

maintenance call as noted by PHCC. 

DOE examined the UPC requirements 

for floor drains as well and notes the 

UPC does not appear to require floor 

drains for water heater temperature and 

pressure discharge valves explicitly. 

The UPC does have requirements for 

floor drains in certain areas, including 

what would be most commercial 

restrooms (see definition, commercial 

kitchens, commercial laundry spaces, 

and boiler rooms). The International 

Mechanical Code, part of the ICC series 

of building codes also requires floor 

drains. DOE examined other codes 

adoptions that occur at the municipal or 

State level, and requirements for drains 

in non-boiler mechanical rooms seem to 

occur through amendments in certain 

codes. For example, the New York City 

code 501.16 seems to require drains at 

the base of all chimneys and gas vents.75

In addition, DOE notes that mechanical 

rooms that must deal with condensate 

from air handlers will typically require 

some method of condensate disposal. 

However not all such rooms will also be 

used for water heaters. In rooms that 

have pumps, it appears that some form 

of drain will be common for 

convenience to deal with replacement 

or leakage. DOE believes that in many 

locations where commercial water 

heaters are installed, it appears that 

drainage in the form of floor drains, 

trench drains, etc., will be provided for 

or will be close by in existing buildings 

and expects this to be more common in 

the case of new construction, in part 

due to the prevalence of condensing 

equipment. However, DOE does agree 

that the ability to gravity drain 

condensate may be limited in existing 

construction and in the NOPR included 

the 10 percent factor. While DOE agrees 

with PHCC that there may be factors at 

work such as avoiding a tripping 

hazard, it is speculative to DOE how 

this leads to a fraction as high as 50 

percent as stated by PHCC. PHCC is 

speculating that there in as many as half 

or more cases there may be a floor drain 

present that building owners would 

choose not to use and instead pump 

condensate to some other location. DOE 

believes this is a highly speculative 

statement that implies that even where 

a floor drain exists, in a majority of 

cases there is an alternative location in 

which to dispose of condensate and 

owners would choose to incur 

additional installation costs to reach 

that alternative drainage location. That 

said, because the tripping hazard is a 

possible concern not embodied in DOE’s 

original 10 percent factor, DOE modified 

the LCC to increase the fraction of 

installations with condensate pumps to 

15 percent. 

For this final rule, DOE also 

conducted research on the appropriate 

condensate pump size and associated 

cost for each equipment category, which 

resulted in an update to the condensate 

pump assignment for residential-duty 

and commercial gas-fired storage water 

heaters. For the withdrawn May 2016 

CWH ECS NOPR, DOE used one 

condensate pump for all equipment 

types while for the May 2022 CWH ECS 

NOPR and this final rule DOE used two 

sizes of condensate pumps to reflect 

difference in input rates between 

classes. Chapter 8 of the TSD contains 

more information on the methodology, 

raw costs, and sources for the 

installation cost for condensate removal. 

c. Vent Replacement 

In both the withdrawn May 2016 and 

the May 2022 CWH ECS NOPRs and in 

this final rule, DOE conducted its 

analysis under the assumption that 

condensing CWH equipment would 

commonly use the same, typically 

vertical, chase for the venting system as 

the non-condensing CWH equipment 

that it replaces. DOE recognizes that 

each venting situation may be unique 

and will depend on the location where 

the water heater is installed within the 

building, whether new construction or 

replacement, the height of the building 

and or distance to the outside wall. In 

new construction the latter two 

variables will in fact be influenced, in 

part, on the water heater and water 

heater efficiency levels selected. In an 

existing building that uses noncondensing water heaters, the most 

common path for exhaust is expected to 

be a vertical chase and flue or chimney, 

which formed the basis of DOE’s 

analysis, although DOE recognizes that 

other existing building flue scenarios 

may exist including horizontal power 

venting of non-condensing equipment, 

vertical power venting of noncondensing equipment, and exterior. 

For this final rule, DOE maintained its 

venting methodology and associated 

venting costs for scenarios in which 

non-condensing CWH equipment is 

replaced by condensing CWH 

equipment. 

DOE incorporated the sleeving of 

existing vent systems in its May 2022 

CWH ECS NOPR analysis. For existing 

buildings with natural draft (Type B) 

venting systems that have no elbows 

and possess vent lengths less than or 

equal to 30 feet, DOE assigned sleeving 

of the existing vent with PVC venting to 

50 percent of replacement scenarios. 

DOE’s NOPR and final rule analysis 

provides for using an existing vent as a 

sleeve only for those installations 

meeting the criteria defined previously. 

For this final rule DOE’s analysis 

accounts for installation costs in the 

commercial and residential sectors for 

both replacement and new construction 

markets, along with an appropriate set 

of installation scenarios within each 

market and sector combination. 

Equipment installation and removal 

costs are separate from venting system 

installation and removal costs. The 

equipment installation labor hours for 

representative CWH models ranged from 

4 to 22.4 hours, depending on the 

equipment category. The labor hours to 

remove CWH equipment in replacement 

situations were determined to be an 

additional 37.5 percent of the 

installation labor hours on average, 

meaning they ranged from an additional 

1.5 to 8.4 hours depending on the 

equipment category. These labor hour 

calculations were based on a linear 

regression formula using data from the 

RSMeans Facilities Construction Cost 

Data, ENR Mechanical Cost book, and 

Whitestone Facility Maintenance and 

Repair Cost Reference. This formula 

escalated equipment installation labor 

hours based on the input capacity and/ 

or volume of the CWH equipment, as 

expressed in the sources that DOE relied 

upon. DOE has found no information 

that suggests basic CWH equipment 

installation or removal cost varies based 

on thermal efficiency rather than input 

capacity and/or volume. DOE accepts 

the methodologies of its sources that the 

activities required to install minimumefficiency and high-efficiency 

equipment are inherently similar. This 

approach to developing costs for CWH 

equipment installation or removal was 

not changed from the withdrawn May 

2016 CWH ECS NOPR. 

In addition to equipment installation 

and removal, DOE accounted for the 

labor hours to install and remove 

venting, scaled to the vent length in 

linear feet and/or the number of 

components (e.g., elbows) in the venting 

system. These hours differed based on 

the vent material and vent size involved 

in the installation and were developed 


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76RSMeans. Estimating Costs with RSMeans Data, 

CostWorks CD, Mechanical Costs 2022. 

77RSMeans. Estimating Costs with RSMeans 

Data, CostWorks CD, Mechanical Costs 2022. 

78 Id. 

79 Id. 

using data from RSMeans.76 The labor 

rates in DOE’s analysis depended on the 

crew type conducting the installation, 

region in which the installation 

occurred, and whether venting was 

installed in residential or commercial 

buildings. For the installation of TypeB venting for non-condensing CWH 

equipment, average labor rates 

(including overhead and profit) ranged 

from $65 per hour in the residential 

sector to $89 per hour in the commercial 

sector.77 For the installation of PVC 

venting for condensing CWH 

equipment, average labor rates used by 

DOE (including overhead and profit) 

ranged from $66 per hour in the 

residential sector to $89 per hour in the 

commercial sector.78 Regional 

adjustments to these labor rates called 

for multipliers ranging from 0.51 

(Arkansas) to 1.64 (New York).79 For 

this final rule, DOE did not further 

adjust labor rates for venting except to 

use the most up-to-date source data. 

In addition to accounting for 

equipment installation and removal, 

and venting installation and removal, 

DOE also incorporated an appropriate 

set of installation cost additions and 

subtractions, which included labor and 

material, arising from unique 

circumstances in replacement scenarios. 

These installation costs included 

reusing existing vent systems (when 

replacing non-condensing CWH 

equipment with similar non-condensing 

CWH equipment), relining of chimneys, 

installing condensate drainage, and 

sleeving of existing vent systems with 

certain replacement venting systems, 

introduced in this final rule analysis. 

DOE did not incorporate the costs of 

sealing off chases and roof vents or 

moving mechanical rooms because it is 

logical that condensing CWH equipment 

would reside in the same location and 

use the same chase as the noncondensing CWH equipment it replaced. 

In response to the May 2022 CWH 

ECS NOPR, Joint Advocates suggested 

that DOE thoroughly analyzed the cost 

of installing new venting systems, and 

that the analysis is comprehensive and 

reasonable. (Joint Advocates, No. 29 at 

pp. 2–3) 

The Joint Gas Commenters stated that 

EIA data show that ‘‘more than half of 

all commercial buildings were 

constructed before condensing 

commercial water heaters were 

introduced to the market’’ and stated 

that condensing products are 

incompatible with millions of these 

existing commercial buildings. They 

further added that the modifications 

required to alter these existing buildings 

to accommodate the use of condensing 

products are far more complicated, 

extensive, and burdensome than DOE’s 

analysis assumes. (Joint Gas 

Commenters, No. 34 at p. 3) 

DOE agrees that many commercial 

buildings were constructed before 

condensing water heaters were 

introduced to the market, but does not 

agree that millions of commercial 

buildings are thus by definition 

incompatible with condensing water 

heaters. This statement implies that 

such water heaters cannot be used in 

older buildings. Evidence strongly 

suggests otherwise. Since the mid1990s, the condensing water heater 

market has grown rapidly. That growth 

has been substantially faster than the 

growth of commercial building stock. 

The implication is that condensing 

water heaters have been installed in 

preexisting commercial buildings, 

which supports the conclusion that 

older buildings are not incompatible 

with condensing water heater 

installations. DOE acknowledges and 

addressed that in many existing 

buildings the venting systems would 

need to be replaced and, as discussed in 

Appendix 8D, DOE included costs for 

items such as vent removal, whether a 

condensing vent can be sleeved into an 

existing non-condensing vent, and 

whether an existing chimney needs to 

be relined. The percentage of water 

heaters that potentially require vent 

modifications is identified in Table 

IV.29. DOE’s analysis considers the cost 

of these building vent modifications, but 

the need to modify the building vent 

system does not make the building 

incompatible. However, this could mean 

that there are additional installation 

costs to be considered. DOE’s analysis 

has accounted for the possibility that 

certain installations—including some, 

for example, in certain older 

commercial buildings—may incur 

exceptional costs. To the extent that 

unusually high costs may be incurred, 

DOE has included significant 

exceptional cost adders in 2 percent of 

buildings in its analysis of venting costs. 

This is discussed in section IV.F.2.d of 

this document and in TSD chapter 8. 

The Joint Gas Commenters also noted 

that condensing water heaters are 

generally either power vent or direct 

vent products. They note that power 

vented water heaters are typically 

vented horizontally and require positive 

pressure venting—generally through a 

horizontal conduit, powered by a fan or 

other additional electronic device—to 

generate sufficient pressure and flow to 

vent the combustion gases. Further, they 

stated such installations require 

plumbing drains to dispose of the 

condensate developed in the operation 

of the appliance. They also stated that 

direct vent water heaters use special 

coaxial venting with separate chambers 

for intake and exhaust in a single vent 

pipe. Joint Gas Commenters stated that 

these are vented through the side wall 

and noted several additional factors 

about power vented equipment 

including the cost of interior 

renovations, the need to have electricity 

available to operate fans and condensate 

pumps, restrictions on sidewall venting 

in some urban areas, the need for on 

lower floors for terminations to be 

located 7 feet or more over public 

sidewalks or above the snow level, and 

other factors. (Joint Gas Commenters, 

No. 34 at pp. 4–5, 7–9) Joint Gas 

Commenters further stated multi-story 

buildings in urban centers cannot use 

horizontal venting because it is 

impossible to install and service vent 

terminations. In addition, they stated 

that wall penetrations could 

compromise the structural integrity of 

buildings in many cases. (Joint Gas 

Commenters, No. 34 at p. 5) Bradford 

White noted limitations to vertical 

venting may exist as a water heater in 

a basement/ground floor mechanical 

room may not be certified with a long 

enough vent length to vent vertically 

through a building’s roof. Additionally, 

it may not be able to vent horizontally 

due to jurisdictions prohibiting side 

wall venting in these applications. 

(Bradford White, No. 23 at p. 4) 

DOE disagrees with the Joint Gas 

Commenters that direct vent water 

heaters necessarily use coaxial venting. 

This is an option for direct vent systems 

and will have some advantages in 

certain situations, though is not a 

necessary part of direct vent design as 

coaxial vent solutions are relatively 

new. Two pipe direct vent solutions, 

such as mentioned by PHCC, have been 

around longer. Further, coaxial venting 

is used for both horizontal and vertical 

vents based on manufacturers’ 

literature. 

Regarding the availability of electrical 

power, DOE believes that it is generally 

available in most commercial situations 

where a commercial water heater is 

situated, and provides for costs to bring 

electricity close to the water heater 

location in cases where it may not be 

nearby. A review of the market shows 

that non-condensing storage commercial 

water heaters commonly utilize 

technology including electronic 

ignition, electronic flue dampers, and 


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commonly electronic controls. In 

addition, many are power vented. While 

the baseline efficiency model developed 

for this rulemaking were simplified in 

this respect, the actual market is quite 

varied. Further, even in equipment that 

does not use electric power, much of the 

equipment may be installed in spaces 

like mechanical rooms where electric 

power is readily available. For instances 

where this is not the case, DOE has 

provided for electric power to be 

included in the installation costs. DOE 

received no comment that the estimated 

cost to bring electric power in these 

instances was inadequate. As noted 

previously, DOE modified its 

assessment of the need for condensate 

pumps in the final rule analysis to 

reflect higher anticipated usage needs, 

particularly in existing buildings. 

Regarding interior renovations, it is 

not clear what interior renovations may 

be envisioned outside of those 

associated with flue replacement costs. 

DOE agrees that in some dense urban 

areas there may be restrictions on how 

sidewall venting is achieved, including 

the appropriate considerations for 

sidewalks immediately adjacent to 

buildings, and more generally those 

vents need to exhaust above the snow 

level. However, these are requirements 

so that sidewall venting, when used, is 

implemented in a safe manner. Other 

safety requirements are that exhaust 

vents are not located near operable 

windows or air intakes and these latter 

requirements are also found when 

exhausts are used for non-condensing 

equipment. These restrictions also apply 

to sidewall venting of non-condensing 

equipment, but do not imply that noncondensing equipment cannot be used. 

DOE’s analysis did not assume sidewall 

venting and DOE and other commenters 

(see e.g., PHCC, No. 28 at p. 7) note 

sidewall venting may in fact be less 

expensive than vertical venting. 

DOE is not clear what is being 

implied regarding structural integrity. 

DOE believes that the structural 

integrity of a building is an engineering 

consideration to ensure that the 

building is operable and structurally 

safe for its occupants. Competent 

contractor assistance may be required to 

select the appropriate areas of a wall to 

drill, to perform the drilling safely, and 

to ensure that the resulting vent does 

not allow water to enter the wall, but 

there is nothing in this process that 

inherently damages building integrity. 

Joint Gas Commenters have provided no 

evidence that the structural strength of 

building will be compromised by the 

addition of a horizontal exhaust vent. 

PHCC stated that they took issue with 

the phrase that ‘‘Condensing CWH 

equipment is not required to sidewall 

vent exclusively and presents no special 

limitations restricting vertical vent 

scenarios,’’ noting that all 

manufacturers have vent length limits, 

and that the ‘‘effective vent length’’ 

needs to consider fittings, usually 

elbows, and that in tall buildings, the 

vent length of the equipment can be 

exceeded and the installation cannot be 

made in that location, and perhaps this 

becomes an impossible location. (PHCC, 

No. 28 at p. 7) Joint Gas Commenters 

noted in discussing vertical venting, 

manufacturers place limits on the length 

of vertical vents. (Joint Gas Commenters, 

No. 34 at p. 12) 

Regarding the PHCC comment about 

no special considerations for vertical 

venting, DOE’s language did not mean 

to imply that vent length is not an issue; 

rather, that in the context of whether the 

vent is vertical or horizontal, the 

distance that a power vented 

condensing water heater can vent is 

generally the same as a non-condensing 

product. DOE notes that the distance a 

power vented product will vent is 

largely a function of fan size and vent 

diameter used. DOE understands that 

consideration of pipe elbows and bends 

must be considered due to pressure 

losses through these components but 

notes that the market is already moving 

to make longer vent length products 

more available in condensing 

equipment. Condensing commercial 

water heaters with maximum vent 

length of over 200 ft are available on the 

market today as standard products 

without significant increases in vent 

diameter for a given combustion air 

throughput. DOE also notes that natural 

draft vent tables in the National Fuel 

Gas Code only go to 100 ft vent height 

and that where the actual height of a 

vent exceeds these tables, recognized 

engineering methods must be used to 

establish vent capacities for such 

systems. DOE statements here do not 

imply that such very long natural draft 

vents do not exist, but that they are 

already in the realm of professionally 

engineered systems. DOE also notes that 

draft inducers for combustion 

equipment already exist on the market 

and that these might be used to address 

combustion air from condensing 

equipment in very long vent lengths. 

PHCC commented that DOE asserts 

there would be sufficient space in an 

existing chase to install plastic vents 

and stated that it depends, and every 

installation is unique. Typically chase 

sizes are built to a minimum dimension 

to maximize building floor space. If the 

existing vent is large, the new vent may 

fit. PHCC stated that most high 

efficiency systems (particularly 95 

percent or better) will use two pipes to 

achieve maximum efficiency. 

Depending on the vent length, whether 

upsizing is required, and if using two 

pipes, the existing chase may well be 

too small. PHCC added that in the real 

world this may not matter because there 

will be significant work to open the 

chase, install and support the piping, 

firestop the floor and ceiling 

penetrations, and close the chase such 

that making it somewhat larger will be 

trivial. PHCC questioned whether DOE 

accurately accounts for this additional 

work because the May 2022 CWH ECS 

NOPR suggests this will be an easy 

solution. When it is suggested that 

existing chases be used, PHCC assumed 

that existing venting materials would be 

removed, and the piping placed in the 

same vertical building compartment. 

The chases would need to be opened 

throughout the path of the vent, existing 

piping removed, new piping and 

supports installed and the chases closed 

up. Typically, chases are fire rated 

construction, and particular care must 

be used to ensure the integrity of these 

spaces. (PHCC, No. 28 at p. 8) Joint Gas 

Commenters asserted that based on 

interviews with installers, condensing 

water heaters are not installed using the 

existing chase. Impediments include 

that the venting for the new water heater 

cannot be suspended in a vertical chase; 

it requires support at frequent intervals 

and that requires sufficient space in the 

chase for vent hangers and often 

requires physical access to the chase for 

installation. (Joint Gas Commenters, No. 

34 at p. 12) 

PHCC noted that in the discussion of 

sleeving and using the same chase when 

changing vent systems, both of these 

options also present problems. Although 

the systems may tend to be of plastic 

material, those materials have weight 

that must be accounted for. Systems 

must be supported to hold the weight 

and prevent seismic movement, two 

issues that could cause failures in the 

vent system. Typical manufacturer 

instructions direct installers to support 

the pipe every 5 feet vertically and 

every 5 feet horizontally. It is unclear 

how this support spacing would be 

affected in a sleeved scenario. Some 

contractors have made efforts to install 

plastic vent piping in existing large 

masonry chimneys, and complicated 

hangar arrangements must be devised 

for this. Pipe joints must be made prior 

to placement in the chimney and the 

vent installed as a unit, which PHCC 

noted is cumbersome and costly. (PHCC, 

No. 28 at p. 7) 

In response to PHCC concern 

regarding sufficient space in existing 

chases, DOE notes that in cases where 


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an existing chase is used with Category 

I venting, the cross-sectional area of the 

existing Category I or Type B vents, 

designed as they are to vent flue gasses 

through natural draft, will generally be 

substantially larger than that required 

for venting condensing products. This is 

true for two main reasons. First, the flue 

path in a Category I vent operates only 

on the natural draft pressure. The flue 

path is therefore typically larger in 

diameter than that of a typical Category 

IV where combustion products are 

pushed through the vent with a fan. For 

example, per ANSI Z223.1–2015 

(National Fuel Gas Code), when 

considering a vent stack height of 30 

feet, a lateral distance of 10 feet, and a 

199,000 Btu/h input rate requires a 6- 

inch inside diameter vent flue path. A 

strictly vertical vent with no lateral flow 

in the system could use a 5-inch vent. 

By contrast, a similar input rated 

condensing water heater venting over 

the same distances would commonly be 

vented with a 3-inch flue diameter vent. 

When considering longer vent height 

(50 feet), a 5-inch Category I vent could 

be used with up to 5-foot lateral 

distance, but otherwise a 6-inch Type B 

vent would be required. However, for 

the Category IV, condensing water 

heater of the same input a 4-inch vent 

pipe could be used. Characteristically, 

the vent pipe diameter for a condensing 

water heater will typically be smaller, 

sometimes considerably smaller, than 

for a natural draft water heater. 

Therefore, DOE does not believe this 

issue is as significant as PHCC states. 

In addition, because it is venting 

higher temperature flue gases, the Type 

B vent must have at minimum an 

additional clearance of at least 1 inch 

from any combustibles in the flue path. 

Because of the need for larger diameter 

vent pipe and the additional need for 

clearance, the cross-sectional area that 

would be required for a single flue chase 

for a Category I vent is typically much 

larger than for the exhaust vent for the 

same input rating for a Category IV vent 

such as would be used for a condensing 

water heater product. In addition, 

because of the higher efficiency for the 

condensing product and the greater hot 

water output for a given input rating, it 

may be possible to downsize the water 

heater input rating with possible further 

reductions in vent size in some 

situations. 

DOE acknowledges that in the case 

where direct vent products (using a 

separate inlet and exhaust pipe or twopipe as referred to by PHCC) are 

selected for the condensing equipment, 

adding a direct vent inlet pipe to an 

existing chase may not always be 

possible. A direct vent is generally a 

separate optional feature that becomes 

prevalent with the use of non-natural 

draft water heaters, but not a 

requirement in such an equipment 

replacement. Inspection of CWH 

product literature shows most 

condensing equipment allows for direct 

vent as an alternative to the standard 

‘‘power exhaust’’ vent configuration. 

Both direct vent and standard, ‘‘power 

exhaust’’ water heater designs require 

ventilation air for proper and safe 

operation. In a replacement situation, 

the space where a similar sized Category 

I water heater is already located should 

have this sufficient air supply for safe 

operation. A direct vent water heater 

allows the intake air to be taken from 

another location, typically outside of the 

building envelope. Where a direct piped 

vent is used to bring air in from outside, 

it will typically reduce overall building 

infiltration and provide for additional 

efficiency benefits to the building not 

accounted for in DOE’s analysis, 

providing for an overall building 

efficiency improvement. A direct vent 

configuration is not a requirement for a 

95 percent thermal efficiency rating per 

the DOE test procedure. Further, even 

where used, the inlet air may not have 

to follow the same path as the exhaust 

flue. In some cases, a coaxial-two pipe 

vent may also be an option with an 

overall pipe diameter not significantly 

different from the original Type B vent 

and without the additional clearance-tocombustibles requirement. The Joint Gas 

Commenters state that a direct vent 

water heater uses special coaxial 

venting that has separate chambers for 

intake air and exhaust in a single 

assembled vent piece. (Joint Gas 

Commenters, No. 34 at p. 4) DOE 

disagrees with the implication by the 

Joint Gas Comments that a direct vent 

implies or necessarily (or even 

commonly) requires use of a coaxial 

vent in most applications. DOE 

acknowledges that in some cases coaxial 

vent systems can be an option during 

installation of condensing equipment 

and may reduce installation costs or 

provides other benefit, but they are not 

required in all applications. 

With regards to supporting vents 

installed vertically, multiple options 

may be available. Where PVC plastic 

vents pipes are used, they are solvent 

glued together forming a permanent 

bond where the PVC at the bond 

becomes continuous and joints are of 

similar strength as the pipe itself, which 

allows for longer sections of vent piping 

without supports. This is unlike Type B 

vent sections that lock together upon 

twisting and must be supported section 

by section. Horizontal PVC flue sections 

can be supported similar to water 

piping, where the pipe supports are 

installed periodically along the flue 

length as noted by PHCC; however, the 

weight of PVC/CPVC is much less as a 

flue than as a water pipe and piping 

supports can be of lighter construction. 

However, it is important in a 

condensing product application that 

flues are sloped properly for condensate 

drainage, and horizontal flues need to 

have enough supports to prevent 

sagging. Vertical flue sections will also 

require support, but unlike Type B vents 

that may require support at each 

section, the continuous nature of the 

joined PVC pipe can allow longer spans 

of vertical flue sections where required 

as long as the weight is adequately 

supported. 

Further, when polypropylene vent 

connections are considered, these are 

typically much lighter (manufacturer 

literature notes up to one third of the 

weight of PVC). The individual 

polypropylene vent sections are clamp 

connected. Not only can rigid 

polypropylene vents be supported using 

greater spacing between supports, 

flexible polypropylene vent products 

are available that can be readily used to 

allow for the lining of a chimney, Type 

B vents, and other existing chases, and 

that is supported primarily from the top 

where simple spacers may be used to 

provide some lateral centering. Note 

that thermal expansion in length may 

need to be accommodated for with PVC/ 

CPVC flue systems; however, based on 

manufacturer literature, the expansion 

of ridged polypropylene vent systems is 

accommodated for at the joints between 

pipe sections. 

Regarding support in a sleeved vent, 

DOE’s analysis uses only a restricted set 

of sleeved vent scenarios as outlined 

previously. Further, while cognizant 

that using straight PVC pipe may be 

cumbersome for the reasons indicated 

by PHCC, DOE recognizes that with 

different venting systems, particularly 

polypropylene or stainless flexible 

venting, additional sleeving options are 

possible. DOE notes that manufacturers 

of polypropylene vent products make 

components that are designed 

specifically to allow the use of sleeving 

in existing Type B vents. Regardless 

DOE’s NOPR and final rule analysis 

provides for using an existing vent as a 

sleeve only for those installations 

meeting the criteria defined previously 

and does not believe that it has 

overstated the possible use of this 

technique. 

In response to DOE’s discussion of the 

selection of vertical venting in the May 

2022 NOPR analysis, PHCC agreed that 

there may be sidewall venting issues for 


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80NEEA, Northeast Energy Efficiency 

Partnerships, Pacific Gas & Electric, and National 

Grid. Joint comment response to the Notice of 

Petition for Rulemaking; request for comment 

(report attached—Memo: Investigation of 

Installation Barriers and Costs for Condensing Gas 

Appliances). Docket EERE–2018–BT–STD–0018, 

document number 62. www.regulations.gov/ 

comment/EERE-2018-BT-STD-0018-0062. Last 

accessed July 8, 2021. 

some buildings but noted that should 

sidewall venting be possible; in some 

cases, it could be more cost effective 

than vertical venting. (PHCC, No. 28 at 

p. 7). 

Atmos Energy stated that DOE should 

collect actual product and installation 

costs rather than relying on assumptions 

and inadequate data. (Atmos Energy, 

No. 36 at pp. 2, 4) 

DOE does not agree with Atmos 

Energy that the collection of contracted 

or retail costs for equipment today 

provides a more accurate representation 

of future equipment costs under a 

standards scenario than what can be 

provided for in DOE’s engineering and 

markup analyses. In DOE’s experience 

reviewing such information, cost 

estimates provided by contractors vary 

widely in terms of information 

provided, from a total single price 

inclusive of everything including the 

equipment, to considerably detailed 

estimates. Even if detailed installation 

costs from a large enough statistically 

valid sample were made available from 

individual contactors, collecting and 

using such information would be highly 

impractical and could potentially 

require making as many or more 

assumptions as DOE’ current analysis to 

which Atmos Energy is objecting. As to 

the installation costs, particularly in 

replacement situations, DOE’s is not 

aware of an extensive source of national 

data on new or replacement installation 

of higher efficiency, condensing, CWH 

equipment installation. DOE has 

estimated costs considering publicly 

available sources, considered variation 

in vent length and diameter in its 

venting model and provided for 

variation in venting and material and 

labor costs using a national construction 

data source. DOE agrees with PHCC that 

in many cases horizontal venting may 

often be less expensive than a vertical 

vent solution. A good example of this is 

where the mechanical room, 

commercial kitchen, or other space 

where a water heater is located has an 

exterior wall on one or more sides. DOE 

believes this is a common, but not 

ubiquitous, occurrence. Because of the 

complexity of many larger commercial 

buildings, the location of the water 

heater within the building is not always 

assured, but when replacing a Category 

I type water heater, there will generally 

be a vertical vent path. 

d. Extraordinary Venting Cost Adder 

In response to the withdrawn May 

2016 CWH ECS NOPR, some 

stakeholders argued that some venting 

installations can be physically 

impossible and/or prohibitively 

expensive to install condensing vents. 

In the May 2022 CWH ECS NOPR, DOE 

acknowledged the possibility that its 

analysis of installation costs may not 

capture outlier installation scenarios 

that involve uncommon building 

conditions that may further reduce or 

increase installation costs. DOE expects 

that these situations would be small in 

number and that it has captured an 

appropriate set of installation scenarios 

that are typical of residential and 

commercial buildings. For the May 2022 

CWH ECS NOPR and this final rule, 

DOE researched the question of the 

prevalence and cost of extraordinarily 

costly installations. The one source 

identified that could be used to quantify 

extraordinary vent costs was the report 

submitted by NEEA in DOE Docket 

EERE–2018–BT–STD–0018.80 Using this 

as a reference, DOE implemented an 

extraordinary venting cost adder, which 

was included in the May 2022 CWH 

ECS NOPR LCC model as a feature of 

the main case. DOE used data from the 

NEEA report for both the May 2022 

CWH ECS NOPR and this final rule to 

capture extraordinary venting costs. 

In the NEEA report it was stated that 

due to vent configurations, between 1 

and 2 percent of replacements might 

experience extraordinary costs between 

100 and 200 percent above the average 

installation cost. Because there is no 

clear linkage between specific situations 

and extraordinary costs, DOE 

implemented this by adding for each 

equipment category two additional 

variables. One is a probability of 

occurrence and the second is the 

multiplier. For 2 percent of cases, DOE 

assumes a multiplier between 200 

percent and 300 percent. In all cases, 

the LCC model estimates the total 

installation cost, and multiplies it by the 

multiplier. In 98 percent of cases, the 

multiplier is equal to 1.00, or 100 

percent. When the LCC model selects 

the extraordinary installation cost case, 

it also selects a multiplier between 200 

and 300 percent to multiply the 

estimated installation cost. In the May 

2022 CWH ECS NOPR, DOE asked for 

comments on this adder. 

AHRI estimated that a small business 

or property owner could have $1k to 

$10k in additional installation costs to 

convert from a non-condensing unit to 

a condensing unit. AHRI noted that 

several factors (including region, size of 

load, municipal restrictions, historic 

building designation/protections, 

available materials and labor costs) can 

all factor into affixing a level of 

extraordinary venting costs. Rheem 

agreed with the AHRI comments. (AHRI, 

No. 31 at p. 4; Rheem, No. 24 at p. 5) 

A.O. Smith made a similar comment 

noting that venting costs in retrofit or 

replacement cases might be significant 

or cost-prohibitive due to a combination 

of tight mechanical rooms, insufficient 

clearance between buildings for 

sidewall venting, and common venting. 

A.O. Smith does not have an estimate of 

the number of installations that may 

face extraordinary installation costs but 

recommends that DOE evaluate the 

number and type of buildings in 

metropolitan areas. As an example of 

extraordinary installation costs, A.O. 

Smith estimated that installing stainless 

steel venting materials in a typical NYC 

5-story building for a commercial water 

heater or boiler in the basement could 

cost $32,500. (A.O. Smith, No. 22 at pp. 

6–7) In reviewing the A.O. Smith 

comment, DOE is unclear which 

product classes or vent sizes were being 

considered in their estimation because 

the comment did not specify labor 

beyond an estimate of 1.5 times material 

costs, and presumed material costs of 

$200/lineal foot, which are higher than 

the costs identified by DOE for stainless 

AL29/4C vent in diameters needed for 

the representative condensing 

equipment sizes analyzed. With respect 

to AHRI’s and A.O. Smith’s list of 

factors, DOE agrees with these as 

potential issues that may impact real 

world costs. 

AHRI also pointed to the venting 

analysis used in commercial packaged 

boilers that appears to be more exacting, 

and AHRI stated it provides a better 

representation and encouraged its use in 

the CWH analysis. (AHRI, No. 31 at p. 

4) APGA noted that it appears that DOE 

is treating venting in commercial water 

heaters differently than for other gas 

fired appliances. (APGA, Public Meeting 

Transcript, No. 13 at p. 57) Joint Gas 

Commenters criticize the use of one 

representative model which results in 

one vent size and contrasted this to the 

2016 Commercial Packaged Boiler (CPB) 

TSD that provided an equation for the 

relationship between product input rate 

and vent diameter. (Joint Gas 

Commenters, No. 34 at p. 18) 

The venting logic used in DOE’s 

boiler analysis was essentially the same 

as used in the CWH analysis. The 

general methodology and assumptions 

for determining the size and type of 

venting material based on input rate was 

essentially the same as well as the 

decision methodology for when a vent 


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could be reused or would need to be 

replaced. A difference in approach was 

largely the result of the CWH 

engineering analysis approach which 

looked at one representative unit size 

for each category of equipment analyzed 

whereas, in the CPB engineering 

analysis approach, two size classes 

(commercial packaged boiler with rated 

input between ≥300,000 and ≤2,500,000 

Btu/h and commercial packaged boilers 

with rated input >2,500,000 Btu/h) were 

already defined as DOE classes for each 

output type of CPB equipment (i.e., hot 

water or steam) and for each fuel (i.e., 

gas or oil) and one representative 

equipment size was selected to be 

representative of each size class in that 

engineering analysis. Because of the 

way cost data was collected for the CPB 

engineering analysis, curves 

representing the cost variation by size 

within the equipment classes were 

developed and it was possible to use 

these data, along with additional data 

on sizing equipment to peak building 

loads for the CBECS and RECS buildings 

and assumptions on the typical number 

of boilers in buildings by peak building 

load, to provide greater variability in 

boiler sizes analyzed in the CPB LCC. 

The lack of data on variation in cost 

with equipment size from the CWH 

engineering analysis, the greater 

complexity in sizing to building water 

heater loads, and the lack of data on 

characterizing the number of water 

heaters within a size class that would be 

installed in buildings made such an 

approach practically impossible for the 

CWH LCC model. Further, while there 

is variation in equipment size in water 

heaters, DOE believes that the variation 

in size for the CPB is significantly 

greater than for the CWH equipment in 

this rule, at least for the vast majority of 

shipments. DOE does recognize that for 

all but residential duty water heaters, 

larger equipment than represented in 

the engineering analysis are sold into 

the market, but DOE believes its 

equipment selections are representative 

of the majority of units shipped. See 

section IV.C.3 for further discussion 

about DOE’s decision to use 

representative equipment sizes in this 

analysis. 

Joint Gas Commenters and Bradford 

White criticized the use of the NEEA 

report on extreme installation costs. 

Bradford White was concerned that the 

report was based on interviewing 15 

different parties in 10 states, which they 

believe is too small of a sample size. 

Bradford White continued to add that 

all but one of the states are not a fair 

representation of where extraordinary 

venting cost adders will occur. These 

cost adders are likely to occur in larger, 

older cities (e.g., Chicago, New York, 

Philadelphia). Bradford White 

recommends that a larger sample size is 

taken to understand these venting 

installation costs. (Bradford White, No. 

23 at p. 4) The Joint Gas Commenters 

stated that DOE’s economic analysis 

underestimated the costs imposed by 

condensing-only standards and 

suggested that the problems associated 

with condensing standards are common 

rather than uncommon scenarios. Joint 

Gas Commenters noted that DOE was 

basing the adder on one of the four 

identified categories of venting issues. 

Joint Gas Commenters further stated that 

through their own interviews of 

individuals with substantial experience 

replacing CWH equipment, they 

determined that DOE underestimates 

the percentage of difficult installations 

and the cost of such installations. (Joint 

Gas Commenters, No. 34 at pp. 12–14) 

Joint Gas Commenters point also to the 

distribution DOE applied to the 

extraordinary vent cost adder, calling it 

arbitrary, and stating that a lognormal 

distribution changes small net LCC 

savings to small net LCC costs, and the 

Joint Gas Commenters use this as 

evidence to support their position that 

DOE should collect data through field 

work. (Joint Gas Commenters, No. 34 at 

pp. 19–22). 

In response, DOE notes that DOE 

researched the issue of extraordinary 

vent installation costs for CWH and was 

only able to identify the NEEA survey. 

Neither Bradford White nor the Joint 

Gas Commenters provided any data to 

support their comments, nor did they 

point to any alternative data or studies 

for DOE to examine for the purposes of 

reviewing extraordinary venting costs. 

Regarding the Joint Gas Commenters 

comment on the choice of a uniform 

distribution in DOE’s analysis, DOE 

notes that the data that it used from the 

NEEA survey specifically defined the 

range of extraordinary costs as adding 

100 percent to 200 percent to the typical 

cost and, lacking further details, DOE 

used a uniform distribution in this 

range. While DOE recognizes that a 

different distribution and range could 

exist, DOE received no data to 

characterize this from stakeholders. 

Specifically, with respect to the Joint 

Gas Commenters comment about using 

a lognormal rather than a normal (or 

uniform) distribution DOE notes that the 

data received from NEEA was cost 

adjustment data stated as a range, and 

DOE implemented the adder in such a 

way as to make use of this range in a 

manner that seemed most consistent 

with what was presented by NEEA. DOE 

notes that Joint Gas Commenters 

provided their example of the lognormal 

distribution as illustrative of what a 

lognormal distribution could look like 

but did not link this back to actual data, 

nor did they say their presented 

distribution was in fact the correct 

distribution for use in this analysis. For 

these reasons, DOE maintained the use 

of a uniform distribution for the final 

rule. 

WM Technologies and PattersonKelley stated they understand that the 

CWH analysis uses a low probability 

multiplier that models difficult venting 

considerations and would prefer DOE 

make a more exacting representation of 

this detail. They maintained that local 

requirements will prohibit some 

locations from installing condensing gas 

fired products based on building 

structure, orientation, or location and 

that this percentage will vary 

significantly across the nation, noting 

that 1940s multifamily units in certain 

densely populated regions (e.g., New 

York, Chicago and Boston) would find 

all condensing efficiency regulation cost 

prohibitive. WM Technologies noted 

that this is why the Northeast continues 

to have a majority of atmospherically 

vented products while the West Coast 

typically has a higher rate of adapting to 

condensing products. (WM 

Technologies, No. 25 at p. 7; PattersonKelley, No. 26 at p. 5) Patterson-Kelley 

believes the percentage of the 

population incurring excessive costs 

when replacing a non-condensing 

appliance with a condensing product is 

more than five percent. (PattersonKelley, No. 26 at p. 5) 

PHCC had concerns related to 

installations with venting installation 

issues and noted the recognition of this 

by DOE in the May 2022 CWH ECS 

NOPR. Although PHCC cannot provide 

lists of locations where these issues may 

occur, PHCC disagreed with DOE, 

stating that more than 1 percent to 2 

percent of installations will be affected. 

PHCC asserts that problem installations 

would likely be tall buildings, perhaps 

10 stories or more, in metropolitan 

areas. PHCC stated that the 

extraordinary cost adder lacks a 

foundational basis, that it is unclear 

how the adjustment is applied, and that 

in many cases it is understated. PHCC 

maintains that there are significant 

venting issues awaiting the 

implementation of this rule. (PHCC, No. 

28 at pp. 7–8) 

Conversely, NEEA supports DOE’s 

conclusions on flue gas venting and its 

analysis method thereof, which aligns 

with the findings of independent 

research previously submitted to DOE. 

NEEA stated that condensing gas-fired 


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water heaters can be installed in all 

commercial building applications and 

said that DOE’s analysis appropriately 

accounts for the rare cases in which the 

solution bears increased cost. (NEEA, 

No. 35 at p. 1) DOE acknowledges 

NEEA’s input. 

For the final rule, DOE has considered 

both the data provided from NEEA and 

the comments received from the various 

stakeholders regarding the fraction of 

consumers who would be characterized 

in the extraordinary venting cost 

grouping. Numerous stakeholders 

suggested that 2 percent was not 

representative. As noted by Joint Gas 

Commenters, DOE based the 2 percent 

adder on the frequency of vent 

installation issues noted in the NEEA 

report. DOE acknowledges that there 

were other potential installation cost 

issues noted by NEEA, and the high 

level summary statement was that fewer 

than 5 percent of installations were 

encumbered by any of the significant 

installation challenges identified. The 

other challenges noted by NEEA were, 

however, less costly than the 100 to 200 

percent cost adder, and/or were already 

being addressed in the LCC model 

estimation of installation costs (masonry 

chimneys). While recognizing the range 

of comment on this issue, DOE believes 

that the data provided by NEEA through 

the survey of contractors provides an 

appropriate estimate for the fraction of 

the installations that might be 

considered to have extraordinary costs, 

and has continued to include this figure 

in its final rule analysis, along with the 

range of extraordinary cost multipliers 

established in the NEEA survey. 

e. Common Venting 

Certain CWH equipment installations 

can feasibly be commonly vented in 

certain building applications, where 

multiple individual equipment units are 

connected to a single, non-pressurized, 

combustion air vent, suitable for use 

with Category I equipment. However, as 

described more in the ensuing 

paragraphs, in these instances, DOE 

believes that CWH equipment typically 

is not commonly vented with other, 

disparate gas-fired equipment (like 

furnaces). Commonly venting disparate 

gas-fired equipment with significantly 

different capacities (such as a water 

heater and a boiler in a building) 

complicates the design and sizing of the 

common vent, since it needs to 

accommodate exhaust of a wide range of 

flue gas volume due to the different 

operating profiles and flue capacities 

required for disparate equipment as well 

as the seasonal variation of load. 

However, DOE understands that 

multiple, similar units of CWH 

equipment may be more frequently 

commonly vented together since the 

CWH equipment typically operates in 

unison, calling for a specific vent size. 

When multiple units of CWH equipment 

are commonly vented, building 

engineers design the common-vent 

system to suit a total input rating of all 

gas-fired equipment collectively as well 

as the input ratings of individual units. 

In the May 2022 CWH ECS NOPR, DOE 

stated its understanding that the 

installation of these units typically 

occurs all at one time. As a result, each 

unit should have the similar expected 

lifetime and replacement cycle. 

Therefore, when one unit fails and 

requires replacement, the other units 

sharing the common vent should also be 

nearing the end of their lifetimes. Thus, 

the stranded cost of any naturallydrafted, non-condensing CWH 

equipment due to amended standards 

would have limited residual value, 

which may have been relinquished 

regardless of amended standards if a 

consumer opts to replace the older, but 

still functioning unit at the same time. 

As discussed more in this section, based 

on stakeholder feedback, DOE 

performed a sensitivity analysis 

regarding these assumptions and 

determined residual values from 

replaced equipment, which DOE has 

incorporated into its LCC analysis. 

AHRI disagreed with DOE’s 

characterization of their statement 

related to the withdrawn 2016 CWH 

ECS NOPR relating to customers 

handling common-vented equipment by 

replacing all equipment at the same 

time. (AHRI, No. 31 at p. 1) PHCC 

commented that it believes DOE 

misinterpreted other stakeholder 

statements regarding replacement of 

individual devices in common venting 

situation. (PHCC, No. 28 at pp. 8–9) 

While DOE captured the AHRI comment 

as stated in the withdrawn 2016 CWH 

ECS NOPR public meeting, AHRI 

clarifies that what they intended to 

illustrate was a misalignment of timing 

leading to the premature retirement of 

functioning equipment. While DOE did 

not receive data on the frequency of 

common venting of equipment, for the 

final rule DOE examined through 

sensitivity analysis a potential cost 

impact on the LCC that could occur due 

to premature replacement of equipment, 

as discussed later in this section. 

Joint Gas Commenters assert that 

common venting of CWH equipment 

and space heating equipment was 

common practice for over 100 years, and 

is still very common. Joint Gas 

Commenters stated that non-condensing 

appliances have the ability to share a 

common vent with other noncondensing appliances, and removing 

one or more units would disrupt the 

venting system of the other locations. 

(Joint Gas Commenters, No. 34 at pp. 4– 

5, 12–13) WM Technologies and 

Patterson-Kelley expressed concern 

with the prevalence of common venting 

disparate gas-fired equipment, stating it 

is so common that both the International 

Fuel Gas Code and National Fuel Gas 

Code have appendices devoted to the 

sizing of such venting systems. (WM 

Technologies, No. 25 at p. 5; PattersonKelley, No. 26 at pp. 1–2) 

In response to the comments on 

common venting disparate equipment, 

DOE notes that for the 2016 commercial 

packaged boiler rule, DOE asked for 

input on common venting of disparate 

gas heating equipment. Comments on 

the frequency of common venting were 

inconsistent; however, in response to 

the commercial packaged boiler NOPR, 

AHRI stated that they believed that 

common venting of commercial boilers 

and commercial water heaters may in 

fact be relatively rare given the size 

mismatch between commercial boilers 

and commercial water heaters, such that 

common venting would be more than 

problematic because the common vent 

size would be so large that when the 

boiler wasn’t firing there would be 

venting problems on the water heater. 

(See EERE–2013–BT–STD–0030; 81 FR 

15870) 

Based on this input from AHRI, DOE 

determined that common venting with 

water heaters would be negligible for 

large CPB equipment and would be 

uncommon for small CPB equipment. 

See 85 FR 1630. Based on this input 

DOE believes that to the extent common 

venting exists in a commercial setting it 

is most likely to be multiple water 

heaters as opposed to a water heater and 

another type of equipment. 

With respect to the comment about 

the International Fuel Gas Code and 

National Fuel Gas Code, the codes 

provide for installations in residential 

setting as well as in commercial 

settings. In a residence, typically there 

are 2 major gas-fired appliances to be 

vented, a space heating appliance, e.g., 

furnace or boiler, and a water heater. 

Thus, common venting when it does 

occur almost always is indicative of 

disparate gas-fired equipment. In 

addition, this equipment will typically 

be of sufficiently similar input rates to 

be common vented even where their 

usage profiles may be disparate. This is 

a situation which would not necessarily 

be the case in many commercial settings 

where there may be greater variation in 

the input ratings of the equipment 

serving the space heating and water 

heating needs of the building as well as 


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more commonly the use of multiple 

individual equipment to satisfy either 

the space heat or the water heating 

needs. Thus, while these fuel gas safety 

codes provide for requirements for 

when common venting of disparate 

equipment is used, these codes do not 

tell anything about the frequency of 

these types of common venting 

applications, particularly in commercial 

settings. DOE also notes that while most 

residential gas-fired heating equipment 

is installed indoors, a substantial 

fraction of the commercial floorspace is 

heated using packaged rooftop 

equipment, a fact that further reduces 

the possibility of venting of disparate 

equipment. 

Joint Gas Commenters state DOE does 

not include costs for redesign necessary 

to address common venting. (Joint Gas 

Commenters, No. 34 at p. 18) However, 

Joint Gas Commenters provided no 

evidence of what such redesign might 

cost. Because consumers have multiple 

paths they could take to deal with 

upgrading common-vented equipment, 

without detailed knowledge of 

individual installations it would be 

extremely difficult to estimate the 

incremental cost of redesign of 

replacements of individual components 

of the common-vented system. DOE did 

not receive input on the frequency of 

common vented systems. Further, DOE 

did not receive input on the frequency 

with which redesign of a commonvented system would be significant and 

not already a part of the expected 

installation cost. DOE notes that when 

considering the consumers incurring 

extraordinary vent costs, the cost of 

redesign is part of what results in 

extraordinary costs, and as such it is 

subsumed in the doubling or tripling of 

the venting costs for such installations. 

AHRI, Bradford White and Joint Gas 

Commenters stated that DOE recognizes 

that product lifetimes vary and used a 

probability distribution to describe 

lifetime here and in other DOE 

rulemakings. They noted that modeling 

common vented equipment as if it is all 

replaced at the same time can lead to 

consumers forgoing useful equipment 

lifetime and modeling it if the other 

equipment is retained can lead to 

increased venting cost as consumers 

have to vent condensing and orphaned 

non-condensing equipment separately. 

(AHRI, No. 31 at p. 2; Bradford White, 

No. 23 at p. 3; Joint Gas Commenters, 

No. 34 at p. 13) Joint Gas Commenters 

add that one reason for having multiple 

units is to have a primary and a backup 

so there will be no loss of service when 

a water heater needs to be replaced, and 

that purpose would be defeated if both 

units are replaced at the same time 

(Joint Gas Commenters, No. 34 at p. 13) 

Bradford White, WM Technologies, 

Patterson-Kelley, and Joint Gas 

Commenters noted that DOE assumes 

that all commonly vented appliances 

will be replaced at the same time if only 

one water heater fails and found the 

approach to product lifetime for 

common vented equipment concerning 

as DOE recognizes that products 

lifetimes vary and uses a probability 

distribution in numerous other 

standards’ rulemaking as in the CWH 

LCC workbook. (Bradford White, No. 23 

at p. 3; WM Technologies, No. 25 at p. 

5; Patterson-Kelley, No. 26 at pp. 1–2) 

PHCC and Bradford White noted that 

while it is possible that multiple units 

that are commonly vented are replaced 

at the same time, they rarely see this 

occur, nor do they commonly see 

proactive replacement. As referenced 

previously, equipment lifetimes will 

vary unit to unit, even of the same 

model. If one unit happens to fail earlier 

in its life (e.g., in year 3), it is highly 

unlikely that a building owner would 

replace multiple other units at the same 

time. (Bradford White, No. 23 at p. 4; 

PHCC, No. 28 at pp. 8–9) 

WM Technologies and PattersonKelley both state that stranded water 

heaters are a fact in the industry and the 

impact on such installations should be 

taken into account in the LCC analysis. 

(WM Technologies, No. 25 at p. 5; 

Patterson-Kelley, No. 26 at p. 2) 

In response to the comments, DOE 

elected to perform a sensitivity analysis 

related to common venting. To the 

extent that the loss of value of a second 

water heater on a common vent takes 

place, the cost is an up-front cost and 

can be treated as such. To analyze the 

issue DOE used the lifetime 

distributions by equipment class 

referenced in several comments to 

model what happens when you have 

two independent pieces of equipment 

operating at the same time. DOE 

modeled multiple permutations to 

address two key questions: (1) What 

happens if they are installed at the same 

time?; and (2) Is the answer different 

after one equipment lifetime than it is 

after multiple (e.g., 3) equipment 

lifetimes? With respect to the second 

question, certain issues make the 

answer less than useful, namely, 

equipment today is different than it was 

20 or more years ago and venting 

systems may have changed. While Joint 

Gas Commenters may be correct that 

equipment has been commonly vented 

for 100 years, consumers likely cannot 

vent today’s hot water supply boilers 

with a boiler from 50 years ago because 

of changes in the technology. The result 

of this modeling showed that on average 

in commercial gas storage equipment a 

second water heater on a common vent 

would lose approximately 3 years of 

useful life; a second hot water supply 

boiler about 4 years; and residential 

duty gas-fired storage about 3 years. 

DOE did not analyze tankless units 

because they represent a newer 

technology and most of the equipment 

available today is forced air combustion 

and not suitable for venting with 

category I equipment. See chapter 3 of 

the final rule TSD for discussion of 

forced combustion in tankless CWH 

equipment. 

Next DOE translated lost equipment 

life into an estimate of monetary value. 

Commenters have not provided data on 

the frequency of common venting, other 

than that it exists. For its sensitivity 

analysis, DOE modeled a scenario of 

20% of non-condensing replacement 

water heaters might be common vented 

for each of the above categories where 

common venting was considered. The 

average value of the lost life of the 

second water heater assumed to be 

common vented was taken as a loss 

against the average equipment class LCC 

savings as calculated in this final rule 

for the pair of new water heaters that 

were installed in their place in the 

common venting replacement scenario. 

Based on this sensitivity analysis, DOE 

determined that the overall impact of 

the residual values was approximately 

$39 for commercial gas-fired storage; 

$22 for residential duty gas-fired 

storage; and $5 for instantaneous water 

heaters and hot water supply boilers. 

The LCC savings as calculated for the 

final rule could potentially be lowered 

via account for an analysis of this 

nature. However, the lack of information 

on the fraction of installations in which 

common venting has been utilized and 

the complexity of dealing with these 

historical installations and how 

remaining life may be correlated 

between CWH units are issues that did 

not support its incorporation in the base 

analysis. DOE presents it as illustrative 

of the fact that including this would 

reduce but not eliminate the economic 

benefits of the rule to consumers. DOE’s 

sensitivity case is discussed in TSD 

chapter 8. 

Bradford White disagreed with DOE’s 

assertion that water heaters will be able 

to vent vertically in the case of common 

venting with other Category I water 

heaters as it will not be able to use the 

existing chimney as a chase as 

combustion products from existing 

water heaters will compromise nonmetallic venting used by the new water 

heater. They further seek clarification 

on how polypropylene common vent 


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69750 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations 

81Accepted Plumbing Products Online System of 

the Massachusetts Board of Registration of 

Plumbers and Gas Fitters. licensing.reg.state.ma.us/ 

public/pl_products/pb_pre_form.asp (Last accessed 

Dec 20, 2022). 

kits can be used to vent both noncondensing, existing water heaters with 

a newly installed condensing water 

heater. They also commented that 

regarding horizontal vent replacement, 

that DOE noted ‘‘to the extent that 

horizontal natural draft venting is used 

at a job site, it is indicative that 

horizontal venting is allowed by the 

jurisdiction.’’ and acknowledged that 

while that may be true, [and that there 

are] power venter kits that are used to 

horizontally vent natural draft water 

heaters, it is our experience that this is 

rarely done in the field. Therefore, this 

cannot be used as a good indicator of 

what local jurisdictions’ codes permit. 

(Bradford White, No. 23 at p. 4) 

DOE believes Bradford White has 

misunderstood DOE’s point. DOE meant 

with the discussion in the May 2022 

CWH ECS NOPR that there may be other 

options to both water heaters using the 

vertical chase when replacing the water 

heaters on the common vent. To the 

extent that a separate flue path may 

exist such as a horizontal venting from 

a mechanical room with an exterior 

wall, installers could very likely choose 

a simple horizontal vent option for the 

replacement water heater, and leave a 

functional non-condensing water heater 

in place, taking into account the relative 

size of the remaining Category I vent 

and the remaining water heater(s) input 

rate. Another option which may be 

present is the use of specified common 

venting procedures using multiple 

condensing water heaters (in a case 

where all units are replaced). In 

addition, DOE is aware of the Duravent 

FNS 80/90 vent solution, which allows 

for the use of an existing category I flue 

in conjunction with a condensing flue 

system which may be used in certain 

applications where replacement of the 

non-condensing water heater would be 

far out in time. However, in the case 

where an alternate path does not exist, 

DOE notes that multiple water heaters 

may have to be replaced. 

f. Vent Sizing/Material Cost 

Bradford White stated DOE’s analysis 

of installation costs does not 

appropriately account for State level 

restrictions on the application of PVC 

venting. In New Hampshire, PVC 

venting is not permitted for exhausting 

combustion gases. In Massachusetts, 

only CPVC, polypropylene, and other 

piping approved by the Plumbing Board 

are acceptable. These codes do not 

disallow PVC based on size, as other 

commenters stated. (Bradford White, 

No. 23 at p. 3) Bradford White also 

asked DOE to elaborate on why they 

believe polypropylene venting will 

become a more viable, cost-competitive 

alternative by 2026. (Bradford White, 

No. 23 at p. 4) 

After reviewing the comments from 

Bradford White and the requirements 

with regard to venting materials in New 

Hampshire and Massachusetts, DOE 

determined that in the case of New 

Hampshire, NFPA 54 was amended to 

require that a venting material would 

only be allowed to be used if the 

maximum set point temperature of the 

water heater does not exceed the safe 

operating temperature of the venting 

material selected. In the case of PVC 

vent material, the maximum storage 

temperature for use with PVC venting 

would be around 149 °F (based on the 

use of listed PVC vent products 

available that are rated to UL 1738). 

DOE agrees that this effectively does not 

allow PVC venting for the vast majority 

of products regulated under this rule. 

DOE also reviewed the requirements 

surrounding plastic venting materials 

for Massachusetts. Massachusetts 

requires that all venting products must 

be approved by the Plumbing Board. 

After consultation with a manufacturer 

of venting materials and review of the 

Massachusetts Consumer Affairs and 

Business Regulation website,81 DOE 

confirmed that at least one 

manufacturers’ product line of PVC vent 

piping that is currently listed to UL 

1738 is allowed as a venting material 

according to the Massachusetts 

Plumbing Board. Based on this review, 

and the relative population of New 

Hampshire to the US total, DOE 

determined that the effect of restrictions 

imposed on PVC venting in New 

Hampshire would be de minimis for 

DOE’s venting cost analysis. 

With response to possible growth in 

the use of polypropylene vent materials, 

DOE does not have data on the relative 

use of different plastic venting materials 

and historic changes over time. DOE’s 

intent in the May 2022 CWH ECS NOPR 

was only to note polypropylene venting 

as a relatively new option compared to 

other venting materials on the U.S. 

market that appears to have growth 

potential. Importantly, DOE did not 

modify its analysis for the May 2022 

CWH ECS NOPR or this final rule to 

explicitly include polypropylene 

venting. 

g. Masonry Chimney/Chimney Relining 

In the May 2022 CWH ECS NOPR, 

DOE assumed that 25 percent of pre1980 buildings have masonry chimneys 

and that 25 percent need relining. DOE 

also used these assumptions in the 

withdrawn May 2016 CWH ECS NOPR 

and asked for input. DOE did not 

receive further information or data on 

the percentage of buildings built prior to 

1980 with a masonry chimney or the 

percentage of those chimneys that 

require relining in response. For this 

final rule DOE maintained these same 

assumptions to characterize masonry 

chimneys; which DOE used in the logic 

underlying the calculation of venting 

costs. 

PHCC noted that with regard to the 

fraction of existing buildings with 

masonry chimneys, it cannot provide 

data, but suggests that the Department 

may want to break its pre-1980 

assumption down into more discrete 

year bins and also encouraged DOE to 

review possible data from the General 

Services Administration (‘‘GSA’’), the 

largest occupier of offices in the 

country. It encouraged DOE to make 

further examination of available 

information and to refrain from making 

random assumptions regarding building 

stock. (PHCC, No. 28 at p. 8) 

DOE appreciates PHCC’s input on this 

topic. DOE reviewed GSA data and 

found it did not include information 

that provided insight into the fraction of 

existing buildings with masonry 

chimney venting or to develop more 

detailed estimates of this variable by 

finer year bins. Consequently, DOE did 

not update its methodology in this area 

for the final rule. 

h. Downtime During Replacement 

Joint Gas Commenters state that many 

CWH replacements occur on an 

emergency basis or ‘‘on an unplanned 

basis.’’ For this reason, Joint Gas 

Commenters criticize DOE’s statement 

that some businesses are able to plan 

ahead for CWH replacements. They 

further state that DOE failed to take into 

account additional down-time required 

for condensing CWH installations in 

buildings previously served by noncondensing equipment and the potential 

for lost business during the downtime. 

(Joint Gas Commenters, No. 12 at p. 14) 

Similarly, Joint Gas Commenters 

pointed out that DOE did not take into 

account lost business operations during 

replacement of heat exchangers. (Joint 

Gas Commenters, No. 34 at p. 19) DOE 

has no mechanism for determining what 

if any impact there would be on a 

consumer’s business. As noted above, 

consumers have several avenues to 

avoid downtime, whether due to a 

replacement or due to a repair. DOE 

agrees with Joint Gas Commenters that 

a water heater failure can happen at any 

time. However, DOE assumes that many 

consumers would have contingency 


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Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations 69751 

82U.S. Energy Information Administration (EIA). 

Form EIA–861M monthly electric utility Sales and 

Revenue Data (aggregated: 1990–current). Available 

at www.eia.gov/electricity/data/eia861m/. Last 

accessed on March 31, 2023. 

83U.S. Energy Information Administration (EIA). 

Natural Gas Prices. Available at www.eia.gov/dnav/ 

ng/ng_pri_sum_a_EPG0_PCS_DMcf_a.htm. Last 

accessed on March 31, 2023. 

84U.S. Energy Information Administration (EIA). 

Uses prices presented in the Sales and Revenue 

report, by sector by State. The EIA–861M detailed 

data was the March 27, 2023 updated historical data 

containing data from 2010 through January 2023. 

85U.S. Energy Information Administration (EIA). 

Natural Gas Navigator. Available at www.eia.gov/ 

dnav/ng/ng_pri_sum_a_EPG0_PRS_DMcf_a.htm. 

Last accessed March 31, 2023. 

86U.S. Energy Information Administration (EIA). 

Annual Energy Outlook 2023 with Projections to 

2050: Narrative. March 2023. Available at 

www.eia.gov/outlooks/aeo/. 

87See appendix 8E of the TSD for the 2016 

supplemental notice of proposed rulemaking for 

residential furnaces for a direct comparison, 

available at: www.regulations.gov/document/EERE2014-BT-STD-0031-0217 (Last accessed January 25, 

2022). 

plans to cope with such emergencies 

and limit business losses, including 

potentially having insurance policies 

which include coverage of business loss 

due equipment failures or similar 

business impacting events. Because 

avenues exist for consumers to 

minimize or eliminate lost business, 

DOE continues to assume there is no 

need to add in costs for lost business. 

DOE acknowledges that currently a 

wide range of industries are 

experiencing supply chain bottlenecks, 

and that could, in today’s climate, add 

to the time required to replace water 

heaters. The standard established by 

this final rule however would not take 

effect for three years and DOE believes 

that these supply chain bottlenecks 

should be resolved by that time. 

3. Annual Energy Consumption 

For each sampled building, DOE 

determined the energy consumption for 

CWH equipment at different efficiency 

levels using the approach described 

previously in section IV.C.4 of this 

document. 

4. Energy Prices 

Electricity and natural gas prices are 

used to convert changes in the energy 

consumption from higher-efficiency 

equipment into energy cost savings. It is 

important to consider regional 

differences in electricity and natural gas 

prices because the variation in those 

prices can impact electricity and natural 

gas consumption savings and equipment 

costs across the country. In the May 

2022 CWH ECS NOPR, DOE determined 

average effective commercial electricity 

prices 82 and commercial natural gas 

prices 83 at the State level from EIA data 

for calendar year 2019. 

In response to the May 2022 CWH 

ECS NOPR, Joint Gas Commenters were 

critical of DOE’s use of 2019 historical 

energy price data despite newer data 

being available ‘‘before the last update 

on March 25, 2022,’’ and questioned 

why DOE did not update historical price 

data and marginal prices to match other 

base year costs. (Joint Gas Commenters, 

No. 34 at p. 23) In response, DOE chose 

2019 as the base year in the May 2022 

CWH ECS NOPR because it was the last 

calendar year for which complete 

natural gas and electricity data were 

available (i.e., there were no missing 

data in the Natural Gas Navigator 

dataset), and at the time the United 

States had not begun to recognize that 

the Nation was in a period of rapid price 

inflation. For the final rule, DOE agrees 

with the Joint Gas Commenters that it is 

important to have fuel prices that are 

fully contemporaneous with the other 

base-year prices used in the analysis, 

such as the prices for stainless steel 

venting. For the final rule, DOE is using 

a 12-month period ending with 

December 2022. 

For the final rule DOE again used data 

from EIA’s Form 861 84 to calculate 

commercial and residential sector 

electricity prices, and EIA’s Natural Gas 

Navigator to calculate commercial and 

residential sector natural gas prices.85

Future energy prices were projected 

using trends from the EIA’s AEO2023.86

This approach captured a wide range of 

commercial electricity and natural gas 

prices across the United States. 

CBECS and RECS report data based on 

different geographic scales. The various 

States in the United States are 

aggregated into different geographic 

scales such as Census Divisions (for 

CBECS) and Reportable Domains (for 

RECS). For both the commercial and 

residential sectors, DOE continued to 

use population in each State and the 

cumulative population in the States that 

comprise each Census Division and 

Reportable Domain for developing 

natural gas prices. See appendix 8C of 

the final rule TSD for further details. 

The electricity and natural gas price 

trends provide the relative change in 

electricity and natural gas costs for 

future years. DOE used the AEO2023 

Reference case to provide the default 

electricity and natural gas price forecast 

scenarios. This is an update from the 

May 2022 CWH ECS NOPR that relied 

on the AEO2021. DOE extrapolated the 

trend in values at the Census Division 

level to establish prices beyond 2050. 

Joint Gas Commenters criticized the 

use of AEO forecasts, claiming they 

have systematically overstated future 

energy costs, and presented a 

comparison of historical residential and 

commercial gas prices to AEO forecasts 

going back to 2010 to support their 

claim. (Joint Gas Commenters, No. 34 at 

pp. 19–23) DOE uses the AEO forecast 

because it is the most widely available, 

widely reviewed and robust forecasting 

process available to DOE. As Joint Gas 

Commenters did not propose any 

alternative, let alone one as widely 

reviewed and robust as the AEO, DOE 

determined that the appropriate 

alternative at this point is to continue to 

use the AEO for future energy price 

trends, consistent with its practice in 

energy conservation standards 

rulemakings, with the only change made 

from the May 2022 CWH ECS NOPR 

being to update from the AEO2021 to 

the AEO2023. 

DOE developed the LCC analysis 

using a marginal fuel price approach to 

convert fuel savings into corresponding 

financial benefits for the different 

equipment categories. This approach 

was based on the development of 

marginal price factors for gas and 

electric fuels based on historical data 

relating monthly expenditures and 

consumption. For details of DOE’s 

marginal fuel price approach, see 

chapter 8 of the final rule TSD. 

Regarding the usage of EIA data for 

development of marginal energy costs 

and comparisons to tariff data, DOE 

emphasizes that the EIA data provide 

complete coverage of all utilities and all 

customers, including larger commercial 

and industrial utility customers that 

may have discounted energy prices. The 

actual rates paid by individual 

customers are captured and reflected in 

the EIA data and are averaged over all 

customers in a State. DOE has 

previously compared these two 

approaches for determining marginal 

energy price factors in the residential 

sector. In a September 2016 SNOPR for 

residential furnaces, DOE compared its 

marginal natural gas price approach 

using EIA data with marginal natural 

gas price factors determined from 

residential tariffs submitted by 

stakeholders. 81 FR 65719, 65784 (Sept. 

23, 2016). The submitted tariffs 

represented only a small subset of 

utilities and States and were not 

nationally representative, but DOE 

found that its marginal price factors 

were generally comparable to those 

computed from the tariff data (averaging 

across rate tiers).87 DOE noted that a full 

tariff-based analysis would require 

information on each household’s total 

baseline gas consumption (to establish 

which rate tier is applicable) and how 

many customers are served by a utility 


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69752 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations 

88Whitestone Research. The Whitestone Facility 

Maintenance and Repair Cost Reference 2012–2013 

(17th Annual edition). 2012. Whitestone Research: 

Santa Barbara, CA. 

89The Whitestone Research report is the most 

recent available from this source. The report was 

used in the determination of labor hours for 

maintenance, and DOE has found no evidence 

indicating that maintenance tasks and labor hours 

have changed except as addressed in subsequent 

sections of this final rule. 

on a given tariff. These data were not 

available in the public domain. By 

relying on EIA data, DOE noted, its 

marginal price factors represented all 

utilities and all States, averaging over all 

customers, and was therefore ‘‘more 

representative of a large group of 

consumers with diverse baseline gas 

usage levels than an approach that uses 

only tariffs.’’ 81 FR 65719, 65784. While 

the above comparative analysis was 

conducted for residential consumers, 

the general conclusions regarding the 

accuracy of EIA data relative to tariff 

data remain the same for commercial 

consumers. DOE uses EIA data for 

determining both residential and 

commercial electricity prices and the 

nature of the data is the same for both 

sectors. DOE further notes that not all 

operators of CWH equipment are larger 

load utility customers. As reflected in 

the building sample derived from 

CBECS 2018 and RECS 2009 data, there 

is a range of buildings with varying 

characteristics, including multi-family 

residential buildings, that operate CWH 

equipment. The buildings in the LCC 

sample have varying hot water heating 

load, square footage, and water heater 

capacity. Operators of CWH equipment 

are varied, some large and some smaller, 

and thus the determination of the 

applicable marginal energy price should 

reflect the average CWH equipment 

operator. 

DOE’s approach is based on the 

largest, most comprehensive, most 

granular national data sets on 

commercial energy prices that are 

publicly available from EIA. The data 

from EIA are the highest quality energy 

price data available to DOE. The 

resulting estimated marginal energy 

prices represent an average across all 

commercial customers in a given region 

(reportable domain for RECS, census 

division for CBECS). Some customers 

may have a lower marginal energy price, 

while others may have a higher 

marginal energy price. With respect to 

large customers who may pay a lower 

energy price, no tariffs were submitted 

to DOE during the rulemaking for 

analysis. Tariffs for individual nonresidential customers can be very 

complex and generally depend on both 

total energy use and peak demand 

(especially for electricity). These tariffs 

vary significantly from one utility to 

another. While DOE was unable to 

identify data to provide a basis for 

determining a potentially lower price 

for larger commercial and industrial 

utility customers, either on a state-bystate basis or in a nationally 

representative manner, the historic data 

on which DOE did rely include such 

discounts. The EIA data include both 

large non-residential customers with a 

potentially lower rate as well as more 

typical non-residential customers with a 

potentially higher rate. Thus, to the 

extent larger consumers of energy pay 

lower marginal rates, those lower rates 

are already incorporated into the EIA 

data, which would drive down EIA’s 

marginal rates for all consumers. If DOE 

were to adjust downward the marginal 

energy price for a small subset of 

individual customers in the LCC Monte 

Carlo, it would also have to adjust 

upward the marginal energy price for all 

other customers in the sample to 

maintain the same marginal energy 

price averaged over all customers. Even 

assuming DOE could accomplish those 

adjustments in a reliable or accurate 

way, this upward adjustment in 

marginal energy price would affect the 

majority of buildings in the LCC sample. 

Operational cost savings would 

therefore both decrease and increase for 

different buildings in the LCC sample, 

yielding substantially the same overall 

average LCC savings result as DOE’s 

current estimate. 

In summary, DOE’s current approach 

utilizes an estimate of marginal energy 

prices and captures the impact of actual 

utility rates paid by all customers in a 

State, including those that enjoy lower 

marginal rates for whatever reason, in 

an aggregated fashion. Adjustments to 

this methodology are unlikely to change 

the average LCC results. 

DOE uses EIA’s forecasted energy 

prices to compute future energy prices 

indices (for this final rule, DOE updated 

forecasts from data published in the 

AEO2023 Reference case), and combines 

those indices with monthly historical 

energy prices and seasonal marginal 

price factors in calculating future energy 

costs in the LCC analysis. For this final 

rule, DOE used 2022 EIA energy price 

data as a starting point. EIA historical 

price trends and calculated indices are 

developed in a reasonable manner using 

the best available data and models, and 

DOE uses these trends consistently 

across its regulatory analyses. DOE 

points out that this final rule analyzes 

potential new standards for gas-fired 

equipment, and that electricity usage for 

such commercial equipment occurs both 

during standby and during firing 

periods (depending on equipment 

design) and can occur during periods of 

utility peak usage. While electricity 

usage and resultant expenditures are 

significantly lower than fuel (gas)- 

related expenditures, they do impact the 

LCC analysis and have been included, 

using the calculated marginal electricity 

costs. DOE’s use of marginal cost factors 

for electricity in this analysis, which is 

based on overall electric expenditures, 

including those associated with 

electricity demand, may result in 

somewhat higher electricity costs than 

cost figures that omit the impact of 

demand costs; however, this is 

appropriate for the current analysis, 

barring other information on 

commercial load profiles and demandpeak windows. After careful 

consideration during the preparation of 

this final rule, DOE concluded that it is 

appropriate to use its existing approach 

to the development of electric and fuel 

costs for the LCC and PBP analysis that 

(1) considers marginal electric and 

natural gas costs in its economic 

analysis, (2) reflects seasonal variation 

in marginal costs, and (3) uses EIArecommended future energy price 

escalation rates. DOE maintained this 

approach for this final rule. 

5. Maintenance and Repair Costs 

Maintenance costs are the routine 

costs to the consumer of maintaining the 

operation of equipment. Repair costs are 

the cost to the consumer of replacing or 

repairing components that have failed in 

the CWH equipment. 

a. Maintenance Costs 

DOE utilized The Whitestone Facility 

Maintenance and Repair Cost Reference 

2012–2013 88 89 to determine the amount 

of labor and material costs required for 

maintenance of each of the relevant 

CWH equipment subcategories. 

Maintenance costs include services such 

as cleaning the burner and flue and 

changing anode rods. DOE estimated 

average annual routine maintenance 

costs for each class of CWH equipment 

based on equipment groupings. Table 

IV.20 presents various maintenance 

services identified and the amount of 

labor required to service the equipment 

covered in the final rule analysis. 


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Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations 69753 

90U.S. Department of Energy, Technical Support 

Document: Energy Efficiency Program for Consumer 

Products and Commercial and Industrial 

Equipment: Commercial Warm Air Furnaces. 2015. 

Docket No. EERE–2013–BT–STD–0021. The 

Commercial Warm Air Furnaces NOPR TSD 

assumed 0.078 hours for replacing neutralizer filler 

every 3 years. For this final rule, DOE used 5 

minutes per year for checking and/or refilling 

neutralizers. 

91A condensate neutralizer is used to buffer or 

neutralize the acidic content of flue gas condensate 

before disposal. The condensate neutralizer DOE 

included in DOE’s installation costs weighs 

approximately 5 pounds. It is essentially a plastic 

tube with water inlet and outlet, and filled with 

calcium carbonate pellets (neutralizer media), and 

DOE estimates the pellets comprise 3.5 to 4 pounds 

of the total. DOE found prices ranging from $0.25 

per pound (phoenixphysique.com/ism-root-pvlsc/ 

91da02-marble-chips-for-condensate-neutralizer) 

up to $3 per pound in smaller purpose products. 

DOE estimates $10 per year would be sufficient to 

cover replacement of the pellets. 

92RSMeans Company. Facilities Maintenance and 

Repair Cost Data 2022. 29th Annual Edition. 

Available at www.rsmeans.com/products/books/. 

93RSMeans. RSMeans Mechanical Costs Book 

2022. Available at www.rsmeans.com/products/ 

books. 

TABLE IV.20—SUMMARY OF MAINTENANCE LABOR HOURS AND SCHEDULE USED IN THE LCC AND PBP ANALYSES

Equipment Description Labor hours Frequency 

(years) 

Commercial gas-fired storage water heaters; Residential-duty gas-fired 

storage water heaters.

Clean (Volume ≤ 275 gallons) ........

Clean (Volume > 275 gallons) ........

Overhaul ..........................................

2.67 

8 

1.84 

1 

2 

5 

Gas-fired instantaneous tankless water heaters ....................................... Service ............................................. 0.75 1 

Gas-fired instantaneous circulating water heaters and hot water supply 

boilers.

Service ............................................. 7.12 1 

Because data were not available to 

indicate how maintenance costs vary 

with equipment efficiency, DOE used 

preventive maintenance costs that 

remain constant as equipment efficiency 

increases. Additional information 

relating to maintenance of CWH 

equipment can be found in chapter 8 of 

the final rule TSD. 

For the May 2022 CWH ECS NOPR, 

DOE did make revisions to some of the 

original Whitestone schedule of labor 

hour in response to comments on the 

withdrawn ECS NOPR. DOE added an 

additional 0.0833 labor hours per year 90

for checking condensate neutralizers 

during annual maintenance work, and 

$10 per year 91 for replacing the material 

within the neutralizers. In addition, 

DOE increased the labor hours for 

annual tankless water heater 

maintenance from 0.33 hours to 0.75 

hours. DOE also conducted research on 

the maintenance labor activities and 

associated hours needed to maintain 

commercial gas-fired instantaneous 

circulating water heaters and hot water 

supply boilers. This research involved 

reviewing guidance in manufacturer 

product manuals in combination with 

the estimates in the Whitestone Facility 

Maintenance and Repair Cost Reference 

and the RSMeans Facilities 

Maintenance and Repair Cost Data.92

Using these references, DOE updated 

the maintenance labor hours from 0.33 

to 7.12 for this equipment category. 

Appendix 8E of the final rule TSD 

provides more detail on maintenance 

labor hours assigned to each equipment 

category of commercial water heaters. 

In response to the May 2022 CWH 

ECS NOPR, Bradford White stated that 

DOE assumed that annual maintenance 

costs do not vary as a function of 

efficiency and recommended that this 

assumption be updated as burner 

maintenance costs increase as a function 

of efficiency. (Bradford White, No. 23 at 

p. 8) In response to this comment, DOE 

downloaded Bradford White and 

Lochinvar installation and operation 

manuals for commercial gas-fired 

condensing and non-condensing water 

heaters. DOE compared the language for 

maintenance for burners. While clearly 

the burners appeared different in the 

pictures in the manuals, the language 

for this step was identical. Because DOE 

could not discern where additional 

steps needed to be taken involving 

additional time, and because Bradford 

White did not volunteer this 

information in their comment, DOE did 

not add additional labor hours in 

response to this comment. 

In another comment on the May 2022 

CWH ECS NOPR, JJM Alkaline noted 

the costs to replace neutralizers ($10/ 

year) is below prevailing market costs. 

(JJM Alkaline, No. 10 at p. 1) DOE 

reviewed the cost assumptions and 

inputs used in the modeling of 

condensate management solutions. DOE 

reviewed costs for condensate 

neutralizer material (based on retail 

prices available for different purchase 

quantities), condensate neutralizers, as 

well as considerations for labor. DOE 

also considered how consumption of 

neutralizer media would change 

between different water heating 

equipment by input capacity, full load 

operating hours as evidenced in its LCC 

analysis and subsequent overall 

condensate production. DOE’s revised 

analysis resulted in increased costs 

overall, but more specifically made 

overall condensate management costs a 

function of each representative 

equipment type in DOE’s analysis. 

Labor cost was doubled from 5 minutes 

to 10 minutes per year, and is assumed 

to take place at the time of a normal 

maintenance cycle. Both the assumed 

prevalence of condensate neutralization 

equipment and the expected cost of 

such equipment are discussed in 

chapter 7 of the final rule TSD. 

b. Repair Costs 

DOE calculated CWH repair costs 

based on an assumed typical failure rate 

for key CWH subsystems. DOE assumed 

a failure rate of 0.5 percent per year for 

combustion systems, 1 percent per year 

for controls, and 2 percent per year for 

high efficiency controls applied with 

condensing equipment. This probability 

of repair is assumed to extend through 

the life of the equipment, but only one 

major repair in the life of the equipment 

was considered. 

The labor required to repair a 

subsystem was estimated as 2 hours for 

combustion systems and 1 hour for 

combustion controls. Labor costs are 

based upon servicing by one plumber 

with overhead and profit included and 

are based on RSMeans data.93 Because 

a repair may not require the complete 

subsystem replacement, but rather 

separate components, DOE estimated a 

typical repair would have material costs 

of one-half the subsystem total cost, but 

would require the equivalent labor 

hours for total subsystem replacement. 

DOE calculated a cost for repair over the 

life of a CWH unit with these 

assumptions, and used that cost or 

repair in the analysis. A repair year was 

selected at random over the life for each 

unit selected in the LCC and the repair 

cost occurring in that year was 

discounted to present value for the LCC 

analysis. 

Heat exchanger failure is a unique 

repair scenario for certain commercial 

gas-fired instantaneous circulating water 


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94 Jakob, F.E., J.J. Crisafulli, J.R. Menkedick, R.D. 

Fischer, D.B. Philips, R.L. Osbone, J.C. Cross, G.R. 

Whitacre, J.G. Murray, W.J. Sheppard, D.W. 

DeWirth, and W.H. Thrasher. Assessment of 

Technology for Improving the Efficiency of 

Residential Gas Furnaces and Boilers. Volume I and 

II—Appendices. September 1994, 1994. Gas 

Research Institute. AGA Laboratories: Chicago, IL. 

Report No. GRI–94/0175. 

95 DOE attempted to only include only unique 

sources, as opposed to documents citing other 

sources already included in DOE’s reference list. 

heaters and hot water supply boilers 

and was included in DOE’s repair cost 

analysis. The use of condensing or noncondensing technology determines the 

rate and timing of heat exchanger failure 

as well as the cost of repair with an 

approximately three times greater 

probability of repair for condensing 

equipment. DOE’s assumptions for the 

frequency of failure and the mean year 

of heat exchanger failure were based on 

a report from the Gas Research Institute 

(‘‘GRI’’) for boilers.94 The cost of heat 

exchanger replacement is assumed to be 

a third of the total water heater 

replacement cost. 

In the October 2014 RFI, DOE asked 

if repair costs vary as a function of 

equipment efficiency. 79 FR 62899, 

62908 (Oct. 21, 2014). Four stakeholders 

commented on the relationship between 

equipment efficiency and repair costs, 

with emphasis that higher-efficiency 

equipment incorporates additional 

components and more complex 

controls. (Bradford White, No. 3 at p. 3; 

A.O. Smith, No. 2 at p.4; AHRI, No. 5 

at p. 5; Rheem, No. 10 at p.7) DOE 

considered the feedback from the 

stakeholders and undertook further 

research to identify components and 

subsystems commonly replaced in order 

to evaluate differences in repair costs 

relative to efficiency levels. 

As a result of its research, DOE 

learned that the combustion systems 

and controls used in gas-fired CWH 

equipment have different costs related 

to the efficiency levels of these 

products, a finding in agreement with 

comments provided on the RFI. For the 

combustion systems, these differences 

relate predominately to atmospheric 

combustion, powered atmospheric 

combustion, and pre-mixed modulating 

combustion systems used on baselineefficiency, moderate-efficiency, and 

high-efficiency products respectively. 

The control systems employed on 

atmospheric combustion systems were 

found to be significantly less expensive 

than the controller used on powered 

combustion systems, which was 

observed to include a microprocessor in 

some products. 

Where similar component parts and 

costs were identified that reflected the 

equipment category and efficiency, 

DOE’s component cost was estimated as 

the average cost of those replacement 

components identified. This cost was 

applied at the frequency identified 

earlier in this section. DOE understands 

that this approach may conservatively 

estimate the total cost of repair for 

purposes of DOE’s analysis, but the 

percentage of total repair cost remains 

small compared to the consumer cost 

and the total installation cost. 

Additionally, DOE prefers to use this 

component-level approach to 

understand the incremental repair cost 

difference between efficiency levels of 

equipment. Additional details of this 

analysis and source references for the 

subsystem and component costs are 

found in chapter 8 of the final rule TSD 

and appendix 8E of the final rule TSD. 

DOE’s incorporation and approach to 

repair costs in the LCC did not change 

from the NOPR implementation. 

Bradford White recommended DOE 

investigate other sources of more recent 

data on heat exchanger failure, noting 

that DOE bases its assumptions on heat 

exchanger failure based on a Gas 

Research Institute report on boilers, not 

water heaters, and it is from 1994. 

(Bradford White, No. 23 at p. 8) DOE 

understands Bradford White’s concerns 

about this source document, and DOE 

invested a considerable amount of time 

investigating whether alternative 

information sources existed, and none 

could be identified. Thus for this final 

rule, DOE continues to rely upon this as 

the best available information. 

Joint Gas Commenters note DOE, 

without reference or logic, assumes the 

cost of heat exchanger replacement, 

where possible, is one third of the total 

water heater replacement cost. They 

also state it is just as likely that heat 

exchanger failure will cause a need for 

complete replacement of the water 

heating equipment, but the added 

negative economic impact of more 

frequent equipment outages on the 

business’s operation is not considered. 

(Joint Gas Commenter, No. 34 at p. 19) 

DOE notes that appendix 8E in both the 

May 2022 CWH ECS NOPR and the final 

rule TSDs outlines heat exchanger 

replacement assumptions. The 

estimated cost equivalent to one-third of 

the hot water supply boiler cost was 

based on manufacturer literature. Based 

on the aforementioned Gas Research 

Institute report, DOE assumes that as 

many as 50 percent of condensing heat 

exchangers will need to be replaced 

with an average year of failure of 15 

years. Note that for hot water supply 

boilers and other instantaneous water 

heaters, DOE assumes a 25 year lifetime. 

DOE also assumes 17 percent of noncondensing heat exchangers in those 

units will need to be replaced with a 

mean year of failure of 20 years, again 

for equipment with an expected 25 year 

lifetime. Thus, on average, a noncondensing heat exchanger failure could 

lead to more premature circulating 

water heaters and hot water supply 

boiler replacements because, on average, 

the heat exchanger replacement would 

occur closer to the expected end of life 

of the hot water supply boiler and 

consumers’ repair professionals would 

make them aware of how much 

expected life would be available after 

the repair. DOE also notes that 

economically rational consumers are not 

going to replace a serviceable and 

repairable condensing hot water supply 

boiler that costs in excess of $7,100 if 

the heat exchanger fails at year 15. They 

would only do such if the water heater 

is otherwise compromised. As for the 

impact on a consumer’s business, DOE 

has no mechanism for determining what 

if any impact there would be on a 

consumer’s business. As discussed in 

IV.F.2.h, consumers have many 

alternatives for minimizing or mitigating 

downtime. While DOE is basing the 

assumptions of heat exchanger 

replacement on the best available data, 

Bradford White is correct in noting the 

Gas Research Institute report is from 

1994, and DOE would assume that in 

normal situations, manufacturers would 

have made progress in reducing the 

failure rate since that date. When 

viewed in this light, the inclusion of 

this higher failure rate might be a 

conservative assumption. 

6. Product Lifetime 

For CWH equipment, DOE used 

lifetime estimates derived through a 

review of numerous sources. Product 

lifetime is the age when a unit of CWH 

equipment is retired from service. For 

the May 2022 CWH ECS NOPR and for 

this final rule, DOE used a distribution 

of lifetimes, with the weighted averages 

ranging between 10 years and 25 years 

as shown in Table IV.21, which are 

based on a review of CWH equipment 

lifetime estimates found in published 

studies and online documents. These 

sources used by DOE in the review of 

lifetime include documents from prior 

DOE efficiency standards rulemaking 

processes, LBNL, NREL, the EIA, 

Federal Energy Management Program, 

Building Owner and Managers 

Association, Gas Foodservice 

Equipment Network, San Francisco 

Apartment Association, and National 

Grid.95 Specific document titles and 

references are provided in appendix 8F 

of the final rule TSD. DOE applied a 


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96Based on the average lifetime included in 

DOE’s ongoing consumer water heater rulemaking 

EERE–2017–BT–STD–0019. 

97Based on the average lifetime included in 

DOE’s ongoing consumer boiler rulemaking, 

Preliminary Technical Support Document, from 

www.regulations.gov/document/EERE-2019-BTSTD-0036-0021. 

distribution to all classes of CWH 

equipment analyzed. Chapter 8 of the 

final rule TSD contains a detailed 

discussion of CWH equipment lifetimes. 

TABLE IV.21—AVERAGE CWH LIFETIME USED IN FINAL RULE ANALYSES

CWH equipment Average lifetime 

(years) 

Commercial gas-fired storage water heaters and storage-type instantaneous .............................................................................. 10 

Residential-duty gas-fired storage water heaters ............................................................................................................................ 12 

Gas-fired instantaneous water heaters and hot water supply boilers 

Tankless water heaters ............................................................................................................................................................ 17 

Circulating water heaters and hot water supply boilers ........................................................................................................... 25 

DOE notes that the average lifetime of 

all equipment covered by this 

rulemaking is the same for baseline and 

max-tech thermal efficiency levels. The 

lifetime selected for each simulation run 

varies, but the weighted-average lifetime 

is the same across all thermal efficiency 

levels. 

In response to the May 2022 CWH 

ECS NOPR, DOE received several 

comments concerning the estimated 

lifetime of equipment. AHRI stated that 

10 years for commercial gas storage and 

25 years for Instantaneous Water 

Heaters and Hot Water Supply Boilers 

seem more characteristic of residential 

applications than commercial. Higher 

water temperatures and faster duty 

cycles decrease expected lifetimes. 

(AHRI, No. 31 at p. 1) Rheem supported 

this AHRI comment. (Rheem, No. 24 at 

p. 2) Similarly, Bradford White stated 

that DOE’s assumed 10-year life for 

commercial gas-fired storage and 25- 

year life for gas-fired instantaneous and 

hot water supply boilers are almost the 

same (in the case of gas-fired storage), or 

more than, their consumer (i.e., 

residential) counterparts. Bradford 

White also reiterated the point AHRI 

made about temperatures and duty 

cycles. Bradford White further noted 

that in appendix 8F, DOE cited experts 

stating commercial water heaters are 

expected to have shorter lives than 

residential water heaters. They 

expressed concern that DOE referenced 

several sources more than 10 years old. 

(Bradford White, No. 23 at pp. 2 and 5) 

PHCC also stated DOE’s lifetimes are too 

long, and DOE’s listed lifetimes would 

be the maximum age for products, not 

the average age. PHCC notes that their 

members do not have a complied 

database for these products to verify life 

and that DOE should reengage with the 

product manufacturers and other 

stakeholders to see if additional data 

can be developed. (PHCC, No. 28 at p. 

6) Joint Gas Commenters noted DOE 

assumes that the lifetime distribution 

for a class of CWH unit is the same 

within an equipment category, across all 

efficiency levels, then points to the 

replacement of boiler heat exchangers 

implying that lower reliability of heat 

exchangers in condensing units 

compared to non-condensing units 

should imply shorter life. (Joint Gas 

Commenters, No. 34 at page 19) 

In response, DOE notes that the 

residential (i.e., consumer) gas water 

heaters are estimated to have a 14.5 year 

life, which exceeds both the commercial 

gas storage water heaters lifetime (10 

years) and residential-duty gas-fired 

storage water heater lifetime (12 

years).96 Consumer boilers are estimated 

to have a 26.6 year lifetime, or 1.6 years 

longer than the lifetime for hot water 

supply boilers and circulating water 

heaters assumed by DOE.97 Thus, DOE’s 

estimated equipment lifetimes for 

commercial water heaters are shorter 

than the residential counter-parts. DOE 

notes that the commercial gas-fired 

storage water heater lifetime is 

approximately 30 percent shorter than 

its residential counterpart while the 

commercial hot water supply boiler 

lifetime is 6 percent shorter than its 

residential boiler counterpart. Bradford 

White, AHRI and Rheem did not 

provide DOE with sufficient numerical 

data concerning CWH equipment 

lifetimes to justify a significantly greater 

disparity in the lifetimes between these 

CWH and residential equipment. In 

response to the age of the documents 

cited in DOE’s review of research on 

CWH equipment lifetimes, DOE 

undertook an additional literature 

search to determine if newer 

information was available. The search 

turned up newer documents with 

information about CWH equipment 

lifetime, but virtually all such 

documents refer to the sources cited in 

the NOPR for the lifetimes that they 

state. Thus, while the NOPR list of 

citations includes many older 

documents, updating this literature 

review did not provide evidence leading 

DOE to conclude that a change was 

needed in any of the estimated lifetimes. 

In response to the Joint Gas 

Commenters, DOE does not have data to 

suggest that the lifetime of condensing 

CWH equipment is lower than that of 

non-condensing equipment; rather, all 

available data suggests that the lifetime 

of condensing CWH equipment is 

substantially the same as 

noncondensing CWH equipment. DOE 

does have and has incorporated data 

regarding increased repair costs for 

individual component failures that may 

occur in higher-efficiency equipment, as 

discussed in section IV.F.5.b of this 

document. However, the increased 

repair costs are largely related to the 

increased component cost and even in 

the case of heat exchangers where DOE 

cites a higher failure rate, such does not 

translate directly to decreased product 

life. While Joint Gas Commenters 

remark about heat exchanger failure 

leading to early replacement of the 

entire water heater, DOE would note 

that CWH equipment has a rather high 

total installed cost and it would not be 

in consumers economic best interest to 

replace an otherwise serviceable and 

repairable water heater. As noted in 

both the May 2022 CWH ECS NOPR and 

the Final Rule TSD appendix 8E, DOE 

assumes a mean failure year of 15 years 

for condensing heat exchangers which, 

when combined with the original 

warranty period, means there is no 

reason to expect the heat exchanger 

repair work to automatically result in a 

shorter lifetime. 

7. Discount Rates 

In the calculation of LCC, DOE 

applies appropriate discount rates to 

estimate the present value of future 

operating costs. DOE determined the 

discount rate by estimating the cost of 

capital for purchasers of CWH 

equipment. Most purchasers use both 

debt and equity capital to fund 

investments. Therefore, for most 

purchasers, the discount rate is the 


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98The implicit discount rate is inferred from a 

consumer purchase decision between two otherwise 

identical goods with different first cost and 

operating cost. It is the interest rate that equates the 

increment of first cost to the difference in net 

present value of lifetime operating cost, 

incorporating the influence of several factors: 

transaction costs; risk premiums and response to 

uncertainty; time preferences; interest rates at 

which a consumer is able to borrow or lend. 

99 Damodaran Online. Damodaran financial data 

used for determining cost of capital. Available at 

pages.stern.nyu.edu/∼adamodar/. Last accessed on 

December 20, 2022. 

100Federal Reserve Bank of St. Louis. State and 

Local Bonds—Bond Buyer Go 20-Bond Municipal 

Bond Index. Data available through 2015 at 

research.stlouisfed.org/fred2/series/MSLB20/ 

downloaddata?cid=32995. Last accessed April 3, 

2020. 

101Bartel Associates, LLC. Ba 2019–12–31 20 

Year AA Municipal Bond Rates. Averaged quarterly 

municipal bond rates to develop annual averages 

for 2016–2020. bartel-associates.com/resources/ 

select-gasb-67-68-discount-rate-indices. Last 

accessed on June 23, 2022. 

102Rate calculated with rolling 40-year data series 

for the years 1992–2021. Data source: U.S. Federal 

Reserve. Available at www.federalreserve.gov/ 

releases/h15/data.htm. Last accessed on July 12, 

2022. 

103Board of Governors of the Federal Reserve 

System. Survey of Consumer Finances. Available at 

www.federalreserve.gov/PUBS/oss/oss2/ 

scfindex.html. 

weighted-average cost of debt and 

equity financing, or the weightedaverage cost of capital (‘‘WACC’’), less 

the expected inflation. 

For residential consumer purchase of 

CWH equipment, DOE applies weighted 

average discount rates calculated from 

consumer debt and asset data, rather 

than marginal or implicit discount 

rates.98 DOE notes that the LCC does not 

analyze the equipment purchase 

decision, so the implicit discount rate is 

not relevant in this model. The LCC 

estimates net present value over the 

lifetime of the equipment, so the 

appropriate discount rate will reflect the 

general opportunity cost of household 

funds, taking this time scale into 

account. Given the long time horizon 

modeled in the LCC, the application of 

a marginal interest rate associated with 

an initial source of funds is inaccurate. 

Regardless of the method of purchase, 

consumers are expected to continue to 

rebalance their debt and asset holdings 

over the LCC analysis period, based on 

the restrictions consumers face in their 

debt payment requirements and the 

relative size of the interest rates 

available on debts and assets. DOE 

estimates the aggregate impact of this 

rebalancing using the historical 

distribution of debts and assets. 

For commercial purchasers, to 

estimate the WACC DOE used a sample 

of detailed business sub-sector statistics, 

drawn from the database of U.S. 

companies presented on the Damodaran 

Online website.99 This database 

includes most of the publicly-traded 

companies in the United States. Using 

this database, Damodaran developed a 

historical series of sub-sector-level 

annual statistics for 100+ business subsectors. Using data for 1998–2021, 

inclusive, DOE developed sub-sector 

average WACC estimates, which were 

then assigned to aggregate categories. 

For commercial water heaters, the 

applicable aggregate categories include 

retail and service, property/real-estate 

investment trust (‘‘REIT’’), medical 

facilities, industrial, hotel, food service, 

office, education, and other. The WACC 

approach for determining discount rates 

accounts for the applicable tax rates for 

each category. DOE did not evaluate the 

marginal effects of increased costs, and, 

thus, depreciation due to more 

expensive equipment, on the overall tax 

status. 

DOE used the sample of business subsectors to represent purchasers of CWH 

equipment. For each observation in the 

sample, DOE derived the cost of debt, 

percentage of debt financing, and cost of 

equity from industry-level data on the 

Damodaran Online website, from longterm nominal S&P 500 returns also 

developed by Damodaran, and risk-free 

interest rates based on nominal longterm Federal government bond rates. 

DOE then determined the weightedaverage values for the cost of capital, 

and the range and distribution of values 

of WACC for each of the sample 

business sectors. Deducting expected 

inflation from the cost of capital 

provided estimates of the real discount 

rate by ownership category. 

For most educational buildings and a 

portion of the office buildings occupied 

by public schools, universities, and 

State and local government agencies, 

DOE estimated the cost of capital based 

on a 40-year geometric mean of an index 

of long-term tax-exempt municipal 

bonds (>20 years).100 101 Federal office 

space was assumed to use the Federal 

bond rate, derived as the 40-year 

geometric average of long-term (>10 

years) U.S. government securities.102

Based on this database, DOE 

calculated the weighted-average, aftertax discount rate for CWH equipment 

purchases, adjusted for inflation, made 

by commercial users of the equipment. 

To establish residential discount rates 

for the LCC analysis, DOE identified all 

relevant household debt or asset classes 

in order to approximate a consumer’s 

opportunity cost of funds related to 

appliance energy cost savings. It 

estimated the average percentage shares 

of the various types of debt and equity 

by household income group using data 

from the Federal Reserve Board’s Survey 

of Consumer Finances (‘‘SCF’’) 103 for 

1995, 1998, 2001, 2004, 2007, 2010, 

2013, 2016, and 2019. Using the SCF 

and other sources, DOE developed a 

distribution of rates for each type of 

debt and asset by income group to 

represent the rates that may apply in the 

year in which amended standards 

would take effect. In the Crystal BallTM

analyses, when an LCC model selects a 

residential observation, the model 

selects an income group and then 

selects a discount rate from the 

distribution for that group. Chapter 8 of 

the final rule TSD contains the detailed 

calculations related to discount rates. 

Use of discount rates in each section 

of the analysis is specific to the affected 

parties and the impacts being examined 

(e.g., LCC: consumers, MIA: 

manufacturers; NIA: national impacts 

using OMB-specified discount rates), 

consistent with the general need to 

examine these impacts independently. 

In addition, where factors indicate that 

a range or variability in discount rates 

is an important consideration and can 

be or is provided, DOE uses a range of 

discount rates in its various analyses. 

For this final rule, DOE examined its 

established process for development 

and use of discount rates and has 

concluded that it sufficiently 

characterizes the discount rate facing 

consumers. 

Patterson-Kelley suggested that both 

State and local consumers and small 

businesses need to be better included in 

the analysis. (Patterson-Kelley, No. 26 at 

p. 2) DOE notes that CBECS is a 

nationally representative sample of 

activity in buildings used for 

commercial activities, and for activities 

of State and local governments and 

government enterprises such as local 

school districts or State colleges or 

universities. In the CBECS 2018 

database, 1,407 of 6,436 buildings are 

coded as either State government 

ownership or local government owned 

buildings. Because there is no data field 

in CBECS that indicates ‘‘small 

business,’’ there is no reliable way to 

identify a specific building as being 

small business. However, the CBECS 

dataset includes representative numbers 

of buildings in business sectors 

commonly thought of as small 

businesses, such as ‘‘mom and pop’’ 

restaurants, retail establishments or 

motels, and other buildings that could 

be considered small business according 

to the U.S. Small Business 

Administration. Accordingly, DOE 

believes its analysis sufficiently 

includes State and local consumers and 

small businesses. 


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104See Energy Conservation Program: Energy 

Conservation Standards for Commercial Packaged 

Boilers; Response to United States Court of Appeals 

for the District of Columbia Circuit Remand in 

American Public Gas Association v. United States 

Department of Energy, www.govinfo.gov/content/ 

pkg/FR-2022-04-20/pdf/2022-08427.pdf. 

8. Energy Efficiency Distribution in the 

No-New-Standards Case 

To accurately estimate the share of 

consumers that would be affected by a 

potential energy conservation standard 

at a particular efficiency level, DOE’s 

LCC analysis considered the projected 

distribution (market shares) of product 

efficiencies under the no-new-standards 

case (i.e., the case without amended or 

new energy conservation standards). 

To estimate the energy efficiency 

distribution of CWH equipment for 

2026, DOE developed the no-newstandards distribution of equipment 

using data from DOE’s Compliance 

Certification database and data 

submitted by AHRI regarding 

condensing versus non-condensing 

equipment. 

Each building in the sample was then 

assigned a water heater efficiency 

sampled from the no-new-standardscase efficiency distribution for the 

appropriate equipment class, shown at 

the end of this section. DOE was not 

able to assign a CWH efficiency to a 

building in the no-new-standards case 

based on building characteristics, since 

CBECS 2018 and RECS 2009 did not 

provide enough information to 

distinguish installed water heaters 

disaggregated by efficiency. The 

efficiency of a CWH was assigned based 

on the forecasted efficiency distribution 

(which is constrained by the shipment 

and model data collected by DOE and 

submitted by AHRI) and accounts for 

consumers that are already purchasing 

efficient CWHs. 

Joint Advocates stated DOE’s use of 

the assignment of efficiency levels in 

the no-new-standards case is 

sufficiently representative of consumer 

behavior. Joint Advocates noted the 

examples of market failures such as 

misaligned incentives in landownerrenter situations, and these market 

failures result in under-investment in 

energy efficiency and consumers not 

making decisions that result in the 

highest net present value in their 

specific situations. Joint Advocates 

stated that DOE’s assignment of 

efficiency levels in the no-newstandards case reasonably reflects actual 

consumer behavior. Joint Advocates 

disagreed with Barton Day Law’s 

comment during the Public Meeting 

regarding random assignment 

(discussed later in this section). Joint 

Advocates stated that market failures in 

commercial and industrial sectors add 

complexity to the decision-making 

process and result in an underinvestment in energy efficiency. (Joint 

Advocates, No. 29 at p.3) CA IOUs 

supported DOE’s robust analysis of the 

no-new-standards case and the 

consumer choice model. Like many 

utilities across the country, the CA IOUs 

implement a statewide energy efficiency 

program for commercial water heating 

to manage these [market] barriers 

directly. The CA IOUs stated DOE’s 

review of failures in the commercial 

market presented in the May 2022 CWH 

ECS NOPR is consistent with their 

understanding. They stated DOE’s 

analysis is thoughtful, robust, and well 

within its regulatory discretion. (CA 

IOUs, No. 33 at p. 5) NYSERDA 

supported DOE’s estimates of efficiency 

levels in the no-new-standards case and 

stated that DOE’s estimates are wellreasoned and based on the most relevant 

data. In particular, NYSERDA stated 

that DOE’s use of Compliance 

Certification Database and AHRI data is 

a thorough analysis that provides a wellfounded estimate. NYSERDA indicated 

that market data do not reflect the 

assumption that purchasers of CWH 

equipment are only basing their 

decisions on economics. NYSERDA 

stated they implement a wide variety of 

programs to help spur market 

transformation, and these efforts seek to 

address the specific types of market 

failures that DOE addresses in its 

analysis. (NYSERDA, No. 30 at pp. 2–3) 

DOE acknowledges these comments and 

the references to market failures being 

addressed by market transformation 

programs. As a reminder the list of 

market failures discussed in the May 

2022 CWH ECS NOPR is included in 

this section after the comments are 

addressed. 

Joint Gas Commenters criticized 

DOE’s use of random assignments of 

baseline efficiency, stating that 

consumers who find condensing to be 

cost effective have already installed it 

and for those who have not installed it, 

it is likely not cost effective. Joint Gas 

Commenters went on to state that the 

random assignment of efficiencies 

assumes that purchasers of commercial 

water heaters never consider the 

economics of their purchases. Joint Gas 

Commenters went on to state that DOE’s 

use of random assignment is most 

unreasonable when it results in large 

LCC savings. (Joint Gas Commenters, 

No. 34 at pp. 21–22 and 23–25) Barton 

Day Law asked about the distribution of 

extreme outcomes resulting from 

random assignment, stating that extreme 

outcomes have a disproportionate 

impact on the average LCC results. 

Barton Day Law offered the opinion that 

DOE should look at the impact of the 

extreme outcomes, and random 

assignment of outcomes where the more 

efficient product is the low-cost option 

should be in the base case for the 

analysis. (Barton Day Law, Public 

Meeting Transcript, No. 13 at pp. 51–55) 

Joint Gas Commenters pointed to the 

National Academy of Sciences 2021 

review of DOE’s standards process and 

to the D.C. Circuit’s opinion in APGA v. 

DOE (22 F.4th 1018 to 1027) to support 

their comments. They further referred to 

the literature cited in the May 2022 

CWH ECS NOPR discussing market 

failure and offer their opinion that such 

information provides no basis to 

conclude that purchasers are not acting 

in their economic interest when they 

make a decision to purchase or not 

purchase condensing equipment. (Joint 

Gas Commenters, No. 34 at p. 30) 

Similarly, Atmos Energy stated DOE’s 

analysis does not consider key 

consumer decision-making aspects such 

as hot water demand, building design 

impacts on installation costs, and 

‘‘realistic’’ maintenance and repair 

costs, as well as rebate costs. They noted 

that DOE does not use a ‘‘discrete choice 

model’’ or rely on ‘‘sufficient collected 

data on consumer behavior.’’ (Atmos 

Energy, No. 36 at p. 4) 

DOE first notes that, with respect to 

the National Academy of Sciences 

report, the recommendations will be 

evaluated in a separate proceeding. 

With respect to the D.C. Circuit’s 

opinion in APGA v. DOE, 22 F.4th 1018 

(APGA I), DOE notes that the random 

assignment issue raised in that litigation 

was further addressed by DOE through 

the final rule for the commercial 

packaged boiler (‘‘CPB’’) ECS 

rulemaking (EERE–2013–BT–STD– 

0030),104 and while the court in APGA 

v. DOE, No. 22–1107, 2023 WL 4377914 

(D.C. Cir. July 7, 2023) (APGA II) 

vacated the rule on other grounds, it did 

not address the merits of arguments on 

random assignment raised by petitioner. 

In developing the May 2022 CWH ECS 

NOPR and ultimately this final rule, 

DOE took into account all of the 

available data concerning the market 

implementation of condensing natural 

gas-fired CWH equipment. As shown in 

the table at the end of this section (Table 

IV.22), using actual data from AHRI for 

a period ending 2015, S-curves 

developed from the AHRI data, CCMS 

and other data, DOE projected CWH 

shipments by efficiency level over the 

analysis period. DOE then determined 

that, based on the presence of wellunderstood market failures and a 


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69758 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations 

105Thaler, R.H., Sunstein, C.R., and Balz, J.P. 

(2014). ‘‘Choice Architecture’’ in The Behavioral 

Foundations of Public Policy, Eldar Shafir (ed). 106Thaler, R.H., and Bernartzi, S. (2004). ‘‘Save 

More Tomorrow: Using Behavioral Economics in 

Increase Employee Savings,’’ Journal of Political 

Economy 112(1), S164–S187. See also Klemick, H., 

et al. (2015) ‘‘Heavy-Duty Trucking and the Energy 

Efficiency Paradox: Evidence from Focus Groups 

and Interviews,’’ Transportation Research Part A: 

Policy & Practice, 77, 154–166 (providing evidence 

that loss aversion and other market failures can 

affect otherwise profit-maximizing firms). 

107Thaler, R.H., and Sunstein, C.R. (2008). 

Nudge: Improving Decisions on Health, Wealth, and 

Happiness. New Haven, CT: Yale University Press. 

108American Society of Heating, Refrigerating, 

and Air-Conditioning Engineers. 2011 ASHRAE 

Handbook: Heating, Ventilating, and AirConditioning Applications. 2011. Available at 

www.ashrae.org/resources—publications. Last 

accessed on October 16, 2016. 

109 Vernon, D., and Meier, A. (2012). 

‘‘Identification and quantification of principal– 

agent problems affecting energy efficiency 

investments and use decisions in the trucking 

industry,’’ Energy Policy, 49, 266–273. 

110Blum, H. and Sathaye, J. (2010). ‘‘Quantitative 

Analysis of the Principal-Agent Problem in 

Commercial Buildings in the U.S.: Focus on Central 

Space Heating and Cooling,’’ Lawrence Berkeley 

National Laboratory, LBNL–3557E. (Available at: 

escholarship.org/uc/item/6p1525mg) (Last accessed 

January 20, 2022). 

corresponding lack of data showing a 

correlation between CWH efficiency and 

building hot water load, a random 

assignment of efficiencies best accounts 

for consumer behavior in the CWH 

market. 

Further, DOE strongly disagrees with 

the statement from Joint Gas 

Commenters that this methodology 

assumes that purchasers of CWHs never 

consider the economics of their 

investments. Rather, as explained in the 

remainder of this section, DOE is aware 

of multiple market failures that prevent 

the purely economic decision making 

hypothesized by the Joint Gas 

Commenters. That being said, DOE uses 

a random assignment because it does 

reflect the full range of consumer 

behaviors, including those consumers 

who make purely economic decisions, 

found in the CWH market. As reflected 

in the LCC analysis, a significant 

portion (63 to 69 percent depending on 

product class) of buildings with large 

hot water loads were assigned more 

efficient CWHs. 

DOE also finds Joint Gas Commenters 

and Barton Day Law’s focus on trial 

cases with large LCC savings to be 

misguided. Commenters cite these cases 

as evidence that random assignment 

results in unreasonable results that 

disproportionately affect DOE’s 

analysis. But as mentioned previously 

and discussed in more detail below, 

DOE used a random assignment because 

of well-understood market failures. 

Commenters seem to be suggesting that 

these market failures should not apply 

to situations where purchasing 

decisions have larger economic impacts. 

DOE does not agree. For example, one 

well-understood market failure is where 

a building owner purchases the CWH, 

but the tenant pays the utility bills. DOE 

sees no reason to assume that this 

market failure does not occur, or is less 

likely to occur, when the building has 

a larger hot water load, i.e., the 

economic impacts are larger. 

As stated previously, DOE believes 

that, based on the presence of wellunderstood market failures and a 

corresponding lack of data showing a 

correlation between CWH efficiency and 

building hot water load, a random 

assignment of efficiencies best accounts 

for consumer behavior in the CWH For 

these reasons, DOE rejects the approach 

recommended by Barton Day Law, Joint 

Gas Commenters, and Atmos Energy, 

and DOE continues to use the approach 

for selecting the baseline efficiency level 

that was used for the May 2022 CWH 

ECS NOPR. 

While DOE acknowledges that 

economic factors play a role when 

building owners or builders decide on 

what type of CWH to install, assignment 

of CWH efficiency for a given 

installation, based solely on economic 

measures such as LCC or simple PBP, 

most likely would not fully and 

accurately reflect actual real-world 

installations. There are a number of 

commercial sector market failures 

discussed in the economics literature, 

including a number of case studies, that 

illustrate how purchasing decisions 

with respect to energy efficiency are 

likely to not be completely correlated 

with energy use, as described next. 

There are several market failures or 

barriers that affect energy decisions 

generally. Some of those that affect the 

commercial sector specifically are 

detailed below. However, more 

generally, there are several behavioral 

factors that can influence the 

purchasing decisions of complicated 

multi-attribute products, such as water 

heaters. For example, consumers (or 

decision makers in an organization) are 

highly influenced by choice 

architecture, defined as the framing of 

the decision, the surrounding 

circumstances of the purchase, the 

alternatives available, and how these are 

presented for any given choice 

scenario.105 The same consumer or 

decision maker may make different 

choices depending on the characteristics 

of the decision context (e.g., the timing 

of the purchase, competing demands for 

funds), which have nothing to do with 

the characteristics of the alternatives 

themselves or their prices. Consumers 

or decision makers also face a variety of 

other behavioral phenomena including 

loss aversion, sensitivity to information 

salience, and other forms of bounded 

rationality.106 Thaler, who won the 

Nobel Prize in Economics in 2017 for 

his contributions to behavioral 

economics, and Sunstein point out that 

these behavioral factors are strongest 

when the decisions are complex and 

infrequent, when feedback on the 

decision is muted and slow, and when 

there is a high degree of information 

asymmetry.107 These characteristics 

describe almost all purchasing 

situations of appliances and equipment, 

including commercial water heaters. 

The installation of a new or replacement 

CWH in a commercial building is a 

complex, technical decision involving 

many actors and is done very 

infrequently, as evidenced by the CWH 

mean lifetime of up to 25 years.108

Additionally, it would take multiple 

billing cycles for any impacts on 

operating costs to be fully apparent. 

Further, if the purchaser of the 

commercial water heater is not the 

entity paying the energy costs (e.g., a 

building owner and tenant), there may 

be little to no feedback on the purchase. 

These behavioral factors are in addition 

to the more specific market failures 

described as follows. 

It is often assumed that because 

commercial and industrial customers 

are businesses that have trained or 

experienced individuals making 

decisions regarding investments in costsaving measures, some of the commonly 

observed market failures present in the 

general population of residential 

customers should not be as prevalent in 

a commercial setting. However, there 

are many characteristics of 

organizational structure and historic 

circumstance in commercial settings 

that can lead to underinvestment in 

energy efficiency. 

First, a recognized problem in 

commercial settings is the principalagent problem, where the building 

owner (or building developer) selects 

the equipment and the tenant (or 

subsequent building owner) pays for 

energy costs.109 110 Indeed, a substantial 

fraction of commercial buildings with a 

commercial water heater in the CBECS 

2018 sample are occupied at least in 

part by a tenant, not the building owner 

(indicating that, in DOE’s experience, 

the building owner likely is not 

responsible for paying energy costs). 

Additionally, some commercial 

buildings have multiple tenants. There 

are other similar misaligned incentives 

embedded in the organizational 

structure within a given firm or business 

that can impact the choice of a 


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111Prindle, B., Sathaye, J., Murtishaw, S., 

Crossley, D., Watt, G., Hughes, J., and de Visser, E. 

(2007). ‘‘Quantifying the effects of market failures 

in the end-use of energy,’’ Final Draft Report 

Prepared for International Energy Agency. 

(Available from International Energy Agency, Head 

of Publications Service, 9 rue de la Federation, 

75739 Paris, Cedex 15 France). 

112Bushee, B.J. (1998). ‘‘The influence of 

institutional investors on myopic R&D investment 

behavior,’’ Accounting Review, 305–333. DeCanio, 

S.J. (1993). ‘‘Barriers Within Firms to Energy 

Efficient Investments,’’ Energy Policy, 21(9), 906– 

914. (explaining the connection between shorttermism and underinvestment in energy efficiency). 

113 International Energy Agency (IEA). (2007). 

Mind the Gap: Quantifying Principal-Agent 

Problems in Energy Efficiency. OECD Pub. 

(Available at: www.iea.org/reports/mind-the-gap) 

(Last accessed January 20, 2022). 

114 DeCanio, S.J. (1994). ‘‘Agency and control 

problems in US corporations: the case of energyefficient investment projects,’’ Journal of the 

Economics of Business, 1(1), 105–124. Stole, L.A., 

and Zwiebel, J. (1996). ‘‘Organizational design and 

technology choice under intrafirm bargaining,’’ The 

American Economic Review, 195–222. 

115Rohdin, P., and Thollander, P. (2006). 

‘‘Barriers to and driving forces for energy efficiency 

in the non-energy intensive manufacturing industry 

in Sweden,’’ Energy, 31(12), 1836–1844. 

Takahashi, M. and Asano, H. (2007). ‘‘Energy Use 

Affected by Principal-Agent Problem in Japanese 

Commercial Office Space Leasing,’’ In Quantifying 

the Effects of Market Failures in the End-Use of 

Energy. American Council for an Energy-Efficient 

Economy. February 2007. 

Visser, E. and Harmelink, M. (2007). ‘‘The Case 

of Energy Use in Commercial Offices in the 

Netherlands,’’ In Quantifying the Effects of Market 

Failures in the End-Use of Energy. American 

Council for an Energy-Efficient Economy. February 

2007. 

Bjorndalen, J. and Bugge, J. (2007). ‘‘Market 

Barriers Related to Commercial Office Space 

Leasing in Norway,’’ In Quantifying the Effects of 

Market Failures in the End-Use of Energy. American 

Council for an Energy-Efficient Economy. February 

2007. 

Schleich, J. (2009). ‘‘Barriers to energy efficiency: 

A comparison across the German commercial and 

services sector,’’ Ecological Economics, 68(7), 2150– 

2159. 

Muthulingam, S., et al. (2013). ‘‘Energy Efficiency 

in Small and Medium-Sized Manufacturing Firms,’’ 

Manufacturing & Service Operations Management, 

15(4), 596–612. (Finding that manager inattention 

contributed to the non-adoption of energy efficiency 

initiatives). 

Boyd, G.A., Curtis, E.M. (2014). ‘‘Evidence of an 

‘energy management gap’ in US manufacturing: 

Spillovers from firm management practices to 

energy efficiency,’’ Journal of Environmental 

Economics and Management, 68(3), 463–479. 

116Lovins, A. (1992). Energy-Efficient Buildings: 

Institutional Barriers and Opportunities. (Available 

at: rmi.org/insight/energy-efficient-buildingsinstitutional-barriers-and-opportunities/) (Last 

accessed December 19, 2022). 

117Fazzari, S.M., Hubbard, R.G., Petersen, B.C., 

Blinder, A.S., and Poterba, J.M. (1988). ‘‘Financing 

constraints and corporate investment,’’ Brookings 

Papers on Economic Activity, 1988(1), 141–206. 

Cummins, J.G., Hassett, K.A., Hubbard, R.G., Hall, 

R.E., and Caballero, R. J. (1994). ‘‘A reconsideration 

of investment behavior using tax reforms as natural 

experiments,’’ Brookings Papers on Economic 

Activity, 1994(2), 1–74. 

DeCanio, S.J., and Watkins, W.E. (1998). 

‘‘Investment in energy efficiency: do the 

characteristics of firms matter?’’ Review of 

Economics and Statistics, 80(1), 95–107. 

Hubbard R.G. and Kashyap A. (1992). ‘‘Internal 

Net Worth and the Investment Process: An 

Application to U.S. Agriculture,’’ Journal of 

Political Economy, 100, 506–534. 

118Mills, E., Kromer, S., Weiss, G., and Mathew, 

P.A. (2006). ‘‘From volatility to value: analyzing 

and managing financial and performance risk in 

energy savings projects,’’ Energy Policy, 34(2), 188– 

199. 

Jollands, N., Waide, P., Ellis, M., Onoda, T., 

Laustsen, J., Tanaka, K., and Meier, A. (2010). ‘‘The 

25 IEA energy efficiency policy recommendations 

to the G8 Gleneagles Plan of Action,’’ Energy Policy, 

38(11), 6409–6418. 

119Reed, J.H., Johnson, K., Riggert, J., and Oh, 

A.D. (2004). ‘‘Who plays and who decides: The 

structure and operation of the commercial building 

market,’’ U.S. Department of Energy Office of 

Building Technology, State and Community 

Programs. (Available at: www1.eere.energy.gov/ 

buildings/publications/pdfs/commercial_initiative/ 

who_plays_who_decides.pdf) (Last accessed 

December 19, 2022). 

120Cooremans, C. (2012). ‘‘Investment in energy 

efficiency: do the characteristics of investments 

matter?’’ Energy Efficiency, 5(4), 497–518. 

121Lovins 1992, op. cit. The Atmospheric Fund. 

(2017). Money on the table: Why investors miss out 

on the energy efficiency market. (Available at: 

taf.ca/publications/money-table-investors-energyefficiency-market/) (Last accessed December 19, 

2022). 

122Blumstein, C. and Taylor, M. (2013). 

Rethinking the Energy-Efficiency Gap: Producers, 

Intermediaries, and Innovation. Energy Institute at 

Haas Working Paper 243. (Available at: 

haas.berkeley.edu/wp-content/uploads/WP243.pdf) 

(Last accessed December 19, 2022). 

commercial water heater. For example, 

if one department or individual within 

an organization is responsible for capital 

expenditures (and therefore equipment 

selection) while a separate department 

or individual is responsible for paying 

the energy bills, a market failure similar 

to the principal-agent problem can 

result.111 Additionally, managers may 

have other responsibilities and often 

have other incentives besides operating 

cost minimization, such as satisfying 

shareholder expectations, which can 

sometimes be focused on short-term 

returns.112 Decision-making related to 

commercial buildings is highly complex 

and involves gathering information from 

and for a variety of different market 

actors. It is common to see conflicting 

goals across various actors within the 

same organization as well as 

information asymmetries between 

market actors in the energy efficiency 

context in commercial building 

construction.113

Second, the nature of the 

organizational structure and design can 

influence priorities for capital 

budgeting, resulting in choices that do 

not necessarily maximize 

profitability.114 Even factors as simple 

as unmotivated staff or lack of prioritysetting and/or a lack of a long-term 

energy strategy can have a sizable effect 

on the likelihood that an energy 

efficient investment will be 

undertaken.115 U.S. tax rules for 

commercial buildings may incentivize 

lower capital expenditures, since capital 

costs must be depreciated over many 

years, whereas operating costs can be 

fully deducted from taxable income or 

passed through directly to building 

tenants.116

Third, there are asymmetric 

information and other potential market 

failures in financial markets in general, 

which can affect decisions by firms with 

regard to their choice among alternative 

investment options, with energy 

efficiency being one such option.117

Asymmetric information in financial 

markets is particularly pronounced with 

regard to energy efficiency 

investments.118 There is a dearth of 

information about risk and volatility 

related to energy efficiency investments, 

and energy efficiency investment 

metrics may not be as visible to 

investment managers,119 which can bias 

firms toward more certain or familiar 

options. This market failure results not 

because the returns from energy 

efficiency as an investment are 

inherently riskier, but because 

information about the risk itself tends 

not to be available in the same way it 

is for other types of investment, like 

stocks or bonds. In some cases energy 

efficiency is not a formal investment 

category used by financial managers, 

and if there is a formal category for 

energy efficiency within the investment 

portfolio options assessed by financial 

managers, they are seen as weakly 

strategic and not seen as likely to 

increase competitive advantage.120 This 

information asymmetry extends to 

commercial investors, lenders, and realestate financing, which is biased against 

new and perhaps unfamiliar technology 

(even though it may be economically 

beneficial).121 Another market failure 

known as the first-mover disadvantage 

can exacerbate this bias against adopting 

new technologies, as the successful 

integration of new technology in a 

particular context by one actor generates 

information about cost-savings, and 

other actors in the market can then 

benefit from that information by 

following suit; yet because the first to 

adopt a new technology bears the risk 

but cannot keep to themselves all the 

informational benefits, firms may 

inefficiently underinvest in new 

technologies.122

In sum, the commercial and industrial 

sectors face many market failures that 

can result in an under-investment in 

energy efficiency. This means that 

discount rates implied by hurdle 


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123A hurdle rate is the minimum rate of return 

on a project or investment required by an 

organization or investor. It is determined by 

assessing capital costs, operating costs, and an 

estimate of risks and opportunities. 

124 DeCanio 1994, op. cit. 

125 DeCanio, S.J. (1998). ‘‘The Efficiency Paradox: 

Bureaucratic and Organizational Barriers to 

Profitable Energy-Saving Investments,’’ Energy 

Policy, 26(5), 441–454. 

126Andersen, S.T., and Newell, R.G. (2004). 

‘‘Information programs for technology adoption: the 

case of energy-efficiency audits,’’ Resource and 

Energy Economics, 26, 27–50. 

127Prindle 2007, op. cit. Howarth, R.B., Haddad, 

B.M., and Paton, B. (2000). ‘‘The economics of 

energy efficiency: insights from voluntary 

participation programs,’’ Energy Policy, 28, 477– 

486. 

128 Klemick, H., Kopits, E., Wolverton, A. (2017). 

‘‘Potential Barriers to Improving Energy Efficiency 

in Commercial Buildings: The Case of Supermarket 

Refrigeration,’’ Journal of Benefit-Cost Analysis, 

8(1), 115–145. 

129de Almeida, E.L.F. (1998). ‘‘Energy efficiency 

and the limits of market forces: The example of the 

electric motor market in France’’, Energy Policy, 

26(8), 643–653. Xenergy, Inc. (1998). United States 

Industrial Electric Motor Systems Market 

Opportunity Assessment. (Available at: 

www.energy.gov/sites/default/files/2014/04/f15/ 

mtrmkt.pdf) (Last accessed January 20, 2022). 

130EIA, Annual Energy Outlook, www.eia.gov/ 

outlooks/aeo/ (Last accessed December 19, 2022). 

131For further details, see: www.eia.gov/outlooks/ 

aeo/assumptions/pdf/commercial.pdf. (Last 

accessed December 19, 2022). 

132 Joint Gas Commenters cite Owner-Operator 

Indep. Drivers Ass’n v. FMCSA, 494 F.3d 188, 202 

(D.C. Cir. 2007) for the proposition that DOE must 

rates 123 and required PBPs of many 

firms are higher than the appropriate 

cost of capital for the investment.124 The 

preceding arguments for the existence of 

market failures in the commercial and 

industrial sectors are corroborated by 

empirical evidence. One study in 

particular showed evidence of 

substantial gains in energy efficiency 

that could have been achieved without 

negative repercussions on profitability, 

but the investments had not been 

undertaken by firms.125 The study 

found that multiple organizational and 

institutional factors caused firms to 

require shorter PBPs and higher returns 

than the cost of capital for alternative 

investments of similar risk. Another 

study demonstrated similar results with 

firms requiring very short PBPs of 1–2 

years in order to adopt energy-saving 

projects, implying hurdle rates of 50 to 

100 percent, despite the potential 

economic benefits.126 A number of other 

case studies similarly demonstrate the 

existence of market failures preventing 

the adoption of energy-efficient 

technologies in a variety of commercial 

sectors around the world, including 

office buildings,127 supermarkets,128

and the electric motor market.129

The existence of market failures in the 

commercial and industrial sectors is 

well supported by the economics 

literature and by a number of case 

studies. If DOE developed an efficiency 

distribution that assigned commercial 

water efficiency in the no-newstandards case solely according to 

energy use or economic considerations 

such as LCC or PBP, the resulting 

distribution of efficiencies within the 

building sample would not reflect any 

of the market failures or behavioral 

factors above. DOE thus concludes such 

a distribution would not be 

representative of the CWH market. 

Further, even if a specific building/ 

organization is not subject to the market 

failures above, the purchasing decision 

of CWH efficiency can be highly 

complex and influenced by a number of 

factors not captured by the building 

characteristics available in the CBECS or 

RECS samples. These factors can lead to 

building owners choosing a CWH 

efficiency that deviates from the 

efficiency predicted using only energy 

use or economic considerations such as 

LCC or PBP (as calculated using the 

information from CBECS 2018 or RECS 

2009). 

DOE notes that EIA’s 130 AEO is 

another energy use model that 

implicitly includes market failures in 

the commercial sector. In particular, the 

commercial demand module 131

includes behavioral rules regarding 

capital purchases such that in 

replacement and retrofit decisions, there 

is a strong bias in favor of equipment of 

the same technology (e.g., water heater 

efficiency) despite the potential 

economic benefit of choosing other 

technology options. Additionally, the 

module assumes a distribution of time 

preferences regarding current versus 

future expenditures. Approximately half 

of the total commercial floorspace is 

assigned one of the two highest time 

preference premiums. This translates 

into very high discount rates (and 

hurdle rates) and represents floorspace 

for which equipment with the lowest 

capital cost will almost always be 

purchased without consideration of 

operating costs. DOE’s assumptions 

regarding market failures are therefore 

consistent with other prominent energy 

consumption models. 

Joint Gas Commenters also criticized 

DOE for failing to respond to the 

comments provided in the withdrawn 

2016 CWH ECS NOPR on random 

assignment, referring to such as a 

violation of DOE’s Basic Notice and 

Comment Obligations. (Joint Gas 

Commenters, No. 34 at p. 28) Joint Gas 

Commenters stated that DOE cannot 

release a final rule without addressing 

the random assignment issues and 

cannot address them without giving 

stakeholders an opportunity to refute 

DOE’s response during the rulemaking 

process—citing Owner-Operator Indep. 

Drivers Ass’n v. FMCSA, 494 F.3d 188, 

202 (D.C. Cir. 2007). (Joint Gas 

Commenters, No. 34 at p. 31) As a 

threshold matter, DOE notes that 

nothing in EPCA or the Administrative 

Procedure Act (5 U.S.C. 551 et seq.) 

requires an agency to provide additional 

notice and comment on a withdrawn 

NOPR, or additional notice and 

comment before a final rule to allow 

commenters to refute the Department’s 

responses to comments on a NOPR. As 

noted previously, DOE withdrew the 

2016 CWH ECS NOPR and reissued a 

proposed rule for commercial water 

heaters in the May 2022 CWH ECS 

NOPR. In the May 2022 CWH ECS 

NOPR, DOE did address comments on 

the May 2016 CWH ECS NOPR, which 

caused DOE to materially change the 

analyses (beyond simply updating 

inputs) from the analyses performed for 

the withdrawn 2016 CWH ECS NOPR. 

In the May 2022 CWH ECS NOPR, DOE 

also addressed the fact that a 

considerable number of market failures 

could occur causing the strict economic 

decision making hypothesized by the 

Joint Gas Commenters to not be the sole 

guiding determinant of efficiency 

choices. DOE further addressed the Joint 

Gas Commenters comments about 

random assignments by explaining how 

DOE modeled the efficiency 

distributions and the data sources used 

in the NOPR. Additionally, in doing so, 

DOE provided stakeholders with a track 

record that could be followed to 

understand the differences in the 2016 

and the 2022 LCC models. Notably, the 

model used for efficiency distribution in 

the no-new standards case in the May 

2022 CWH ECS NOPR was substantially 

the same as the model used for the 

withdrawn May 2016 CWH ECS NOPR, 

and is substantially the same in this 

final rule. 

Stakeholders have been provided with 

adequate notice and opportunity to 

comment on DOE’s proposed rule. That 

DOE did not make the changes 

recommended by the commenter does 

not negate the adequacy of notice and 

comment. Stakeholders have been 

provided the same notice and 

opportunity to comment as they would 

have had DOE issued a final rule 

subsequent to the May 2016 CWH ECS 

NOPR. Nothing in EPCA or the 

Administrative Procedure Act (5 U.S.C. 

551 et seq.) requires DOE to provide 

additional notice and comment before 

the final rule for its responses to 

comments on a NOPR.132


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provide stakeholders an opportunity to refute DOE’s 

responses during the rulemaking process. However, 

the court in that case did not state that an agency 

must allow stakeholders to refute its responses to 

comments on a NOPR as Joint Gas Commenters 

suggest. Rather, in that case, the D.C. Circuit held 

that the agency violated the notice-and-comment 

requirement of the Administrative Procedure Act 

when it promulgated a final rule with an update to 

a model used in the proposed rule that presented 

an entirely new methodology relative to the 

proposed rule. Id. at 200–201. As noted previously, 

DOE is using substantially the same model for the 

energy efficiency distribution in the no new 

standards case and Joint Gas Commenters had 

adequate ability to comment on, and refute, DOE’s 

analyses in the May 2022 CWH ECS NOPR. 

133The DOE test procedure for CWH equipment 

at 10 CFR 431.106 does not specify a calculation 

method for determining energy use. For the 

rebuttable presumption PBP calculation, DOE used 

average energy use estimates. 

Accordingly, for the reasons stated in 

this section, DOE has maintained the 

approach used in the May 2022 CWH 

ECS NOPR for analyzing energy 

efficiency distribution in the no-newstandards case. The estimated market 

shares for the no-new-standards case for 

CWH equipment are shown in Table 

IV.22. See chapter 8 of the final rule 

TSD for further information on the 

derivation of the efficiency 

distributions. 

TABLE IV.22—MARKET SHARES FOR THE NO-NEW-STANDARDS CASE BY EFFICIENCY LEVEL FOR CWH EQUIPMENT

EL 

Commercial gas-fired 

storage water heaters 

(%) 

Residential-duty 

gas-fired storage 

water heaters 

(%) 

Gas-fired 

instantaneous 

tankless water 

heaters 

(%) 

Gas-fired circulating 

water heaters 

and hot water 

supply boilers 

(%) 

0 ....................................................................... 34.3 53.7 17.0 5.3 

1 ....................................................................... 2.7 20.9 0.0 13.3 

2 ....................................................................... 0.0 14.9 0.0 12.9 

3 ....................................................................... 15.3 3.0 4.2 2.1 

4 ....................................................................... 46.7 6.0 20.8 11.4 

5 ....................................................................... 1.0 1.5 58.1 55.1 

9. Payback Period Analysis 

The PBP is the amount of time 

(expressed in years) it takes the 

consumer to recover the additional 

installed cost of more-efficient products, 

compared to baseline products, through 

energy cost savings. PBPs that exceed 

the life of the product mean that the 

increased total installed cost is not 

recovered in reduced operating 

expenses. 

The inputs to the PBP calculation for 

each efficiency level are the change in 

total installed cost of the product and 

the change in the first-year annual 

operating expenditures relative to the 

baseline. DOE refers to this as a ‘‘simple 

PBP’’ because it does not consider 

changes over time in operating cost 

savings. The PBP calculation uses the 

same inputs as the LCC analysis when 

deriving first-year operating costs. 

As noted previously, EPCA 

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 first 

year’s energy savings resulting from the 

standard, as calculated under the 

applicable test procedure. (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 133 by calculating the energy 

savings in accordance with the 

applicable DOE test procedure, and 

multiplying those savings by the average 

energy price projection for the year in 

which compliance with the amended 

standards would be required. Chapter 8 

of the final rule TSD provides additional 

details about the PBP. 

10. Embodied Emissions and Recycling 

Costs 

WM Technologies and PattersonKelley stated that if the Department 

utilizes emissions, or reference to 

carbon in the analysis, then the 

Department should also acknowledge 

the cost of embodied carbon in the 

analysis. Both stakeholders have been 

working with an ASHRAE group with 

the intention of improving the general 

understanding of embodied carbon, 

LCC, and operational carbon and 

identifying ways to accurately account 

for these metrics in HVAC products, 

among other things. (WM Technologies, 

No. 25 at pp. 1–2; Patterson-Kelley, No. 

26 at pp. 2–3) EPCA requires DOE to 

consider the total projected energy 

saving resulting from a standard. DOE 

considers FFC energy savings, including 

the energy consumed in electricity 

production, in distribution and 

transmission, and in extracting, 

processing, and transporting primary 

fuels. DOE does not analyze energy 

savings (or air pollutant emissions) 

related to manufacturing, transporting, 

recycling, or disposing of products, as 

such impacts would not be considered 

a direct result of the standard on the 

energy use of the covered product. As 

such, embodied emission in this process 

is outside of DOE’s CWH ECS 

rulemaking scope. 

Patterson-Kelley and WM 

Technologies both stated that because 

the schedule and cost of recycling is 

different based upon the materials used 

in the water heater, these differences 

must be captured in the analysis. The 

World Green Building Council has 

recognized that carbon emissions from 

manufacturing of components, assembly 

of components into finished goods, their 

transportation, installation, and the end 

of life stage must be accounted for as 

well. (WM Technologies, No. 25 at p. 2; 

Patterson-Kelley, No. 26 at p. 3) 

Patterson-Kelley noted that in 

examining embodied carbon the 

following must be considered—a higher 

rate of recycling due to shorter life cycle 

of condensing products and other 

changes noted previously. (PattersonKelley, No. 26 at p. 3) DOE would note 

that it has yet to find evidence that 

condensing equipment has a shorter 

lifetime than non-condensing 

equipment, so there would be no change 

relative to lifetime. DOE takes into 

account the cost to remove a water 

heater at the time of replacement. 

Stakeholders did not provide 

information concerning the difference in 

the cost of materials recycling—whether 

the materials in a condensing water 

heater have more or less recycling value 

than a non-condensing water heater. 

Given that the first replacement of a 

condensing water heater installed under 

this standard would be 10 years in the 

future, DOE believes the discounted 

present value of any difference would 

likely be small enough to ultimately be 

immaterial. DOE has based the 

installation cost calculations including 

removal of old water heaters on 


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69762 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations 

134 In response to requests, DOE reopened the 

comment period on the May 2022 CWH ECS NOPR 

to provide an additional two weeks for stakeholders 

to review and provide comments on the NOPR. 87 

FR 43226. 

nationally recognized sources. As a 

result of these considerations, DOE has 

not elected to change the analysis to 

reflect these comments. 

11. LCC Model Error Messages and 

Other 

Barton Day Law stated that the LCC 

spreadsheet model looks almost more 

like a draft than a final product, and that 

there are apparently ‘‘loads of errors’’ 

showing up, including computational 

errors. (Barton Day Law, Public Meeting 

Transcript, No. 13 at pp. 32–33) Joint 

Gas Commenter pointed to error 

messages in the LCC model, stating 

there were 11 million cell errors, #N/A, 

and #DIV/0 errors throughout model; 

some are labeled blank; others not; some 

tables and ranges are poorly labeled; 

and Excel calculations and Visual Basic 

for Applications, and the large number 

of worksheets make it more difficult to 

use and to trace formulas. Joint Gas 

Commenters stated DOE should correct 

the errors and give stakeholders 

sufficient time to review. (Joint Gas 

Commenters, No. 34 at pp. 36–37) 

In response, DOE notes that 

additional fields were included 

throughout the LCC model to 

accommodate additional equipment 

classes. In the high-level summary 

sheets where results reported in the 

NOPR are tabulated, fields related to the 

additional equipment classes were 

either removed or contents were erased 

and labeled as ‘‘blank.’’ In some other 

worksheets, the calculations related to 

additional product classes were not 

erased. However, numerous inputs 

related to potential additional 

equipment classes were not populated 

and this fact led to many calculations 

that attempted division using 

unpopulated input fields, or in other 

words, which led to #DIV/0 messages. 

DOE has removed all of the potential 

additional product class input fields. In 

response to the ‘‘11 million cell errors,’’ 

DOE assumes this referred to the fact 

that the May 2022 CWH ECS NOPR LCC 

model used a user-defined function, the 

output of which would turn to an error 

code and needed to be refreshed when 

the model was left idle. Refreshing the 

function required the user to recalculate 

the model by pressing the F9 key, and 

once the model was recalculated the 

error codes would disappear and be 

replaced by values. To eliminate this 

source of error messages, DOE 

eliminated the user defined function by 

introducing an Excel code in the venting 

costs worksheet in the block of cells 

between Q22 and CA82. The new Excel 

code was written to exactly reproduce 

the output from the old user defined 

function, so this modeling change does 

not affect results but rather it merely 

removes the irritation of the user 

defined function timing out and needing 

to be refreshed. Additionally, in 

response to the comment that some 

portions of the model were poorly 

labeled, DOE added labels to a small 

number of columns of calculations that 

DOE considered on review to be 

inadequately labeled, such as columns 

at the extreme right edges of the 

RECS.WH and CBECS.WH worksheets. 

A further response to the error 

messages referred to in the Joint Gas 

Commenter and Barton Day Law 

comments—the error messages were 

cosmetic in the sense that eliminating 

them did not change any results in the 

analysis; therefore, there are no new 

data for Joint Gas Commenters to review 

strictly in terms of the elimination of 

these message codes. Based on 

comments documented in this section of 

the final rule, DOE believes that Joint 

Gas Commenters were able to review the 

LCC model in detailed ways even with 

the distractions caused by the message 

codes. Thus, DOE declines to provide 

additional review time related to the 

elimination of the extra product class 

fields.134

Barton Day Law stated DOE should be 

more transparent about disclosing how 

the outcomes are allocated in its 

analysis and what the justification is. 

(Barton Day Law, Public Meeting 

Transcript, No. 13 at p. 55) Joint Gas 

Commenters presented graphs of the 

cumulative LCC savings of gas-fired 

tankless consumers from the LCC 

model, pointing out that the net LCC 

savings (average) were being generated 

by a small number of consumers with 

the largest LCC saving and if such 

customers were ‘‘reassigned’’ to 

different baseline efficiencies the result 

would have been different. (Joint Gas 

Commenters, No. 34 at p. 27) DOE 

would note that LCC savings are 

averages and as such include the results 

from those with large LCC savings and 

those with large LCC costs. Because of 

the way the model works, selecting 

consumers from the RECS and CBECS 

datasets for which each equipment type 

would apply, the number of consumers 

in the extreme cost and benefit tails will 

be small. With respect to the Joint Gas 

Commenter graphic about tankless 

product LCC results, DOE notes that 

given the existing distribution, the 

overwhelming majority of LCC 

customers modeled experience no 

impact because they already purchased 

equipment of the efficiency level 

selected for the standard. As discussed 

in section IV.F.8 there are numerous 

reasons for customers to be either 

unaware of potential energy savings 

when they make efficiency decisions or 

to deliberately ignore such information. 

Barton Day Law stated residentialduty gas-fired storage equipment has 

four different draw patterns and four 

separate standards but only one LCC 

analysis. (Barton Day Law, Public 

Meeting Transcript, No. 13 at pp. 30, 32) 

Joint Gas Commenters also stated that 

DOE analyzed four product classes but 

only provided one LCC analysis and 

asked that DOE perform an analysis for 

each class separately, and although the 

comment was unclear to DOE, it is 

presumed to refer to the same point 

Barton Day Law made. (Joint Gas 

Commenters, No. 34 at pp. 32–33) As 

noted in IV.C.4.c of this document, all 

residential-duty gas-fired equipment is 

within the high draw pattern, so only 

one analysis was performed of this 

equipment. 

Joint Gas Commenters stated that the 

rule could have disproportionate 

impacts on small rural businesses that 

use propane fired equipment due to 

their more limited income and therefore 

a more limited opportunity to fund 

venting upgrades. They also stated that 

the problem is made worse by the fact 

that propane suppliers cannot provide 

incentives to consumers, as gas utilities 

can. They also stated that the May 2022 

CWH ECS NOPR failed to address 

impacts on businesses that qualify for 

the Administration’s Justice40 Initiative. 

They further offered their opinion that 

DOE’s analysis must conform to the 

National Academy of Science’s peer 

review report and recommendations 

regarding welfare analysis. Joint Gas 

Commenters urged DOE to delay the 

rulemaking while investigating whether 

the rule would undermine the Justice40 

Initiative. (Joint Gas Commenters, No. 

34 at pp. 31–32) With respect to the 

impact on small rural businesses, DOE 

respects the Joint Gas Commenters note 

about the more limited income of small 

rural businesses, but also believes the 

overall cost structure of small rural 

businesses includes components that 

are likely lower than their urban 

counterparts, such as building lease or 

ownership costs. DOE also notes that, 

according to the EIA’s AEO used in this 

final rule, propane is, at a national level, 

twice as expensive as natural gas on a 

$/Million Btu basis, meaning that the 

value of energy savings to these 

customers would be higher than the 

value to natural gas customers. 

Additionally, DOE expects that 

commercial buildings in rural areas are 


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Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations 69763 

135 DOE uses data on manufacturer shipments as 

a proxy for national sales, as aggregate data on sales 

are lacking. In general, one would expect a close 

correspondence between shipments and sales. 

less likely to reach the 10-story level 

that is cited by various commenters as 

problematic in vent installations. DOE 

also expects that commercial buildings 

in rural areas are less likely to share 

common brick walls with other 

neighboring businesses or have issues 

venting over sidewalks or busy alleys. 

This means rural businesses may find it 

easier to use horizontal venting than 

their metropolitan counterparts. While 

this advantage could be offset at least 

partially by a greater chance of having 

to deal with snow levels when siting a 

horizontal vent, DOE disagrees with the 

bottom line conclusion of this comment. 

With respect to the National Academy 

of Sciences report, the 

recommendations in the report, which 

pertain to the processes by which DOE 

analyzes energy conservation standards, 

are being considered in a separate 

rulemaking considering all product 

categories and DOE does not believe 

that this final rule should be delayed 

while the National Academy of Sciences 

report is considered. 

WM Technologies stated they 

received an error trying to run the LCC 

model. They noted a macro returned an 

error message stating ‘‘Compile Error: 

Can’t find project or library’’ with the 

‘‘VBA Code Subroutine cmdRun_Click( ) 

references [ControlPanel.IncomeBins]’’ 

highlighted. (WM Technologies, No. 25 

at p. 10) DOE tested the LCC model to 

attempt to reproduce this error code, 

and the only way DOE could generate 

this code was to load the LCC model 

onto a computer that did not have 

Crystal Ball installed on it. Without 

Crystal Ball being installed, the macro is 

searching for software package 

references that do not exist. DOE has 

added language in appendix 8A of the 

final rule TSD describing how/why 

having Crystal Ball installed on the 

computer is necessary for reviewing this 

LCC model. 

WM Technologies recommended the 

Department move the instructions for 

operating LCC models to the beginning 

of the TSD or provide a note there 

referencing the instruction location. 

(WM Technologies, No. 25 at p. 10) 

They additionally request a frequently 

asked questions website is made 

available to support industry review of 

the LCCs along with a question and 

answer portion where industry could 

post questions. (WM Technologies, No. 

25 at p. 10) DOE notes that the May 

2022 CWH ECS NOPR TSD chapter 1 

included an outline of the document, 

and pointed to appendix 8A, which 

provides instructions. DOE additionally 

encourages stakeholders to utilize the 

public meetings to ask questions related 

to operation of the LCC and other 

models, and will consider whether more 

general resources are warranted. 

WM Technologies commented that 

after running the analysis on a local 

computer and using the Forecast Report 

writer in Crystal Ball, several cells 

identified cell errors and yet the 

analysis continued and provided 

results. WM Technologies noted some 

values of forecasts cells were empty. 

WM Technologies requested the 

Department provide further commentary 

on why empty values are present in 

forecast reports, particularly when the 

all product categories are subject to 

10,000 iterations. (WM Technologies, 

No. 25 at p. 10) In response, DOE notes 

that the LCC model at each iteration 

selects a baseline efficiency for use in 

the iteration for all four equipment 

classes. For any possible efficiency level 

other than the lowest level, this leads to 

a situation where, by definition, there 

will be no LCC savings if a standard is 

set at that level. For example, if the 

model selects EL3 as the baseline, there 

would be no LCC savings and no PBP 

results for a standard set at lower 

efficiency levels. Because the number 0 

is a valid result, setting those to 0 

introduces possible issues. Rather, the 

model sets them equal to a blank, or a 

character field set to ’’ ‘‘. Thus if you 

print the forecast report, you will find 

blanks. Because introducing characters 

into downstream calculations causes 

math errors, the Crystal Ball routines are 

instructed by the VBA code to ignore 

these errors. DOE has used this method 

in LCC models for years to distinguish 

between ‘‘no impact cases’’ and cases 

with a valid result of 0. 

WM Technologies requested the 

Department comment upon how 

different geographic areas are referenced 

in the same iteration. (WM 

Technologies, No. 25 at p. 10) At each 

iteration, the LCC model pulls eight 

samples, a RECS and CBECS sample for 

each of the four equipment classes, and 

then selects either residential or 

commercial to choose whether to use 

the RECS or CBECS sample. Those eight 

samples will all have their own 

geographic location linked to either the 

RECS or the CBECS samples selected, 

and would only purely by chance have 

the same geographic location. 

WM Technologies stated their review 

of chapter 8 and appendix 8G did not 

clearly identify how the subgroup 

analysis is completed. They said further 

review of the LCC workbook indicates 

that the low-income subgroup is 

comprised of the first six bins in cells 

O3 to P28, and shown in B6 to B11. 

However, the assumption cell (B40) 

makes a probabilistic selection from 

range B6 to B36. Specifically, they 

stated it would be beneficial to only run 

the sub-group analysis by hard coding 

the selection of income bins. They asked 

DOE to please verify that the correct 

values to hard code are in the range of 

B15 to AS16 on the ‘‘Bldg.Sample’’ tab. 

Additionally, they asked DOE to please 

provide insight into and how cells FG4 

to FG12086 in tab ‘‘RECS.WH’’ relate 

the analysis and how the range D30 to 

E 54 on the ‘‘Control.Panel’’ tab interact 

with the analysis. (WM Technologies, 

No. 25 at p. 10) In response, DOE notes 

that the entire column of B6 to B36 

comprises the probability distribution 

for the lowest 20 percent of residential 

households, or, in other words, the 

households that would be included in 

the low-income subgroup. The six bins 

that are referred to in cells O3 through 

P28 refer to the effort to remap the RECS 

income bins to the discount rate bins. 

The discount rates break the entire 

residential sector out by percentage of 

households while RECS breaks 

households out into discrete income 

bins. The model codes individual RECS 

samples as either eligible for the subgroup using the look-up table referenced 

above on the Control Panel tab and 

column CC on the Sampling 

Distributions. Column CC is either 0 or 

1. If the model is not running a 

subgroup, all RECS income bins are 

coded as 1. If the model is running a 

subgroup, only those RECS income bins 

in the subgroup are coded 1, and the 

rest are coded 0. On the Sampling 

Distribution tab, the sampling weight 

assigned to each RECS observation is 

multiplied by the corresponding row of 

column CC. Thus, in a regular run, all 

households could be chosen. In a 

subgroup model run, only those 

households in the 0–20 percent of 

household income could be chosen. 

G. Shipments Analysis 

DOE uses projections of annual 

equipment shipments to calculate the 

national impacts of potential amended 

or new energy conservation standards 

on energy use, NPV, and future 

manufacturer cash flows.135 The 

shipments model, discussed in section 

IV.G.6 of this final rule, takes an 

accounting approach, tracking market 

shares of each equipment category and 

the vintage of units in the stock. Stock 

accounting uses equipment shipments 

as inputs to estimate the age distribution 

of in-service equipment stocks for all 

years. The age distribution of in-service 

equipment stocks is a key input to 


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69764 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations 

136Air Conditioning, Heating, and Refrigeration 

Institute. Commercial Storage Water Heaters 

Historical Data and Monthly Shipments. Available 

at www.ahrinet.org/analytics/research/historicaldata/commercial-storage-water-heaters-historicaldataand www.ahrinet.org/analytics/statistics/ 

monthly-shipments.Last accessed March 10, 2023. 

137U.S. Department of Energy. Screening 

Analysis for EPACT-Covered Commercial HVAC 

and Water-Heating Equipment. Volume 1—Main 

Report. 2000. EERE–2006–STD–0098–0015. 

Available at www.regulations.gov/ 

#!documentDetail;D=EERE-2006-STD-0098-0015. 

138While the instantaneous units are gas-fired, 

natural gas variables consistently exhibited 

incorrect signs on the estimated coefficients. For 

example, the ratio of commercial electric price 

divided by commercial gas had a negative sign, 

meaning that higher ratios would lead to lower 

shipments. This is the opposite of what was 

expected. Higher electric prices relative to gas 

prices should lead to higher, not lower, shipments 

of the natural gas products. Thus, commercial 

natural gas price variables were omitted from the 

model. 

calculations of both the NES and NPV 

because operating costs for any year 

depend on the age distribution of the 

stock. 

1. Commercial Gas Fired and Electric 

Storage Water Heaters 

To develop the shipments model, 

DOE started with known information on 

shipments of commercial electric and 

gas-fired storage water heaters collected 

for the years 1994–2022 from the AHRI 

website,136 and extended back to 1989 

with data contained in a DOE 

rulemaking document published in 

2000.137 The historical shipments of 

commercial electric and gas-fired 

storage water heaters are summarized in 

Table IV.23 of this final rule. Given that 

the estimated average useful lifetimes of 

these two types of equipment are 12 and 

10 years, respectively, the historical 

shipments provided a basis for the 

development of a multi-year series of 

stock values. Using the stock values, a 

saturation rate was determined by 

dividing equipment stock by building 

stock, and this saturation rate was 

combined with annual building stock 

additions to estimate the shipments to 

new construction. With these data 

elements, a yearly accounting model 

was developed for the historical period 

to identify shipments deriving from new 

construction and from replacements of 

existing equipment. The accounting 

model also identified consumer 

migration into or out of the storage 

water heater equipment classes by 

calculating the difference between new 

plus replacement shipments and the 

actual historical shipments. 

TABLE IV.23—HISTORICAL SHIPMENTS

OF COMMERCIAL GAS-FIRED AND

ELECTRIC STORAGE WATER HEATERS

Year 

Commercial 

gas-fired 

storage 

Commercial 

electric 

storage 

1994 .................. 91,027 22,288 

1995 .................. 96,913 23,905 

1996 .................. 127,978 26,954 

1997 .................. 96,501 30,339 

1998 .................. 94,577 35,586 

1999 .................. 100,701 39,845 

TABLE IV.23—HISTORICAL SHIPMENTS

OF COMMERCIAL GAS-FIRED AND

ELECTRIC STORAGE WATER HEATERS—Continued 

Year 

Commercial 

gas-fired 

storage 

Commercial 

electric 

storage 

2000 .................. 99,317 44,162 

2001 .................. 93,969 46,508 

2002 .................. 96,582 45,819 

2003 .................. 90,292 48,137 

2004 .................. 96,481 57,944 

2005 .................. 82,521 56,178 

2006 .................. 84,653 63,170 

2007 .................. 90,345 67,985 

2008 .................. 88,265 68,686 

2009 .................. 75,487 55,625 

2010 .................. 78,614 58,349 

2011 .................. 84,705 60,257 

2012 .................. 80,490 67,265 

2013 .................. 88,539 69,160 

2014 .................. 94,247 73,458 

2015 .................. 98,095 88,251 

2016 .................. 97,026 127,344 

2017 .................. 93,677 152,330 

2018 .................. 94,473 137,937 

2019 .................. 88,548 150,667 

2020 .................. 80,070 140,666 

2021 .................. 90,192 154,330 

2022 .................. 83,487 120,152 

For the May 2022 CWH ECS NOPR, 

DOE utilized regression techniques to 

develop the shipments forecast based on 

the assumption that shipments of gasfired storage water heaters are a function 

of relative prices of natural gas and 

electricity, building stocks (i.e., the 

replacement market), and building stock 

additions (the new market); the 

regression inputs were updated with 

2022 data for this final rule. The result 

was a model yielding a forecast of 

shipments that increases 0.03 percent 

per year from 2023–2055, reaching just 

over 90,100 units by 2055. See chapter 

9 of the final rule TSD for further 

details. The resulting growth rate for 

shipments is less than the underlying 

growth in building stocks (0.9 percent 

between 2023–2055). 

For the May 2022 CWH ECS NOPR 

and for this final rule, no historical 

information was available that 

specifically identified shipments of gasfired storage-type instantaneous water 

heaters. The AHRI online historical 

shipments data explicitly states 

residentially marketed equipment is 

excluded but does not explicitly state 

whether instantaneous storage 

equipment is included or excluded. 

Because of the similarities between the 

commercial storage gas water heaters 

and the gas-fired storage-type 

instantaneous water heaters, DOE has 

included both in downstream analyses 

in this final rule. However, DOE 

recognizes that some or all of the 

storage-type instantaneous shipments 

may not be captured in the historical 

AHRI shipments data. The DOE 

shipments analysis is derived from 

AHRI historical shipments data and 

thus may underrepresent future 

shipments of gas-fired storage-type 

instantaneous water heaters. 

2. Residential-Duty-Gas-Fired Storage 

and Instantaneous Water Heaters 

For the May 2022 CWH ECS NOPR, 

DOE developed an econometric model 

similar to that described for commercial 

gas-fired storage water heater 

shipments. Following publication of the 

withdrawn May 2016 CWH ECS NOPR, 

AHRI provided data from manufacturers 

on instantaneous water heater 

shipments to DOE’s contractors under a 

confidentiality agreement and indicated 

that the data include shipments of gasfired instantaneous tankless and 

circulating water heating equipment. 

DOE used these data to estimate an 

equation relating commercial 

instantaneous shipments to building 

stock additions and commercial 

electricity prices.138 Because the 

historical data did not provide sufficient 

detail to identify the percentages 

represented by tankless and circulating 

water heater shipments, DOE estimated 

that 50 percent of the shipments are 

instantaneous tankless shipments and 

the remainder are circulating water 

heaters. Because the actual information 

provided by AHRI is confidential and 

cannot be disclosed, the only 

information being made available in this 

final rule is the econometric forecast 

made for use in the analysis. 

Since the equipment that DOE has 

been calling hot water supply boilers 

includes what AHRI calls circulators as 

well as a second type of equipment 

AHRI calls boilers, DOE clarifies that 

the new DOE forecast for hot water 

supply boilers includes both circulating 

water heating equipment and hot water 

supply boilers. The circulating water 

heater shipments were developed as 

described earlier. In the May 2022 CWH 

ECS NOPR, DOE requested additional 

historical shipment information for 

commercial gas-fired instantaneous 

tankless water heaters to supplement 

the data provided in response to the 


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Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations 69765 

139U.S. EPA. ENERGY STAR Unit Shipment and 

Market Penetration Report Calendar Year 2021 

Summary. Available at www.energystar.gov/sites/ 

default/files/asset/document/2021%20Unit

%20Shipment%20Data%20Summary%20Report_

0.pdf. Last accessed December 17, 2022. 

140U.S. EPA. ENERGY STAR Unit Shipment and 

Market Penetration Report Calendar Year 2021 

Summary. Available at www.energystar.gov/sites/ 

default/files/asset/document/ 

2021%20Unit%20Shipment%20Data%20Summary

%20Report_0.pdf. Last accessed December 17, 

2022. 

141ENERGY STAR updated its residential gas 

water heater criteria, including its criteria for gasfired storage residential-duty commercial water 

heaters, effective on April 18, 2023. Under the 

updated specification requirements, residentialContinued 

withdrawn May 2016 CWH ECS NOPR, 

and also sought actual historical 

shipments for gas-fired storage-type 

instantaneous water heaters and hot 

water supply boilers, but did not receive 

any data, and DOE was not able to 

identify additional information sources 

for the instantaneous equipment class 

shipments. 

In the May 2022 CWH ECS NOPR, 

DOE requested actual historical 

shipment data for residential-duty gasfired storage water heaters, but did not 

receive any data, and DOE was not able 

to identify additional information 

sources for residential-duty gas-fired 

shipments. DOE clarifies that 

residential-duty gas-fired storage water 

heaters are not residential water heaters. 

Instead, they are a type of CWH 

equipment and DOE draws no 

conclusions about residential-duty gasfired storage shipments replacing or 

being replaced by commercial gas-fired 

storage water heater shipments. Rather, 

the linkage used in the DOE model 

would essentially have shipments of 

both types of storage equipment going 

up or down in parallel. DOE retained 

the forecasting method used for the May 

2022 CWH ECS NOPR, using the same 

20 percent factor. In other words, DOE 

assumes residential-duty gas-fired 

storage water heater shipments track 

with commercial gas-fired storage water 

heaters, and shipments of the former are 

assumed to be 20 percent of the 

shipments of the latter. 

3. Available Products Database and 

Equipment Efficiency Trends 

For the May 2022 CWH ECS NOPR, 

DOE revised the shipments and other 

analyses to reflect efficiency 

distribution data for commercial gasfired storage water heaters and 

instantaneous gas-fired water heaters 

provided by AHRI, reconciling the 

analyses to account for the AHRI data 

rather than relying heavily on the 

number of available models to produce 

equipment efficiency trends. For this 

final rule analysis, DOE used the same 

adjustment method to account for 

underlying growth in high-efficiency 

products. 

In the May 2022 CWH ECS NOPR, 

DOE requested historical shipments 

data dividing shipments between 

condensing and non-condensing 

efficiencies for all equipment types that 

comprise the subject of this proposed 

rulemaking. In comments filed in 

response to the May 2022 CWH ECS 

NOPR, A.O. Smith stated that the 

percentage of commercial gas-fired 

instantaneous circulating water heaters 

and hot water supply boilers shipments 

that are condensing is lower than the 

percentage for gas storage products. 

(A.O. Smith, No. 22 at p. 3) As 

discussed in section IV.H.1, DOE used 

the AHRI-provided historical data 

received following the withdrawn May 

2016 CWH ECS NOPR to fit a Bass 

Diffusion curve for each of the 

equipment categories analyzed for this 

final rule. With respect to the concern 

raised by A.O. Smith regarding 

condensing shares of circulating water 

heaters and hot water supply boilers in 

comparison to commercial gas storage 

water heaters, the data received from 

AHRI regarding the fraction of the units 

of the instantaneous equipment class 

that were condensing at 90 percent and 

over was higher than it was for the 

commercial gas storage category, and 

DOE did not receive any additional data 

nor identify additional sources of 

shipments by efficiency level for the 

instantaneous equipment categories on 

which DOE could base an adjustment to 

the diffusion curve. Further, DOE 

reviewed the underlying model counts 

and notes that the unadjusted model 

counts for condensing level commercial 

gas-fired storage and condensing level 

instantaneous circulating water heaters 

and hot water supply boilers are the 

same percentage of total models (45 

percent). While DOE appreciates A.O. 

Smith’s comment, the most recent 

industry data supplied by AHRI does 

not indicate that the condensing share 

of instantaneous circulating water 

heaters and hot water supply boilers are 

less than those for the commercial gasfired storage equipment class. 

In comments filed in response to the 

May 2022 CWH ECS NOPR, Rheem 

noted that the same colors were used for 

‘‘Com/Res-Duty Gas Storage’’ and ‘‘Gas 

Instant HWSB’’ in Figure 10.2.1 of the 

NOPR TSD making it difficult to 

comment; however, Rheem commented 

it appeared that DOE was estimating 

between 55 and 60 percent of gas-fired 

storage water heaters are condensing, 

and that the breakdown between noncondensing and condensing levels 

needs review; Rheem also noted that 

they were willing to discuss the 

breakdown in a confidential meeting. 

(Rheem, No. 24 at p. 3, 6) 

DOE thanks Rheem for pointing out 

that the colors used in Figure 10.2.1 of 

the May 2022 CWH ECS NOPR TSD 

were difficult to differentiate, and DOE 

has made adjustments to that figure 

within the final rule TSD to better 

distinguish the data illustrated there. 

Regarding Rheem’s concern about 

condensing versus non-condensing 

shares of commercial gas-fired storage 

water heaters, DOE notes that the most 

recent ENERGY STAR data for 

commercial gas-fired water heaters 

reports an estimated market penetration 

of 49 percent of total commercial gasfired water heaters were ENERGY STAR 

qualified in 2021, with a thermal 

efficiency greater than or equal to 

0.94.139 DOE notes that there are 

additional condensing models currently 

on the market that do not meet ENERGY 

STAR requirements, so the total 

estimated condensing percentage is 

likely higher than ENERGY STAR 

levels. As discussed in response to the 

A.O. Smith comment earlier, AHRI 

supplied industry-level data on 

condensing shares of commercial gasfired storage water heaters that has been 

fit to a Bass Diffusion curve, and the 

additional information received during 

supplemental manufacturer interviews 

did not include additional data on 

which to base changes to these 

percentages. 

In comments filed in response to the 

May 2022 CWH ECS NOPR, A.O. Smith 

also stated that an analysis of their own 

shipments shows that 5 percent of 

residential-duty gas-fired storage units 

are condensing. (A.O. Smith, No. 22 at 

p. 4) In the May 2022 CWH ECS NOPR, 

DOE had used the same condensing 

market share curve calculated for 

commercial gas-fired storage water 

heaters, projected to be greater than 60 

percent by 2026. In response, DOE 

considered the A.O. Smith data point, 

recognizing that it is a single data point 

that may not be representative of the 

entire industry, and also reviewed both 

ENERGY STAR data and the model 

counts database. Residential-duty gasfired storage water heaters are included 

under the residential ENERGY STAR 

water heater program, rather than the 

commercial gas water heater program. 

Based on ENERGY STAR data, 

shipments of ENERGY STAR-rated 

residential gas-fired water heaters as a 

share of total shipments was 8 percent 

in 2021.140 DOE notes that historically, 

not all ENERGY STAR-rated residential 

gas-fired water heaters have been 

condensing models,141 and also that the 


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duty gas-fired storage water heaters would likely 

need to be condensing to be ENERGY STAR 

compliant. 

142Building Decarbonization Coalition, Zero 

Emission Building Ordinances, State and Local 

Government Decarbonization Efforts. Available at 

buildingdecarb.org/zeb-ordinances.html, Last 

accessed November 28, 2022. 

143 Gas Ban Monitor: East Coast policies advance; 

Pa. gas ban prohibition fails, August 2, 2022. 

Available at www.spglobal.com/marketintelligence/ 

en/news-insights/latest-news-headlines/gas-banmonitor-east-coast-policies-advance-pa-gas-banprohibition-fails-71439034. Last Accessed 

November 28, 2022. 

144California Air Resources Board, November 16, 

2022. 2022 Scoping Plan for Achieving Carbon 

Neutrality. Available at ww2.arb.ca.gov/sites/ 

default/files/2022-11/2022-sp.pdf. Last accessed 

December 19, 2022. 

145New York State Climate Action Council. 2022. 

‘‘New York State Climate Action Council Scoping 

Plan.’’ Available at climate.ny.gov/-/media/project/ 

climate/files/2022-12-15-Draft-Final-ScopingPlan.pdf. Last accessed December 20, 2022. 

146Available at www.federalregister.gov/ 

documents/2022/12/21/2022-27098/clean-energyfor-new-federal-buildings-and-major-renovationsof-federal-buildings. Last accessed February 13, 

2023. 

estimated number of residential-duty 

gas-fired water heaters are a small 

fraction of total residential gas-fired 

water heater shipments, so DOE was not 

able to definitively determine what 

share of the residential-duty market is 

comprised of condensing equipment. 

DOE calculated that the percentage of 

residential-duty gas-fired water heaters 

that are condensing according to model 

counts is 32 percent, which is 

significantly less than the 45 percent of 

model counts identified as condensing 

for commercial gas-fired storage water 

heaters. For this final rule, DOE has 

revised the condensing market share for 

residential-duty gas-fired storage water 

heaters based on this information, using 

the historical ENERGY STAR residential 

water heater shipments to fit the Bass 

Diffusion curve. As conveyed in section 

IV.H.1, the overall resulting condensing 

share diffusion curve for the residentialduty equipment class is now lower than 

that modeled for commercial gas-fired 

storage water heaters. 

A.O. Smith raised concerns that 

setting new minimum energy 

conservation standards for commercial 

gas-fired products at 95 percent and 96 

percent thermal efficiency will have a 

dilutive effect on the ENERGY STAR 

program. For ENERGY STAR to remain 

a relevant catalyst for market adoption 

of commercial gas-fired water heaters, 

A.O. Smith said ENERGY STAR would 

need to set a new specification level 

significantly above the Department’s 

proposed new minimums, which de 

facto would render the program obsolete 

for gas-fired CWH. A.O. Smith believes 

such an outcome would create 

significant marketplace competition 

implications considering technology 

feasibility, manufacturer product costs 

(MPCs) as well as limit product options 

for commercial businesses. (A.O. Smith, 

No. 22 at p. 3) Similarly, Atmos Energy 

stated that the proposed standards 

would negatively impact existing rebate 

programs. Atmos Energy stated that 

incentive programs provide a costeffective means for improving 

residential building energy efficiency 

without requiring a market transition 

through which the water heating 

options consumers need are no longer 

available. (Atmos Energy, No. 36 at p. 3) 

As discussed in section IV.C.4.a, DOE 

reviewed the efficiency level 

distributions of products on the market 

and found that the market distributions 

show the greatest number of unique 

basic models within the condensing 

range at 96 percent for gas-fired storage 

water heaters and storage typeinstantaneous water heaters, gas-fired 

tankless water heaters, and gas-fired 

circulating water heaters and hot water 

supply boilers. DOE anticipates that 

there is still room for product 

differentiation, particularly for gas-fired 

storage water heaters which account for 

most of the shipments in this final rule, 

where products above 95 percent 

efficiency currently exist at 96, 97, 98, 

and 99 percent, and DOE also notes that 

products exist at 97 percent efficiency 

for tankless water heaters, and that there 

are products at 97, 98, and 99 percent 

efficiency products for circulating water 

heaters and hot water supply boilers. 

Thus, ENERGY STAR specifications 

could be updated, allowing for the 

continuation of utility rebate and other 

incentive programs. 

4. Electrification Trends 

In comments submitted in response to 

the May 2022 CWH ECS NOPR, several 

stakeholders expressed concerns about 

the impact of legislation and codes 

requiring electrification. Bradford White 

believes that local policies and codes 

that restrict the use of gas-fired 

commercial water heaters need to be 

taken into account, and both WM 

Technologies and Patterson-Kelley 

noted that local building codes are 

limiting installation of new gas-fired 

products, which are a risk of decreased 

future annual shipments across the 

market, and that changes in building 

codes related to discarding appliances 

prior to the end of their normal 

operational life could also impact 

shipments. (Bradford White, No. 23 at p. 

6; WM Technologies, No. 25 at p. 3; 

Patterson-Kelley, No. 26 at p. 3) WM 

Technologies also commented that 

changes in building codes relating to 

electrification are impacting fuel 

switching differently at different 

efficiency levels in some localities. (WM 

Technologies, No. 25 at p. 3) AHRI also 

noted building code changes in states 

like Washington that are requiring heat 

pump water heating. (AHRI, No. 31 at p. 

6) In response, DOE has conducted an 

internet search of State and municipal 

level legislation and building codes to 

identify locations where electrification 

requirements have been put into place, 

and where building codes have been 

changed with respect to discarding 

appliances prior to the end of their 

normal life. DOE identified a total of 81 

municipalities and 1 State with an 

electrification requirement, either for 

new buildings, or upon equipment 

replacement.142 DOE also identified a 

total of 20 States that have prohibited 

building gas restrictions and 

electrification mandates.143 DOE was 

not able to identify any building codes 

that had been changed with respect to 

discarding appliances prior to the end of 

their normal life. DOE further notes that 

States and municipalities are actively 

proposing plans or legislation 

addressing electrification, or prohibiting 

electrification. Until these are adopted 

or passed, they are subject to change. As 

such, DOE attempted to account only for 

those jurisdictions that have passed or 

adopted electrification requirements. 

For example, both California and New 

York have released plans that 

incorporate end-use electrification for 

buildings, but neither State has finalized 

those plans.144 145 Thus only 

municipalities within these States that 

have passed or adopted electricity 

requirements were included in DOE’s 

analysis. DOE conducted a sensitivity 

analysis of potential electrification 

trends to consider the impact of 

additional electrification if both 

California and New York were to adopt 

electrification requirements state-wide 

(see appendix 10B of the final rule 

TSD). 

Additionally, DOE notes that in 

December of 2022, DOE published the 

Clean Energy for New Federal Buildings 

and Major Renovations of Federal 

Buildings SNOPR (‘‘Clean Energy Rule’’) 

as required by section 433 of the Energy 

Independence and Security Act of 2007 

(‘‘EISA 2007’’), which requires that 

fossil fuel generated energy 

consumption be reduced to zero (as 

compared to a 2003 baseline) by 2030 

for new construction and major 

renovations of Federal buildings.146

Federal buildings are also subject to 

E.O. 14057, which requires that all new 

construction and major modernization 


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147E.O. 14057: Catalyzing Clean Energy 

Industries and Jobs Through Federal Sustainability, 

December 8, 2021. Available at www.fedcenter.gov/ 

programs/eo14057/. Last accessed December 16, 

2022. 

148U.S. Energy Information Administration (EIA). 

2023 Annual Energy Outlook. March 2023. 

Available at www.eia.gov/outlooks/aeo/. 

projects greater than 25,000 gross square 

feet be designed, constructed, and 

operated to be net-zero emissions by 

2030, and that the Federal sector will 

have a net-zero emissions building 

portfolio by 2045, including a 50 

percent emissions reduction (over 2008 

levels) by 2032.147

DOE used this information to develop 

an adjustment to account for reduced 

shipments due to electrification 

requirements. In total, based on policies 

and codes that have been adopted as of 

November 28, 2022, approximately 8 

percent of the United States by 

population will be subject to 

electrification requirements for new 

buildings by 2026, with approximately 

0.3 percent subject to electrification 

upon equipment replacement. 

Additionally, based on the proposed 

Clean Energy Rule and E.O. 14057, the 

potential percentage of floorspace 

impacted by Federal rules and 

requirements would range from 0.6 

percent to 0.9 percent of new 

construction, and of 0.6 percent to 2.3 

percent of replacements. The resulting 

adjustments are shown in Table IV.24. 

TABLE IV.24—ELECTRIFICATION

REDUCTIONS

Year 

New 

shipment 

reductions 

Replacement 

shipment 

reductions 

(%) 

2026 .............. 8.6 0.9 

2027 .............. 8.6 1.0 

2028 .............. 8.6 1.1 

2029 .............. 8.5 1.3 

2030 .............. 8.5 1.4 

2031 .............. 8.5 1.5 

2032 .............. 8.6 1.6 

2033 .............. 8.6 1.7 

2034 .............. 8.6 1.8 

2035 .............. 8.7 1.9 

2036 .............. 8.7 1.9 

2037 .............. 8.7 2.0 

2038 .............. 8.8 2.1 

2039 .............. 8.8 2.2 

2040 .............. 8.8 2.3 

2041 .............. 8.8 2.3 

2042 .............. 8.9 2.4 

2043 .............. 8.9 2.5 

TABLE IV.24—ELECTRIFICATION

REDUCTIONS—Continued 

Year 

New 

shipment 

reductions 

Replacement 

shipment 

reductions 

(%) 

2044 .............. 8.9 2.6 

2045 .............. 8.9 2.6 

2046 .............. 8.9 2.6 

2047 .............. 8.9 2.6 

2048 .............. 8.9 2.6 

2049 .............. 8.8 2.5 

2050 .............. 8.8 2.5 

2051 .............. 8.8 2.5 

2052 .............. 8.8 2.5 

2053 .............. 8.8 2.5 

2054 .............. 8.8 2.5 

2055 .............. 8.8 2.4 

A more detailed discussion of this 

adjustment and the underlying 

calculations is contained in chapter 9 of 

this TSD. 

5. Shipments to Residential Consumers 

DOE determined the fractions of 

commercial and residential applications 

for each equipment category based on 

the number of samples (in both CBECS 

and RECS) selected as relevant to be 

served by each equipment category 

considered in this rulemaking. Based on 

comments received in response to the 

withdrawn May 2016 CWH ECS NOPR, 

DOE included only residential multifamily stocks and building additions 

when considering the potential noncommercial consumer component in the 

development of the shipments forecast 

in the May 2022 CWH ECS NOPR. In 

comments received on the May 2022 

CWH ECS NOPR, Bradford White noted 

DOE has overstated the amount of 

commercial gas-fired storage and 

storage-type instantaneous water heaters 

that are installed in residential 

applications, as in their experience, 

there are very few residential 

installations where this occurs (e.g., 

typically high end, large homes), and 

that they do not see gas-fired circulating 

water heaters and hot water supply 

boilers used in residential applications. 

(Bradford White, No. 23 at p. 6) DOE 

wishes to clarify that the only 

residential applications considered in 

both the May 2022 CWH ECS NOPR and 

this final rule analysis are those in 

multi-family buildings; single family 

and manufactured home applications 

were excluded from the analysis, as 

previously suggested by commenters in 

response to the withdrawn May 2016 

CWH ECS NOPR. 

6. Final Rule Shipment Model 

To project shipments and equipment 

stocks for 2023 through the end of the 

30-year analysis period (2055), DOE 

used the shipments forecasting models 

(described in sections IV.G.1 and IV.G.2 

of this final rule), a stock accounting 

model, and adjustments for 

electrification. The stock accounting 

model keeps track of shipments and 

calculates replacement shipments based 

on the historical shipments, the 

expected useful lifetime of each 

equipment class, and a Weibull 

distribution that identifies a percentage 

of units still in existence from a prior 

year that will fail and need to be 

replaced in the current year. In each 

year, DOE assumed a fraction of the 

replacement market will be retired 

rather than replaced due to the 

demolition of buildings in which this 

CWH equipment resides. This 

retirement fraction was derived from 

building stock data from the 

AEO2023.148

To project shipments of CWH 

equipment for new construction, DOE 

relied on building stock data obtained 

from AEO2023. For this final rule, DOE 

assumes CWH equipment is used in 

both commercial buildings and 

residential multi-family buildings. DOE 

estimated a saturation rate for each 

equipment type using building and 

equipment stock values. The saturation 

rate was applied to new building 

additions in each year, yielding 

shipments to new buildings. The 

building stock and additions projections 

from AEO2023 are shown in Table 

IV.25. 

TABLE IV.25—BUILDING STOCK PROJECTIONS

Year 

Total commercial 

building stock 

(million sq. ft.) 

Commercial 

building stock 

additions 

(million sq. ft.) 

Multi-family 

residential building 

stock 

(millions of units) 

Multi-family 

residential building 

additions 

(millions of units) 

2022 ......................................................................................... 93,444 2,027 32.84 0.61 

2025 ......................................................................................... 96,234 2,272 33.86 0.49 

2026 ......................................................................................... 97,373 2,197 34.18 0.49 

2030 ......................................................................................... 101,747 2,473 35.47 0.49 


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TABLE IV.25—BUILDING STOCK PROJECTIONS—Continued 

Year 

Total commercial 

building stock 

(million sq. ft.) 

Commercial 

building stock 

additions 

(million sq. ft.) 

Multi-family 

residential building 

stock 

(millions of units) 

Multi-family 

residential building 

additions 

(millions of units) 

2035 ......................................................................................... 108,065 2,336 36.93 0.46 

2040 ......................................................................................... 112,879 2,127 38.37 0.48 

2045 ......................................................................................... 116,845 2,152 39.78 0.47 

2050 ......................................................................................... 121,045 2,293 41.14 0.48 

2055 * ....................................................................................... 123,348 2,381 42.61 0.51 

Source: EIA AEO2023 Reference case. 

* Post-2050, the projections were extended using the average annual growth rate from 2040 to 2050. 

The next component in the stock 

accounting model is the calculation of 

shifts to or away from particular 

equipment classes. For this final rule, 

shipments were an input to the stock 

model. For both the historical and 

forecasted period, shifts to or away from 

a particular equipment class were 

calculated as a remainder. Using a 

saturation rate derived from historical 

equipment and building stocks, the 

model estimates shipments to new 

buildings. Using historical stock and 

retirement rates based on equipment 

life, the model estimates shipments for 

stock replacement. Shifts to or away 

from a particular equipment class equal 

the total shipments less shipments for 

new buildings and shipments for 

replacements. While DOE refers to the 

remainders as ‘‘shifts to or away from 

the equipment class,’’ the remainders 

could be a result of numerous factors: 

equipment lasting longer, which 

reduces the number of replacements; 

increased or decreased need for hot 

water generally due to greater efficiency 

in water usage; changing patterns of 

commercial activity; outside influences, 

such as ENERGY STAR and utility 

conservation or marketing programs; 

actual shifts between equipment classes 

caused by relative fuel prices, relative 

equipment costs and efficiencies, 

installation costs, repair and 

maintenance costs, and consumer 

preferences; and other factors. 

Based on the historic data, there is an 

apparent shift toward electric storage 

water heating equipment. The historical 

shipments summarized in Table IV.23 of 

this document show a steady growth in 

commercial electric storage water 

heaters, with shipments growing from 

22,288 in 1994 to 154,330 in 2021, but 

declining in 2022 to 120,152, the lowest 

since 2016. Over the same time period, 

commercial gas-fired storage water 

heaters have seen a decline in 

shipments from 91,027 in 1994 to a low 

of 75,487 in 2009. After 2009, gas-fired 

storage water heater shipments 

rebounded, reaching a shipment level of 

90,192 in 2021 (and a peak of 98,095 in 

2015), although they declined again in 

2022, to 83,487, the second lowest year 

since 2013. During the period 2009 

through 2015, there was a reduction in 

the apparent shift away from 

commercial gas-fired storage units 

compared to the earlier period; 

however, there appeared to be an 

increase in 2016–2017 before returning 

to a reduction in the shift in commercial 

gas-fired storage units. Because the 

forecasted shipments of residential-duty 

gas-fired storage water heaters are 

linked to commercial gas-fired storage 

units, there is a similar shift away from 

the residential-duty gas-fired storage 

equipment class in the shipment 

forecast. Gas-fired instantaneous 

equipment appears to have a positive 

shift pattern. 

Because the commercial gas-fired 

storage and gas-fired instantaneous 

CWH shipments forecasts were 

developed using econometric models 

based on historical data, these apparent 

shifts are captured in DOE’s shipments 

model and embedded in the total 

forecast. For purposes of assigning 

equipment costs and energy usage in the 

NIA, DOE needs to know if the 

increased/decreased shipments are new 

or replacement shipments. For all 

equipment classes, DOE assumed that 

the apparent shift is most likely to occur 

in new installations rather than in the 

replacement installations. As described 

in chapter 9 of the final rule TSD, DOE 

assumed that a shift is twice as likely to 

take place in a new installation as in a 

replacement installation. For example, if 

DOE estimated that in 2023, 20 percent 

of shipments for an equipment class 

went to new installations and 80 

percent went for replacements in the 

absence of switching, DOE multiplied 

the 20 percent by 2 (40 percent) and 

added the 80 percent (which equals 120 

percent). Both the 40 percent for new 

and the 80 percent for replacement were 

then divided by 120 percent to 

normalize to 100 percent, yielding 

revised shipment allocations of 33 

percent for new and 67 percent for 

replacement. 

Finally, an adjustment is made to 

account for units projected to switch out 

of the equipment class due to 

electrification requirements. The 

estimated percent reduction shown in 

Table IV.24 is applied to the new and 

replacement shipments calculated for 

each year as described previously. 

These modified shipments are then 

accounted for in future stock 

retirements so that once a unit has 

‘‘exited’’ the stock, it does not re-enter 

when it would be due for replacement. 

The resulting shipment projection is 

shown in Table IV.26. 

TABLE IV.26—SHIPMENTS OF COMMERCIAL WATER HEATING EQUIPMENT

Year 

Commercial gasfired storage water 

heaters and gasfired storage-type 

instantaneous 

water heaters 

(units *) 

Residential-duty 

gas-fired storage 

water heaters 

(units) 

Gas-fired tankless 

water heaters 

(units) 

Gas-fired 

circulating water 

heaters and hot 

water supply boilers 

(units) 

2023 ..................................................................................... 87,890 17,548 9,612 11,141 

2025 ..................................................................................... 89,827 17,919 10,123 11,658 

2026 ..................................................................................... 90,483 18,051 10,312 11,931 


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149The NIA accounts for impacts in the 50 states 

and U.S. territories. 

TABLE IV.26—SHIPMENTS OF COMMERCIAL WATER HEATING EQUIPMENT—Continued 

Year 

Commercial gasfired storage water 

heaters and gasfired storage-type 

instantaneous 

water heaters 

(units *) 

Residential-duty 

gas-fired storage 

water heaters 

(units) 

Gas-fired tankless 

water heaters 

(units) 

Gas-fired 

circulating water 

heaters and hot 

water supply boilers 

(units) 

2030 ..................................................................................... 90,838 18,189 13,212 15,123 

2035 ..................................................................................... 89,229 17,839 14,970 17,076 

2040 ..................................................................................... 88,121 17,617 16,700 18,615 

2045 ..................................................................................... 87,733 17,545 18,822 20,726 

2050 ..................................................................................... 87,422 17,484 21,013 22,992 

2055 ..................................................................................... 86,917 17,380 23,259 25,366 

* The projected shipments are based on historical data for commercial gas-fired storage water heaters which may or may not include storagetype instantaneous shipments. For analysis purposes, DOE has grouped these categories but recognizes that future shipments for storage-type 

instantaneous may not be captured in the projection. 

Because the estimated energy usage of 

CWH equipment differs by commercial 

and residential settings, the NIA 

employs the same fractions of 

shipments (or sales) to commercial and 

to residential consumers used by the 

LCC analysis. The fractions of 

shipments by type of consumer are 

shown in Table IV.27. 

TABLE IV.27—SHIPMENT SHARES BY TYPE OF CONSUMER

Equipment Commercial 

(%) 

Residential 

(%) 

Commercial gas-fired storage water heaters and gas-fired storage-type instantaneous water heaters ................ 84 16 

Residential-duty gas-fired storage water heaters .................................................................................................... 60 40 

Gas-fired instantaneous water heaters and hot water supply boilers: 

Gas-fired tankless water heaters ..................................................................................................................... 60 40 

Gas-fired circulating water heaters and hot water supply boilers .................................................................... 85 15 

For the NIA model, shipments must 

be disaggregated by efficiency levels 

that correspond to the levels analyzed in 

the engineering and LCC analyses. To 

identify the percentage of shipments 

corresponding to each efficiency level, 

DOE combined the efficiency trends 

based on AHRI and manufacturer 

shipments data and information derived 

from a database of equipment currently 

produced and sold by manufacturers. 

The sources of information for this 

database included the DOE Compliance 

Certification and manufacturer catalogs 

and websites. DOE used the AHRI 

shipments data provided in response to 

the withdrawn May 2016 CWH ECS 

NOPR to project the percentage of 

shipments that are condensing and noncondensing, for the period from 2015 

through the end of the analysis period. 

Starting with the last year of historical 

data from AHRI, shipments within the 

non-condensing and condensing 

efficiency ranges were distributed based 

on the available models database. 

Because the efficiency bins used in the 

AHRI shipments data did not exactly 

match the thermal efficiency bins 

studied by DOE, available models were 

used to re-distribute the historical 

shipment period within the noncondensing and condensing efficiency 

ranges to match the DOE thermal 

efficiency levels. For each subsequent 

year in the final rule analysis period, as 

the percentage of shipments that are in 

the condensing efficiency range 

increases, the shipments are distributed 

across the condensing thermal 

efficiency levels by increasing 

proportionally the percentage of 

shipments by efficiency level in the 

previous year. Similarly, as the 

percentage of non-condensing 

shipments decrease, DOE distributed 

shipments across thermal efficiency 

levels by proportionately decreasing the 

percentage of shipments in the prior 

year. 

H. National Impact Analysis 

The NIA assesses the NES and the 

NPV from a national perspective of total 

consumer costs and savings that would 

be expected to result from new or 

amended standards at specific efficiency 

levels.149 (‘‘Consumer’’ in this context 

refers to consumers of the equipment 

being regulated.) DOE calculates the 

NES and NPV for the potential standard 

levels considered based on projections 

of annual equipment shipments, along 

with the annual energy consumption 

and total installed cost data from the 

energy use and LCC analyses. For the 

present analysis, DOE projected the 

energy savings, operating cost savings, 

equipment costs, and NPV of consumer 

benefits for equipment shipped from 

2026 through 2055, the year in which 

the last standards-compliant equipment 

would be shipped during the 30-year 

analysis period. 

DOE evaluates the impacts of new or 

amended standards by comparing a case 

without such standards with standardscase projections. The no-new-standards 

case characterizes energy use and 

consumer costs for each equipment 

class in the absence of new or amended 

energy conservation standards. For this 

projection, DOE considers historical 

trends in efficiency and various forces 

that are likely to affect the mix of 

efficiencies over time. DOE compares 

the no-new-standards case with 

projections characterizing the market for 

each equipment 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 

standards cases, DOE considers how a 

given standard would likely affect the 

market shares of equipment with 

efficiencies greater than the standard. 

DOE uses a spreadsheet model to 

calculate the energy savings and the 

national consumer costs and savings 

from each TSL. Chapter 10 and 


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150 DOE’s web page on CWH equipment is 

available at www1.eere.energy.gov/buildings/ 

appliance_standards/standards.aspx?productid=36. 

151This database was developed using model data 

from DOE’s Compliance Certification database 

(available at www.regulations.doe.gov/certificationdata/) and manufacturer websites and catalogs. 

152U.S. EPA. ENERGY STAR Unit Shipment and 

Market Penetration Report Calendar Year 2021 

Summary. Available at www.energystar.gov/sites/ 

default/files/asset/document/2021%20Unit

%20Shipment%20Data%20Summary%20Report_

0.pdf. Last accessed December 17, 2022. 

appendix 10A of the final rule TSD 

explain the model and how to use it. 

The model and documentation are 

available on DOE’s website.150

Interested parties can review DOE’s 

analyses by changing various input 

quantities within the spreadsheet. The 

NIA spreadsheet model uses typical 

values (as opposed to probability 

distributions) as inputs. 

Unlike the LCC analysis, the NIA does 

not use distributions for inputs or 

outputs, but relies on inputs based on 

national average equipment costs and 

energy costs. DOE used the NIA 

spreadsheet to perform calculations of 

NES and NPV using the annual energy 

consumption, maintenance and repair 

costs, and total installed cost data from 

the LCC analysis. The NIA also uses 

energy prices and building stock and 

additions consistent with the 

projections from the AEO2023. NIA 

results are presented in chapter 10 of 

the final rule TSD. 

Table IV.28 summarizes the inputs 

and methods DOE used for the NIA 

analysis for this final rule. Discussion of 

these inputs and methods follows the 

table. See chapter 10 of the final rule 

TSD for further details. 

TABLE IV.28—SUMMARY OF INPUTS AND METHODS FOR THE NATIONAL IMPACT ANALYSIS

Inputs Method 

Shipments ........................................................... Annual shipments from shipments model. 

Compliance Date of Standard ............................ 2026. 

Efficiency Trends ................................................ No-new-standards case, standards cases. 

Annual Energy Consumption per Unit ................ Annual weighted-average values are a function of energy use at each TSL. 

Total Installed Cost per Unit ............................... Annual weighted-average values are a function of cost at each TSL. 

Annual Energy Cost per Unit .............................. Annual weighted-average values as a function of the annual energy consumption per unit and 

energy prices. 

Repair and Maintenance Cost per Unit .............. Annual values do not change with efficiency level. 

Energy Price Trends ........................................... AEO2023 projections (to 2050) and extrapolation thereafter. 

Energy Site-to-Primary and FFC Conversion ..... A time-series conversion factor based on AEO2023. 

Discount Rate ..................................................... 3 percent and 7 percent. 

Present Year ....................................................... 2023. 

1. Product Efficiency Trends 

A key component of the NIA is the 

trend in energy efficiency projected for 

the no-new-standards case and each of 

the standards cases. DOE uses a no-newstandards-case distribution of efficiency 

levels to project what the CWH 

equipment market would look like in 

the absence of potential standards. For 

the withdrawn May 2016 CWH ECS 

NOPR, DOE developed the no-newstandards-case distribution of 

equipment by thermal efficiency levels, 

and by standby loss efficiency levels, for 

CWH equipment by analyzing a 

database 151 of equipment currently 

available. For the standards cases, DOE 

used a ‘‘roll-up’’ scenario to establish 

the shipment-weighted efficiency for the 

year that standards are assumed to 

become effective (2026). In this 

scenario, the market shares of 

equipment in the no-new-standards case 

that do not meet the standard under 

consideration would ‘‘roll up’’ to meet 

the new standard level, and the market 

share of equipment above the standard 

would remain unchanged. The approach 

is further described in chapter 10 of the 

final rule TSD. 

For this final rule, DOE developed the 

no-new-standards distribution of 

equipment by thermal efficiency levels 

for CWH equipment using data from 

DOE’s Compliance Certification 

database, data submitted by AHRI 

regarding condensing versus noncondensing equipment, and ENERGY 

STAR shipments for residential gasfired water heaters. Using the data 

provided by AHRI for commercial gasfired storage water heaters and 

instantaneous gas-fired water heaters 

and hot water supply boilers, DOE has 

modeled a no-new-standards efficiency 

trend in which 75 to 85 percent of 

consumers purchase condensing 

equipment by 2055 by using the 

historical AHRI data to develop a future 

trend, but the Department points out 

that at present, the adoption of 

equipment equivalent to the standards 

proposed herein is currently about half 

of total shipments.152 Thus, this final 

rule analysis assigns substantial credit 

to market-driven efficiency 

accomplishments. DOE further notes 

that new and replacement markets were 

modeled using the same efficiency 

distributions. 

For this final rule, DOE used the 

AHRI efficiency data to fit a Bass 

Diffusion curve, which shows continued 

market-driven efficiency improvements 

over the forecast period up to a point 

where 75 percent of commercial gasfired storage and circulating water 

heaters and hot water supply boiler 

shipments are condensing in the nonew-standards case. For instantaneous 

tankless shipments, DOE modeled up to 

85 percent of shipments in the 

condensing efficiency levels because it 

appears that presently, the percentage is 

much higher than for the other 

equipment types. Similarly, DOE used 

ENERGY STAR shipments of residential 

gas water heaters to fit a Bass Diffusion 

curve for the residential-duty equipment 

category, which shows continued 

market-driven efficiency improvement 

over the forecast period up to a point 

where 23 percent of residential-duty 

gas-fired storage water heater shipment 

are condensing in the no-new-standards 

case. DOE notes that the specification 

for the Bass Diffusion curve used a 

maximum of 75 percent; however, that 

maximum was not reached during the 

forecast period. Thus, an increasing 

efficiency trend is modeled over the 30- 

year analysis period in the NIA model 

for all equipment categories. 

Table IV.29 shows the starting 

distribution of equipment by efficiency 

level. In the no-new-standards case, the 

distributions represent the starting point 

for analyzing potential energy savings 

and cumulative consumer impacts of 

potential standards for each equipment 

category. 


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153NEEA, Northeast Energy Efficiency 

Partnerships, Pacific Gas & Electric, and National 

Grid. Joint comment response to the Notice of 

Petition for Rulemaking; request for comment 

(report attached—Memo: Investigation of 

Installation Barriers and Costs for Condensing Gas 

Appliances). Docket EERE–2018–BT–STD–0018, 

document number 62. www.regulations.gov/ 

comment/EERE-2018-BT-STD-0018-0062. Last 

accessed July 8, 2021. 

154Electric storage water heater costs were 

escalated from 2014$ to 2022$ using gross domestic 

product price deflators. First year electricity costs 

were recalculated using the AEO2023 prices for 

2026, weighted by the percent of shipments to the 

commercial and residential markets for the 

comparison equipment class (commercial gas-fired 

or residential-duty). 

TABLE IV.29—MARKET SHARES BY EFFICIENCY LEVEL IN 2026 * 

Equipment EL 0 ** 

(%) 

EL1 

(%) 

EL2 

(%) 

EL3 

(%) 

EL4 

(%) 

EL5 

(%) 

Commercial gas-fired storage water heaters and gas-fired storage-type instantaneous water heaters ...................................................................................... 34 3 0 15 47 1 

Residential-duty gas-fired storage water heaters ................................................ 54 21 15 3 6 1 

Gas-fired instantaneous water heaters and hot water supply boilers: 

Gas-fired tankless water heaters .................................................................. 17 0 0 4 22 57 

Gas-fired circulating water heaters and hot water supply boilers ................ 5 13 13 2 11 55 

* Due to rounding, shares for each row might not add to 100 percent. 

** For the Residential-duty equipment class, efficiency is in terms of UEF. Because minimum UEF under the existing efficiency standard varies 

by storage tank size, equipment is categorized not by absolute value of UEF but by percentage point increases over the minimum efficiency required on the basis of the equipment’s tank size. 

For each efficiency level analyzed, 

DOE used a ‘‘roll-up’’ scenario to 

establish the market shares by efficiency 

level for the year that compliance would 

be required with potential standards. 

The analysis starts with the no-newstandards-case distributions wherein 

shipments are assumed to be distributed 

across efficiency levels as shown in 

Table IV.29. When potential standard 

levels above the base level are analyzed, 

as the name implies, the shipments in 

the no-new-standards case that did not 

meet the efficiency standard level being 

considered would roll up to meet the 

next higher standard level. The ‘‘rollup’’ scenario also suggests that 

equipment efficiencies in the no-newstandards case that were above the 

standard level under consideration 

would not be affected. The no-newstandards-case efficiency distributions 

for each equipment class are discussed 

more fully in chapter 10 of the final rule 

TSD. 

2. Fuel and Technology Switching 

For this final rule, DOE analyzed 

whether amended standards would 

potentially create economic incentives 

for shifting between fuels, and 

specifically from natural gas to 

electricity, beyond any switching 

inherent in historical trends or due to 

electrification requirements, as 

discussed in section IV.G.4 of this 

document. 

In comments filed in response to the 

May 2022 CWH ECS NOPR, Bradford 

White disagreed with DOE’s assertion 

that moving to condensing levels would 

not lead to fuel switching in existing 

applications, noting that if products are 

unable to be vented for a variety of 

reasons, the commercial consumer will 

be forced to switch to one or more 

electric water heaters to meet their hot 

water needs. (Bradford White, No. 23 at 

p. 4) The Joint Gas Commenters stated 

that the proposed standards would 

cause entities to switch to electric 

products and raised concerns that EPCA 

does not permit DOE to establish 

standards that would drive consumers 

to switch fuel types. (Joint Gas 

Commenters, No. 34 at p. 39) 

DOE acknowledges these concerns; 

however, DOE has determined (based 

upon the analyses described in this 

section) that the amended standard will 

not introduce additional economic 

incentives that would cause a noticeable 

increase in fuel switching from gas-fired 

CWH (and residential-duty) equipment 

to their electric counterparts. 

Accordingly, DOE did not explicitly 

include fuel or technology switching in 

this final rule beyond the continuation 

of historical trends and electrification 

requirements discussed in section 

IV.G.4 of this document. Additionally, 

DOE has previously received comments 

that condensing water heaters can be 

installed in lieu of noncondensing CWH 

equipment. For example, in comments 

received on the withdrawn May 2016 

CWH ECS NOPR, HTP opined that given 

the various venting solutions available 

in the market, condensing water heater 

installation would be neither physically 

impossible nor prohibitively expensive, 

meaning these buildings would not end 

up ‘‘stranded.’’ (DOE Docket EERE– 

2014–BT–STD–0042, HTP Inc., No. 44 

at pp. 1–2) As another example, in 

comments received by NEEA,153 they 

noted that ‘‘Even in cases that present 

significant challenges, interviewees 

reported that technical solutions were 

always possible’’ and that ‘‘Interviewees 

expressed that there is always a 

technical way to solve each of the 

retrofit problems that were identified, 

although sometimes the solutions may 

be expensive or out of line with what 

the building owner wants.’’ (DOE 

Docket EERE–2018–BT–STD–0018, 

NEEA, No. 62 attached report at pp. 3, 

6). DOE is cognizant that there may be 

higher cost installations that an 

individual building owner must weigh, 

and DOE has incorporated an 

extraordinary venting cost adder to 

account for these potential installations 

(see section IV.F.2.d). 

For fuel and technology switching, 

DOE focused on whether the adopted 

standard would cause fuel switching 

based on economic factors, and did not 

consider additional fuel switching 

beyond the continuation of historical 

trends and electrification requirements 

discussed in section IV.G.4 of this 

document. DOE considered the effects 

of fuel switching by comparing total 

installed costs and operating costs of 

competing CWH equipment types. DOE 

conducted a high-level analysis by using 

average NIA inputs and equipment 

operating hour data from the energy 

analysis to examine consumer PBPs in 

situations where they might switch from 

gas-fired to electric water heaters in 

both new and replacement construction 

at the proposed standard level. As 

previously noted, DOE is not analyzing 

thermal efficiency standards for electric 

storage water heaters since the thermal 

efficiency of these units already 

approaches 100 percent; as such, the 

underlying technology has most likely 

not changed, so for comparison 

purposes in this final rule, the 

installation, equipment, and 

maintenance and repair costs from the 

withdrawn May 2016 CWH ECS NOPR 

have been adjusted to account for 

inflation.154 To make the costs 

comparable across equipment 

categories, DOE adjusted the average 

costs using ratios based on the first-hour 

ratings shown in Table IV.30. 


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155Since the electric storage water heater was 

dropped from this final rule, for this analysis the 

MPC from the withdrawn 2016 ECS NOPR standby loss level 0 was used to represent no-newstandards-case electric storage water heaters. 

TABLE IV.30—FIRST-HOUR EQUIPMENT RATINGS USED IN THE FUEL SWITCHING ANALYSIS

Year 

Commercial 

gas-fired 

storage water 

heaters 

Residentialduty gas-fired 

storage water 

heaters 

Gas-fired 

tankless 

water 

heaters 

Gas-fired 

circulating 

water heaters 

and hot water 

supply boilers 

Electric 

storage 

water 

heaters 

First-hour rating (gal) ................................................................. 283 134 268 664 165 

Ratio to Commercial Gas-fired Storage .................................... 1.00 0.47 * 0.32 2.34 0.58 

* The ratio of the number of installed commercial gas-fired storage water heaters to installed gas-fired tankless water heaters is not directly 

comparable using only first-hour ratings, here based on a 90 °F temperature rise. The ratio shown reflects in-use delivery capability of the representative gas-fired tankless water heater model relative to the delivery capability of the representative commercial gas-fired storage water heater, and includes an estimated 3-to-1 delivery capability tradeoff for a tankless unit without storage compared to the representative gas storage 

water heater with the same first-hour rating. 

DOE reviewed the installed cost of 

commercial electric and gas-fired 

storage water heaters, both at the nonew-standards-case efficiency level and 

with the standard level proposed herein 

for commercial gas-fired water heaters. 

The analysis uses costs for the year 2026 

(in 2022$), the first year that an 

amended standard would be in effect. In 

new installations, the analysis assumes 

that the inflation-adjusted commercial 

electric storage water heater installed 

cost is $4,705 and the first year 

maintenance and repair cost is $54.155

In replacement installations, the 

analysis assumes that the inflationadjusted commercial electric storage 

water heater installed cost is $4,419 and 

the first year maintenance and repair 

cost is $54. In further investigating the 

potential for fuel-switching, DOE first 

scaled the first costs and the 

maintenance and repair costs of the 

electric storage water in new and 

replacement installations linearly with 

first-hour rating assuming that the 

consumer needs to meet the first hour 

capacity of the representative 

commercial gas-fired storage water 

heater. To better compare the electric 

energy use in a fuel switching scenario, 

DOE examined the average burner 

operating hours for the commercial gas 

water heater to meet the hot water load, 

as detailed in appendix 7B of the final 

rule TSD. By multiplying the input 

rating of the gas storage water heater by 

the baseline thermal efficiency and the 

average 3.23 hours of operation to meet 

the water load including piping losses 

(and not included standby burner 

operation), the average daily hot water 

provided by the unit was estimated at 

513,718 Btu/day. Assuming a 100 

percent conversion efficiency for the 

electric energy to provide this load 

would be would 150.56 kWh/day or 

54,955 kWh/yr with an energy cost of 

$5,785 in the first year. DOE notes that 

this value does not account for 

additional energy for electric water 

heater standby losses. 

With the electric water heater costs 

thus scaled and corresponding energy 

cost calculated, within new 

construction installations the 

commercial gas-fired storage water 

heater was estimated to be more 

expensive to purchase and install than 

the electric storage unit in both the nonew-standards and standards cases, but 

significantly less costly to operate (see 

Table IV.31). In these cases, the up-front 

cost premium of the commercial gasfired storage unit at the amended 

standard level (TSL 3) relative to the 

scaled electric storage unit costs, 

divided by the annual operating savings 

for choosing the gas water heater, yields 

a PBP of 0.33 years, compared to a PBP 

of 0.22 years in the no-new-standards 

case. In replacement markets, the total 

installed cost of a commercial gas-fired 

storage unit was compared to the firsthour-rating scaled cost estimate for the 

commercial electric water heater as a 

replacement unit from the withdrawn 

May 2016 CWH ECS NOPR. The 

estimated total installed cost of the 

comparable electric storage unit exceeds 

the cost of the commercial gas-fired 

storage unit. As with new construction, 

the replacement electric storage unit is 

substantially more costly to operate. 

TABLE IV.31—TYPICAL UNIT COSTS, SCALED FOR FIRST-HOUR RATING (COMMERCIAL GAS-FIRED STORAGE = 1.0)— 

ELECTRIC STORAGE VERSUS COMMERCIAL GAS-FIRED STORAGE

[2022$] 

Equipment Cost 

No-newstandards 

case new 

construction 

No-newstandards 

case 

replacement * 

Standards 

case new 

construction 

Standards 

case 

replacement * 

Electric Storage ............................................... Installed Cost .................................................. $8,070 $7,580 $8,070 $7,580 

Energy, Maintenance, and Repair Cost (First 

Year).

5,878 5,878 5,955 5,955 

Commercial Gas-fired Storage ........................ Installed Cost .................................................. 8,945 5,642 9,505 7,298 

Energy, Maintenance, and Repair Cost (First 

Year).

1,880 1,962 1,668 1,735 

* Installed costs for electric storage water heaters shown for the replacement case do not include cost of infrastructure alterations (e.g., upgraded wiring, removal or 

modification of gas infrastructure). 

DOE further notes that, depending on 

the specifics of the commercial 

building, significant additional costs 

could be incurred in switching to 

electric storage water heaters if the 

existing building lacks the electrical 

wire capacity to where equivalent 

electrical water heater would be 

installed or related infrastructure 

(existing electrical panels, which may 

require the addition or upsizing of 

breakers, and electrical switchgear) to 

handle the input rating of a commercial 

electric storage water heater(s) that 

would meet the existing natural gas 


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water heater capacity/load. Thus, DOE 

concludes that the amended standard 

will not cause a noticeable increase in 

fuel switching from commercial gasfired to electric storage water heaters. 

A similar analysis to that of the 

commercial gas-fired storage water 

heater and electric equivalent was 

repeated separately for residential-duty 

water heaters. The first costs and 

maintenance and repair costs were 

scaled by first hour rating to that 

equivalent to the representative 

residential-duty water heater. The hot 

water load for the electric equivalent 

unit was estimated based on the burner 

operating hours from appendix 7B of the 

TSD and the electric water heater energy 

costs were estimated assuming 100 

percent conversion efficiency of the 

electric input to hot water load. For an 

electric water heater equivalent to a 

residential-duty gas water heater, the 

estimated energy consumption was 

25,618 kWh/yr, equating to an energy 

cost of $2,853 in the first year. This 

value does not account for additional 

energy for electric water heater standby 

losses. The appropriately scaled first 

costs and operating cost estimates are 

shown in Table IV.32. In all but the nonew-standards replacement case, the 

residential-duty water heater is more 

expensive to install than the electric 

storage water heater; however, it was 

less costly to operate in all cases. For 

the cases in which the electric storage 

water heater was less expensive to 

install, the up-front cost premium of the 

gas-fired residential-duty unit relative to 

the electric storage unit, divided by the 

annual operating savings from using the 

gas water heater, yields a PBP of 0.11 

years in the no-new-standards new 

installation case, of 0.21 years at the 

amended standard level (TSL 3) 

replacement case, and of 0.59 years at 

the amended standard level new 

installation case. Based on the 

comparison of costs for equivalent 

electric water heating, DOE concludes 

that amended standards would not 

introduce additional economic 

incentives for fuel switching from 

residential-duty to electric storage water 

heaters. 

TABLE IV.32—TYPICAL UNIT COSTS, SCALED FOR FIRST-HOUR RATING (RESIDENTIAL-DUTY = 1.0)—ELECTRIC STORAGE

VERSUS RESIDENTIAL-DUTY

[2022$] 

Equipment Cost 

No-newstandards 

case new 

construction 

No-newstandards 

case 

replacement * 

Standards 

case new 

construction 

Standards 

case 

replacement * 

Electric Storage ............................................... Installed Cost .................................................. $3,821 $3,589 $3,821 $3,589 

Energy, Maintenance, and Repair Cost (First 

Year).

2,896 2,897 2,876 2,876 

Residential-duty Storage ................................. Installed Cost .................................................. 4,014 2,247 4,922 3,979 

Energy, Maintenance, and Repair Cost (First 

Year).

1,180 1,179 997 997 

* Installed costs for electric storage water heaters shown for the replacement case do not include cost of infrastructure alterations (e.g., upgraded wiring, removal or 

modification of gas infrastructure). 

In the May 2022 CWH ECS NOPR, 

DOE did not consider instantaneous gasfired equipment and electric storage 

water heaters to be likely objects of gasto-electric fuel switching, largely due to 

the disparity in hot water delivery 

capacity between the instantaneous gasfired equipment and commercial 

electric storage equipment. In the May 

2022 CWH ECS NOPR, DOE requested 

comment on the availability of systems 

that can be built by plumbing multiple 

individual water heaters together to 

achieve the same level of hot water 

delivery capacity. In response, AHRI, 

Rheem, and A.O. Smith all noted that 

CWH manufacturers currently offer 

product solutions that utilize one or 

more individual water heaters plumbed 

or racked together for hot water 

delivery. (AHRI, No. 31 at p. 4, Rheem, 

No. 24 at p. 6, A.O. Smith, No. 22 at p. 

7) A.O. Smith described that many of 

these systems are highly customized; 

however, many manufacturers also offer 

systems that are preconfigured at the 

point of manufacture in ranges of total 

system capacity and are then sold as a 

single stock keeping unit (‘‘SKU’’). (A.O. 

Smith, No. 22 at p. 7) Rheem also 

suggested that these scalable hot water 

solutions in which multiple gas-fired 

instantaneous water heaters are 

combined may use water heaters that 

are individually rated, and the rack 

systems are distributed on an 

engineered-to-order basis with the 

additional rack system components 

(such as controllers and shut-off valves) 

sold separately alongside the water 

heaters. (Rheem, No. 24 at p. 6) 

Additionally, CA IOUs noted research 

that suggested commercial hot water 

systems that include multiple water 

heaters are common practice. (CA IOUs, 

No. 33 at p. 2) WM Technologies and 

Patterson-Kelley stated their 

understanding that several products are 

available like rack-type hot water 

heaters. In addition, the commenters 

stated the situation is limited by the first 

cost of installation and occurs 

predominantly in smaller commercial 

installations which employ multiple 

residential products to meet the hot 

water demand. WM Technologies and 

Patterson-Kelley stated these should be 

accounted for in the LCC model and that 

the deciding factor on use is cost with 

driving factors like venting, floor space, 

local code requirements, and possibly 

other causes. (WM Technologies, No. 25 

at p. 8; Patterson-Kelley, No. 26 at p. 6) 

DOE appreciates the input from all 

commenters on the question about 

multiple individual water heaters being 

plumbed together. After reviewing the 

input from stakeholders on this issue, 

DOE believes that its analysis of gasfired tankless water heating equipment, 

which already provides for multiple 

tankless water heaters to be used in a 

commercial building, sufficiently 

characterizes the LCC for this 

equipment and there is no need to 

consider these types of systems 

separately in the LCC analysis because 

operating costs and savings are similar, 

and additional costs associated with the 

racks and preconfiguration costs would 

likely be the same regardless of 

efficiency. 

In its analysis of fuel switching DOE 

included tankless units, and as noted 

above, DOE believes the rack systems 

would have similar economic 

eventualities in the analysis of fuel 

switching, scaled up or down 

representing their use of multiple 

tankless units. As discussed, this 

analysis is similar to that of the 

commercial and residential-duty gas 

storage water heaters for the 

instantaneous water heater equipment 

categories as compared to an electric 

equivalent. 


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As with the commercial gas-fired and 

residential-duty storage water heaters, 

the first costs and maintenance and 

repair costs were scaled by first hour 

rating to the electric equivalent for the 

representative instantaneous tankless 

water heater. The hot water load for the 

electric equivalent unit was estimated 

based on the burner operating hours 

from appendix 7B of the TSD and the 

electric water heater energy costs were 

estimated assuming 100 percent 

conversion efficiency of the electric 

input to hot water load. For an electric 

water heater equivalent to an 

instantaneous tankless water heater, the 

estimated energy consumption was 

15,338 kWh/yr, equating to an energy 

cost of $1,769 in the first year. This 

value does not account for additional 

energy for electric water heater standby 

losses. The appropriately scaled first 

costs and operating cost estimates are 

shown in Table IV.33. In all but the nonew-standards replacement case, the 

instantaneous water heater is more 

expensive to install than the electric 

storage water heater; however, it was 

less costly to operate in all cases. For 

the cases in which the electric storage 

water heater was less expensive to 

install, the up-front cost premium of the 

gas-fired instantaneous tankless unit 

relative to the electric storage unit, 

divided by the annual operating savings 

from using the gas water heater, yields 

a PBP of 2.00 years in the no-newstandards new installation case, of 1.26 

years at the amended standard level 

(TSL 3) replacement case, and of 1.05 

years at the amended standard level 

new installation case. Based on the 

comparison of costs for equivalent 

electric water heating, DOE concludes 

that amended standards would not 

introduce additional economic 

incentives for fuel switching from 

instantaneous tankless to electric 

storage water heaters. 

TABLE IV.33—TYPICAL UNIT COSTS, SCALED FOR FIRST-HOUR RATING (INSTANTANEOUS TANKLESS = 1.0)—ELECTRIC

STORAGE VERSUS INSTANTANEOUS TANKLESS

[2022$] 

Equipment Cost 

No-newstandards 

case new 

construction 

No-newstandards 

case 

replacement * 

Standards 

case new 

construction 

Standards 

case 

replacement * 

Electric Storage ............................................... Installed Cost .................................................. $2,582 $2,426 $2,582 $2,426 

Energy, Maintenance, and Repair Cost (First 

Year).

1,799 1,799 1,798 1,798 

Instantaneous Tankless .................................. Installed Cost .................................................. 4,790 2,414 3,834 3,956 

Energy, Maintenance, and Repair Cost (First 

Year).

694 666 610 585 

* Installed costs for electric storage water heaters shown for the replacement case do not include cost of infrastructure alterations (e.g., upgraded wiring, removal or 

modification of gas infrastructure). 

Similarly, the first costs and 

maintenance and repair costs were 

scaled by first hour rating to that 

equivalent to the representative 

circulating water heater and hot water 

supply boiler. The hot water load for the 

electric equivalent unit was estimated 

based on the burner operating hours 

from appendix 7B of the TSD, and the 

electric water heater energy costs were 

estimated to assume 100 percent 

conversion efficiency of the electric 

input to hot water load. For an electric 

water heater equivalent to a circulating 

water heater and hot water supply 

boiler, the estimated energy 

consumption was 119,041 kWh/yr, 

equating to an energy cost of $12,405 in 

the first year. This value does not 

account for additional energy for 

electric water heater standby losses. The 

appropriately scaled first costs and 

operating cost estimates are shown in 

Table IV.34. In all cases, the circulating 

water heater and hot water supply boiler 

is less expensive to install and less 

costly to operate than the electric 

storage water. Based on the comparison 

of costs for equivalent electric water 

heating, DOE concludes that amended 

standards would not introduce 

additional economic incentives for fuel 

switching from circulating water heaters 

and hot water supply boilers to electric 

storage water heaters. 

TABLE IV.34—TYPICAL UNIT COSTS, SCALED FOR FIRST-HOUR RATING (CIRCULATING WATER HEATER AND HOT WATER

SUPPLY BOILER = 1.0)—ELECTRIC STORAGE VERSUS CIRCULATING WATER HEATER AND HOT WATER SUPPLY BOILER

[2022$] 

Equipment Cost 

No-newstandards 

case new 

construction 

No-newstandards case 

replacement * 

Standards 

case new 

construction 

Standards case replacement * 

Electric Storage ............................................... Installed Cost .................................................. $18,934 $17,785 $18,934 $17,785 

Energy, Maintenance, and Repair Cost (First 

Year).

12,623 12,623 13,084 13,084 

Circulating Water Heater and Hot Water Supply Boiler.Installed Cost .................................................. 10,660 6,455 15,359 13,301 

Energy, Maintenance, and Repair Cost (First 

Year).

4,206 4,377 3,735 3,861 

* Installed costs for electric storage water heaters shown for the replacement case do not include cost of infrastructure alterations (e.g., upgraded wiring, removal or 

modification of gas infrastructure). 

DOE recognizes that commercial 

tankless gas-fired water heaters could in 

theory be replaced with one or more 

electric tankless units. DOE notes that 

without hot water storage in such a 

system the instantaneous electric 

heating load could disproportionally 

impact a commercial buildings electric 

demand in many applications relative to 

the equivalent electric storage water 

heater, requiring greater electrical 

infrastructure upgrades as well as 


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156For more information on NEMS, refer to The 

National Energy Modeling System: An Overview 

2018, April 2019. Available at www.eia.gov/ 

forecasts/aeo/index.cfm (last accessed December 

13, 2022). 

157The CPP was repealed in June 2019 as part of 

EPA’s final Affordable Clean Energy (‘‘ACE’’) Rule, 

but the ACE Rule was vacated in January 2021 by 

the United States Court of Appeals for the District 

of Columbia Circuit, who also remanded EPA to 

consider a new regulatory framework to replace the 

ACE Rule. 

potentially higher and less predictable 

ongoing electric demand costs. DOE 

concludes that amended standards 

would not introduce additional 

economic incentives for fuel switching 

from gas-fired instantaneous tankless to 

electric storage or electric tankless water 

heaters. Similarly, replacement of gas 

fired circulating water heaters or boilers 

with an electric equivalent would be 

expected to require substantial electric 

capacity upgrades as well as much 

higher operating cost of the electric 

equipment. The representative 399 

kBtu/h baseline gas-fired hot water 

boiler represents an approximately 94 

kW electric instantaneous equivalent, 

anticipated to be a significant load 

increase to most commercial buildings 

that might otherwise use the gas-fired 

hot water boiler. 

In summary, based upon the 

reasoning above, DOE did not explicitly 

include fuel or technology switching in 

this final rule beyond the continuation 

of historical trends and electrification 

requirements discussed in section 

IV.G.4 of this document. 

3. National Energy Savings 

The NES analysis involves a 

comparison of national energy 

consumption of the considered products 

between each potential standards case 

(‘‘TSL’’) and the case with no new or 

amended energy conservation 

standards. DOE calculated the national 

energy consumption by multiplying the 

number of units (stock) of each product 

(by vintage or age) by the unit energy 

consumption (also by vintage). DOE 

calculated annual NES based on the 

difference in national energy 

consumption for the no-new-standards 

case and for each higher efficiency 

standard case. DOE estimated energy 

consumption and savings based on site 

energy and converted the electricity 

consumption and savings to primary 

energy (i.e., the energy consumed by 

power plants to generate site electricity) 

using annual conversion factors derived 

from AEO2023. Cumulative energy 

savings are the sum of the NES for each 

year over the timeframe of the analysis. 

In 2011, in response to the 

recommendations of a committee on 

‘‘Point-of-Use and Full-Fuel-Cycle 

Measurement Approaches to Energy 

Efficiency Standards’’ appointed by the 

National Academy of Sciences, DOE 

announced its intention to use FFC 

measures of energy use and greenhouse 

gas and other emissions in the national 

impact analyses and emissions analyses 

included in future energy conservation 

standards rulemakings. 76 FR 51281 

(Aug. 18, 2011). After evaluating the 

approaches discussed in the August 18, 

2011 notice, DOE published a statement 

of amended policy in which DOE 

explained its determination that EIA’s 

NEMS is the most appropriate tool for 

its FFC analysis and its intention to use 

NEMS for that purpose. 77 FR 49701 

(Aug. 17, 2012). NEMS is a public 

domain, multi-sector, partial 

equilibrium model of the U.S. energy 

sector 156 that EIA uses to prepare its 

AEO. The FFC factors incorporate losses 

in production and delivery in the case 

of natural gas (including fugitive 

emissions) and additional energy used 

to produce and deliver the various fuels 

used by power plants. The approach 

used for deriving FFC measures of 

energy use and emissions is described 

in appendix 10D of the final rule TSD. 

DOE calculated the NES associated 

with the difference between the per-unit 

energy use under a standards-case 

scenario and the per-unit energy use in 

the no-new-standards case. The average 

energy per unit used by the CWH 

equipment stock gradually decreases in 

the standards case relative to the nonew-standards case as more-efficient 

CWH units gradually replaces lessefficient units. 

Unit energy consumption values for 

each equipment category are taken from 

the LCC spreadsheet for each efficiency 

level and weighted based on market 

efficiency distributions. To estimate the 

total energy savings for each efficiency 

level, DOE first calculated the per-unit 

energy reduction (i.e., the difference 

between the energy directly consumed 

by a unit of equipment in operation in 

the no-new-standards case and the 

standards case) for each category of 

CWH equipment for each year of the 

analysis period. The electricity and 

natural gas savings or increases (in the 

case of electricity used for condensing 

natural gas-fired water heaters) are 

accounted separately. Second, DOE 

determined the annual site energy 

savings by multiplying the stock of each 

equipment category by vintage (i.e., year 

of shipment) by the per-unit energy 

reduction for each vintage (from step 

one). This second step adds to the 

electricity impacts an amount of energy 

savings/increase to account for the 

losses and inefficiencies in the 

generation, transmission, and 

distribution systems. The result of the 

second step yields primary electricity 

impacts at the generation source. The 

second step applies only to electricity; 

there is no analogous adjustment made 

to natural gas savings. Third, DOE 

converted the annual site electricity 

savings into the annual amount of 

energy saved at the source of electricity 

generation (the source or primary 

energy), using a time-series of 

conversion factors derived from the 

latest version of EIA’s NEMS. This third 

step accounts for the energy used to 

extract and transport fuel from mines or 

wells to the electric generation facilities, 

and accounts for the natural gas NES for 

drilling and pipeline energy usage. The 

third step yields the total FFC impacts. 

DOE accounts for the natural gas savings 

separately from the electricity impacts, 

so the factors used at each step are 

appropriate for the specific fuel. The 

coefficients developed for the analysis 

are mutually exclusive, so there should 

be no double-counting of impacts. 

Finally, DOE summed the annual 

primary energy savings for the lifetime 

of units shipped over a 30-year period 

to calculate the total NES. DOE 

performed these calculations for each 

efficiency level considered for CWH 

equipment in this rulemaking. DOE 

notes that for the LCC and PBP analyses, 

only site energy impacts are used. The 

only steps in the analysis wherein FFC 

savings are used are the calculation of 

NES. DOE notes that the development of 

data for site-to-source and other factors 

is accomplished by running the EIA’s 

model used to generate the AEO. DOE 

has included with this final rule TSD 

the previously mentioned chapter 10 

and appendix 10D, which reference the 

development of the FFC factors and 

provide some of the underlying data. 

Regarding the fossil fuel site-to-source 

values used in the final rule analysis, 

DOE used the AEO2023 Reference case, 

which reflects the most up-to-date 

information on resource and fuel costs, 

but excludes Clean Power Plan 

(‘‘CPP’’) 157 impacts. Use of the 

AEO2023 also incorporates all Federal 

legislation and regulations in place 

when EIA prepared the analyses. The 

growing penetration of renewable 

electricity generation would have little 

effect on the trend in site-to-source 

energy factors because EIA uses an 

average fossil fuel heat to characterize 

the primary energy associated with 

renewable generation. At this time, DOE 

is continuing to use the ‘‘fossil fuel 

equivalency’’ accounting convention 

used by EIA. DOE notes the AEO 

projections stop in 2050. Because the 

trends were relatively flat, DOE 


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158To the extent PHCC’s comments refer to a 

numeric savings threshold previously used to 

determine significance of energy savings, DOE notes 

that the numeric threshold for determining the 

significance of energy savings established in a final 

rule, Energy Conservation Program for Appliance 

Standards: Procedures for Use in New or Revised 

Energy Conservation Standards and Test Procedures 

for Consumer Products and Commercial/Industrial 

Equipment, published on February 14, 2020 (85 FR 

8626, 8670), was subsequently eliminated in a final 

rule, Energy Conservation Program for Appliance 

Standards: Procedures, Interpretations, and Policies 

for Consideration in New or Revised Energy 

Conservation Standards and Test Procedures for 

Consumer Products and Commercial/Industrial 

Equipment, published on December 13, 2021 (86 FR 

70892). 

maintained the 2050 value for the 

remainder of the forecast period. When 

DOE develops the site-to-source and 

FFC-factors, it models resource mixes 

representative of the load profile of the 

equipment covered in the rulemaking 

that vary by end-use. For this final rule, 

DOE has used an average of resources 

compatible with the general load profile 

of CWH equipment, and the data used 

are the most current available. 

DOE also considered whether a 

rebound effect is applicable in its NES 

analysis for CWH equipment. A rebound 

effect occurs when an increase in 

equipment efficiency leads to increased 

demand for its service. For example, 

when a consumer realizes that a moreefficient water heating device will lower 

the energy bill, that person may opt to 

increase his or her amenity level by 

taking longer showers and thereby 

consuming more hot water. In this way, 

the consumer gives up a portion of the 

energy cost savings in favor of the 

increased amenity. For the CWH 

equipment market, there are two ways 

that a rebound effect could occur: (1) 

increased use of hot water within the 

buildings in which such units are 

installed and (2) additional hot water 

outlets that were not previously 

installed. Because the CWH equipment 

addressed in this final rule is 

commercial equipment, the person 

owning the equipment (i.e., the 

apartment or commercial building 

owner) is usually not the person 

operating the equipment (e.g., the 

apartment renter, or the restaurant 

employee using hot water to wash 

dishes). Because the operator usually 

does not own the equipment, that 

person will not have the operating cost 

information necessary to influence his 

or her operation of the equipment. 

Therefore, the first type of rebound is 

unlikely to occur at levels that could be 

considered significant. Similarly, the 

second type of rebound is unlikely 

because a small change in efficiency is 

insignificant among the factors that 

determine whether a company will 

invest the money required to pipe hot 

water to additional outlets. In response 

to the May 2022 CWH ECS NOPR, 

Atmos Energy stated that DOE should 

reconsider its conclusion that the 

proposed rule is unlikely to result in 

rebound effects on water usage and 

noted that some parts of the country are 

experiencing drought conditions. 

(Atmos Energy, No. 36 at p. 5) DOE 

recognizes that drought conditions may 

impact water usage within regions; 

however, the CWH equipment that is 

the subject of this rulemaking addresses 

only the heating of the water, and not 

the water usage itself, as water usage is 

based on demand and not the efficiency 

of the water heater. DOE had previously 

sought comments and data on any 

rebound effect that may be associated 

with more efficient commercial water 

heaters in the October 2014 RFI. 79 FR 

62908 (Oct. 21, 2014) DOE received two 

comments. Both A.O. Smith and Joint 

Advocates did not believe a rebound 

effect would be significant. A.O. Smith 

commented that water usage is based on 

demand and more efficient water 

heaters would not change the demand. 

(DOE Docket EERE–2014–BT–STD– 

0042, A.O. Smith, No. 2 at p. 4) Joint 

Advocates commented that with the 

marginal change in energy bill for small 

business owners, they would expect 

little increased hot water usage, and that 

for tenant-occupied buildings, it would 

be ‘‘difficult to infer that more tenants 

will wash their hands longer because 

the hot water costs the building owner 

less.’’ Thus, Joint Advocates thought the 

likelihood of a strong rebound effect is 

very low. (DOE Docket EERE–2014–BT– 

STD–0042, Joint Advocates, No. 7 at p. 

5) DOE has therefore retained its 

position that a rebound effect is unlikely 

to occur for the CWH that are the subject 

of this final rule. 

PHCC commented that the 

Department advanced this rule based on 

the significant energy savings of 0.7 

quads. (PHCC, No. 28 at pp. 1) PHCC 

noted that totaling the energy use 

columns on the base case (no-newstandards) section of the NIA model 

spreadsheet for new units and 

replacement and switch units shows an 

approximate 6.5 quads, but if the total 

stock of units is extended, using even 

just the replacement energy yields 8.2 

quads. PHCC stated it is important to 

make transparent comparisons; for 

example, using one way the 0.7 quads 

is an approximate 10 percent savings, 

and using the other is closer to 8.5 

percent. (PHCC, No. 28 at pp. 1–2) 

PHCC further noted that commercial 

gas-fired storage water heaters and 

instantaneous circulating water heaters 

and hot water supply boilers are the 

major contributors and that the 

residential-duty gas-fired water heaters 

and instantaneous tankless water 

heaters are substantially less significant, 

and if evaluated individually, the 

significant energy savings argument 

would be even harder to make. (PHCC, 

No. 28 at p. 2) 

As stated in section III.E.2, the 

significance of energy savings offered by 

an amended energy conservation 

standard cannot be determined without 

knowledge of the specific circumstances 

surrounding a given rulemaking. DOE 

evaluates the significance of energy 

savings on a case-by-case basis, taking 

into account the significance of 

cumulative FFC national energy savings, 

the cumulative FFC emissions 

reductions, and the need to confront the 

global climate crisis, among other 

factors. Accordingly, taking these 

factors, among others into account, DOE 

has determined the energy savings for 

the TSL proposed in this rulemaking are 

‘‘significant’’ within the meaning of 

EPCA.158

PHCC additionally questioned the 

NES calculations, noting that the energy 

savings appear to be based on the 

savings of equipment sold across the 30- 

year life cycle in the rule, but that it was 

not apparent what the total energy of the 

installed equipment or CWH equipment 

installed and currently in use might be. 

(PHCC, No. 28 at pp. 1) PHCC further 

stated that using the Department’s 

spreadsheets, it appears that the total 

energy used is for the newly installed 

equipment. (PHCC, No. 28 at pp. 1) 

PHCC stated that it is unclear how the 

0.7 quads savings was derived. PHCC 

calculated a separate estimate of savings 

at 0.37 quads out of total energy 

consumed to be 8.2 quads. PHCC also 

noted that it has additional issues with 

assumptions made by the Department 

that would further erode the potential 

savings, but are difficult to quantify. 

(PHCC, No. 28 at p. 2) PHCC stated that 

based on its own review and 

understanding, PHCC questions the 

energy use and savings calculation that 

form the basis of the significant energy 

savings assertion. (PHCC, No. 28 at p. 6) 

PHCC also sought clarification as to the 

low energy use (site) in the early years 

of the Department’s analysis and noted 

that it appeared that there is no 

consideration of the energy usage of all 

existing covered products. (PHCC, No. 

28 at p. 6) 

In response, DOE would clarify that 

for its analysis, DOE considers only the 

impact of the proposed standard levels 

on equipment shipments that occur 

within the 2026 through 2055 analysis 

period. As a result, the estimated energy 


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159United States Office of Management and 

Budget. Circular A–4: Regulatory Analysis. 

September 17, 2003. Section E. Available at 

www.whitehouse.gov/omb/information-foragencies/circulars/ (last accessed December 13, 

2022). 

use in the early years of the analysis 

includes only equipment shipped for 

new and replacement applications 

beginning in 2026, and does not include 

the energy use of the existing equipment 

installed prior to 2026, the year in 

which the standard would go into effect. 

However, the NES does include the 

stream of energy savings that occurs 

over the life of the equipment installed 

during the analysis period, meaning that 

energy savings for a commercial gasfired storage water heater installed in 

2055 would be accrued throughout its 

life, beyond 2055 (see section IV.F.6 for 

a discussion of equipment lifetimes). 

DOE further appreciates the effort that 

PHCC undertook to develop their 

calculations of energy use and energy 

savings, and notes that the PHCC 

calculations are similar to the DOE 

calculations within the NIA model. 

However, the DOE NIA model 

incorporates some additional 

calculations and factors to capture the 

energy accounting more fully. For each 

year beginning with 2026 (the first year 

that the standard would go into effect), 

energy use for both the no-newstandards case (labeled base case within 

the NIA spreadsheet’s product tabs) and 

the selected efficiency level (labeled 

standards case) are calculated by 

multiplying the estimated number of 

installed units still surviving (which is 

equal to the installed units multiplied 

by a survival function) by the estimated 

unit energy use for the year in which 

they were installed. This calculation 

accounts for changes to the weighted 

average efficiencies installed in a given 

year, as the no-new-standards case has 

an increasing efficiency trend built into 

it. The NES is then calculated as the 

sum of the differences between the 

energy use calculated in the no-newstandards case and the energy use 

calculated in the standards case. 

DOE observed that the screen captures 

of the PHCC calculations (PHCC, No. 28 

at pp. 4–5) appear to contain only 

numbers for the commercial sector and 

do not seem to account for additional 

energy use and savings calculations for 

the residential sector (which can be 

viewed by selecting ‘‘Residential’’ in 

any of the application sector drop-down 

menus located throughout the model, as 

described in appendix 10A of the final 

rule TSD). Additionally, the PHCC 

calculations did not appear to account 

for the energy savings that accrue after 

2055 from equipment installed through 

2055 that had not yet reached their end 

of life. By summing the calculated site 

energy savings in the May 2022 CWH 

ECS NOPR NIA model (column CN 

within each of the product tabs of the 

NOPR NIA model), DOE calculated 

commercial site natural gas savings of 

0.35 quads for the years 2026–2055, an 

additional 0.13 quads of commercial site 

natural gas savings beyond 2055 that 

accrue to equipment installed during 

the analysis period, and an additional 

0.17 quads of residential sector site 

natural gas savings, yielding a total of 

0.65 quads of site natural gas NES. DOE 

notes that the NES for the selected 

subset of years and commercial sector 

(0.35 quads) were similar to what PHCC 

calculated (0.37 quads). DOE also 

clarifies that the 0.70 quads referenced 

by PHCC are FFC NES, which explains 

the remaining difference between the 

site natural gas savings and the FFC 

savings; PHCC did not include the 

impact of changes in electricity due to 

proposed standards, which DOE also 

excluded here so as to produce a 

comparable set of numbers. With regard 

to PHCC’s additional unnamed issues 

with assumptions made by DOE, DOE 

notes that the underlying assumptions 

are made based on best available data 

and are meant to be representative of the 

equipment category while also allowing 

for a feasible analysis. 

4. Net Present Value Analysis

The inputs for determining the NPV

of the total costs and benefits 

experienced by consumers are (1) total 

annual installed cost, (2) total annual 

operating costs (energy costs and repair 

and maintenance costs), and (3) a 

discount factor to calculate the present 

value of costs and savings. DOE 

calculates net savings each year as the 

difference between the no-newstandards case and each standards case 

in terms of total savings in operating 

costs versus total increases in installed 

costs. DOE calculates operating cost 

savings over the lifetime of each product 

shipped during the projection period. 

DOE determined the difference between 

the equipment costs under the standard 

case and the no-new-standards case in 

order to obtain the net equipment cost 

increase resulting from the higher 

standard level. As noted in section 

IV.F.1 of this document, DOE used a

constant real price assumption as the

default price projection; the cost to

manufacture a given unit of higher

efficiency neither increases nor

decreases over time. The analysis of the

price trends is described in chapter 10

of the final rule TSD.

The energy cost savings are calculated 

using the estimated energy savings in 

each year and the projected price of the 

appropriate form of energy. To estimate 

energy prices in future years, DOE 

multiplied the average regional energy 

prices by the projection of annual 

national-average commercial energy 

price changes in the Reference case from 

AEO2023, which has an end year of 

2050. To estimate price trends after 

2050, the 2040–2050 average was used 

for all years. As part of the NIA, DOE 

also analyzed scenarios that used inputs 

from variants of the AEO2023 Reference 

case that have lower and higher 

economic growth. Those cases have 

lower and higher energy price trends 

compared to the Reference case. NIA 

results based on these cases are 

presented in appendix 10B of the final 

rule TSD. 

DOE then determined the difference 

between the net operating cost savings 

and the net equipment cost increase in 

order to obtain the net savings (or 

expense) for each year. DOE then 

discounted the annual net savings (or 

expenses) to 2023 for CWH equipment 

bought on or after 2026 and summed the 

discounted values to provide the NPV 

for an efficiency level. 

In calculating the NPV, DOE 

multiplies the net savings in future 

years by a discount factor to determine 

their present value. For this final rule, 

DOE estimated the NPV of 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 OMB to 

Federal agencies on the development of 

regulatory analysis.159 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. 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

‘‘social rate of time preference,’’ which

is the rate at which society discounts

future consumption flows to their

present value.

DOE considered the possibility that 

consumers make purchase decisions 

based on first cost instead of LCC. DOE 

projects that new installations meeting a 

potential standard would not cause the 

commercial gas-fired storage water 

heaters to be significantly more 

expensive than electric storage water 

heaters of comparable first-hour 

capacity, as detailed in section IV.H.2 of 

this document. DOE further notes that 

only the relative costs of purchasing, 

installing, and operating equipment 

were considered in its analysis, and did 

not consider unrelated issues such as 

additional electrification of customer 


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loads beyond those that have been 

adopted, as DOE cannot speculate about 

consumer electrification or other 

policies or issues (see sections IV.G and 

section IV.H.2 of this document). 

DOE notes that governmental and 

corporate purchasing policies are 

increasingly resulting in purchases of 

more-efficient equipment. However, 

DOE does not infer anything with 

respect to the remaining market for 

efficient water heaters simply because of 

a purchase by one consumer or even by 

one segment of the consumer base, such 

as purchases by government consumers. 

In other words, if all Federal 

government agencies purchase ENERGY 

STAR-compliant water heaters, that tells 

us nothing about the installation costs 

experienced by any other consumers. 

DOE assumes the purchases reveal more 

about the underlying consumer discount 

rate premiums than about a distribution 

of installation costs. It is possible that 

corporate commitment to green 

purchasing policies might result in 

situations where, in their rational 

decision-making process, the consumer 

gives green purchase alternatives an 

explicit advantage. As an example, a 

purchasing policy may specify that that 

a ‘‘non-green’’ alternative must have a 

PBP of 3 years or less while a ‘‘green’’ 

alternative can have a PBP up to 5 years. 

This type of corporate decision making 

would have the outward appearance of 

providing an apparent discount rate 

advantage to the ‘‘green’’ alternative, or 

perhaps, an appearance of assessing a 

lower discount rate premium on the 

‘‘green’’ alternative than is assessed on 

all other alternatives. Thus, while 

significant numbers of purchases are 

taking place in the market, DOE 

contends that such purchases reveal an 

underlying distribution of discount rate 

premiums rather than an underlying 

distribution of installation costs. Green 

policies and programs such as FEMPdesignated equipment and ENERGY 

STAR will continue to effectively 

reduce even more consumers’ discount 

rate premiums, leading to more green 

purchases. This assumption underlies 

DOE’s decision to take the efficiency 

trends data provided by manufacturers 

and extend the trends into the future 

rather than holding efficiency constant 

at current rates. 

I. Consumer Subgroup Analysis 

In analyzing the potential impact of 

new or amended standards on 

consumers, DOE evaluates the impact 

on identifiable subgroups of consumers 

that may be disproportionately affected 

by a new or revised national energy 

conservation standard level. The 

purpose of a subgroup analysis is to 

determine the extent of any such 

disproportionate impacts. DOE 

evaluates impacts on particular 

subgroups of consumers by analyzing 

the LCC impacts and PBP for those 

particular consumers from alternative 

standard levels. For this final rule, DOE 

identified consumers at the lowest 

income bracket in the residential sector 

and only included them for a residential 

sector subgroup analysis. The following 

provides further detail regarding DOE’s 

consumer subgroup analysis. Chapter 11 

in the final rule TSD describes the 

consumer subgroup analysis. 

1. Residential Sector Subgroup Analysis 

The RECS database divides the 

residential samples into 16 income bins. 

The income bins represent total gross 

annual household income. As far as 

discount rates are concerned, the survey 

of consumer finances divides the 

residential population into six different 

income bins: income bin 1 (0–20 

percent income percentile), income bin 

2 (20–40 percent income percentile), 

income bin 3 (40–60 percent income 

percentile), income bin 4 (60–80 percent 

income percentile), income bin 5 (80–90 

percent income percentile), and income 

bin 6 (90–100 percent income 

percentile). In general, consumers in the 

lower income groups tend to discount 

future streams of benefits at a higher 

rate when compared to consumers in 

the higher income groups. 

Hence, to analyze the influence of a 

national standard on the low-income 

group population, DOE conducted a 

(residential) subgroup analysis where 

only the 0–20 percent income percentile 

samples were included for the entire 

simulation run. Subsequently, the 

results of the subgroup analysis are 

compared to the results from all 

consumers. 

The results of DOE’s LCC subgroup 

analysis are summarized in section 

V.B.1.b of this final rule and described 

in detail in chapter 11 of the final rule 

TSD. 

J. Manufacturer Impact Analysis 

1. Overview 

DOE performed an MIA to estimate 

the financial impacts of amended energy 

conservation standards on 

manufacturers of CWH equipment and 

to estimate the potential impacts of such 

standards on employment and 

manufacturing capacity. The MIA has 

both quantitative and qualitative aspects 

and includes analyses of projected 

industry cash flows, the INPV, 

investments in research and 

development (‘‘R&D’’) and 

manufacturing capital, and domestic 

manufacturing employment. 

Additionally, the MIA seeks to 

determine how amended energy 

conservation standards might affect 

manufacturing employment, capacity, 

and competition, as well as how 

standards contribute to overall 

regulatory burden. Finally, the MIA 

serves to identify any disproportionate 

impacts on manufacturer subgroups, 

including small business manufacturers. 

The quantitative part of the MIA 

primarily relies on GRIM, an industry 

cash flow model with inputs specific to 

this rulemaking. The key GRIM inputs 

include data on the industry cost 

structure, unit production costs, 

equipment shipments, manufacturer 

markups, and investments in R&D and 

manufacturing capital required to 

produce compliant equipment. The key 

GRIM outputs are the INPV, which is 

the sum of industry annual cash flows 

over the analysis period, discounted 

using the industry-weighted average 

cost of capital, and the impact to 

domestic manufacturing employment. 

The model uses standard accounting 

principles to estimate the impacts of 

more-stringent energy conservation 

standards on a given industry by 

comparing changes in INPV and 

domestic manufacturing employment 

between a no-new-standards case and 

the various standards cases (‘‘TSLs’’). To 

capture the uncertainty relating to 

manufacturer pricing strategies 

following amended standards, the GRIM 

estimates a range of possible impacts 

under different markup scenarios. 

The qualitative part of the MIA 

addresses manufacturer characteristics 

and market trends. Specifically, the MIA 

considers such factors as a potential 

standard’s impact on manufacturing 

capacity, competition within the 

industry, the cumulative impact of other 

DOE and non-DOE regulations, and 

impacts on manufacturer subgroups. 

The complete MIA is outlined in 

chapter 12 of the final rule TSD. 

DOE conducted the MIA for this 

rulemaking in three phases. In Phase 1 

of the MIA, DOE prepared a profile of 

the CWH equipment manufacturing 

industry based on the market and 

technology assessment, preliminary 

manufacturer interviews, and publiclyavailable information. This included a 

top-down analysis of CWH equipment 

manufacturers that DOE used to derive 

preliminary financial inputs for the 

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

overhead, and depreciation expenses; 

selling, general, and administrative 

expenses (‘‘SG&A’’); and R&D expenses). 

DOE also used public sources of 

information to further calibrate its 

initial characterization of the CWH 


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160U.S. Securities and Exchange Commission, 

Annual 10–K Reports (Various Years) (Available at 

www.sec.gov/edgar/searchedgar/ 

companysearch.html). 161U.S. Census Bureau, Annual Survey of 

Manufacturers: General Statistics: Statistics for 

Industry Groups and Industries (2021). Available at 

www.census.gov/data/tables/time-series/econ/asm/ 

2018-2021-asm.html. 

162 Dunn & Bradstreet Company Profiles, Various 

Companies. Available at app.dnbhoovers.com. 

equipment manufacturing industry, 

including company filings of form 10– 

K from the SEC,160 corporate annual 

reports, the U.S. Census Bureau’s 

Economic Census,161 and reports from 

Dunn & Bradstreet.162

In Phase 2 of the MIA, DOE prepared 

a framework industry cash-flow analysis 

to quantify the potential impacts of 

amended energy conservation 

standards. The GRIM uses several 

factors to determine a series of annual 

cash flows starting with the 

announcement of the standard and 

extending over a 30-year period 

following the compliance date of the 

standard. These factors include annual 

expected revenues, costs of sales, SG&A 

and R&D expenses, taxes, and capital 

expenditures. In general, energy 

conservation standards can affect 

manufacturer cash flow in three distinct 

ways: (1) creating a need for increased 

investment, (2) raising production costs 

per unit, and (3) altering revenue due to 

higher per-unit prices and changes in 

sales volumes. 

In addition, during Phase 2, DOE 

developed interview guides to distribute 

to manufacturers of CWH equipment in 

order to develop other key GRIM inputs, 

including product and capital 

conversion costs, and to gather 

additional information on the 

anticipated effects of energy 

conservation standards on revenues, 

direct employment, capital assets, 

industry competitiveness, and subgroup 

impacts. 

In Phase 3 of the MIA, DOE 

conducted structured, detailed 

interviews with representative 

manufacturers. During these interviews, 

DOE discussed engineering, 

manufacturing, procurement, and 

financial topics to validate assumptions 

used in the GRIM and to identify key 

issues or concerns. As part of Phase 3, 

DOE also evaluated subgroups of 

manufacturers that may be 

disproportionately impacted by 

amended standards or that may not be 

accurately represented by the average 

cost assumptions used to develop the 

industry cash flow analysis. Such 

manufacturer subgroups may include 

small business manufacturers, lowvolume manufacturers (‘‘LVMs’’), niche 

players, and/or manufacturers 

exhibiting a cost structure that largely 

differs from the industry average. DOE 

identified one subgroup for a separate 

impact analysis: small business 

manufacturers. The small business 

subgroup is discussed in section VI.B, 

‘‘Review under the Regulatory 

Flexibility Act’’ and in chapter 12 of the 

final rule TSD. 

2. Government Regulatory Impact Model 

and Key Inputs 

DOE uses the GRIM to quantify the 

changes in cash flow due to amended 

standards that result in a higher or 

lower industry value. The GRIM uses a 

standard, annual 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 an amended energy 

conservation standard. The GRIM 

spreadsheet uses the inputs to arrive at 

a series of annual cash flows, beginning 

in 2023 (the base year of the analysis) 

and continuing to 2055. DOE calculated 

INPVs by summing the stream of annual 

discounted cash flows during this 

period. For manufacturers of residential 

central air conditioners and heat pumps, 

DOE used a real discount rate of 9.1 

percent, which was derived from 

industry financials and then modified 

according to feedback received during 

manufacturer interviews. 

The GRIM calculates cash flows using 

standard accounting principles and 

compares changes in INPV between the 

no-new-standards case and each 

standards case. The difference in INPV 

between the no-new-standards case and 

a standards case represents the financial 

impact of the amended energy 

conservation standard on 

manufacturers. As discussed previously, 

DOE developed critical GRIM inputs 

using a number of sources, including 

publicly available data, results of the 

engineering analysis, and information 

gathered from industry stakeholders 

during the course of manufacturer 

interviews and through written 

comments. The GRIM results are 

presented in section V.B.2. Additional 

details about the GRIM, the discount 

rate, and other financial parameters can 

be found in chapter 12 of the final rule 

TSD. 

a. Manufacturer Production Costs 

Manufacturing more efficient 

equipment is typically more expensive 

than manufacturing baseline equipment 

due to the use of more complex 

components, which are typically more 

costly than baseline components. The 

changes in the MPCs of covered 

equipment can affect the revenues, gross 

margins, and cash flow of the industry. 

MPCs were derived in the engineering 

analysis, using methods discussed in 

section IV.C. For a complete description 

of the MPCs, see chapter 5 of the final 

rule TSD. 

b. Shipments Projections 

The GRIM estimates manufacturer 

revenues based on total unit shipment 

projections and the distribution of those 

shipments by efficiency level. Changes 

in sales volumes and efficiency mix 

over time can significantly affect 

manufacturer finances. For this analysis, 

the GRIM uses the NIA’s annual 

shipment projections derived from the 

shipments analysis from 2023 (the base 

year) to 2055 (the end year of the 

analysis period). See chapter 9 of the 

final rule TSD for additional details. 

c. Conversion Costs and Stranded Assets 

Amended energy conservation 

standards could cause manufacturers to 

incur conversion costs to bring their 

production facilities and equipment 

designs into compliance. DOE evaluated 

the level of conversion-related 

expenditures that would be needed to 

comply with each considered efficiency 

level in each product class. For the MIA, 

DOE classified these conversion costs 

into two major groups: (1) product 

conversion costs; and (2) capital 

conversion costs. 

Product conversion costs are 

investments in research, development, 

testing, marketing, and other noncapitalized costs necessary to make 

product designs comply with amended 

energy conservation standards. Capital 

conversion costs are investments in 

property, plant, and equipment 

necessary to adapt or change existing 

production facilities such that new 

compliant product designs can be 

fabricated and assembled. 

To evaluate potential product 

conversion costs, DOE estimated the 

number of platforms manufacturers 

would have to modify to move their 

equipment lines to each incremental 

efficiency level. DOE developed the 

product conversion costs by estimating 

the amount of labor per platform 

manufacturers would need for research 

and development to raise the efficiency 

of models to each incremental efficiency 

level. DOE also assumed manufacturers 

would incur safety certification costs 

(including costs for updating safety 

certification records and for safety 

testing) associated with modifying their 

current product offerings to comply 

with amended standards. 


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To evaluate the level of capital 

conversion expenditures manufacturers 

would likely incur to comply with 

amended standards, DOE used 

information derived from the 

engineering analysis, equipment 

teardowns, and manufacturer 

interviews. DOE used the information to 

estimate the additional investments in 

property, plant, and equipment that are 

necessary to meet amended energy 

conservation standards. In the 

engineering analysis evaluation of 

higher efficiency equipment from 

leading manufacturers of commercial 

water heaters (both commercial duty 

and residential duty), DOE found a 

range of designs and manufacturing 

approaches. DOE attempted to account 

for both the range of manufacturing 

pathways and the current efficiency 

distribution of shipments in the 

modeling of industry capital conversion 

costs. 

The capital conversion cost estimates 

for gas-fired storage water heaters are 

driven by the cost for industry to double 

production capacity at condensing 

efficiency levels. Those costs included, 

but were not limited to, capital 

investments in tube bending, press dies, 

machining, enameling, metal inert gas 

(‘‘MIG’’) welding, leak testing, quality 

assurance stations, conveyer, and 

additional space requirements. 

For gas-fired instantaneous water 

heaters capital conversion costs, DOE 

understands that manufacturers produce 

commercial models on the same 

production lines as residential models, 

which have much higher shipment 

volumes. As such, DOE modeled the 

scenario in which gas-fired 

instantaneous water heater 

manufacturers make incremental 

investments to increase production 

capacity, but do not need to setup 

entirely new production lines or new 

facilities to accommodate an amended 

standard requiring condensing 

technology for gas-fired instantaneous 

water heaters. 

For gas-fired instantaneous circulating 

water heaters and hot water supply 

boilers, the design changes to reach 

condensing efficiency levels were 

driven by purchased parts (i.e., 

condensing heat exchanger, burner tube, 

blower, gas valve). The capital 

conversion costs for this equipment 

class are based on incremental 

warehouse space needed to house 

additional purchased parts. 

Rheem commented the conversion 

costs should reflect larger 

manufacturing space and more 

manufacturing time to produce a 

condensing unit, and the costs should 

reflect the expansion of existing 

facilities, expansion of assembly lines, 

and added shifts. (Rheem, No. 24 at p. 

7) After the 2022 CWH ECS NOPR 

publication, DOE conducted additional 

manufacturer interviews at the request 

of industry. (AHRI, No. 31 at p. 5; 

Rheem, No. 24 at p.1; Bock, No. 20 at 

p. 2) Where manufacturers provided 

estimates and analysis supporting 

updates to conversion costs, DOE 

incorporated the interview feedback 

into its estimation of investment levels. 

The interview feedback that DOE 

received was primarily focused on the 

gas-fired storage water heaters product 

class. 

Bradford White commented that 

volume water heaters are not produced 

on the same production lines as 

residential products, and that volume 

water heaters are built in lower volumes 

and have different installation 

configurations than consumer water 

heaters. (Bradford White, No. 23 at p. 9) 

DOE’s conversion costs reflect Bradford 

White’s statements. DOE understands 

that volume water heaters are produced 

on lines dedicated to low-volume, 

commercial equipment. 

In addition to capital and product 

conversion costs, amended energy 

conservation standards could create 

stranded assets, i.e., tooling and 

equipment that were not yet fully 

depreciated and could have been used 

longer if energy conservation standards 

had not made them obsolete. In the 

compliance year, manufacturers write 

down the remaining undepreciated book 

value of existing tooling and equipment 

rendered obsolete by amended energy 

conservation standards. 

To evaluate conversion costs 

manufacturers would likely incur to 

comply with amended standards, DOE 

used information derived from the 

engineering analysis, equipment 

teardowns, and manufacturer 

interviews. In conjunction with the 

evaluation of capital conversion costs, 

DOE estimated the portion of existing 

equipment, tooling, and conveyor that 

would be retired. 

In general, DOE assumes all 

conversion-related investments occur 

between the year of publication of the 

final rule and the year by which 

manufacturers must comply with the 

new standard. The conversion cost 

figures used in the GRIM can be found 

in section V.B.2 of this document. For 

additional information on the estimated 

capital conversion costs, product 

conversion costs, and stranded assets, 

see chapter 12 of the final rule TSD. 

d. Manufacturer Markup Scenarios 

MSPs include manufacturing 

production costs (i.e., labor, materials, 

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 non-production 

cost markups to the MPCs estimated in 

the engineering analysis for each 

product class and efficiency level. 

Modifying these manufacturer markups 

in the standards case yields different 

sets of impacts on manufacturers. For 

the MIA, DOE modeled two standardscase markup scenarios to represent 

uncertainty regarding the potential 

impacts on prices and profitability for 

manufacturers following the 

implementation of amended energy 

conservation standards: (1) a 

preservation of gross margin percentage 

markup scenario; and (2) a preservation 

of per-unit operating profit markup 

scenario. These scenarios lead to 

different markup values that, when 

applied to the MPCs, result in varying 

revenue and cash flow impacts. 

Under the preservation of gross 

margin percentage scenario, DOE 

applied a single uniform ‘‘gross margin 

percentage’’ markup across all efficiency 

levels, which assumes that 

manufacturers would be able to 

maintain the same amount of profit as 

a percentage of revenues at all efficiency 

levels within an equipment category. As 

manufacturer production costs increase 

with efficiency, this scenario implies 

that the absolute dollar markup will 

increase. 

To estimate the average manufacturer 

markup used in the preservation of 

gross margin percentage markup 

scenario, DOE analyzed publiclyavailable financial information for 

manufacturers of CWH equipment. DOE 

then requested feedback on its initial 

markup estimates during manufacturer 

interviews. The revised markups, which 

are used in DOE’s quantitative analysis 

of industry financial impacts, are 

presented in Table IV.35 of this final 

rule. These markups capture all nonproduction costs, including SG&A 

expenses, R&D expenses, interest 

expenses, and profit. 


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163Available at www.epa.gov/sites/production/ 

files/2021–04/documents/emission-factors_

apr2021.pdf (last accessed December 22, 2022). 

164U.S. Environmental Protection Agency. 

External Combustion Sources. In Compilation of Air 

Pollutant Emission Factors. AP–42. Fifth Edition. 

Volume I: Stationary Point and Area Sources. 

Chapter 1. Available at www.epa.gov/air-emissionsfactors-and-quantification/ap-42-compilation-airemissions-factors#Proposed/ (last accessed 

December 22, 2022). 

165For further information, see the Assumptions 

to AEO2023 report that sets forth the major 

assumptions used to generate the projections in the 

Annual Energy Outlook. Available at www.eia.gov/ 

outlooks/aeo/assumptions/ (last accessed April 13, 

2023). 

166CSAPR requires states to address annual 

emissions of SO2 and NOX, precursors to the 

formation of fine particulate matter (‘‘PM2.5’’) 

pollution, in order to address the interstate 

transport of pollution with respect to the 1997 and 

2006 PM2.5 National Ambient Air Quality Standards 

(‘‘NAAQS’’). CSAPR also requires certain states to 

address the ozone season (May–September) 

emissions of NOX, a precursor to the formation of 

ozone pollution, in order to address the interstate 

transport of ozone pollution with respect to the 

1997 ozone NAAQS. 76 FR 48208 (Aug. 8, 2011). 

EPA subsequently issued a supplemental rule that 

included an additional five states in the CSAPR 

ozone season program; 76 FR 80760 (Dec. 27, 2011) 

(Supplemental Rule), and EPA issued the CSAPR 

Update for the 2008 ozone NAAQS. 81 FR 74504 

(Oct. 26, 2016). 

TABLE IV.35—MANUFACTURER MARKUPS FOR PRESERVATION OF GROSS MARGIN PERCENTAGE MARKUP SCENARIO

Equipment Markup

Commercial gas-fired storage and gas-fired storage-type instantaneous water heaters ................................................................... 1.45 

Residential-duty gas-fired storage water heaters ................................................................................................................................ 1.45 

Gas-fired instantaneous water heaters and hot water supply boilers: 

Tankless water heaters ................................................................................................................................................................ 1.43 

Circulating water heaters and hot water supply boilers ............................................................................................................... 1.43 

DOE also models the preservation of 

per-unit operating profit scenario 

because manufacturers stated that they 

do not expect to be able to mark up the 

full cost of production in the standards 

case, given the highly competitive 

nature of the CWH market. In this 

scenario, manufacturer markups are set 

so that operating profit 1 year after the 

compliance date of amended energy 

conservation standards is the same as in 

the no-new-standards case on a per-unit 

basis. In other words, manufacturers are 

not able to garner additional operating 

profit from the higher production costs 

and the investments that are required to 

comply with the amended standards; 

however, they are able to maintain the 

same per-unit operating profit in the 

standards case that was earned in the 

no-new-standards case. Therefore, 

operating margin in percentage terms is 

reduced between the no-new-standards 

case and standards case. 

DOE adjusted the manufacturer 

markups in the GRIM at each TSL to 

yield approximately the same per-unit 

earnings before interest and taxes in the 

standards case as in the no-newstandards case. The preservation of perunit operating profit markup scenario 

represents the lower bound of industry 

profitability in the standards case. This 

is because manufacturers are not able to 

fully pass through to commercial 

consumers the additional costs 

necessitated by amended standards for 

CWH equipment. 

A comparison of industry financial 

impacts under the two markup 

scenarios is presented in section V.B.1.b 

of this document. 

K. Emissions Analysis

The emissions analysis consists of

two components. The first component 

estimates the effect of potential energy 

conservation standards on power sector 

and site combustion emissions of CO2, 

NOX, SO2, and Hg. The second 

component estimates the impacts of 

potential standards on emissions of two 

additional greenhouse gases, CH4 and 

N2O, as well as the reductions in 

emissions of other gases due to 

‘‘upstream’’ activities in the fuel 

production chain. These upstream 

activities comprise extraction, 

processing, and transporting fuels to the 

site of combustion. 

The analysis of electric power sector 

emissions of CO2, NOX, SO2, and Hg 

uses emissions factors intended to 

represent the marginal impacts of the 

change in electricity consumption 

associated with amended or new 

standards. The methodology is based on 

results published for the AEO, including 

a set of side cases that implement a 

variety of efficiency-related policies. 

The methodology is described in 

appendix 13A in the final rule TSD. The 

analysis presented in this notice uses 

projections from AEO2023. Power sector 

emissions of CH4 and N2O from fuel 

combustion are estimated using 

‘‘Emission Factors for Greenhouse Gas 

Inventories’’ published by the 

Environmental Protection Agency 

(‘‘EPA’’).163

The onsite operation of CWH 

equipment involves combustion of fossil 

fuels and results in emissions of CO2, 

NOX, SO2, CH4, and N2O where this 

equipment is used. Site emissions of 

these gases were estimated using 

‘‘Emission Factors for Greenhouse Gas 

Inventories’’ and, for NOX and SO2, 

emissions intensity factors from an EPA 

publication.164

FFC upstream emissions, which 

include emissions from fuel combustion 

during extraction, processing, and 

transportation of fuels, and ‘‘fugitive’’ 

emissions (direct leakage to the 

atmosphere) of CH4 and CO2, are 

estimated based on the methodology 

described in chapter 15 of the final rule 

TSD. 

The emissions intensity factors are 

expressed in terms of physical units per 

MWh or MMBtu of site energy savings. 

For power sector emissions, specific 

emissions intensity factors are 

calculated by sector and end use. Total 

emissions reductions are estimated 

using the energy savings calculated in 

the NIA. 

1. Air Quality Regulations Incorporated

in DOE’s Analysis

DOE’s no-new-standards case for the 

electric power sector reflects the 

AEO2023, which incorporates the 

projected impacts of existing air quality 

regulations on emissions. AEO2023 

generally represents current legislation 

and environmental regulations, 

including recent government actions, 

that were in place at the time of 

preparation of AEO2023, including the 

emissions control programs discussed in 

the following paragraphs.165

SO2 emissions from affected electric 

generating units (‘‘EGUs’’) are subject to 

nationwide and regional emissions capand-trade programs. Title IV of the 

Clean Air Act sets an annual emissions 

cap on SO2 for affected EGUs in the 48 

contiguous States and the District of 

Columbia (‘‘DC’’). (42 U.S.C. 7651 et 

seq.) SO2 emissions from numerous 

States in the eastern half of the United 

States are also limited under the CrossState Air Pollution Rule (‘‘CSAPR’’). 76 

FR 48208 (Aug. 8, 2011). CSAPR 

requires these States to reduce certain 

emissions, including annual SO2

emissions, and went into effect as of 

January 1, 2015.166 AEO2023 

incorporates implementation of CSAPR, 

including the update to the CSAPR 

ozone season program emission budgets 

and target dates issued in 2016. 81 FR 


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74504 (Oct. 26, 2016). Compliance with 

CSAPR is flexible among EGUs and is 

enforced through the use of tradable 

emissions allowances. Under existing 

EPA regulations, for States subject to 

SO2 emissions limits under CSAPR, any 

excess SO2 emissions allowances 

resulting from the lower electricity 

demand caused by the adoption of an 

efficiency standard could be used to 

permit offsetting increases in SO2

emissions by another regulated EGU. 

However, beginning in 2016, SO2

emissions began to fall as a result of the 

Mercury and Air Toxics Standards 

(‘‘MATS’’) for power plants. 77 FR 9304 

(Feb. 16, 2012). In the MATS final rule, 

EPA established a standard for hydrogen 

chloride as a surrogate for acid gas 

hazardous air pollutants (‘‘HAP’’) and 

also established a standard for SO2 (a 

non-HAP acid gas) as an alternative 

equivalent surrogate standard for acid 

gas HAP. The same controls are used to 

reduce HAP and non-HAP acid gas; 

thus, SO2 emissions are being reduced 

as a result of the control technologies 

installed on coal-fired power plants to 

comply with the MATS requirements 

for acid gas. In order to continue 

operating, coal plants must have either 

flue gas desulfurization or dry sorbent 

injection systems installed. Both 

technologies, which are used to reduce 

acid gas emissions, also reduce SO2

emissions. Because of the emissions 

reductions under the MATS, it is 

unlikely that excess SO2 emissions 

allowances resulting from the lower 

electricity demand would be needed or 

used to permit offsetting increases in 

SO2 emissions by another regulated 

EGU. Therefore, energy conservation 

standards that decrease electricity 

generation will generally reduce SO2

emissions. DOE estimated SO2

emissions reduction using emissions 

factors based on AEO2023. 

CSAPR also established limits on NOX

emissions for numerous States in the 

eastern half of the United States. Energy 

conservation standards would have 

little effect on NOX emissions in those 

States covered by CSAPR emissions 

limits if excess NOX emissions 

allowances resulting from the lower 

electricity demand could be used to 

permit offsetting increases in NOX

emissions from other EGUs. In such 

case, NOx emissions would remain near 

the limit even if electricity generation 

goes down. Depending on the 

configuration of the power sector in the 

different regions and the need for 

allowances, however, NOX emissions 

might not remain at the limit in the case 

of lower electricity demand. That would 

mean that energy conservation 

standards might reduce NOx emissions 

in covered States. Despite this 

possibility, DOE has chosen to be 

conservative in its analysis and has 

maintained the assumption that 

standards will not reduce NOX

emissions in States covered by CSAPR. 

Standards would be expected to reduce 

NOX emissions in the States not covered 

by CSAPR. DOE used AEO2023 data to 

derive NOX emissions factors for the 

group of States not covered by CSAPR. 

The MATS limit mercury emissions 

from power plants, but they do not 

include emissions caps and, as such, 

DOE’s energy conservation standards 

would be expected to slightly impact Hg 

emissions. DOE estimated mercury 

emissions reduction using emissions 

factors based on AEO2023, which 

incorporates the MATS. 

In comments, Rheem stated some 

consumers will elect to switch from gasfired to electric water heaters in 

response to difficult installations to 

switch from non-condensing to 

condensing, and that DOE should 

consider how the electricity grid 

produces energy in DOE’s climate 

analysis. Rheem stated that in some 

regions, the use of electricity generated 

from coal to power electric water 

heaters will increase emissions 

compared to a gas water heater. (Rheem, 

No. 24 at p. 8). Similarly, Suburban 

Propane expressed concern that the 

proposed standards would produce 

more, rather than less, greenhouse gas 

emissions in most of the country due to 

lack of consideration of lower-carbon 

and carbon-negative energy sources 

such as traditional and renewable 

propane. (Suburban Propane, No. 16 at 

pp. 2–3) Suburban Propane stated that 

the proposed standards would 

effectively mandate that only electric 

energy be used for future water heating 

needs, causing additional strain to the 

electric infrastructure and leading to 

increased carbon emissions. Id. 

Suburban Propane added that 

traditional propane is an abundant, 

domestically produced energy source 

and is defined as a clean alternative fuel 

under the 1990 Clean Air Act. Id. 

Suburban Propane encouraged DOE to 

focus on a technology-neutral approach 

that requires low carbon and carbon 

negative fuel sources, such as a clean 

fuel standard for building emissions. Id. 

Because DOE has no authority over 

questions such as whether a company 

might electrify loads or future State 

policies about electrification, DOE is 

limiting the response to these comments 

to the matters arising because of this 

final rule. As noted throughout this final 

rule, under EPCA DOE can only set 

standards for CWH equipment if such 

does not result in the elimination of 

products or product features from the 

market, and if clear and convincing 

evidence exists to support the standard. 

DOE believe both of these conditions 

exist, and that the outcome described in 

the Suburban Propane comment where 

the standard effectively becomes an 

electric-only mandate will not come to 

pass as a result of this final rule. As 

discussed in section IV.H.2 of this 

document, DOE believes that generally 

the final rule will not induce fuel 

switching. Rheem’s comment addresses 

a more specific case, that of the difficult 

installation. DOE notes that consumers 

facing difficult installations using 

vertical venting may have cost-effective 

alternatives such as horizontal venting. 

DOE notes based on the NEEA report 

the number of difficult installations is 

expected to be small. Add to this the 

fact that bringing multiple tens of kW or 

more of electric power to the existing 

commercial water heater(s) location 

including wiring, switching, breaker 

panels and other internal building 

changes to effect fuel switching in 

existing buildings, may be costly itself 

making the economics of fuel switching, 

particularly to a more expensive water 

heating fuel not an attractive option for 

existing buildings. DOE believes the 

number of installations that would fuel 

switch is small enough to not materially 

change the results posted in this final 

rule. 

Bradford White recommended that 

DOE take into account other regulatory 

actions, including those at the State 

level (i.e., California) that will reduce 

NOX emissions regardless of the 

outcome of this rulemaking to avoid 

potentially double counting reduced 

emissions. (Bradford White, No. 23 at 

pp. 6–7) Bradford White recommended 

that DOE take into account other 

regulatory actions, including those at 

the State level (i.e., California) that will 

reduce NOX emissions regardless of the 

outcome of this rulemaking to avoid 

potentially double counting reduced 

emissions. (Bradford White, No. 23 at 

pp. 6–7) In response, DOE has found 

that pre-mix burners are the primary 

technology used to produce low, and 

ultra-low NOX emitting equipment. 

(Docket No. EERE–2017–BT–STD–0019, 

chapter 5) As Bradford White notes, 

DOE does not explicitly model the 

quantity of these low- and ultra-low 

NOX units to NOX regulated states in its 

baseline consumer sample. In a standard 

that results in consumers migrating from 

atmospheric burners to the types of premix burners used to achieve 

condensing-level efficiencies, as 

required in this rule, NOX reductions 

would occur from reduction of energy 


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used at the site (as well as upstream 

from the site). In DOE’s emissions 

quantification, the emissions benefit 

from the reduction of energy use is 

considered directly. However, the 

additional reduction from the type of 

combustion system used has not been 

quantified. While Bradford White is 

correct that DOE did not explicitly 

address the extent of NOX emissions 

benefits in NOX-regulated geographic 

areas, DOE does account for the large 

fraction of consumers already 

purchasing condensing equipment, with 

powered burners, in its base case (see 

section IV.F.8 of this document). To the 

extent that consumers in NOX regulated 

geographic areas preferentially purchase 

high-efficiency equipment with pre-mix 

burners to meet these NOX regulations, 

this mitigates potential double counting. 

Further, the analysis conducted by DOE 

examines the emissions benefits from 

reduction of natural gas consumption 

due to efficiency improvements. 

However, because of the burner 

technology shift necessary to achieve 

the higher efficiency levels and the 

correlated reduction in NOX emissions 

in the shift in burner technology, DOE 

believes there will be additional NOX

emission reductions across the United 

States and these are not captured in 

DOE’s analysis. DOE believes that these 

additional benefits will offset any 

remaining double counting in NOXregulated geographies. 

Bradford White recommend DOE also 

analyze additional emissions generated 

to comply with an amended standard. 

(Bradford White, No. 23 at p. 6) With an 

amended standard, more components, 

including more complex components 

and more of certain existing 

components will be required to comply. 

Bradford White suggested that this 

begged the question whether more 

emissions would be generated to 

produce components to comply with an 

amended standard versus what 

emissions will be saved by requiring 

higher efficiency equipment. (Bradford 

White, No. 23 p. 6) In section IV.F.10 of 

this document, DOE addressed the 

comments related to embodied 

emissions posted by WM Technologies 

and Patterson-Kelley. EPCA authorizes 

DOE to promulgate rules regulating the 

energy efficiency of CWH equipment, 

but this authority does not extend to 

regulating or considering the means by 

which manufacturers produce CWH 

equipment. DOE quantifies the 

emissions reductions generated by the 

estimated energy savings as part of the 

analysis relevant to its implementation 

of its authority to regulate energy 

efficiency. Given DOE’s lack of 

authority over manufacturers’ processes, 

DOE also has no mechanism for 

effecting change. Therefore, DOE 

declines at present to quantify these 

embodied emissions as they are outside 

the scope of DOE’s authority and 

analysis of energy efficiency of covered 

equipment. 

L. Monetizing Emissions Impacts 

As part of the development of this 

final rule, for the purpose of complying 

with the requirements of E.O. 12866, 

DOE considered the estimated monetary 

benefits from the reduced emissions of 

CO2, CH4, N2O, NOX, and SO2 that are 

expected to result from each of the TSLs 

considered. In order to make this 

calculation analogous 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 projection 

period for each TSL. This section 

summarizes the basis for the values 

used for monetizing the emissions 

benefits and presents the values 

considered in this final rule. 

To monetize the benefits of reducing 

GHG emissions, this analysis uses the 

interim estimates presented in the 

Technical Support Document: Social 

Cost of Carbon, Methane, and Nitrous 

Oxide Interim Estimates Under 

Executive Order 13990 published in 

February 2021 by the IWG. 

1. Monetization of Greenhouse Gas 

Emissions 

For the purpose of complying with 

the requirements of E.O. 12866, DOE 

estimates the monetized benefits of the 

reductions in emissions of CO2, CH4, 

and N2O by using a measure of the 

social cost (‘‘SC’’) of each pollutant (e.g., 

SC–CO2). These estimates represent the 

monetary value of the net harm to 

society associated with a marginal 

increase in emissions of these pollutants 

in a given year, or the benefit of 

avoiding that increase. These estimates 

are intended to include (but are not 

limited to) climate-change-related 

changes in net agricultural productivity, 

human health, property damages from 

increased flood risk, disruption of 

energy systems, risk of conflict, 

environmental migration, and the value 

of ecosystem services. 

DOE exercises its own judgment in 

presenting monetized climate benefits 

as recommended by applicable 

Executive Orders, and DOE would reach 

the same conclusion presented in this 

rule in the absence of the SC–GHG, 

including the February 2021 Interim 

Estimates presented by the IWG. The 

social costs of greenhouse gases, 

whether measured using the February 

2021 interim estimates presented by the 

IWG or by another means, did not affect 

the rule ultimately proposed by DOE. 

DOE estimated the global social 

benefits of CO2, CH4, and N2O 

reductions (i.e., SC–GHGs) using the 

estimates presented in the ‘‘Technical 

Support Document: Social Cost of 

Carbon, Methane, and Nitrous Oxide 

Interim Estimates under Executive 

Order 13990,’’ published in February 

2021 by the IWG. The SC–GHGs is the 

monetary value of the net harm to 

society associated with a marginal 

increase in emissions in a given year, or 

the benefit of avoiding that increase. In 

principle, SC–GHG includes the value 

of all climate change impacts, including 

(but not limited to) changes in net 

agricultural productivity, human health 

effects, property damage from increased 

flood risk and natural disasters, 

disruption of energy systems, risk of 

conflict, environmental migration, and 

the value of ecosystem services. The 

SC–GHG therefore, reflects the societal 

value of reducing emissions of the gas 

in question by one metric ton. The SC– 

GHG is the theoretically appropriate 

value to use in conducting benefit-cost 

analyses of policies that affect CO2, N2O 

and CH4 emissions. As a member of the 

IWG involved in the development of the 

February 2021 SC–GHG TSD, DOE 

agrees that the interim SC–GHG 

estimates represent the most appropriate 

estimate of the SC–GHG until revised 

estimates have been developed 

reflecting the latest, peer-reviewed 

science. 

The SC–GHG estimates presented 

here were developed over many years, 

using transparent process, peerreviewed methodologies, the best 

science available at the time of that 

process, and input from the public. 

Specifically, in 2009, the IWG, that 

included the DOE and other executive 

branch agencies and offices was 

established to ensure that agencies were 

using the best available science and to 

promote consistency in the SC–CO2

values used across agencies. The IWG 

published SC–CO2 estimates in 2010 

that were developed from an ensemble 

of three widely cited integrated 

assessment models (‘‘IAMs’’) that 

estimate global climate damages using 

highly aggregated representations of 

climate processes and the global 

economy combined into a single 

modeling framework. The three IAMs 

were run using a common set of input 

assumptions in each model for future 

population, economic, and CO2

emissions growth, as well as 

equilibrium climate sensitivity 

(‘‘ECS’’)—a measure of the globally 

averaged temperature response to 


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167Marten, A.L., E.A. Kopits, C.W. Griffiths, S.C. 

Newbold, and A. Wolverton. Incremental CH4 and 

N2O mitigation benefits consistent with the US 

Government’s SC–CO2 estimates. Climate Policy. 

2015. 15(2): pp. 272–298. 

168National Academies of Sciences, Engineering, 

and Medicine. Valuing Climate Damages: Updating 

Estimation of the Social Cost of Carbon Dioxide. 

2017. The National Academies Press: Washington, 

DC. 

169 Interagency Working Group on Social Cost of 

Carbon. Social Cost of Carbon for Regulatory Impact 

Analysis under Executive Order 12866. 2010. 

United States Government. (Last accessed April 15, 

2022.) www.epa.gov/sites/default/files/2016-12/ 

documents/scc_tsd_2010.pdf; Interagency Working 

Group on Social Cost of Carbon. Technical Update 

of the Social Cost of Carbon for Regulatory Impact 

Analysis Under Executive Order 12866. 2013. (Last 

accessed April 15, 2022.) www.federalregister.gov/ 

documents/2013/11/26/2013-28242/technicalsupport-document-technical-update-of-the-socialcost-of-carbon-for-regulatory-impact; Interagency 

Working Group on Social Cost of Greenhouse Gases, 

United States Government. Technical Support 

Document: Technical Update on the Social Cost of 

Carbon for Regulatory Impact Analysis-Under 

Executive Order 12866. August 2016. (Last accessed 

January 18, 2022.) www.epa.gov/sites/default/files/ 

increased atmospheric CO2

concentrations. These estimates were 

updated in 2013 based on new versions 

of each IAM. In August 2016 the IWG 

published estimates of the SC–CH4 and 

SC–N2O using methodologies that are 

consistent with the methodology 

underlying the SC–CO2 estimates. The 

modeling approach that extends the 

IWG SC–CO2 methodology to non-CO2

GHGs has undergone multiple stages of 

peer review. The SC–CH4 and SC–N2O 

estimates were developed by Marten et 

al.167 and underwent a standard doubleblind peer review process prior to 

journal publication. 

In 2015, as part of the response to 

public comments received to a 2013 

solicitation for comments on the SC– 

CO2 estimates, the IWG announced a 

National Academies of Sciences, 

Engineering, and Medicine review of the 

SC–CO2 estimates to offer advice on 

how to approach future updates to 

ensure that the estimates continue to 

reflect the best available science and 

methodologies. In January 2017, the 

National Academies released their final 

report, Valuing Climate Damages: 

Updating Estimation of the Social Cost 

of Carbon Dioxide, and recommended 

specific criteria for future updates to the 

SC–CO2 estimates, a modeling 

framework to satisfy the specified 

criteria, and both near-term updates and 

longer-term research needs pertaining to 

various components of the estimation 

process.168 Shortly thereafter, in March 

2017, President Trump issued E.O. 

13783, which disbanded the IWG, 

withdrew the previous TSDs, and 

directed agencies to ensure SC–CO2

estimates used in regulatory analyses 

are consistent with the guidance 

contained in OMB’s Circular A–4, 

‘‘including with respect to the 

consideration of domestic versus 

international impacts and the 

consideration of appropriate discount 

rates’’ (E.O. 13783, Section 5(c)). 

Benefit-cost analyses following E.O. 

13783 used SC–GHG estimates that 

attempted to focus on the U.S.-specific 

share of climate change damages as 

estimated by the models and were 

calculated using two discount rates 

recommended by Circular A–4, 3 

percent and 7 percent. All other 

methodological decisions and model 

versions used in SC–GHG calculations 

remained the same as those used by the 

IWG in 2010 and 2013, respectively. 

On January 20, 2021, President Biden 

issued E.O. 13990, which re-established 

the IWG and directed it to ensure that 

the U.S. Government’s estimates of the 

SC–CO2 and SC–GHG reflect the best 

available science and the 

recommendations of the National 

Academies. The IWG was tasked with 

first reviewing the SC–GHG estimates 

currently used in Federal analyses and 

publishing interim estimates within 30 

days of the Executive Order that reflect 

the full impact of GHG emissions, 

including by taking global damages into 

account. The interim SC–GHG estimates 

published in February 2021 are used 

here to estimate the climate benefits for 

this rule. The Executive Order instructs 

the IWG to undertake a fuller update of 

the SC–GHG estimates by January 2022 

that takes into consideration the advice 

of the National Academies and other 

recent scientific literature. 

The February 2021 SC–GHG TSD 

provides a complete discussion of the 

IWG’s initial review conducted under 

E.O. 13990. In particular, the IWG found 

that the SC–GHG estimates used under 

E.O. 13783 fail to reflect the full impact 

of GHG emissions in multiple ways. 

First, the IWG found that the SC–GHG 

estimates used under E.O. 13783 fail to 

fully capture many climate impacts that 

affect the welfare of U.S. citizens and 

residents, and those impacts are better 

reflected by global measures of the SC– 

GHG. Examples of omitted effects from 

the E.O. 13783 estimates include direct 

effects on U.S. citizens, assets, and 

investments located abroad, supply 

chains, U.S. military assets and interests 

abroad, tourism, spillover pathways 

such as economic and political 

destabilization, and global migration 

that can lead to adverse impacts on U.S. 

national security, public health, and 

humanitarian concerns. In addition, 

assessing the benefits of U.S. GHG 

mitigation activities requires 

consideration of how those actions may 

affect mitigation activities by other 

countries, as those international 

mitigation actions will provide a benefit 

to U.S. citizens and residents by 

mitigating climate impacts that affect 

U.S. citizens and residents. A wide 

range of scientific and economic experts 

have emphasized the issue of 

reciprocity as support for considering 

global damages of GHG emissions. If the 

United States does not consider impacts 

on other countries, it is difficult to 

convince other countries to consider the 

impacts of their emissions on the United 

States. The only way to achieve an 

efficient allocation of resources for 

emissions reduction on a global basis— 

and so benefit the United States and its 

citizens—is for all countries to base 

their policies on global estimates of 

damages. As a member of the IWG 

involved in the development of the 

February 2021 SC–GHG TSD, DOE 

agrees with this assessment and, 

therefore, in this rule DOE centers 

attention on a global measure of SC– 

GHG. This approach is the same as that 

taken in DOE regulatory analyses from 

2012 through 2016. A robust estimate of 

climate damages that accrue only to U.S. 

citizens and residents does not currently 

exist in the literature. As explained in 

the February 2021 TSD, existing 

estimates are both incomplete and an 

underestimate of total damages that 

accrue to the citizens and residents of 

the United States because they do not 

fully capture the regional interactions 

and spillovers discussed above, nor do 

they include all of the important 

physical, ecological, and economic 

impacts of climate change recognized in 

the climate change literature. As noted 

in the February 2021 SC–GHG TSD, the 

IWG will continue to review 

developments in the literature, 

including more robust methodologies 

for estimating a U.S.-specific SC–GHG 

value, and explore ways to better inform 

the public of the full range of carbon 

impacts. As a member of the IWG, DOE 

will continue to follow developments in 

the literature pertaining to this issue. 

Second, the IWG found that the use of 

the social rate of return on capital (7 

percent under current OMB Circular A– 

4 guidance) to discount the future 

benefits of reducing GHG emissions 

inappropriately underestimates the 

impacts of climate change for the 

purposes of estimating the SC–GHG. 

Consistent with the findings of the 

National Academies and the economic 

literature, the IWG continued to 

conclude that the consumption rate of 

interest is the theoretically appropriate 

discount rate in an intergenerational 

context,169 and recommended that 


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2016-12/documents/sc_co2_tsd_august_2016.pdf; 

Interagency Working Group on Social Cost of 

Greenhouse Gases, United States Government. 

Addendum to Technical Support Document on 

Social Cost of Carbon for Regulatory Impact 

Analysis under Executive Order 12866: Application 

of the Methodology to Estimate the Social Cost of 

Methane and the Social Cost of Nitrous Oxide. 

August 2016. (Last accessed January 18, 2022.) 

www.epa.gov/sites/default/files/2016-12/ 

documents/addendum_to_sc-ghg_tsd_august_

2016.pdf. 

170 Interagency Working Group on Social Cost of 

Greenhouse Gases (IWG). 2021. Technical Support 

Document: Social Cost of Carbon, Methane, and 

Nitrous Oxide Interim Estimates under Executive 

Order 13990. February. United States Government. 

Available at: www.whitehouse.gov/briefing-room/ 

blog/2021/02/26/a-return-to-science-evidencebased-estimates-of-the-benefits-of-reducing-climatepollution/. 

discount rate uncertainty and relevant 

aspects of intergenerational ethical 

considerations be accounted for in 

selecting future discount rates. 

Furthermore, the damage estimates 

developed for use in the SC–GHG are 

estimated in consumption-equivalent 

terms, and so an application of OMB 

Circular A–4’s guidance for regulatory 

analysis would then use the 

consumption discount rate to calculate 

the SC–GHG. DOE agrees with this 

assessment and will continue to follow 

developments in the literature 

pertaining to this issue. DOE also notes 

that while OMB Circular A–4, as 

published in 2003, recommends using 3 

percent and 7 percent discount rates as 

‘‘default’’ values, Circular A–4 also 

reminds agencies that ‘‘different 

regulations may call for different 

emphases in the analysis, depending on 

the nature and complexity of the 

regulatory issues and the sensitivity of 

the benefit and cost estimates to the key 

assumptions.’’ On discounting, Circular 

A–4 recognizes that ‘‘special ethical 

considerations arise when comparing 

benefits and costs across generations,’’ 

and Circular A–4 acknowledges that 

analyses may appropriately ‘‘discount 

future costs and consumption benefits 

. . . at a lower rate than for 

intragenerational analysis.’’ In the 2015 

Response to Comments on the Social 

Cost of Carbon for Regulatory Impact 

Analysis, OMB, DOE, and the other IWG 

members recognized that ‘‘Circular A–4 

is a living document’’ and ‘‘the use of 

7 percent is not considered appropriate 

for intergenerational discounting. There 

is wide support for this view in the 

academic literature, and it is recognized 

in Circular A–4 itself.’’ Thus, DOE 

concludes that a 7 percent discount rate 

is not appropriate to apply to value the 

SC–GHG in the analysis presented in 

this analysis. 

To calculate the present and 

annualized values of climate benefits, 

DOE uses the same discount rate as the 

rate used to discount the value of 

damages from future GHG emissions, for 

internal consistency. That approach to 

discounting follows the same approach 

that the February 2021 TSD 

recommends ‘‘to ensure internal 

consistency—i.e., future damages from 

climate change using the SC–GHG at 2.5 

percent should be discounted to the 

base year of the analysis using the same 

2.5 percent rate.’’ DOE has also 

consulted the National Academies’ 2017 

recommendations on how SC–GHG 

estimates can ‘‘be combined in RIAs 

with other cost and benefits estimates 

that may use different discount rates.’’ 

The National Academies reviewed 

several options, including ‘‘presenting 

all discount rate combinations of other 

costs and benefits with [SC–GHG] 

estimates.’’ 

As a member of the IWG involved in 

the development of the February 2021 

SC–GHG TSD, DOE agrees with the 

above assessment and will continue to 

follow developments in the literature 

pertaining to this issue. While the IWG 

works to assess how best to incorporate 

the latest, peer reviewed science to 

develop an updated set of SC–GHG 

estimates, it set the interim estimates to 

be the most recent estimates developed 

by the IWG prior to the group being 

disbanded in 2017. The estimates rely 

on the same models and harmonized 

inputs and are calculated using a range 

of discount rates. As explained in the 

February 2021 SC–GHG TSD, the IWG 

has recommended that agencies revert 

to the same set of four values drawn 

from the SC–GHG distributions based 

on three discount rates as were used in 

regulatory analyses between 2010 and 

2016 and were subject to public 

comment. For each discount rate, the 

IWG combined the distributions across 

models and socioeconomic emissions 

scenarios (applying equal weight to 

each) and then selected a set of four 

values recommended for use in benefitcost analyses: an average value resulting 

from the model runs for each of three 

discount rates (2.5 percent, 3 percent, 

and 5 percent), plus a fourth value, 

selected as the 95th percentile of 

estimates based on a 3 percent discount 

rate. The fourth value was included to 

provide information on potentially 

higher-than-expected economic impacts 

from climate change. As explained in 

the February 2021 SC–GHG TSD, and 

DOE agrees, this update reflects the 

immediate need to have an operational 

SC–GHG for use in regulatory benefitcost analyses and other applications that 

was developed using a transparent 

process, peer-reviewed methodologies, 

and the science available at the time of 

that process. Those estimates were 

subject to public comment in the 

context of dozens of proposed 

rulemakings as well as in a dedicated 

public comment period in 2013. 

There are a number of limitations and 

uncertainties associated with the SC– 

GHG estimates. First, the current 

scientific and economic understanding 

of discounting approaches suggests 

discount rates appropriate for 

intergenerational analysis in the context 

of climate change are likely to be less 

than 3 percent, near 2 percent or 

lower.170 Second, the IAMs used to 

produce these interim estimates do not 

include all of the important physical, 

ecological, and economic impacts of 

climate change recognized in the 

climate change literature and the 

science underlying their ‘‘damage 

functions’’—i.e., the core parts of the 

IAMs that map global mean temperature 

changes and other physical impacts of 

climate change into economic (both 

market and nonmarket) damages—lags 

behind the most recent research. For 

example, limitations include the 

incomplete treatment of catastrophic 

and non-catastrophic impacts in the 

integrated assessment models, their 

incomplete treatment of adaptation and 

technological change, the incomplete 

way in which inter-regional and 

intersectoral linkages are modeled, 

uncertainty in the extrapolation of 

damages to high temperatures, and 

inadequate representation of the 

relationship between the discount rate 

and uncertainty in economic growth 

over long time horizons. Likewise, the 

socioeconomic and emissions scenarios 

used as inputs to the models do not 

reflect new information from the last 

decade of scenario generation or the full 

range of projections. The modeling 

limitations do not all work in the same 

direction in terms of their influence on 

the SC–CO2 estimates. However, as 

discussed in the February 2021 TSD, the 

IWG has recommended that, taken 

together, the limitations suggest that the 

interim SC–GHG estimates used in this 

final rule likely underestimate the 

damages from GHG emissions. DOE 

concurs with this assessment. 

In comments filed in response to the 

May 2022 CWH ECS NOPR, Joint 

Climate Commenters stated that DOE 

appropriately applies the social cost 

estimates developed by the IWG for 

CO2, CH4, and N2O, to its analysis of 

emission reduction benefits. The Joint 

Climate Commenters added that those 

values are widely agreed to 

underestimate the full SC–GHG 

emissions but are appropriate to use as 

conservative estimates, have been used 


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69786 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations 

in dozens of previous rulemakings, and 

were upheld in Federal court. (Joint 

Climate Commenters, No. 19 at pp. 1– 

2). The Joint Climate Commenters 

suggested that DOE should expand upon 

its rationale for adopting a global 

damages valuation and for the range of 

discount rates it applies to climate 

effects, and should also strongly 

consider conducting supplemental 

sensitivity analyses to assess the 

proposed rule’s climate benefits at lower 

discount rates, as recommended by the 

IWG. (Joint Climate Commenters, No. 20 

at p. 2). The Joint Climate Commenters 

also stated that DOE should provide 

additional support for adopting a global 

framework for valuing climate impacts, 

including providing legal justifications 

based on applicable requirements 

placed on DOE. In particular, the Joint 

Climate Commenters suggested that 

DOE could strengthen is economic and 

policy justifications by explicitly 

concluding that the theory and evidence 

for international reciprocity justify a 

focus on the full global values. 

However, they stated that DOE should 

also consider including a discussion of 

domestic-only estimates and should 

consider conducting sensitivity analysis 

using a sounder domestic-only estimate 

as a backstop, and should explicitly 

conclude that the rule is cost-benefit 

justified even using a domestic-only 

valuation that may still undercount 

climate benefits. (Joint Commenters, No. 

21 at p. 2) The Joint Climate 

Commenters also stated that DOE 

should consider including additional 

justification for adopting the range of 

discount rates endorsed by the IWG and 

for appropriately deciding not to apply 

a 7 percent capital-based discount rate 

to climate impacts. In particular, they 

suggested that DOE should provide 

additional justification for combining 

climate effects discounted at an 

appropriate consumption-based rate 

with other costs and benefits discounted 

at a capital-based rate. The Joint Climate 

Commenters suggested that it is 

appropriate generally to focus its 

analysis of this rule on consumptionbased rates given that most costs and 

benefits are projected to fall to 

consumption rather than to capital 

investments. (Joint Commenters, No. 22 

at pp. 2–3) The Joint Climate 

Commenters also suggested that DOE 

should also consider providing 

additional sensitivity analysis using 

discount rates of 2 percent or lower for 

climate impacts, as recently suggested 

by the Working Group. (Joint Climate 

Commenters, No. 23 at p. 3) The Joint 

Climate Commenters stated that DOE 

should consider adding further 

justification for relying on the Working 

Group’s other methodological choices, 

including the fact that the Working 

Group applied a transparent and 

rigorous process that relied upon the 

best-available and most widely cited 

models for monetizing climate damages. 

In support of this, they included several 

attachments which they said provide 

detailed rebuttals to common criticisms 

of the Working Group’s methodology. 

(Joint Climate Commenters, No. 24 at p. 

3) DOE acknowledges that interim 

estimates were developed over many 

years, using transparent process, peerreviewed methodologies, the best 

science available at the time of that 

process, and with input from the public. 

The interim SC–GHG estimates 

represent the most appropriate estimate 

of the SC–GHG until revised estimates 

have been developed reflecting the 

latest, peer-reviewed science. The IWG 

February 2021 TSD provides further 

justification for use of global SC–GHG 

estimates. 

The Joint Climate Commenters 

encouraged DOE to clearly state that any 

criticisms of the social cost of 

greenhouse gases are moot in this 

rulemaking because the Proposed Rule 

is easily cost-justified without any 

climate benefits. (Joint Climate 

Commenters, No. 25 at p. 3) DOE 

acknowledges that this rule is 

economically justified without SC–GHG 

and health benefits, but notes that 

consideration of those benefits and costs 

is important when determining the 

impact to the nation. 

The Associations state that DOE 

should not rely on the SC–GHG for any 

decision-making until the procedural 

shortcomings in the SC–GHG 

development have been addressed, 

alleging that the development of SC– 

GHG needs to be developed through a 

process consistent with the 

Administrative Procedure Act and that 

the current SC–GHG was not. (The 

Associations, No. 32 at pp. 2–3) The 

Associations stated that the SC–GHG 

was issued in 2021 without prior notice 

and no public comment period. The 

Associations alleged this process lacked 

transparency, and by extension the DOE 

NOPR process lacked transparency 

insofar as it does not provide a full IWG 

process record for the public to 

comment on. The Associations 

commented that without such a record, 

the public’s ability to comment 

meaningfully is impaired. They further 

stated that a future comment period in 

the IWG process does not provide 

remedy. (The Associations, No. 32 at p. 

3) The Associations stated additionally 

that the original social cost of carbon 

comment period in 2013 did not reflect 

a meaningful opportunity to comment, 

lacked a peer review process, and did 

not provide the public access to 

information underlying the estimates. 

This period predated the SC–CH4 and 

SC–N2O, which the Associations alleged 

were also not subject to public input. 

(The Associations, No. 32 at p. 4) The 

Associations stated that DOE should 

further not use the SC–GHG because the 

IWG has yet to fully consider 

recommendations for improvement 

made by the National Academy of 

Sciences. (The Associations, No. 32 at p. 

4) DOE notes as stated above that 

interim estimates were developed over 

many years, using transparent process, 

peer-reviewed methodologies, the best 

science available at the time of that 

process, and with input from the public. 

The interim SC–GHG estimates 

represent the most appropriate estimate 

of the SC–GHG until revised estimates 

have been developed reflecting the 

latest, peer-reviewed science. 

The Associations stated that the SC– 

GHG estimates do not comply with 

OMB guidance on information quality 

because the IWG failed to follow OMB’s 

guidance for peer review, and therefore 

use by DOE could be considered 

arbitrary and capricious. They noted 

further that the IWG also failed to meet 

OMB’s requirements for a formal 

uncertainty analysis. (The Associations, 

No. 32 at pp. 4–5) The Associations also 

pointed out that the discount rates used 

do not comport with OMB’s Circular A– 

4, which requires use of 3 and 7 percent 

discount rates, and note that A–4 

remains the governing guidance for 

regulatory cost-benefit analyses. They 

urged DOE to comply with Circular A– 

4 in all relevant aspects. (The 

Associations, No. 32 at p. 5) DOE notes 

in response that DOE uses discount 

rates consistent with findings of the 

National Academies, economic 

literature, and the IWG. Circular A–4 

recognizes that ‘‘special ethical 

considerations arise when comparing 

the benefits and costs across 

generations.’’ Circular A–4 

acknowledges that analyses may 

appropriately ‘‘discount future costs and 

consumption benefits . . . at a lower 

rate than for intragenerational analysis.’’ 

See Circular A–4 at 36. DOE will 

continue to follow developments in the 

literature pertaining to this issue. 

The Associations recommended DOE 

state clearly the statutory authority for 

applying SC–GHG estimates in the 

rulemaking and that DOE ‘‘articulate the 

principles that will allow private parties 

to predict future applications of such 

estimates in domains governed by the 

particular statutory provisions.’’ (The 

Associations, No. 32 at pp. 2 and 7) The 


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171For more information, see the ‘‘Technical 

Support Document: Social Cost of Carbon, Methane, 

and Nitrous Oxide Interim Estimates under 

Executive Order 13990,’’ published in February 

2021 by the IWG. 

172For example, the February 2021 TSD discusses 

how the understanding of discounting approaches 

suggests that discount rates appropriate for 

intergenerational analysis in the context of climate 

change may be lower than 3 percent. 

Associations urged DOE to consider 

whether the ‘‘major questions doctrine’’ 

applies to DOE’s use of the SC–GHG 

estimates ‘‘because the SC–GHG 

estimates are of such major economic 

and political significance’’. Id. at 7. The 

Associations liken the use of SC–GHG to 

effectively serving as a fee for GHG 

emissions and note that Congress has 

not established GHG taxes or fees. Thus, 

the Associations state their opinion that 

SC–GHG usage falls under the major 

questions doctrine and urge DOE to 

therefore not use the SC–GHG estimates. 

(The Associations, No. 32 at pp. 2–3 and 

8) The Associations note the change in 

levels of SC–GHG between 

Administrations and use such as 

evidence that choices might involve 

policy judgements requiring an express 

delegation from Congress. (The 

Associations, No. 32 at p. 8) 

DOE notes first that, under EPCA, the 

Department regulates only the energy 

efficiency or use of CWHs. DOE does 

not regulate the emissions of CWHs or 

the emissions of energy sources used to 

generate energy for those water heaters. 

While DOE does not regulate emissions 

under EPCA, DOE is required to 

determine the benefits and burdens of 

an energy conservation standard. (See 

42 U.S.C. 6313(a)(6)(B)(ii)) Emissions 

reductions are one of the benefits that 

DOE considers when weighing the 

possibility of more-stringent energy 

conservation standards. And in 

compliance with E.O. 12866 and E.O. 

13990, and for the reasons described 

above, DOE is using the SC–GHG 

estimates to quantify the value of those 

emissions reductions.171

Patterson-Kelley and WM 

Technologies commented regarding the 

Supreme Court ruling in West Virginia 

v. EPA. Patterson-Kelley is concerned 

over the emissions impact analysis in 

the commercial water heater 

rulemaking, as it is likely to require 

rollback of any efficiency rulemaking. 

(Patterson-Kelley, No. 26 at pp. 1–2, 7; 

WM Technologies, No. 25 at pp. 1 and 

9) DOE notes this final rule is 

economically justified without 

including net benefits related to 

emissions. Thus, if the Supreme Court 

or any other court acted to curtail the 

consideration of the benefits arising 

from emissions reductions, this rule is 

not dependent on the value of such 

benefits and should not be affected. 

In comments, PHCC stated that while 

DOE presented much information on the 

social costs of climate emissions as well 

as related health costs of emission, it is 

unclear how the Department intends to 

use this information, noting that on 

occasion it is stated that the proposal 

pays for itself without these factors, 

while at the same time stressing these 

factors’ importance. PHCC asked why 

DOE would engage in the debate if the 

rule is economically justified without 

these factors. (PHCC, No. 28 at p. 11) 

DOE acknowledges the rule is 

economically justified without SC–GHG 

and health impacts. However, 

understanding SC–GHG and health 

benefits and costs is part of describing 

clearly the total impact of energy 

efficiency standards, and they are 

relevant considerations for the public 

and stakeholders. 

PHCC also questioned the 

Department’s authority to regulate 

emissions and notes the language of the 

statute directs DOE to deal with energy, 

not emissions, and that this topic is a 

matter of current litigation, which the 

Department acknowledges. PHCC would 

like clarification as to the status of this 

rule should this question ultimately be 

ruled contrary to the opinion of DOE. 

(PHCC, No. 28 at p. 11) In response, 

DOE notes again that it does not regulate 

emissions for covered products and 

equipment. Instead, EPCA grants DOE 

clear authority to establish energy 

conservation standards for covered 

products and equipment. 

PHCC asks for clarification as to why 

emissions information is presented at 

the 3 percent discount rate and not at 7 

percent, stating that DOE should plainly 

state its rational for this practice other 

than not having a ‘‘single central SC– 

GHG point estimate’’ and that DOE 

should acknowledge that the projected 

social benefits and health benefits are 

not simple benefits to a purchase of 

CWH products but rather are benefits for 

the world population. (PHCC, No. 28 at 

p. 11) DOE discusses the global nature 

of social emissions benefits in sections 

I.C, IV.L.1.a, V.B.8, 0, and V.C.2. DOE 

uses all four sets of SC–GHG estimates 

to capture the uncertainties involved in 

regulatory impact analysis as 

recommended by the IWG. The rationale 

for the choice of discount rates is 

described in the IWG’s February 2021 

TSD. 

DOE’s derivations of the SC–CO2, SC– 

N2O, and SC–CH4 values used for this 

final rule are discussed in the following 

sections, and the results of DOE’s 

analyses estimating the benefits of the 

reductions in emissions of these GHGs 

are presented in section V.B.8 of this 

document. 

a. Social Cost of Carbon 

The SC–CO2 values used for this final 

rule were generated using the values 

presented in the 2021 update from the 

IWG’s February 2021 TSD. Table IV.36 

shows the updated sets of SC–CO2

estimates from the IWG’s TSD in 5-year 

increments from 2020 to 2050. The full 

set of annual values that DOE used is 

presented in appendix 14A of the final 

rule TSD. For purposes of capturing the 

uncertainties involved in regulatory 

impact analysis, DOE has determined it 

is appropriate to include all four sets of 

SC–CO2 values, as recommended by the 

IWG.172

TABLE IV.36—ANNUAL SC–CO2 VALUES FROM 2021 INTERAGENCY UPDATE, 2020–2050 

[2020$ per metric ton CO2] 

Year 

Discount rate and statistic 

5% 3% 2.5% 3% 

Average Average Average 

95th 

percentile 

2020 ................................................................................................................. 14 51 76 152 

2025 ................................................................................................................. 17 56 83 169 

2030 ................................................................................................................. 19 62 89 187 

2035 ................................................................................................................. 22 67 96 206 

2040 ................................................................................................................. 25 73 103 225 


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173See EPA, Revised 2023 and Later Model Year 

Light-Duty Vehicle GHG Emissions Standards: 

Regulatory Impact Analysis, Washington, DC, 

December 2021. Available at: nepis.epa.gov/Exe/ 

ZyPDF.cgi?Dockey=P1013ORN.pdf (last accessed 

January 13, 2023). 

174Estimating the Benefit per Ton of Reducing 

PM2.5 Precursors from 21 Sectors. www.epa.gov/ 

benmap/estimating-benefit-ton-reducing-pm25- 

precursors-21-sectors. 

TABLE IV.36—ANNUAL SC–CO2 VALUES FROM 2021 INTERAGENCY UPDATE, 2020–2050—Continued 

[2020$ per metric ton CO2] 

Year 

Discount rate and statistic 

5% 3% 2.5% 3% 

Average Average Average 

95th 

percentile 

2045 ................................................................................................................. 28 79 110 242 

2050 ................................................................................................................. 32 85 116 260 

In calculating the potential global 

benefits resulting from reduced CO2

emissions, DOE used the values from 

the 2021 interagency report, adjusted to 

2022$ using the implicit price deflator 

for gross domestic product (‘‘GDP’’) 

from the Bureau of Economic Analysis. 

For each of the four sets of SC–CO2

cases specified, the values for emissions 

in 2020 were $14, $51, $76, and $152 

per metric ton avoided (values 

expressed in 2020$). For 2051 to 2070, 

DOE used SC–CO2 estimates published 

by EPA, adjusted to 2022$.173 These 

estimates are based on methods, 

assumptions, and parameters identical 

to the 2020–2050 estimates published 

by the IWG (which were based on EPA 

modeling). DOE expects additional 

climate benefits to accrue for any 

longer-life furnaces after 2070, but a 

lack of available SC–CO2 estimates for 

emissions years beyond 2070 prevents 

DOE from monetizing these potential 

benefits in this analysis. 

DOE multiplied the CO2 emissions 

reduction estimated for each year by the 

SC–CO2 value for that year in each of 

the four cases. DOE adjusted the values 

to 2022$ using the implicit price 

deflator for GDP from the Bureau of 

Economic Analysis. 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 SC–CO2 values in each case. 

See appendix 14A for the annual SC– 

CO2 values. 

b. Social Cost of Methane and Nitrous 

Oxide 

The SC–CH4 and SC–N2O values used 

for this final rule were based on the 

values developed for the February 2021 

TSD. Table IV.37 shows the updated 

sets of SC–CH4 and SC- N2O estimates 

from the latest interagency update in 5- 

year increments from 2020 to 2050. The 

full set of annual values used is 

presented in appendix 14A of the final 

rule TSD. To capture the uncertainties 

involved in regulatory impact analysis, 

DOE has determined it is appropriate to 

include all four sets of SC–CH4 and SC– 

N2O values, as recommended by the 

IWG. DOE derived values after 2050 

using the approach described above for 

the SC–CO2. 

TABLE IV.37—ANNUAL SC–CH4 AND SC–N2O VALUES FROM 2021 INTERAGENCY UPDATE, 2020–2050 

[2020$ per metric ton] 

Year 

SC–CH4 SC–N2O 

Discount rate and statistic Discount rate and statistic 

5% 3% 2.5% 3% 5% 3% 2.5% 3% 

Average Average Average 

95th 

percentile Average Average Average 

95th 

percentile 

2020 .................................. 670 1,500 2,000 3,900 5,800 18,000 27,000 48,000 

2025 .................................. 800 1,700 2,200 4,500 6,800 21,000 30,000 54,000 

2030 .................................. 940 2,000 2,500 5,200 7,800 23,000 33,000 60,000 

2035 .................................. 1,100 2,200 2,800 6,000 9,000 25,000 36,000 67,000 

2040 .................................. 1,300 2,500 3,100 6,700 10,000 28,000 39,000 74,000 

2045 .................................. 1,500 2,800 3,500 7,500 12,000 30,000 42,000 81,000 

2050 .................................. 1,700 3,100 3,800 8,200 13,000 33,000 45,000 88,000 

DOE multiplied the CH4 and N2O 

emissions reduction estimated for each 

year by the SC–CH4 and SC–N2O 

estimates for that year in each of the 

cases. DOE adjusted the values to 2022$ 

using the implicit price deflator for GDP 

from the Bureau of Economic Analysis. 

To calculate a present value of the 

stream of monetary values, DOE 

discounted the values in each of the 

cases using the specific discount rate 

that had been used to obtain the SC–CH4

and SC–N2O estimates in each case. See 

chapter 13 for the annual emissions 

reduction. See appendix 14A for the 

annual SC–CH4 and SC–N2O values. 

2. Monetization of Other Emissions 

Impacts 

For the final rule, DOE estimated the 

monetized value of NOX and SO2

emissions reductions from electricity 

generation using benefit per ton 

estimates for that sector from the EPA’s 

Benefits Mapping and Analysis 

Program.174 DOE used EPA’s values for 

PM2.5-related benefits associated with 

NOX and SO2 and for ozone-related 

benefits associated with NOX for 2025 

and 2030, and 2040, calculated with 

discount rates of 3 percent and 7 

percent. DOE used linear interpolation 

to define values for the years not given 

in the 2025 to 2040 period; for years 

beyond 2040 the values are held 

constant. DOE combined the EPA 

benefit per ton estimates with regional 

information on electricity consumption 

and emissions to define weightedVerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 PO 00000 Frm 00104 Fmt 4701 Sfmt 4700 E:\FR\FM\06OCR2.SGM 06OCR2

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175See U.S. Department of Commerce-Bureau of 

Economic Analysis. Regional Multipliers: A User 

Handbook for the Regional Input-Output Modeling 

System (‘‘RIMS II’’). 1997. U.S. Government 

Printing Office: Washington, DC. Available at 

www.bea.gov/scb/pdf/regional/perinc/meth/ 

rims2.pdf (last accessed July 1, 2021). 

176Livingston, O.V., S.R. Bender, M.J. Scott, and 

R.W. Schultz. ImSET 4.0: Impact of Sector Energy 

Technologies Model Description and User’s Guide. 

2015. Pacific Northwest National Laboratory: 

Richland, WA. PNNL–24563. 

average national values for NOX and 

SO2 as a function of sector (see 

appendix 14B of the NOPR TSD). 

DOE multiplied the site emissions 

reduction (in tons) in each year by the 

associated $/ton values, and then 

discounted each series using discount 

rates of 3 percent and 7 percent as 

appropriate. 

M. Utility Impact Analysis 

The utility impact analysis estimates 

the changes in installed electrical 

capacity and generation projected to 

result for each considered TSL. The 

analysis is based on published output 

from the NEMS associated with 

AEO2023. NEMS produces the AEO 

Reference case, as well as a number of 

side cases that estimate the economywide impacts of changes to energy 

supply and demand. For the current 

analysis, impacts are quantified by 

comparing the levels of electricity sector 

generation, installed capacity, fuel 

consumption and emissions in the 

AEO2023 Reference case and various 

side cases. Details of the methodology 

are provided in the appendices to 

chapters 13 and 15 of the final rule TSD. 

The output of this analysis is a set of 

time-dependent coefficients that capture 

the change in electricity generation, 

primary fuel consumption, installed 

capacity and power sector emissions 

due to a unit reduction in demand for 

a given end use. These coefficients are 

multiplied by the stream of electricity 

savings calculated in the NIA to provide 

estimates of selected utility impacts of 

potential new or amended energy 

conservation standards. 

N. Employment Impact Analysis 

DOE considers employment impacts 

in the domestic economy as one factor 

in selecting a standard. Employment 

impacts from new or amended energy 

conservation standards include both 

direct and indirect impacts. Direct 

employment impacts are any changes in 

the number of employees of 

manufacturers of the products subject to 

standards, their suppliers, and related 

service firms. The MIA addresses those 

impacts. 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. 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, caused by (1) reduced 

spending by consumers on energy, (2) 

reduced spending on new energy supply 

by the utility industry, (3) increased 

consumer spending on the products to 

which the new standards apply and 

other goods and services, and (4) the 

effects of those three factors throughout 

the economy. 

One method for assessing the possible 

effects on the demand for labor of such 

shifts in economic activity is to compare 

sector employment statistics developed 

by the Labor Department’s Bureau of 

Labor Statistics (‘‘BLS’’). 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.175 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. 

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, the BLS data 

suggest that net national employment 

may increase due to shifts in economic 

activity resulting from energy 

conservation standards. 

DOE estimated indirect national 

employment impacts for the standard 

levels considered in this final rule using 

an input/output model of the U.S. 

economy called Impact of Sector Energy 

Technologies (‘‘ImSET’’).176 ImSET is a 

special-purpose version of the ‘‘U.S. 

Benchmark National Input-Output’’ (‘‘I– 

O’’) model, which was designed to 

estimate the national employment and 

income effects of energy-saving 

technologies. The ImSET software 

includes a computer-based I–O model 

having structural coefficients that 

characterize economic flows among 187 

sectors most relevant to industrial, 

commercial, and residential building 

energy use. 

DOE notes that ImSET is not a general 

equilibrium forecasting model, and 

understands the uncertainties involved 

in projecting employment impacts, 

especially changes in the later years of 

the analysis. Because ImSET does not 

incorporate price changes, the 

employment effects predicted by ImSET 

may over-estimate actual job impacts 

over the long run for this rule. 

Therefore, DOE used ImSET only to 

generate results for near-term 

timeframes (2026–2030), where these 

uncertainties are reduced. For more 

details on the employment impact 

analysis, see chapter 16 of the final rule 

TSD. 

V. Analytical Results and Conclusions 

The following section addresses the 

results from DOE’s analyses with 

respect to the considered energy 

conservation standards for CWH 

equipment. It addresses the TSLs 

examined by DOE, the projected 

impacts of each of these levels if 

adopted as energy conservation 

standards for CWH equipment, and the 

standards levels that DOE is adopting in 

this final rule. Additional details 

regarding DOE’s analyses are contained 

in the final rule TSD supporting this 

document. 

A. Trial Standard Levels 

In general, DOE typically evaluates 

potential amended standards for 

products and equipment by grouping 

individual efficiency levels for each 

class into TSLs. Use of TSLs allows DOE 

to identify and consider manufacturer 

cost interactions between the equipment 

classes, to the extent that there are such 

interactions, and market cross elasticity 

from consumer purchasing decisions 

that may change when different 

standard levels are set. 

In the analysis conducted for this 

final rule, for commercial gas-fired 

storage water heaters, DOE included 

efficiency levels for both thermal 

efficiency and standby loss in each TSL 

because standby loss is dependent upon 

thermal efficiency. This dependence of 

standby loss on thermal efficiency is 

discussed in detail in section IIIIV.C.4.b 

of this final rule and chapter 5 of the 

final rule TSD. However, as discussed in 

section IV.C.4.b of this final rule, for all 

thermal efficiency levels for commercial 

gas-fired storage water heaters, DOE 

only analyzed one standby loss level 

corresponding to each thermal 

efficiency level. 

The thermal efficiency levels for 

commercial gas-fired storage water 

heaters and commercial gas-fired 


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instantaneous water heaters and hot 

water supply boilers, the standby loss 

levels for commercial gas-fired storage 

water heaters, and the UEF levels for 

residential-duty gas-fired storage water 

heaters that are included in each TSL 

are described in the following 

paragraphs and presented in Table V.1 

of this final rule. 

TSL 4 consists of the max-tech 

efficiency levels for each equipment 

category, which correspond to the 

highest condensing efficiency levels. 

TSL 3 consists of intermediate 

condensing efficiency levels for 

commercial gas-fired storage water 

heaters and residential-duty gas-fired 

storage water heaters, and max-tech 

efficiency levels for commercial gasfired instantaneous water heaters and 

hot water supply boilers. TSL 2 consists 

of the minimum condensing efficiency 

levels analyzed for commercial gas-fired 

storage water heaters and residentialduty gas-fired storage water heaters, and 

intermediate condensing efficiency 

levels for commercial gas-fired 

instantaneous water heaters and hot 

water supply boilers. These TSLs 

require similar technologies to achieve 

the efficiency levels and have roughly 

comparable equipment availability 

across each equipment category in terms 

of the share of models available that 

meet the efficiency level and having 

multiple manufacturers that produce 

those models. TSL 1 consists of the 

maximum non-condensing thermal 

efficiency or UEF (as applicable) levels 

analyzed for each equipment category. 

Table V.1 presents the efficiency 

levels for each equipment category (i.e., 

commercial gas-fired storage water 

heaters and storage-type instantaneous 

water heaters, residential-duty gas-fired 

storage water heaters, gas-fired tankless 

water heaters, and gas-fired circulating 

water heaters and hot water supply 

boilers) in each TSL. Table V.2 presents 

the thermal efficiency value and 

standby loss reduction factor for each 

equipment category in each TSL that 

DOE considered, with the exception of 

residential-duty gas-fired storage water 

heaters (for which TSLs are shown 

separately in Table V.3). The standby 

loss reduction factor is a multiplier 

representing the reduction in allowed 

standby loss relative to the current 

standby loss standard and which 

corresponds to the associated increase 

in thermal efficiency. Table V.3 presents 

the UEF equations for residential-duty 

gas-fired storage water heaters 

corresponding to each TSL that DOE 

considered. 

TABLE V.1—TRIAL STANDARD LEVELS FOR CWH EQUIPMENT BY EFFICIENCY LEVEL

Equipment 

Trial standard level * ** 

1 2 3 4 

Et or UEF 

EL SL EL Et or UEF 

EL SL EL Et or UEF EL SL EL Et or UEF EL SL EL 

Commercial gas-fired storage water heaters 

and storage-type instantaneous water heaters .................................................................. 1 0 2 0 4 0 5 0 

Residential-duty gas-fired storage water heaters .................................................................. 2 .................... 3 .................... 4 .................... 5 ....................

Gas-fired instantaneous water heaters and hot 

water supply boilers: 

Tankless water heaters .............................. 2 .................... 4 .................... 5 .................... 5 ....................

Circulating water heaters and hot water 

supply boilers ......................................... 2 .................... 4 .................... 5 .................... 5 ....................

* Et stands for thermal efficiency, SL stands for standby loss, UEF stands for uniform energy factor, and EL stands for efficiency level. Et applies to commercial gasfired storage water heaters and storage-type instantaneous water heaters, and to gas-fired instantaneous water heaters and hot water supply boilers. SL applies to 

commercial gas-fired storage water heaters and storage-type instantaneous water heaters. UEF applies to residential-duty gas-fired storage water heaters. 

** As discussed in sections III.B.5 and III.B.6 of this final rule, DOE did not analyze amended standby loss standards for instantaneous water heaters and hot water 

supply boilers. In addition, standby loss standards are not applicable for residential-duty commercial gas-fired storage water heaters. Lastly, for commercial gas-fired 

storage water heaters and storage-type instantaneous water heaters DOE only analyzed the reduction that is inherent to increasing Et and did not analyze SL efficiency levels above EL0. 

TABLE V.2—TRIAL STANDARD LEVELS FOR CWH EQUIPMENT BY THERMAL EFFICIENCY AND STANDBY LOSS REDUCTION

FACTOR

[Except residential-duty gas-fired storage water heaters] 

Equipment 

Trial standard level * ** 

1 2 3 4 

Et

(%) SL factor † Et(%) SL factor † Et(%) SL factor † Et(%) SL factor † 

Commercial gas-fired storage water heaters 

and storage-type instantaneous water heaters .................................................................. 82 0.98 90 0.91 95 0.86 99 0.83 

Gas-fired instantaneous water heaters and hot 

water supply boilers: 

Tankless water heaters .............................. 84 .................... 94 .................... 96 .................... 96 ....................

Circulating water heaters and hot water 

supply boilers ......................................... 84 .................... 94 .................... 96 .................... 96 ....................

* Et stands for thermal efficiency, and SL stands for standby loss. 

** As discussed in sections III.B.5 and III.B.6 of this final rule, DOE did not analyze amended standby loss standards for instantaneous water heaters and hot water 

supply boilers. 

† Standby loss reduction factor is a factor that is multiplied by the current maximum standby loss equations for each equipment class, as applicable. DOE used reduction factors to develop the amended maximum standby loss equation for each TSL. These reduction factors and maximum standby loss equations are discussed 

in section IV.C.4.b of this final rule. 


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177Efficiency levels that were analyzed for this 

final rule are discussed in section IV.C.4 of this 

document. Results by efficiency level are presented 

in TSD chapters 8, 10, and 12. 

TABLE V.3—TRIAL STANDARD LEVELS BY UEF FOR RESIDENTIAL-DUTY GAS-FIRED STORAGE WATER HEATERS

Draw pattern * 

Trial standard level ** 

1 2 3 4 

UEF UEF UEF UEF 

High .................................................................................. 0.7497¥0.0009*Vr 0.8397¥0.0009*Vr 0.9297¥0.0009*Vr 0.9997¥0.0009*Vr 

Medium ............................................................................ 0.6902¥0.0011*Vr 0.7802¥0.0011*Vr 0.8702¥0.0011*Vr 0.9402¥0.0011*Vr 

Low .................................................................................. 0.6262¥0.0012*Vr 0.7162¥0.0012*Vr 0.8062¥0.0012*Vr 0.8762¥0.0012*Vr 

Very Small ....................................................................... 0.3574¥0.0009*Vr 0.4474¥0.0009*Vr 0.5374¥0.0009*Vr 0.6074¥0.0009*Vr 

* Draw pattern is a classification of hot water use of a consumer water heater or residential-duty commercial water heater, based upon the firsthour rating. The draw pattern is determined using the Uniform Test Method for Measuring the Energy Consumption of Water Heaters in in appendix E to subpart B of 10 CFR part 430. 

** Vr is rated volume in gallons. 

DOE constructed the TSLs for this 

final rule to include efficiency levels 

representative of efficiency levels with 

similar characteristics (i.e., using similar 

technologies and/or efficiencies, and 

having roughly comparable equipment 

availability). The use of representative 

efficiency levels provided for greater 

distinction between the TSLs. While 

representative efficiency levels were 

included in the TSLs, DOE considered 

all efficiency levels as part of its 

analysis.177

B. Economic Justification and Energy 

Savings 

1. Economic Impacts on Individual 

Consumers 

DOE analyzed the economic impacts 

on CWH equipment consumers by 

looking at the effects that potential 

amended standards at each TSL would 

have on the LCC and PBP. DOE also 

examined the impacts of potential 

standards on selected consumer 

subgroups. These analyses are discussed 

in the following sections. 

a. Life-Cycle Cost and Payback Period 

In general, higher-efficiency products 

affect consumers in two ways: (1) 

purchase price increases and (2) annual 

operating costs decrease. Inputs used for 

calculating the LCC and PBP include 

total installed costs (i.e., product price 

plus installation costs) and operating 

costs (i.e., annual energy use, energy 

prices, energy price trends, repair costs, 

and maintenance costs). The LCC 

calculation also uses product lifetime 

and a discount rate. Chapter 8 of the 

final rule TSD provides detailed 

information on the LCC and PBP 

analyses. 

Table V.4 through Table V.13 of this 

final rule show the LCC and PBP results 

for the TSLs considered in this final 

rule. In the first of each pair of tables, 

the simple payback is measured relative 

to the baseline product. In the second 

table, impacts are measured relative to 

the efficiency distribution in the nonew-standards case in the compliance 

year (see section IV.F.8 of this 

document). Because some consumers 

purchase products with higher 

efficiency in the no-new-standards case, 

the average savings are less than the 

difference between the average LCC of 

the baseline product and the average 

LCC at each TSL. The savings refer only 

to consumers who are affected by a 

standard at a given TSL. As was noted 

in IV.H.1 of this document, DOE 

assumes a large percentage of 

consumers will already be purchasing 

higher efficiency condensing equipment 

by 2026. Those who already purchase a 

product with efficiency at or above a 

given TSL are not affected. Consumers 

for whom the LCC increases at a given 

TSL experience a net cost. 

TABLE V.4—AVERAGE LCC AND PBP RESULTS FOR COMMERCIAL GAS-FIRED STORAGE WATER HEATERS AND STORAGETYPE INSTANTANEOUS WATER HEATERS

TSL * 

Thermal 

efficiency 

(Et) 

(%) 

Standby loss 

(SL) factor 

Average costs 

(2022$) Simple 

payback 

period 

(years) Installed 

cost 

First year’s 

operating cost 

Lifetime 

operating cost LCC 

0 ................................... 80 1.00 6,083 2,419 18,589 24,672 0 

1 ................................... 82 0.98 6,158 2,374 18,252 24,410 1.7 

2 ................................... 90 0.91 7,477 2,243 17,266 24,743 7.9 

3 ................................... 95 0.86 7,593 2,157 16,681 24,274 5.8 

4 ................................... 99 0.83 7,733 2,094 16,206 23,939 5.1 

* The results for each TSL are calculated assuming that all consumers use equipment with that efficiency level. The PBP is measured relative 

to the baseline equipment. 

Note: TSL 0 represents the baseline. 


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69792 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations 

TABLE V.5—AVERAGE LCC SAVINGS RELATIVE TO THE NO-NEW-STANDARDS CASE FOR COMMERCIAL GAS-FIRED

STORAGE WATER HEATERS AND STORAGE-TYPE INSTANTANEOUS WATER HEATERS

TSL 

Thermal 

efficiency 

(Et) level 

(%) 

Standby loss 

(SL) factor 

Life-cycle cost savings 

Percentage of 

commercial 

consumers 

that 

experience a 

net cost 

(%) 

Percentage of 

commercial 

consumers 

that 

experience a 

net benefit 

(%) 

Average 

life-cycle cost 

savings * 

(2022$) 

0 ........................................................................................... 80 1.00 0 0 0 

1 ........................................................................................... 82 0.98 3 32 267 

2 ........................................................................................... 90 0.91 19 18 (85) 

3 ........................................................................................... 95 0.86 17 35 367 

4 ........................................................................................... 99 0.83 23 76 528 

* The calculation includes affected consumers only. A value in parenthesis is a negative number. 

Note: TSL 0 represents the baseline. 

TABLE V.6—AVERAGE LCC AND PBP RESULTS FOR RESIDENTIAL-DUTY GAS-FIRED STORAGE WATER HEATERS

TSL * UEF ** 

Average costs 

(2022$) Simple 

payback 

period 

Installed cost (years) First year’s 

operating cost 

Lifetime 

operating cost LCC 

0 ........................................................... 0.59 2,539 1,519 13,470 16,009 ........................

1 ........................................................... 0.68 2,791 1,427 12,671 15,462 2.7 

2 ........................................................... 0.77 3,746 1,365 12,220 15,966 7.8 

3 ........................................................... 0.86 4,135 1,298 11,634 15,769 7.2 

4 ........................................................... 0.93 4,199 1,261 11,311 15,510 6.4 

* The results for each TSL are calculated assuming that all consumers use equipment with that efficiency level. The PBP is measured relative 

to the baseline equipment. 

Note: TSL 0 represents the baseline. 

** The UEF shown is for the representative capacity of 75 gallons. 

TABLE V.7—AVERAGE LCC SAVINGS RELATIVE TO THE NO-NEW-STANDARDS CASE FOR RESIDENTIAL-DUTY GAS-FIRED

STORAGE WATER HEATERS

TSL UEF * 

Life-cycle cost savings 

Percentage of 

commercial 

consumers that 

experience a 

net cost 

(%) 

Percentage of 

commercial 

consumers that 

experience a 

net benefit 

(%) 

Average 

life-cycle 

cost savings ** 

2022$ 

0 ................................................................................................................... 0.59 0 0 0 

1 ................................................................................................................... 0.68 6 69 509 

2 ................................................................................................................... 0.77 43 47 (80) 

3 ................................................................................................................... 0.86 42 50 119 

4 ................................................................................................................... 0.93 37 62 370 

* The UEF shown is for the representative capacity of 75 gallons. 

** The calculation includes affected consumers only. A value in parentheses is a negative number. 

Note: TSL 0 represents the baseline. 

TABLE V.8—AVERAGE LCC AND PBP RESULTS BY EFFICIENCY LEVEL FOR GAS-FIRED TANKLESS WATER HEATERS

TSL * 

Thermal 

efficiency 

(Et) 

(%) 

Average costs 

2022$ Simple 

payback 

period 

years Installed 

cost 

First year’s 

operating 

cost 

Lifetime 

operating 

cost 

LCC 

0 ............................................................................................... 80 3,007 821 9,535 12,543 ................

1 ............................................................................................... 84 3,046 789 9,201 12,247 1.3 

2 ............................................................................................... 94 3,858 729 8,612 12,471 9.3 

3 ............................................................................................... 96 3,925 717 8,480 12,405 8.9 


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Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations 69793 

TABLE V.8—AVERAGE LCC AND PBP RESULTS BY EFFICIENCY LEVEL FOR GAS-FIRED TANKLESS WATER HEATERS— 

Continued 

TSL * 

Thermal 

efficiency 

(Et) 

(%) 

Average costs 

2022$ Simple 

payback 

period 

years Installed 

cost 

First year’s 

operating 

cost 

Lifetime 

operating 

cost 

LCC 

4 ............................................................................................... 96 3,925 717 8,480 12,405 8.9 

* The results for each TSL are calculated assuming that all consumers use equipment with that efficiency level. The PBP is measured relative 

to the baseline equipment. 

Note: TSL 0 represents the baseline. 

TABLE V.9—AVERAGE LCC SAVINGS RELATIVE TO THE NO-NEW-STANDARDS-CASE EFFICIENCY DISTRIBUTION FOR GASFIRED TANKLESS WATER HEATERS

TSL 

Thermal 

efficiency 

(Et) 

(%) 

Life-cycle cost savings 

Percentage of 

commercial 

consumers that 

experience a 

net cost 

(%) 

Percentage of 

commercial 

consumers that 

experience a 

net benefit 

(%) 

Average 

life-cycle cost 

savings * 

2022$ 

0 ................................................................................................................... 80 0 0 0 

1 ................................................................................................................... 84 0 17 295

2 ................................................................................................................... 94 10 11 105 

3 ................................................................................................................... 96 15 27 120 

4 ................................................................................................................... 96 15 27 120 

* The calculation includes affected consumers only. 

Note: TSL 0 represents the baseline. 

TABLE V.10—AVERAGE LCC AND PBP RESULTS BY EFFICIENCY LEVEL FOR GAS-FIRED CIRCULATING WATER HEATERS

AND HOT WATER SUPPLY BOILERS

TSL * 

Thermal 

efficiency (Et) 

(%) 

Average costs 

2022$ Simple 

payback 

period 

Installed cost years First year’s 

operating cost 

Lifetime 

operating cost LCC 

0 ............................................................... 80 8,622 5,273 80,367 88,989 ........................

1 ............................................................... 84 8,830 5,114 77,996 86,826 1.3 

2 ............................................................... 94 13,973 4,731 72,358 86,331 9.9 

3 ............................................................... 96 14,362 4,661 71,307 85,668 9.4 

4 ............................................................... 96 14,362 4,661 71,307 85,668 9.4 

* The results for each TSL are calculated assuming that all consumers use equipment with that efficiency level. The PBP is measured relative 

to the baseline equipment. 

Note: TSL 0 represents the baseline. 

TABLE V.11—AVERAGE LCC SAVINGS RELATIVE TO THE NO-NEW-STANDARDS-CASE EFFICIENCY DISTRIBUTION FOR GASFIRED CIRCULATING WATER HEATERS AND HOT WATER SUPPLY BOILERS

TSL 

Thermal 

efficiency 

(Et) 

(%) 

Life-cycle cost savings 

Percentage of 

commercial 

consumers 

that 

experience a 

net cost 

(%) 

Percentage of 

commercial 

consumers 

that 

experience a 

net benefit 

(%) 

Average 

life-cycle cost 

savings * 

2022$ 

0 ....................................................................................................................... 80 0 0 0 

1 ....................................................................................................................... 84 2 17 1,153 

2 ....................................................................................................................... 94 17 16 1,204 

3 ....................................................................................................................... 96 18 26 1,570 

4 ....................................................................................................................... 96 18 26 1,570 

* The calculation includes affected consumers only. 

Note: TSL 0 represents the baseline. 


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69794 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations 

TABLE V.12—AVERAGE LCC AND PBP RESULTS BY EFFICIENCY LEVEL FOR GAS-FIRED INSTANTANEOUS WATER

HEATERS AND HOT WATER SUPPLY BOILERS * 

TSL ** 

Thermal 

efficiency 

(Et) 

(%) 

Average costs 

2022$ Simple 

payback 

period 

Installed cost years First year’s 

operating cost 

Lifetime 

operating cost LCC 

0 ............................................................... 80 6,021 3,211 47,561 53,582 ........................

1 ............................................................... 84 6,151 3,111 46,132 52,284 1.3 

2 ............................................................... 94 9,288 2,877 42,834 52,122 9.8 

3 ............................................................... 96 9,528 2,834 42,208 51,736 9.3 

4 ............................................................... 96 9,528 2,834 42,208 51,736 9.3 

* This table shows results for the gas-fired instantaneous water heaters and hot water supply boilers equipment class (i.e., both tankless water 

heaters and hot water supply boilers), and reflects a weighted average result of Tables V.8 and V.10 of this final rule. 

** The results for each TSL are calculated assuming that all consumers use equipment with that efficiency level. The PBP is measured relative 

to the baseline equipment. 

Note: TSL 0 represents the baseline. 

TABLE V.13—AVERAGE LCC SAVINGS RELATIVE TO THE NO-NEW-STANDARDS-CASE EFFICIENCY DISTRIBUTION FOR GASFIRED INSTANTANEOUS WATER HEATERS AND HOT WATER SUPPLY BOILERS * 

TSL 

Thermal 

efficiency (Et) 

(%) 

Life-cycle cost savings 

Percentage of 

commercial 

consumers that 

experience a 

net cost 

(%) 

Percentage of 

commercial 

consumers that 

experience a 

net benefit 

(%) 

Average 

life-cycle cost 

savings ** 

2022$ 

0 ................................................................................................................... 80 0 0 0 

1 ................................................................................................................... 84 1 17 756

2 ................................................................................................................... 94 14 14 695 

3 ................................................................................................................... 96 17 27 898 

4 ................................................................................................................... 96 17 27 898 

* This table shows results for the gas-fired instantaneous water heaters and hot water supply boilers equipment class (i.e., both tankless water 

heaters and hot water supply boilers), and reflects a weighted average result of Tables V.9 and V.11 of this final rule. 

** The calculation includes affected consumers only. 

Note: TSL 0 represents the baseline. 

b. Consumer Subgroup Analysis 

In the consumer subgroup analysis, 

DOE estimated the impact of the 

considered TSLs on a low-income 

residential population (0–20 percentile 

gross annual household income) 

subgroup. Table V.14 through Table 

V.23 of this final rule compare the 

average LCC savings and PBP at each 

efficiency level for the consumer 

subgroup, along with the average LCC 

savings for the entire consumer sample. 

In most cases, the average LCC savings 

and PBP for low-income residential 

consumers at the considered efficiency 

levels are either similar to or more 

favorable than the average for all 

consumers, due in part to greater levels 

of equipment usage in RECS apartment 

building sample identified as lowincome observations when compared to 

the average consumer of CWH 

equipment. Chapter 11 of the final rule 

TSD presents the complete LCC and 

PBP results for the subgroup analysis. 

TABLE V.14—COMPARISON OF IMPACTS FOR CONSUMER SUBGROUP WITH ALL CONSUMERS, COMMERCIAL GAS-FIRED

STORAGE WATER HEATERS AND STORAGE-TYPE INSTANTANEOUS WATER HEATERS

TSL 

Thermal 

efficiency 

(Et) 

(%) 

Standby loss 

(SL) factor 

(%) 

LCC savings 

(2022$) 

Simple payback period 

(years) 

Residential 

low-income All Residential low-income All 

1 ............................................................... 82 98 524 267 1.0 1.7 

2 ............................................................... 90 91 994 (85) 4.3 7.9 

3 ............................................................... 95 86 1,578 367 3.2 5.8 

4 ............................................................... 99 83 1,542 528 2.8 5.1 


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Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations 69795 

TABLE V.15—COMPARISON OF IMPACTED CONSUMERS FOR CONSUMER SUBGROUP AND ALL CONSUMERS, COMMERCIAL

GAS-FIRED STORAGE WATER HEATERS AND STORAGE-TYPE INSTANTANEOUS WATER HEATERS

TSL 

Thermal 

efficiency 

(Et) 

(%) 

Standby loss 

(SL) factor 

(%) 

Percent of consumers that 

experience a net cost 

Percent of consumers that 

experience a net benefit 

Residential 

low-income All Residential low-income All 

1 ............................................................... 82 98 0 3 34 32 

2 ............................................................... 90 91 10 19 27 18 

3 ............................................................... 95 86 6 17 46 35 

4 ............................................................... 99 83 4 23 95 76 

TABLE V.16—COMPARISON OF IMPACTS FOR CONSUMER SUBGROUP WITH ALL CONSUMERS, RESIDENTIAL-DUTY GASFIRED STORAGE WATER HEATERS

TSL UEF 

LCC savings 

(2022$) 

Simple payback period 

(years) 

Residential 

low-income All Residential low-income All 

1 ........................................................................................... 0.68 716 509 2.2 2.7 

2 ........................................................................................... 0.77 368 (80) 5.6 7.8 

3 ........................................................................................... 0.86 729 119 5.3 7.2 

4 ........................................................................................... 0.93 1,033 370 4.7 6.4 

* Parentheses indicate negative values. 

TABLE V.17—COMPARISON OF IMPACTED CONSUMERS FOR CONSUMER SUBGROUP AND ALL CONSUMERS, RESIDENTIALDUTY GAS-FIRED STORAGE WATER HEATERS

TSL UEF 

Percent of consumers that 

experience a net cost 

Percent of consumers that 

experience a net benefit 

Residential 

low-income 

(%) 

All 

Residential 

low-income 

(%) 

All 

1 ........................................................................................... 0.68 1 6 73 69 

2 ........................................................................................... 0.77 28 43 61 47 

3 ........................................................................................... 0.86 24 42 68 50 

4 ........................................................................................... 0.93 19 37 79 62 

TABLE V.18—COMPARISON OF IMPACTS FOR CONSUMER SUBGROUP WITH ALL CONSUMERS, GAS-FIRED TANKLESS

WATER HEATERS

TSL 

Thermal 

efficiency 

(Et) 

(%) 

LCC savings 

2022$ 

Simple payback period 

(years) 

Residential 

low-income All Residential low-income All 

1 ........................................................................................... 84 217 295 1.7 1.3 

2 ........................................................................................... 94 26 105 10.2 9.3 

3 ........................................................................................... 96 49 120 9.9 8.9 

4 ........................................................................................... 96 49 120 9.9 8.9 

TABLE V.19—COMPARISON OF IMPACTED CONSUMERS FOR CONSUMER SUBGROUP AND ALL CONSUMERS, GAS-FIRED

TANKLESS WATER HEATERS

TSL 

Thermal 

efficiency 

(Et) 

(%) 

Percent of consumers that 

experience a net cost 

Percent of consumers that 

experience a net benefit 

Residential 

low-income All Residential low-income All 

1 ........................................................................................... 84 0 0 17 17 

2 ........................................................................................... 94 11 10 10 11 

3 ........................................................................................... 96 17 15 26 27 

4 ........................................................................................... 96 17 15 26 27 


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69796 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations 

TABLE V.20—COMPARISON OF IMPACTS FOR CONSUMER SUBGROUP WITH ALL CONSUMERS, GAS-FIRED CIRCULATING

WATER HEATERS AND HOT WATER SUPPLY BOILERS

TSL 

Thermal 

efficiency 

(Et) 

(%) 

LCC savings 

2022$ 

Simple payback period 

(years) 

Residential 

low-income All Residential low-income All 

1 ........................................................................................... 84 2,289 1,153 0.7 1.3 

2 ........................................................................................... 94 7,552 1,204 5.6 9.9 

3 ........................................................................................... 96 7,425 1,570 5.3 9.4 

4 ........................................................................................... 96 7,425 1,570 5.3 9.4 

TABLE V.21—COMPARISON OF IMPACTED CONSUMERS FOR CONSUMER SUBGROUP AND ALL CONSUMERS, GAS-FIRED

CIRCULATING WATER HEATERS AND HOT WATER SUPPLY BOILERS

TSL 

Thermal 

efficiency (Et) 

(%) 

Percent of consumers that 

experience a net cost 

Percent of consumers that 

experience a net benefit 

Residential 

low-income All Residential low-income All 

1 ........................................................................................... 84 0 2 19 17 

2 ........................................................................................... 94 5 17 28 16 

3 ........................................................................................... 96 5 18 40 26 

4 ........................................................................................... 96 5 18 40 26 

TABLE V.22—COMPARISON OF IMPACTS FOR CONSUMER SUBGROUP WITH ALL CONSUMERS, GAS-FIRED INSTANTANEOUS

WATER HEATERS AND HOT WATER SUPPLY BOILERS * 

TSL 

Thermal 

efficiency 

(Et) 

(%) 

LCC savings 

(2022$) 

Simple payback period 

(years) 

Residential 

low-income All Residential low-income All 

1 ........................................................................................... 84 1,329 756 0.8 1.3 

2 ........................................................................................... 94 4,066 695 5.8 9.8 

3 ........................................................................................... 96 4,009 898 5.5 9.3 

4 ........................................................................................... 96 4,009 898 5.5 9.3 

* This table shows results for the gas-fired instantaneous water heaters and hot water supply boilers equipment class (i.e., both tankless water 

heaters and hot water supply boilers), and reflects a weighted average result of Tables V.18 and V.20 of this final rule. 

TABLE V.23—COMPARISON OF IMPACTED CONSUMERS FOR CONSUMER SUBGROUP AND ALL CONSUMERS, GAS-FIRED

INSTANTANEOUS WATER HEATERS AND HOT WATER SUPPLY BOILERS * 

TSL 

Thermal 

efficiency 

(Et) 

(%) 

Percent of consumers that 

experience a net cost 

Percent of consumers that 

experience a net benefit 

Residential 

low-income All Residential low-Income All 

1 ........................................................................................... 84 0 1 18 17 

2 ........................................................................................... 94 8 14 20 14 

3 ........................................................................................... 96 10 17 33 27 

4 ........................................................................................... 96 10 17 33 27 

* This table shows results for the gas-fired instantaneous water heaters and hot water supply boilers equipment class (i.e., both tankless water 

heaters and hot water supply boilers), and reflects a weighted average result of Tables V.19 and V.21 of this final rule. 

c. Rebuttable Presumption Payback 

As discussed in section II.A, EPCA 

establishes 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 savings 

resulting from the standard. In 

calculating a rebuttable presumption 

PBP for each of the considered TSLs, 

DOE used discrete values, and, as 

required by EPCA, based the energy use 

calculation on the DOE test procedures 

for CWH equipment. In contrast, the 

PBPs presented in section V.B.1.a of this 

document were calculated using 

distributions that reflect the range of 

energy use in the field. 

Table V.24 presents the rebuttable 

presumption PBPs for the considered 

TSLs for CWH equipment. TSL 1 is the 

only level at which the rebuttable 

presumption PBPs are less than or equal 

to three. See chapter 8 of the final rule 

TSD for more information on the 

rebuttable presumption PBP analysis. 


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TABLE V.24—REBUTTABLE PRESUMPTION PAYBACK PERIODS

Equipment 

Trial standard level 

(years) 

1 2 3 4 

Commercial Gas-Fired Storage and Storage-Type Instantaneous Water 

Heaters ......................................................................................................... 1.7 7.5 5.6 5.0

Residential-Duty Gas-Fired Storage ................................................................ 2.7 7.6 7.1 6.3 

Gas-Fired Instantaneous Water Heaters and Hot Water Supply Boilers * ...... 1.3 9.5 9.1 9.1 

Instantaneous, Gas-Fired Tankless ................................................................. 1.3 8.7 8.4 8.4 

Instantaneous Water Heaters and Hot Water Supply Boilers ......................... 1.3 9.6 9.1 9.1 

* This row shows results for the gas-fired instantaneous water heaters and hot water supply boilers equipment class (i.e., both tankless water 

heaters and hot water supply boilers), and reflects a weighted average result. 

2. Economic Impacts on Manufacturers 

DOE performed an MIA to estimate 

the impact of amended energy 

conservation standards on 

manufacturers of CWH equipment. The 

next section describes the expected 

impacts on manufacturers at each 

considered TSL. Chapter 12 of the final 

rule TSD explains the analysis in further 

detail. 

a. Industry Cash Flow Analysis Results 

In this section, DOE provides GRIM 

results from the analysis, which 

examines changes in the industry that 

would result from a standard. Table 

V.25 through Table V.28 of this final 

rule summarize the estimated financial 

impacts of potential amended energy 

conservation standards on 

manufacturers of CWH equipment, as 

well as the conversion costs that DOE 

estimates manufacturers of CWH 

equipment would incur at each TSL. 

The impact of potential amended 

energy conservation standards was 

analyzed under two markup scenarios: 

(1) the preservation of gross margin 

percentage markup scenario and (2) the 

preservation of per-unit operating profit 

markup scenario, as discussed in 

section IV.J.2.d of this document. The 

preservation of gross margin percentage 

scenario provides the upper bound 

while the preservation of operating 

profits scenario results in the lower (or 

more severe) bound to impacts of 

potential amended standards on 

industry. 

Each of the modeled scenarios results 

in a unique set of cash flows and 

corresponding INPV for each TSL. INPV 

is the sum of the discounted cash flows 

to the industry from the base year 

through the end of the analysis period 

(2023–2055). The ‘‘change in INPV’’ 

results refer to the difference in industry 

value between the no-new-standards 

case and standards case at each TSL. To 

provide perspective on the short-run 

cash flow impact, DOE includes a 

comparison of free cash flow between 

the no-new-standards case and the 

standards case at each TSL in the year 

before amended standards would take 

effect. This free cash flow comparison 

provides an understanding of the 

magnitude of the required conversion 

costs relative to the cash flow generated 

by the industry in the no-new-standards 

case. 

Conversion costs are one-time 

investments for manufacturers to bring 

their manufacturing facilities and 

product designs into compliance with 

potential amended standards. As 

described in section IV.J.2.c of this 

document, conversion cost investments 

occur between the year of publication of 

the final rule and the year by which 

manufacturers must comply with the 

new standard. The conversion costs can 

have a significant impact on the shortterm cash flow on the industry and 

generally result in lower free cash flow 

in the period between the publication of 

the final rule and the compliance date 

of potential amended standards. 

Conversion costs are independent of the 

manufacturer markup scenarios and are 

not presented as a range in this analysis. 

The results in Table V.25 through 

Table V.28 of this final rule show 

potential INPV impacts for CWH 

equipment manufacturers by equipment 

class. The tables present the range of 

potential impacts reflecting both the less 

severe set of potential impacts 

(preservation of gross margin) and the 

more severe set of potential impacts 

(preservation of per-unit operating 

profit). In the following discussion, the 

INPV results refer to the difference in 

industry value between the no-newstandards case and each standards case 

that results from the sum of discounted 

cash flows from 2023 (the base year) 

through 2055 (the end of the analysis 

period). 

Industry Cash Flow for Commercial GasFired Storage Water Heaters and 

Storage-Type Instantaneous Equipment 

The results in Table V.25 of this final 

rule shows the estimated impacts for 

commercial gas-fired storage water 

heaters. Commercial gas-fired storage 

water heaters represent approximately 

69 percent of shipments covered by this 

rulemaking. 

TABLE V.25—MANUFACTURING IMPACT ANALYSIS RESULTS FOR COMMERCIAL GAS-FIRED STORAGE WATER HEATERS

AND STORAGE-TYPE INSTANTANEOUS WATER HEATERS

Units 

No-newstandards 

case 

Trial standard level 

1 2 3 4 

INPV ................................................ 2022$ millions ........ 154.2 153.3–154.0 139.1–142.7 130.4–136.5 62.0–73.1 

Change in INPV ............................... 2022$ millions ........

% ............................

........................

........................

(0.9)–(0.1) 

(0.6)–(0.1) 

(15.0)–(11.4) 

(9.7)–(7.4) 

(23.7)–(17.6) 

(15.4)–(11.4) 

(92.1)–(81.0) 

(59.8)–(52.6) 

Free Cash Flow (2025) ................... 2022$ millions ........ 12.6 12.2 5.1 1.2 (34.4) 

Change in Free Cash Flow ............. 2022$ millions ........

% ............................

........................

........................

(0.4) 

(3.1) 

(7.5) 

(59.3) 

(11.5) 

(90.6) 

(47.1) 

(372.3) 

Product Conversion Costs ............... 2022$ millions ........ ........................ 1.0 4.9 10.9 84.1 

Capital Conversion Costs ................ 2022$ millions ........ ........................ 0.1 12.8 16.9 28.1 


lotter on DSK11XQN23PROD with RULES2
69798 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations 

TABLE V.25—MANUFACTURING IMPACT ANALYSIS RESULTS FOR COMMERCIAL GAS-FIRED STORAGE WATER HEATERS

AND STORAGE-TYPE INSTANTANEOUS WATER HEATERS—Continued 

Units 

No-newstandards 

case 

Trial standard level 

1 2 3 4 

Total Conversion Costs ............ 2022$ millions ........ ........................ 1.1 17.7 27.8 112.2 

At TSL 1, DOE estimates impacts on 

INPV for commercial gas-fired storage 

and storage-type instantaneous water 

heater equipment manufacturers to 

range from¥0.6 percent to ¥0.1 

percent, or a change of ¥$0.9 million to 

¥$0.1 million. At this level, DOE 

estimates that industry free cash flow 

would decrease by approximately 3.1 

percent to $12.2 million, compared to 

the no-new-standards-case value of 

$12.6 million in the year before 

compliance (2025). 

DOE estimates 67.3 percent of 

commercial gas-fired storage water 

heater and storage-type instantaneous 

water heater basic models meet or 

exceed the thermal efficiency and 

standby loss standards at TSL 1. DOE 

does not expect the modest increases in 

thermal efficiency and standby loss 

requirements at this TSL to require 

major equipment redesigns or large 

capital investments. Overall, DOE 

estimates that manufacturers would 

incur $1.0 million in product 

conversion costs and $0.1 million in 

capital conversion costs to bring their 

equipment portfolios into compliance 

with a standard set to TSL 1. At TSL 1, 

conversion costs are a key driver of 

results. These upfront investments 

result in a slightly lower INPV in both 

manufacturer markup scenarios. 

At TSL 2, DOE estimates impacts on 

INPV for manufacturers of this 

equipment class to range from ¥9.7 

percent to ¥7.4 percent, or a change in 

INPV of ¥$15.0 million to ¥$11.4 

million. At this potential standard level, 

industry free cash flow would decrease 

by approximately 59.3 percent to $5.1 

million, compared to the no-newstandards case value of $12.6 million in 

the year before compliance (2025). 

DOE estimates 41 percent of 

commercial gas-fired storage water 

heater and storage-type instantaneous 

water heater basic models meet or 

exceed the thermal efficiency and 

standby loss standards at TSL 2. Product 

and capital conversion costs would 

increase at this TSL as manufacturers 

update designs, production equipment, 

and floor space to meet a thermal 

efficiency standard that necessitates 

condensing technology. DOE notes that 

capital investment would vary by 

manufacturer due to differences in 

condensing heat exchanger designs and 

differences in existing production 

capacity. These capital conversion costs 

include, but are not limited to, 

investments in tube bending, press dies, 

machining, enameling, MIG welding, 

leak testing, quality assurance stations, 

and conveyer. 

DOE estimates that industry would 

incur $4.9 million in product 

conversion costs and $12.8 million in 

capital conversion costs to bring their 

offered commercial gas-fired storage 

water heaters and storage-type 

instantaneous water heaters into 

compliance with a standard set to TSL 

2. At TSL 2, conversion costs are a key 

driver of results. These upfront 

investments result in a lower INPV in 

both manufacturer markup scenarios. 

At TSL 3, DOE estimates impacts on 

INPV for commercial gas-fired storage 

water heater and storage-type 

instantaneous water heater 

manufacturers to range from ¥15.4 

percent to ¥11.4 percent, or a change in 

INPV of ¥$23.7 million to ¥$17.6 

million. At this potential standard level, 

DOE estimates industry free cash flow 

would decrease by approximately 90.6 

percent to $1.2 million, compared to the 

no-new-standards-case value of $12.6 

million in the year before compliance 

(2025). 

DOE estimates that 34 percent of 

currently offered commercial gas-fired 

storage water heater and storage-type 

instantaneous water heater basic models 

meet or exceed the thermal efficiency 

and standby loss standards at TSL 3. At 

this level, DOE estimates that product 

conversion costs would increase, as 

manufacturers would have to redesign a 

larger percentage of their offerings to 

meet the higher thermal efficiency 

levels. Additionally, capital conversion 

costs would increase, as manufacturers 

upgrade their laboratories and test 

facilities to increase capacity for 

product development and safety testing 

for their commercial gas-fired storage 

water heater and storage-type 

instantaneous water heater offerings. 

Overall, DOE estimates that 

manufacturers would incur $10.9 

million in product conversion costs and 

$16.9 million in capital conversion costs 

to bring their commercial gas-fired 

storage water heater and storage-type 

instantaneous water heater portfolio 

into compliance with a standard set to 

TSL 3. At TSL 3, conversion costs are 

a key driver of results. These upfront 

investments result in lower INPV in 

both manufacturer markup scenarios. 

TSL 4 represents the max-tech 

thermal efficiency and standby loss 

levels. At TSL 4, DOE estimates impacts 

on INPV for commercial gas-fired 

storage water heater and storage-type 

instantaneous water heater 

manufacturers to range from ¥59.8 

percent to ¥52.6 percent, or a change in 

INPV of ¥$92.1 million to ¥$81.0 

million. At this TSL, DOE estimates 

industry free cash flow in the year 

before compliance (2025) would 

decrease by approximately 372.3 

percent to ¥$34.4 million compared to 

the no-new-standards case value of 

$12.6 million. 

The impacts on INPV at TSL 4 are 

significant. DOE estimates less than 1 

percent of currently offered basic 

models meet or exceed the efficiency 

levels prescribed at TSL 4. DOE expects 

product conversion costs to be 

significant at TSL 4, as almost all 

equipment on the market would have to 

be redesigned. Furthermore, the 

redesign process would be more 

resource intensive and costly at TSL 4 

than at other TSLs. Traditionally, 

manufacturers design their equipment 

platforms to support a range of models 

with varying input capacities and 

storage volumes, and the efficiency 

typically will vary slightly between 

models within a given platform. 

However, at TSL 4, manufacturers 

would be limited in their ability to 

maintain a platform approach to 

designing commercial gas-fired storage 

and storage-type instantaneous water 

heaters, because the 99 percent thermal 

efficiency level represents the maximum 

achievable efficiency and there would 

be no allowance for slight variations in 

efficiency between individual models. 

At TSL 4, manufacturers would be 

required to separately redesign each 

individual model to optimize 

performance for each specific input 

capacity and storage volume 

combination. In manufacturer 

interviews, some manufacturers raised 

concerns that they would not have 

sufficient engineering capacity to 


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complete necessary redesigns within the 

3-year conversion period. If 

manufacturers require more than 3 years 

to redesign all models, they would 

likely prioritize redesigns based on sales 

volume. Due to the increase in number 

of redesigns and engineering effort, DOE 

estimates that product conversion costs 

would increase to $84.1 million. 

DOE estimates that manufacturers 

would also incur $28.1 million in 

capital conversion costs. In addition to 

upgrading production lines, DOE 

expects manufacturers would need to 

add laboratory space to develop and test 

products to meet amended standards at 

TSL 4 standards. These large upfront 

investments result in a substantially 

lower INPV in both manufacturer 

markup scenarios. 

At TSL 4, the large conversion costs 

result in a free cash flow dropping 

below zero in the years before the 

standard year. The negative free cash 

flow calculation indicates 

manufacturers may need to access cash 

reserves or outside capital to finance 

conversion efforts. 

Industry Cash Flow for Residential-Duty 

Gas-Fired Storage Water Heaters 

The results in Table V.26 of this final 

rule shows the estimated impacts for 

residential-duty gas-fired storage water 

heaters. Residential-duty gas-fired 

storage water heaters represent 

approximately 13.5 percent of 

shipments covered by this rulemaking. 

TABLE V.26—MANUFACTURING IMPACT ANALYSIS RESULTS FOR RESIDENTIAL-DUTY GAS-FIRED STORAGE WATER

HEATERS

Units 

No-newstandards 

case 

Trial standard level 

1 2 3 4 

INPV ................................................ 2022$ millions ........ 9.0 8.4–9.6 7.6–9.6 6.5–11.2 2.3–7.4 

Change in INPV ............................... 2022$ millions ........

% ............................

........................

........................

(0.5)–0.6 

(5.8)–6.8 

(1.4)–0.7 

(15.3)–7.4 

(2.5)–2.2 

(27.3)–25.0 

(6.7)–(1.5) 

(74.7)–(16.9) 

Free Cash Flow (2025) ................... 2022$ millions ........ 0.7 0.5 0.2 (0.2) (2.4) 

Change in Free Cash Flow ............. 2022$ millions ........

% ............................

........................

........................

(0.2) 

(26.9) 

(0.6) 

(78.8) 

(0.9) 

(125.6) 

(3.1) 

(429.9) 

Product Conversion Costs ............... 2022$ millions ........ ........................ 0.5 0.8 1.2 4.8 

Capital Conversion Costs ................ 2022$ millions ........ ........................ 0.1 0.7 1.0 2.5 

Total Conversion Costs * .......... 2022$ millions ........ ........................ 0.5 1.4 2.3 7.3 

* Product conversion costs + capital conversion costs = total conversion costs. Numbers may not add up exactly due to rounding. 

At TSL 1, DOE estimates impacts on 

INPV for residential-duty gas-fired 

storage equipment manufacturers to 

range from ¥5.8 percent to 6.8 percent, 

or a change of ¥$0.5 million to $0.6 

million. At this level, DOE estimates 

that industry free cash flow would 

decrease by approximately 26.9 percent 

to $0.5 million, compared to the nonew-standards-case value of $0.7 

million in the year before compliance 

(2025). 

DOE estimates that 50 percent of 

currently offered residential-duty gasfired storage water heater basic models 

already meet or exceed the UEF 

standards at TSL 1. DOE does not expect 

the modest increases in UEF 

requirements at this TSL to require 

major equipment redesigns or large 

capital investments. Overall, DOE 

estimates that industry would incur $0.5 

million in product conversion costs and 

$0.1 million in capital conversion costs 

to bring their residential-duty 

commercial gas-fired storage equipment 

portfolios into compliance with a 

standard set to TSL 1. At TSL 1, 

conversion costs are the primary driver 

of results. These upfront investments 

result in a moderately lower INPV for 

the preservation of operating profit 

scenario and a moderately higher INPV 

for the preservation of gross margin 

scenario. 

At TSL 2, DOE estimates impacts on 

INPV for manufacturers of this 

equipment class to range from ¥15.3 

percent to 7.4 percent, or a change in 

INPV of ¥$1.4 million to $0.7 million. 

At this potential standard level, 

industry free cash flow would decrease 

by approximately 78.8 percent to $0.2 

million, compared to the no-newstandards case value of $0.7 million in 

the year before compliance (2025). 

DOE estimates that 32 percent of 

currently offered residential-duty gasfired storage water heater basic models 

would already meet or exceed the UEF 

standards at TSL 2. Product and capital 

conversion costs would increase at this 

TSL. Manufacturers would meet the 

UEF levels for residential-duty 

commercial gas-fired storage equipment 

by shifting to condensing technology. 

DOE notes that the capital investment 

would vary by manufacturer due to 

differences in condensing heat 

exchanger designs and differences in 

existing production capacity. 

DOE estimates that industry would 

incur $0.8 million in product 

conversion costs and $0.7 million in 

capital conversion costs to bring their 

residential-duty gas-fired storage water 

heaters into compliance with a standard 

set to TSL 2. At TSL 2, conversion costs 

continue to be the primary driver of 

results. These upfront investments 

result in a lower INPV in both 

manufacturer markup scenarios. 

At TSL 3, DOE estimates impacts on 

INPV for residential-duty gas-fired 

manufacturers to range from –27.3 

percent to 25.0 percent, or a change in 

INPV of ¥$2.5 million to $2.2 million. 

At this potential standard level, DOE 

estimates industry free cash flow would 

decrease by approximately 125.6 

percent to ¥$0.2 million compared to 

the no-new-standards-case value of $0.7 

million in the year before compliance 

(2025). 

DOE estimates that 27 percent of 

currently offered residential-duty 

commercial gas-fired storage water 

heater basic models would meet or 

exceed the UEF standards at TSL 3. At 

this level, DOE estimates that product 

conversion costs would increase, as 

manufacturers would have to redesign a 

larger percentage of their offerings to 

meet the higher UEF levels and 

transition to a complete portfolio of 

condensing offerings. Additionally, 

capital conversion costs would increase, 

as manufacturers increase production 

capacity for condensing equipment. 

Overall, DOE estimates that 

manufacturers would incur $1.2 million 

in product conversion costs and $1.0 

million in capital conversion costs to 

bring their residential-duty commercial 

gas-fired storage water heater portfolio 

into compliance with a standard set to 


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69800 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations 

TSL 3. At TSL 3, conversion costs are 

a key driver of results. 

TSL 4 represents the max-tech UEF 

levels. At TSL 4, DOE estimates impacts 

on INPV for residential-duty 

commercial gas-fired storage water 

heater manufacturers to range from 

¥74.7 percent to ¥16.9 percent, or a 

change in INPV of ¥$6.7 million to 

¥$1.5 million. At this TSL, DOE 

estimates industry free cash flow in the 

year before compliance (2025) would 

decrease by approximately 429.9 

percent to ¥$2.4 million compared to 

the no-new-standards case value of $0.7 

million. 

The impacts on INPV at TSL 4 are 

significant. DOE estimates that 

approximately 2 percent of currently 

offered residential-duty gas-fired water 

heater equipment meet or exceed the 

efficiency levels prescribed at TSL 4. 

DOE expects conversion costs to be 

significant at TSL 4, as most equipment 

currently on the market would have to 

be redesigned and new products would 

have to be developed to meet a wider 

range of storage volumes. DOE estimates 

that product conversion costs would 

increase to $4.8 million, as 

manufacturers would have to redesign a 

much larger percentage of their offerings 

to meet max-tech. 

DOE estimates that manufacturers 

would also incur $2.5 million in capital 

conversion costs. In addition to 

upgrading production lines, DOE 

accounted for the costs to add laboratory 

space to develop and safety test 

products that meet max-tech efficiency 

levels. At TSL 4, conversion costs are 

high. These upfront investments result 

in a lower INPV in both manufacturer 

markup scenarios. 

At TSL 4, the large conversion costs 

result in a free cash flow dropping 

below zero in the years before the 

standard year. The negative free cash 

flow calculation indicates 

manufacturers may need to access cash 

reserves or outside capital to finance 

conversion efforts. 

Industry Cash Flow for Gas-Fired 

Instantaneous Tankless Water Heaters 

The results in Table V.27 of this final 

rule shows the estimated impacts for 

gas-fired instantaneous tankless water 

heaters. Gas-fired instantaneous tankless 

water heaters represent approximately 8 

percent of shipments covered by this 

rulemaking. 

TABLE V.27—MANUFACTURING IMPACT ANALYSIS RESULTS FOR GAS-FIRED INSTANTANEOUS TANKLESS WATER HEATERS

Units 

No-newstandards 

case 

Trial standard level 

1 2 3 4 

INPV ................................................ 2022$ millions ........ 8.9 8.3–8.4 7.2–7.5 7.2–7.6 7.2–7.6 

Change in INPV ............................... 2022$ millions ........

% ............................

........................

........................

(0.5)–(0.5) 

(6.0)–(5.6) 

(1.7)–(1.4) 

(18.6)–(15.6) 

(1.7)–(1.3) 

(19.0)–(14.2) 

(1.7)–(1.3) 

(19.0)–(14.2) 

Free Cash Flow (2025) ................... 2022$ millions ........ 0.6 0.3 (0.3) (0.3) (0.3) 

Change in Free Cash Flow ............. 2022$ millions ........

% ............................

........................

........................

(0.3) 

(46.7) 

(0.8) 

(145.6) 

(0.8) 

(146.0) 

(0.8) 

(146.0) 

Product Conversion Costs ............... 2022$ millions ........ ........................ 0.7 1.5 1.5 1.5 

Capital Conversion Costs ................ 2022$ millions ........ ........................ 0.0 0.7 0.7 0.7 

Total Conversion Costs * .......... 2022$ millions ........ ........................ 0.7 2.1 2.1 2.1 

* Product conversion costs + capital conversion costs = total conversion costs. Numbers may not add up exactly due to rounding. 

At TSL 1, DOE estimates impacts on 

INPV for gas-fired instantaneous 

tankless water heaters manufacturers to 

range from ¥6.0 percent to ¥5.6 

percent, or a change of approximately 

¥$0.53 million to ¥$0.50 million. At 

this level, DOE estimates that industry 

free cash flow would decrease by 

approximately –46.7 percent to $0.3 

million, compared to the no-newstandards-case value of $0.6 million in 

the year before compliance (2025). 

DOE estimates that 91 percent of basic 

models of gas-fired instantaneous 

tankless water heaters already meet or 

exceed the thermal efficiency standards 

at TSL 1. At this level, DOE expects 

manufacturers of this equipment class to 

incur product conversion costs to 

redesign their equipment. DOE does not 

expect the modest increases in thermal 

efficiency requirements at this TSL to 

require capital investments. Overall, 

DOE estimates that manufacturers 

would incur $0.7 million in product 

conversion costs and no capital 

conversion costs to bring this equipment 

portfolio into compliance with a 

standard set to TSL 1. At TSL 1, product 

conversion costs are the key driver of 

results. These upfront investments 

result in a lower INPV in both 

manufacturer markup scenarios. 

At TSL 2, DOE estimates impacts on 

INPV ranges from ¥18.6 percent to 

¥15.6 percent, or a change in INPV of 

¥$1.7 million to ¥$1.4 million. At this 

potential standard level, DOE estimates 

industry free cash flow to decrease by 

approximately 145.6 percent to ¥$0.3 

million compared to the no-newstandards-case value of $0.6 million in 

the year before compliance (2025). 

DOE estimates that 86 percent of basic 

models of gas-fired instantaneous 

tankless water heaters already meet or 

exceed the thermal efficiency standards 

at TSL 2. DOE estimates that product 

and capital conversion costs would 

increase at this TSL. Manufacturers 

would meet the thermal efficiency 

levels by using condensing technology. 

DOE understands that tankless water 

heater manufacturers produce far more 

consumer products in significantly 

higher volumes than commercial 

offerings, and that these products are 

manufactured in the same facilities with 

shared production lines. DOE expects 

manufacturers would need to make 

incremental investments rather than set 

up new production lines. Overall, DOE 

estimates that manufacturers would 

incur $1.5 million in product 

conversion costs and $0.7 million in 

capital conversion costs to bring their 

instantaneous gas-fired tankless water 

heater portfolio into compliance with a 

standard set to TSL 2. 

As discussed in section V.A, TSL 3 

and TSL 4 represent max-tech thermal 

efficiency levels for gas-fired 

instantaneous tankless water heaters. 

Therefore, DOE modeled identical 

impacts to manufacturers of this 

equipment for both TSL 3 and TSL 4. At 

these levels, DOE estimates impacts on 

INPV to range from ¥19.0 percent to 

¥14.2 percent, or a change in INPV of 

¥$1.7 million to ¥$1.3 million. At 

these levels, DOE estimates industry 

free cash flow in the year before 

compliance (2025) would decrease by 

approximately 146.0 percent to ¥$0.3 

million compared to the no-newstandards case value of $0.6 million. 

DOE estimates that 64 percent of basic 


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Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations 69801 

178U.S. Census Bureau, 2018–2021 Annual 

Survey of Manufacturers: Statistics for Industry 

Groups and Industries (2021) Available at 

www.census.gov/programs-surveys/asm/data/ 

tables.html (Last accessed December 16, 2022). 

models of gas-fired instantaneous 

tankless water heaters already meet or 

exceed the thermal efficiency standards 

at TSL 3 and TSL 4. 

DOE anticipates modest product 

conversion costs as manufacturers 

continue to increase their max-tech 

offerings at greater input capacities. 

Overall, DOE estimates that 

manufacturers would incur $1.5 million 

in product conversion costs and $0.7 

million in capital conversion costs to 

bring their gas-fired instantaneous 

tankless portfolio into compliance with 

a standard set to TSL 3 and TSL 4. 

Industry Cash Flow for Instantaneous 

Circulating Water Heaters and Hot 

Water Supply Boilers 

The results in Table V.28 show the 

estimated impacts for circulating water 

heaters and hot water supply boilers. 

This equipment represents 

approximately 9 percent of shipments 

covered by this rulemaking. 

TABLE V.28—MANUFACTURING IMPACT ANALYSIS RESULTS FOR CIRCULATING WATER HEATERS AND HOT WATER SUPPLY

BOILERS

Units 

No-newstandards 

case 

Trial standard level 

1 2 3 4 

INPV ................................................ 2022$ millions ........ 40.8 40.6–40.7 36.3–43.6 30.9–39.7 30.9–39.7 

Change in INPV ............................... 2022$ millions ........

% ............................

........................

........................

(0.2)–(0.0) 

(0.5)–(0.1) 

(4.4)–2.8 

(10.9)–7.0 

(9.9)–(1.1) 

(24.3)–(2.7) 

(9.9)–(1.1) 

(24.3)–(2.7) 

Free Cash Flow (2025) ................... 2022$ millions ........ 2.5 2.4 0.9 (1.5) (1.5) 

Change in Free Cash Flow ............. 2022$ millions ........

% ............................

........................

........................

(0.1) 

(3.5) 

(1.6) 

(63.0) 

(4.1) 

(161.3) 

(4.1) 

(161.3) 

Product Conversion Costs ............... 2022$ millions ........ ........................ 0.3 1.9 8.5 8.5 

Capital Conversion Costs ................ 2022$ millions ........ ........................ 0.0 2.0 2.0 2.0 

Total Conversion Costs ............ 2022$ millions ........ ........................ 0.3 3.9 10.5 10.5 

At TSL 1, DOE estimates impacts on 

INPV for instantaneous circulating 

water heater and hot water supply boiler 

manufacturers to range from ¥0.2 

percent to 0.1 percent, or a change of 

¥$0.2 million to less than 0.1 million. 

At this level, DOE estimates that 

industry free cash flow would decrease 

by approximately 3.5 percent to $2.4 

million, compared to the no-newstandards-case value of $2.5 million in 

the year before compliance (2025). 

DOE estimates that 58 percent of basic 

models of this equipment class already 

meet or exceed the thermal efficiency 

standards at TSL 1. At this level, DOE 

expects manufacturers of this 

equipment class to incur product 

conversion costs to redesign their 

equipment. DOE does not expect the 

modest increases in thermal efficiency 

requirements at this TSL to require 

capital investments. Overall, DOE 

estimates that manufacturers would 

incur $0.3 million in product 

conversion costs and no capital 

conversion costs to bring this equipment 

portfolio into compliance with a 

standard set to TSL 1. At TSL 1, product 

conversion costs are the key driver of 

results. These upfront investments 

result in a slightly lower INPV for the 

preservation of operating profit scenario 

and an almost unchanged INPV for the 

preservation of gross margin scenario. 

At TSL 2, DOE estimates impacts on 

INPV ranges from ¥10.9 percent to 7.0 

percent, or a change in INPV of ¥$4.4 

million to $2.8 million. At this potential 

standard level, DOE estimates industry 

free cash flow to decrease by 

approximately 63.0 percent to $0.9 

million compared to the no-newstandards-case value of $2.5 million in 

the year before compliance (2025). 

DOE estimates that 39 percent of basic 

models of this equipment class already 

meet or exceed the thermal efficiency 

standards at TSL 2. DOE estimates that 

product and capital conversion costs 

would increase at this TSL. 

Manufacturers would meet the thermal 

efficiency levels by using condensing 

technology. DOE anticipates that 

manufacturers will begin to incur some 

product conversion costs associated 

with design changes to reach 

condensing levels. Additionally, DOE 

anticipates manufacturers achieving 

condensing levels with additional 

purchased parts (i.e., condensing heat 

exchanger, burner tube, blower, gas 

valve). DOE’s capital conversion costs 

reflect the incremental warehouse space 

required to store these additional 

purchased parts. 

Overall, DOE estimates that industry 

would incur $1.9 million in product 

conversion costs and $2.0 million in 

capital conversion costs to bring their 

instantaneous circulating water heater 

and hot water supply boiler portfolio 

into compliance with a standard set to 

TSL 2. 

As discussed in section V.A, TSL 3 

and TSL 4 represent max-tech thermal 

efficiency levels for circulating water 

heater and hot water supply boiler 

equipment. Therefore, DOE modeled 

identical impacts to manufacturers of 

this equipment for both TSL 3 and TSL 

4. At these levels, DOE estimates 

impacts on INPV to range from ¥24.3 

percent to ¥2.7 percent, or a change in 

INPV of ¥$9.9 million to ¥$1.1 

million. DOE estimates industry free 

cash flow in the year before compliance 

(2025) would decrease by approximately 

161.3 percent to ¥$1.5 million 

compared to the no-new-standards case 

value of $2.5 million. DOE estimates 

that 29 percent of basic models of this 

equipment class already meet or exceed 

the max-tech thermal efficiency 

standards at these TSLs. 

b. Direct Impacts on Employment 

To quantitatively assess the potential 

impacts of amended energy 

conservation standards on direct 

employment in the CWH equipment 

industry, DOE used the GRIM to 

estimate the domestic labor 

expenditures and number of direct 

employees in the no-new-standards case 

and in each of the standards cases 

during the analysis period. This analysis 

includes both production and nonproduction employees employed by 

CWH equipment manufacturers. DOE 

used statistical data from the U.S. 

Census Bureau 2021 Annual Survey of 

Manufacturers (‘‘ASM’’),178 the results 

of the engineering analysis, and 

interviews with manufacturers to 


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69802 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations 

179U.S. Bureau of Labor Statistics. Employer 

Costs for Employee Compensation. December 15, 

2022. Available at www.bls.gov/news.release/pdf/ 

ecec.pdf (Last accessed December 16, 2022). 

determine the inputs necessary to 

calculate industry-wide labor 

expenditures and domestic employment 

levels. Labor expenditures related to 

manufacturing of the product 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. 

The total labor expenditures in the 

GRIM are converted to domestic 

production worker employment levels 

by dividing production labor 

expenditures by the average fully 

burdened wage per production worker. 

DOE calculated the fully burdened wage 

by multiplying the industry production 

worker hourly blended wage (provided 

by the ASM) by the fully burdened wage 

ratio. The fully burdened wage ratio 

factors in paid leave, supplemental pay, 

insurance, retirement and savings, and 

legally required benefits. DOE 

determined the fully burdened ratio 

from the Bureau of Labor Statistic’s 

employee compensation data.179 The 

estimates of production workers in this 

section cover workers, including linesupervisors who are directly involved in 

fabricating and assembling a product 

within the manufacturing facility. 

Workers performing services that are 

closely associated with production 

operations, such as materials handling 

tasks using forklifts, are also included as 

production labor. 

Non-production worker employment 

levels were determined by multiplying 

the industry ratio of production worker 

employment to non-production 

employment against the estimated 

production worker employment 

explained previously. Estimates of nonproduction workers in this section cover 

the line supervisors, sales, sales 

delivery, installation, office functions, 

legal, and technical employees. 

The total direct employment impacts 

calculated in the GRIM are the sum of 

the changes in the number of domestic 

production and non-production workers 

resulting from the amended energy 

conservation standards for CWH 

equipment, as compared to the no-newstandards case. Typically, more efficient 

equipment is more complex and labor 

intensive to produce. Per-unit labor 

requirements and production time 

requirements trend higher with more 

stringent energy conservation standards. 

DOE estimates that 92 percent of 

CWH equipment sold in the United 

States is currently manufactured 

domestically. In the absence of amended 

energy conservation standards, DOE 

estimates that there would be 168 

domestic production workers in the 

CWH industry in 2026, the year of 

compliance. DOE notes that Congress 

authorized $250 million to Accelerate 

Electric Heat Pump Manufacturing in 

America utilizing the Defense 

Production Act. This program, funded 

by the Inflation Reduction Act (IRA), 

will increase use of electric heat pumps, 

which provide both heating and cooling 

for buildings and homes, will help 

lower energy costs for more American 

families and businesses, and create 

healthier indoor spaces through 

American-made clean energy 

technologies. 

DOE’s analysis forecasts that the 

industry will employ 296 production 

and non-production workers in the 

CWH industry in 2026 in the absence of 

amended energy conservation 

standards. Table V.29 presents the 

potential impacts of amended energy 

conservation standards on U.S. 

production workers of CWH equipment. 

TABLE V.29—DOMESTIC DIRECT EMPLOYMENT IMPACTS FOR CWH MANUFACTURERS IN 2026 

No-new 

standards 

case 

1 2 3 4 

Direct Employment in 2026 (Production Workers + Non-Production Workers ................................. 296 300 291 300 307 

Changes in Direct Employment ......................................................................................................... .................. 4 (5) 4 11 

* Numbers in parentheses indicate negative numbers. 

** This field presents impacts on domestic direct employment, which aggregates production and non-production workers. Based on ASM census data, DOE assumed the ratio of production to non-production employees stays consistent across all analyzed TSLs, which is 43 percent 

non-production workers. 

In NOPR interviews conducted ahead 

of the 2016 NOPR notice, several 

manufacturers that produce highefficiency CWH equipment stated that a 

standard that went to condensing levels 

could require them to hire more 

employees to increase their production 

capacity. Others stated that a 

condensing standard would require 

additional engineers to redesign CWH 

equipment and production processes. 

Due to different variations in 

manufacturing labor practices, actual 

direct employment could vary 

depending on manufacturers’ preference 

for high capital or high labor practices 

in response to amended standards. DOE 

notes that the employment impacts 

discussed here are independent of the 

indirect employment impacts to the 

broader U.S. economy, which are 

documented in chapter 15 of the 

accompanying TSD. 

c. Impacts on Manufacturing Capacity 

As discussed in further detail in 

section IV.J.2.c of this document, DOE 

anticipates manufacturers would incur 

significant product conversion costs at 

TSL 4 (max-tech) for all gas-fired storage 

water heaters, gas-fired circulating water 

heaters, and hot water supply boilers. 

Because of the high conversion costs as 

this level, some manufacturers may not 

have the capacity to redesign the full 

range of equipment offerings in the 3- 

year conversion period. Instead, 

manufacturers would likely choose to 

offer a reduced selection of models to 

limit upfront investments. 

Furthermore, none of the three largest 

manufacturers of commercial gas storage 

water heaters produces equipment that 

can meet the thermal efficiency 

standard at TSL 4. Currently, only two 

models from a single manufacturer can 

meet the thermal efficiency standard at 

TSL 4. This manufacturer is a small 

business and does not have the 

production capacity to meet the demand 

for the entire industry’s shipments. 

Similarly, for residential-duty gas-fired 

storage water heaters, only one 

manufacturer offers models that can 

meet the UEF standard at TSL 4. 

In written comments regarding TSL 3, 

two manufacturers with significant 

market share raised concerns about the 

ability to adapt products and update 

production capacity if standards for 

multiple equipment classes are set to 

max-tech. A.O. Smith raised concerns 

about the concurrent challenges of 


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Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations 69803 

commercial gas-fired instantaneous, 

circulating product, and hot water 

supply boilers all having a new 

minimum standard of 96 percent 

thermal efficiency. A.O. Smith stated 

manufacturers will need to quickly shift 

resources and make significant capital 

investments to redesign and build these 

product types to ‘‘max-tech’’ technology 

within 3 years ahead of compliance 

with a final rule. (A.O. Smith, No.22 at 

p.3) Rheem stated increasing the energy 

conservation standards for commercial 

water heaters to the proposed near maxtech condensing levels, could 

significantly reduce equipment offerings 

from various manufacturers and lessen 

competition. Rheem attributed the 

reduction on offerings to a combination 

of limited compliance period of three 

years, the magnitude of the equipment 

and manufacturing changes that would 

be required, and the number of other 

rulemakings similarly affecting the 

water heating industry—specifically the 

anticipated changes in the energy 

conservation standards for consumer 

water heaters, consumer boilers, and 

pool heaters. (Rheem, No. 24 at p.2) 

d. Impacts on Subgroups of 

Manufacturers 

Small manufacturers, niche 

equipment manufacturers, and 

manufacturers exhibiting a cost 

structure substantially different from the 

industry average could be affected 

disproportionately. Using average cost 

assumptions developed for an industry 

cash-flow estimate is inadequate to 

assess differential impacts among 

manufacturer subgroups. 

For the CWH equipment industry, 

DOE identified and evaluated the 

impact of amended energy conservation 

standards on one subgroup—small 

manufacturers. The SBA defines a 

‘‘small business’’ as having 1,000 

employees or fewer for NAICS code 

333310, ‘‘Other Commercial and Service 

Industry Machinery Manufacturing.’’ 

Based on this definition, DOE identified 

three small, domestic manufacturers of 

the covered equipment that would be 

subject to amended standards. 

For a discussion of the impacts on the 

small manufacturer subgroup, see the 

regulatory flexibility analysis in section 

VI.B of this document and chapter 12 of 

the final rule TSD. 

e. Cumulative Regulatory Burden 

One aspect of assessing manufacturer 

burden involves looking at the 

cumulative impact of multiple DOE 

standards and the regulatory actions of 

other Federal agencies and States that 

affect the manufacturers of a covered 

product or equipment. While any one 

regulation may not impose a significant 

burden on manufacturers, the combined 

effects of several existing or 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 energy conservation 

standards, other regulations can 

significantly affect manufacturers’ 

financial operations. Multiple 

regulations affecting the same 

manufacturer can strain profits and 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. 

Rheem noted that the company faces 

cumulative regulatory burden from 

space conditioning and refrigeration 

rulemakings. (Rheem, No. 24 at p. 7) 

DOE identified DOE rulemakings 

affecting Rheem and other CWH 

manufacturer that are Federal, are 

product-specific, and that will take 

effect three years before or after the 

estimated 2026 compliance date (see 

Table V.30). 

TABLE V.30—COMPLIANCE DATES AND EXPECTED CONVERSION EXPENSES OF FEDERAL ENERGY CONSERVATION

STANDARDS AFFECTING COMMERCIAL WATER HEATER MANUFACTURERS

Federal energy conservation standard Number of 

manufacturers * 

Number of 

manufacturers 

affected from 

today’s rule ** 

Approx. 

standards 

year 

Industry conversion 

costs 

(millions $) 

Industry 

conversion 

costs/ 

product 

revenue † 

(%) 

Commercial Warm Air Furnaces 81 FR 2420 (January 15, 2016) ............ 14 2 2023 7.5–22.2 (2014$) 1.7–5.1 †† 

Residential Central Air Conditioners and Heat Pumps 82 FR 1786 (January 6, 2017) ............................................................................................. 30 3 2023 342.6 (2015$) 0.5 

Room Air Conditioners ‡ 87 FR 20608 (April 7, 2022) ............................... 30 1 2023 22.8 (2020$) 0.5 

Consumer Pool Heaters ‡ 87 FR 22640 (April 15, 2022) ........................... 21 3 2028 33.8 (2020$) 1.9 

Consumer Furnaces ‡ 87 FR 40590 (July 7, 2022) ................................... 15 1 2029 150.6 (2020$) 1.4 

* This column presents the total number of manufacturers identified in the energy conservation standard rule contributing to cumulative regulatory burden. 

** This column presents the number of manufacturers producing CWH equipment that are also listed as manufacturers in the listed energy conservation standard 

contributing to cumulative regulatory burden. 

† This column presents industry conversion costs as a percentage of product revenue during the conversion period. Industry conversion costs are the upfront investments manufacturers must make to sell compliant products/equipment. The revenue used for this calculation is the revenue from just the covered product/equipment associated with each row. The conversion period is the time frame over which conversion costs are made and lasts from the announcement year of the final 

rule to the standards year of the final rule. The conversion period typically ranges from 3 to 5 years, depending on the energy conservation standard. 

†† Low and high conversion cost scenarios were analyzed as part of this direct final rule. The range of estimated conversion expenses presented here reflects 

those two scenarios. 

‡ These rulemakings are in the proposed rule stage and all values are subject to change until finalized. 

In written comments, AHRI and 

Bradford White listed several 

rulemakings that do not appear in Table 

V.31. (AHRI, No. 13 at pp. 5–6; Bradford 

White, No. 23 at p.7) DOE published a 

March 2022 ECS preliminary analysis 

for consumer water heaters, a May 2022 

ECS preliminary analysis for consumer 

boilers, and an August 2022 NODA for 

commercial and industrial pumps. (87 

FR 11327; 87 FR 26304; 87 FR 49537) 

These rulemakings do not have final 

rules, nor do they have proposed 

standard levels or proposed compliance 

dates. Any estimation of cost or timing 

at this time would be speculative. DOE 

does not list test procedures in Table 

V.32. When applicable, test procedure 

costs are incorporated into the 

associated energy conservation standard 

rulemakings. 

AHRI also identified the proposed 

rule for small electric motors as 

potential cumulative regulatory burden. 

DOE notes that those energy 

conservation standards for small electric 

motors do not apply to small electric 

motors that are components of other 

DOE-regulated products. (42 U.S.C. 

6317(b)(3)) Additionally, the analysis 

for small electric motors takes into 

consideration important attributes of 


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69804 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations 

180 DOE notes that on February 6, 2023, DOE 

issued a notice of proposed determination in which 

it initially determined that amended energy 

conservation standards for small electric motors 

would not be cost-effective, and therefore proposed 

not to amend its energy conservation standards for 

small electric motors. 88 FR 7629. 

motors that affect selection in end use 

applications.180 DOE has not included 

the small electric motor rulemaking in 

its analysis of cumulative regulatory 

burden. AHRI also noted that the DOE 

rulemakings for Federal Commercial 

and Multi-family High-rise Residential 

Buildings and Federal Low-rise 

Residential Buildings Design and 

Construction may ‘‘indirectly affect’’ 

CWH manufacturers. The rulemakings 

do not directly regulate manufacturers 

of commercial water heaters and are not 

directly considered in the CRB analysis. 

However, DOE did account for these 

rules in its shipments analysis as 

described in section IV.G.4 of this 

document. 

A.O. Smith noted that manufacturers 

will potentially make additional 

investments in response to the ENERGY 

STAR® program’s recent publication of 

its final residential water heater version 

5.0 specification, which sets a ≥0.86 

UEF value for gas-fired residential-duty 

commercial water heaters effective April 

28, 2023. (A.O. Smith, No. 22 at p. 4) 

DOE does not consider voluntary 

programs, such as ENERGY STAR®, in 

its analysis of cumulative regulatory 

burden. 

WM Technologies and PattersonKelley both noted that industry has 

limited resources to monitor and 

prepare for possible changes in 

standards, and that the current 

regulatory push by the DOE and other 

Federal agencies is placing tremendous 

stress upon all industries, especially the 

heating industry. (WM Technologies, 

No. 25 at pp. 8–9; Patterson-Kelley, No. 

26 at p. 6) DOE acknowledges the 

commenters concerns and has 

considered the impacts of this final rule 

on manufacturers as described 

throughout this section. Additionally, as 

noted in section II.A of this document, 

pursuant to EPCA, DOE is obligated by 

law to consider amending the energy 

efficiency standards for certain types of 

commercial and industrial equipment, 

including CWH equipment, whenever 

ASHRAE amends the standard levels or 

design requirements prescribed in 

ASHRAE/IES Standard 90.1, and at a 

minimum, every 6 years. (42 U.S.C. 

6313(a)(6)(A)–(C)) DOE also notes that 

between March 2016 and January 2021, 

DOE missed legal deadlines for a range 

of rulemakings. In October 2020, a 

coalition of non-governmental 

organizations filed suit under EPCA 

alleging that DOE has failed to meet 

rulemaking deadlines for 25 different 

consumer products and commercial 

equipment. In September 2022, DOE 

settled the lawsuit over the missed 

rulemaking deadlines to review and 

update energy efficiency standards. As 

part of the court-approved settlement, 

DOE has agreed to a schedule to review 

these regulations and, as appropriate, 

update them to improve efficiency 

requirements. DOE continues to 

evaluate the impact of rulemakings on 

manufacturers and welcomes input of 

the direct cost of monitoring possible 

changes in standards for incorporation 

into analyses. 

3. National Impact Analysis 

This section presents DOE’s estimates 

of the NES and the NPV of consumer 

benefits that would result from each of 

the TSLs considered as potential 

amended standards. 

a. Significance of Energy Savings 

To estimate the energy savings 

attributable to potential amended 

standards for CWH equipment, DOE 

compared their energy consumption 

under the no-new-standards case to 

their anticipated energy consumption 

under each TSL. The savings are 

measured over the entire lifetime of 

products purchased in the 30-year 

period that begins in the year of 

anticipated compliance with amended 

standards (2026–2055). Table V.33 

presents DOE’s projections of the NES 

for each TSL considered for CWH 

equipment. The savings were calculated 

using the approach described in section 

IV.H of this document. 

TABLE V.33—CUMULATIVE NATIONAL ENERGY SAVINGS FOR CWH EQUIPMENT; 30 YEARS OF SHIPMENTS

[2026–2055] 

Trial standard level 

1 2 3 4 

(Quads) 

Primary Energy 

Commercial gas-fired storage and storage-type instantaneous ..................................................... 0.03 0.16 0.25 0.43 

Residential-duty gas-fired storage ................................................................................................... 0.04 0.08 0.12 0.14 

Instantaneous gas-fired tankless ..................................................................................................... 0.00 0.01 0.02 0.02 

Instantaneous circulating water heaters and hot water supply boilers ........................................... 0.02 0.19 0.23 0.23 

Total Primary Energy ................................................................................................................ 0.10 0.44 0.62 0.82 

FFC Energy 

Commercial gas-fired storage and storage-type instantaneous ..................................................... 0.04 0.18 0.28 0.48 

Residential-duty gas-fired storage ................................................................................................... 0.05 0.09 0.13 0.16 

Instantaneous gas-fired tankless ..................................................................................................... 0.00 0.02 0.02 0.02 

Instantaneous circulating water heaters and hot water supply boilers ........................................... 0.03 0.21 0.26 0.26 

Total FFC Energy ..................................................................................................................... 0.12 0.49 0.70 0.92 


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181United States Office of Management and 

Budget. Circular A–4: Regulatory Analysis. 

September 17, 2003. Available at 

www.whitehouse.gov/omb/information-foragencies/circulars/ (last accessed December 13, 

2022). 

182Section 325(m) of EPCA requires DOE to 

review its standards at least once every 6 years, and 

requires, for certain products, a 3-year period after 

any new standard is promulgated before 

compliance is required, except that in no case may 

any new standards be required within 6 years of the 

compliance date of the previous standards. While 

adding a 6-year review to the 3-year compliance 

period adds up to 9 years, DOE notes that it may 

undertake reviews at any time within the 6 year 

period and that the 3-year compliance date may 

yield to the 6-year backstop. A 9-year analysis 

period may not be appropriate given the variability 

that occurs in the timing of standards reviews and 

the fact that for some products, the compliance 

period is 5 years rather than 3 years. 

183United States Office of Management and 

Budget. Circular A–4: Regulatory Analysis. 

September 17, 2003. Available at 

www.whitehouse.gov/omb/information-foragencies/circulars/ (last accessed December 13, 

2022). 

OMB Circular A–4 181 requires 

agencies to present analytical results, 

including separate schedules of the 

monetized benefits and costs that show 

the type and timing of benefits and 

costs. Circular A–4 also directs agencies 

to consider the variability of key 

elements underlying the estimates of 

benefits and costs. For this rulemaking, 

DOE undertook a sensitivity analysis 

using 9 years, rather than 30 years, of 

product shipments. The choice of a 9- 

year period is a proxy for the timeline 

in EPCA for the review of certain energy 

conservation standards and potential 

revision of and compliance with such 

revised standards.182 The review 

timeframe established in EPCA is 

generally not synchronized with the 

product lifetime, product manufacturing 

cycles, or other factors specific to 

commercial water heaters. Thus, such 

results are presented for informational 

purposes only and are not indicative of 

any change in DOE’s analytical 

methodology. The NES sensitivity 

analysis results based on a 9-year 

analytical period are presented in Table 

V.34. The impacts are counted over the 

lifetime of commercial water heaters 

purchased in 2026–2034. 

TABLE V.34—CUMULATIVE NATIONAL ENERGY SAVINGS FOR CWH EQUIPMENT; 9 YEARS OF SHIPMENTS

[2026–2034] 

Trial standard level 

1 2 3 4 

(Quads) 

Primary Energy 

Commercial gas-fired storage and storage-type instantaneous ..................................................... 0.01 0.06 0.09 0.14 

Residential-duty gas-fired storage ................................................................................................... 0.01 0.03 0.04 0.05 

Instantaneous gas-fired tankless ..................................................................................................... 0.00 0.00 0.00 0.00 

Instantaneous circulating water heaters and hot water supply boilers ........................................... 0.01 0.05 0.06 0.06 

Total Primary Energy ................................................................................................................ 0.03 0.13 0.19 0.25 

FFC Energy 

Commercial gas-fired storage and storage-type instantaneous ..................................................... 0.01 0.06 0.10 0.16 

Residential-duty gas-fired storage ................................................................................................... 0.01 0.03 0.04 0.05 

Instantaneous gas-fired tankless ..................................................................................................... 0.00 0.00 0.00 0.00 

Instantaneous circulating water heaters and hot water supply boilers ........................................... 0.01 0.05 0.06 0.06 

Total FFC Energy ..................................................................................................................... 0.04 0.15 0.21 0.28 

b. Net Present Value of Consumer Costs 

and Benefits 

DOE estimated the cumulative NPV of 

the total costs and savings for 

consumers that would result from the 

TSLs considered for CWH equipment. In 

accordance with OMB’s guidelines on 

regulatory analysis,183 DOE calculated 

NPV using both a 7-percent and a 3- 

percent real discount rate. Table V.35 

shows the consumer NPV results with 

impacts counted over the lifetime of 

equipment purchased in 2026–2055. 

TABLE V.35—CUMULATIVE NET PRESENT VALUE OF CONSUMER BENEFITS FOR CWH EQUIPMENT; 30 YEARS OF

SHIPMENTS

[2026–2055] 

Discount rate 

Trial standard level * 

1 2 3 4 

(billion 2022$) 

3 percent 

Commercial gas-fired storage and storage-type instantaneous ..................................................... 0.15 0.41 0.81 1.51 

Residential-duty gas-fired storage ................................................................................................... 0.16 0.17 0.27 0.38 

Instantaneous gas-fired tankless ..................................................................................................... 0.02 0.03 0.04 0.04 

Instantaneous circulating water heaters and hot water supply boilers ........................................... 0.08 0.18 0.30 0.30 


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TABLE V.35—CUMULATIVE NET PRESENT VALUE OF CONSUMER BENEFITS FOR CWH EQUIPMENT; 30 YEARS OF

SHIPMENTS—Continued 

[2026–2055] 

Discount rate 

Trial standard level * 

1 2 3 4 

(billion 2022$) 

Total NPV at 3 percent ............................................................................................................. 0.41 0.79 1.43 2.25 

7 percent 

Commercial gas-fired storage and storage-type instantaneous ..................................................... 0.07 0.13 0.32 0.65 

Residential-duty gas-fired storage ................................................................................................... 0.07 0.04 0.08 0.13 

Instantaneous gas-fired tankless ..................................................................................................... 0.01 0.01 0.01 0.01 

Instantaneous circulating water heaters and hot water supply boilers ........................................... 0.03 (0.02) 0.02 0.02 

Total NPV at 7 percent ............................................................................................................. 0.18 0.15 0.43 0.81 

* A value in parentheses is a negative number. 

The NPV results based on the 

aforementioned 9-year analytical period 

are presented in Table V.36. The 

impacts are counted over the lifetime of 

equipment purchased in 2026–2034. As 

mentioned previously, such results are 

presented for informational purposes 

only and are not indicative of any 

change in DOE’s analytical methodology 

or decision criteria. 

TABLE V.36—CUMULATIVE NET PRESENT VALUE OF CONSUMER BENEFITS CWH EQUIPMENT; 9 YEARS OF SHIPMENTS

[2026–2034] 

Discount rate 

Trial standard level * 

1 2 3 4 

(billion 2022$) 

3 percent 

Commercial gas-fired storage and storage-type instantaneous ..................................................... 0.07 0.04 0.20 0.47 

Residential-duty gas-fired storage ................................................................................................... 0.06 0.02 0.06 0.10 

Instantaneous gas-fired tankless ..................................................................................................... 0.01 0.00 0.01 0.01 

Instantaneous circulating water heaters and hot water supply boilers ........................................... 0.03 0.04 0.08 0.08 

Total NPV at 3 percent ............................................................................................................. 0.16 0.10 0.35 0.66 

7 percent 

Commercial gas-fired storage and storage-type instantaneous ..................................................... 0.04 (0.01) 0.09 0.26 

Residential-duty gas-fired storage ................................................................................................... 0.04 (0.01) 0.01 0.04 

Instantaneous gas-fired tankless ..................................................................................................... 0.00 0.00 0.00 0.00 

Instantaneous circulating water heaters and hot water supply boilers ........................................... 0.01 (0.02) 0.00 0.00 

Total NPV at 7 percent ............................................................................................................. 0.10 (0.04) 0.11 0.30 

* A value in parentheses is a negative number. 

c. Indirect Impacts on Employment 

DOE estimates that amended energy 

conservation standards for CWH 

equipment will reduce energy 

expenditures for consumers of this 

equipment, with the resulting net 

savings being 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.N of this 

document, DOE used an input/output 

model of the U.S. economy to estimate 

indirect employment impacts of the 

TSLs that DOE considered. There are 

uncertainties involved in projecting 

employment impacts, especially 

changes in the later years of the 

analysis. Therefore, DOE generated 

results for near-term timeframes (2026– 

2030), in which these uncertainties are 

reduced. 

The results suggest that the adopted 

standards are likely to have a negligible 

impact on the net demand for labor in 

the economy. The net change in jobs is 

so small that it would be imperceptible 

in national labor statistics and might be 

offset by other, unanticipated effects on 

employment. Chapter 16 of the final 

rule TSD presents detailed results 

regarding anticipated indirect 

employment impacts. 

4. Impact on Utility or Performance of 

Products 

As discussed in section III.F.1.d of 

this document, DOE has concluded that 

the standards adopted in this final rule 

will not lessen the utility or 

performance of the CWH equipment 

under consideration in this rulemaking. 

Manufacturers of these products 

currently offer units that meet or exceed 

the adopted standards. 


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5. Impact of Any Lessening of 

Competition 

DOE considered any lessening of 

competition that would be likely to 

result from new or amended standards. 

As discussed in section III.F.1.e of this 

document, EPCA directs the Attorney 

General of the United States (‘‘Attorney 

General’’) to determine the impact, if 

any, of any lessening of competition 

likely to result from a proposed 

standard and to transmit such 

determination in writing to the 

Secretary within 60 days of the 

publication of a proposed rule, together 

with an analysis of the nature and 

extent of the impact. To assist the 

Attorney General in making this 

determination, DOE provided the 

Department of Justice (‘‘DOJ’’) with 

copies of the proposed rule and the TSD 

for review. In its assessment letter 

responding to DOE, DOJ concluded that 

the proposed energy conservation 

standards for CWH equipment are 

unlikely to have a significant adverse 

impact on competition. DOE is 

publishing the Attorney General’s 

assessment at the end of this final rule. 

6. Need of the Nation To Conserve 

Energy 

Enhanced energy efficiency, where 

economically justified, improves the 

Nation’s energy security, strengthens the 

economy, and reduces the 

environmental impacts (costs) of energy 

production. Chapter 15 in the final rule 

TSD presents the estimated impacts on 

electricity generating capacity, relative 

to the no-new-standards case, for the 

TSLs that DOE considered in this 

rulemaking. 

Energy conservation resulting from 

potential energy conservation standards 

for CWH equipment is expected to yield 

environmental benefits in the form of 

reduced emissions of certain air 

pollutants and greenhouse gases. Table 

V.37 provides DOE’s estimate of 

cumulative emissions reductions 

expected to result from the TSLs 

considered in this rulemaking. The 

emissions were calculated using the 

multipliers discussed in section IV.K of 

this document. DOE reports annual 

emissions reductions for each TSL in 

chapter 13 of the final rule TSD. Table 

V.38 presents cumulative FFC emissions 

by equipment class. 

TABLE V.37—CUMULATIVE EMISSIONS REDUCTION FOR CWH EQUIPMENT SHIPPED IN 2026–2055 

Trial standard level 

1 2 3 4 

Power Sector Emissions 

CO2 (million metric tons) ................................................................................................. 5.7 23.9 33.5 44.0 

SO2 (thousand tons) ........................................................................................................ (0.00) 0.02 0.08 0.15 

NOX (thousand tons) ....................................................................................................... 5.07 21.16 29.54 38.71 

Hg (tons) .......................................................................................................................... (0.000) (0.001) (0.001) (0.001) 

CH4 (thousand tons) ........................................................................................................ 0.11 0.48 0.68 0.90 

N2O (thousand tons) ........................................................................................................ 0.011 0.047 0.067 0.089 

Upstream Emissions 

CO2 (million metric tons) ................................................................................................. 0.8 3.3 4.7 6.1 

SO2 (thousand tons) ........................................................................................................ 0.00 0.01 0.02 0.03 

NOX (thousand tons) ....................................................................................................... 13 53 74 97 

Hg (tons) .......................................................................................................................... (0.000) (0.000) (0.000) (0.000) 

CH4 (thousand tons) ........................................................................................................ 82 342 478 627 

N2O (thousand tons) ........................................................................................................ 0.001 0.006 0.008 0.011 

Total FFC Emissions 

CO2 (million metric tons) ................................................................................................. 6.5 27.3 38.2 50.1 

SO2 (thousand tons) ........................................................................................................ 0.00 0.03 0.10 0.17 

NOX (thousand tons) ....................................................................................................... 18 74 103 135 

Hg (tons) .......................................................................................................................... (0.000) (0.001) (0.001) (0.001) 

CH4 (thousand tons) ........................................................................................................ 82 343 479 628 

N2O (thousand tons) ........................................................................................................ 0.012 0.053 0.075 0.100 

Negative values refer to an increase in emissions. 

TABLE V.38—CUMULATIVE FFC EMISSIONS REDUCTION FOR CWH EQUIPMENT SHIPPED IN 2026–2055, BY EQUIPMENT

CLASS

Trial standard level 

1 2 3 4 

Total FFC Emissions, Commercial Gas Storage and Storage-Type Instantaneous 

CO2 (million metric tons) ................................................................................................. 2.0 9.8 15.5 26.0 

SO2 (thousand tons) ........................................................................................................ 0.01 (0.00) 0.03 0.10 

NOX (thousand tons) ....................................................................................................... 5.5 26.7 42.0 70.3 

Hg (tons) .......................................................................................................................... 0.0000 (0.0004) (0.0003) (0.0003) 

CH4 (thousand tons) ........................................................................................................ 25.5 123.8 194.8 326.0

N2O (thousand tons) ........................................................................................................ 0.004 0.019 0.030 0.052 


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TABLE V.38—CUMULATIVE FFC EMISSIONS REDUCTION FOR CWH EQUIPMENT SHIPPED IN 2026–2055, BY EQUIPMENT

CLASS—Continued 

Trial standard level 

1 2 3 4 

Total FFC Emissions, Residential-Duty Gas-Fired Storage 

CO2 (million metric tons) ................................................................................................. 2.5 5.1 7.4 8.8 

SO2 (thousand tons) ........................................................................................................ 0.00 (0.01) 0.00 0.01 

NOX (thousand tons) ....................................................................................................... 6.8 13.9 20.1 23.9 

Hg (tons) .......................................................................................................................... (0.0001) (0.0003) (0.0003) (0.0003) 

CH4 (thousand tons) ........................................................................................................ 31.6 64.5 93.2 110.8 

N2O (thousand tons) ........................................................................................................ 0.00 0.01 0.01 0.02 

Total FFC Emissions, Instantaneous Gas-Fired Tankless 

CO2 (million metric tons) ................................................................................................. 0.3 0.9 1.1 1.1 

SO2 (thousand tons) ........................................................................................................ 0.00 0.01 0.01 0.01 

NOX (thousand tons) ....................................................................................................... 0.71 2.30 3.05 3.05 

Hg (tons) .......................................................................................................................... 0.0000 0.0000 0.0000 0.0000 

CH4 (thousand tons) ........................................................................................................ 3.29 10.63 14.11 14.11

N2O (thousand tons) ........................................................................................................ 0.00 0.00 0.00 0.00 

Total FFC Emissions, Instantaneous Circulating Water Heaters and Hot Water Supply Boilers 

CO2 (million metric tons) ................................................................................................. 1.7 11.5 14.1 14.1 

SO2 (thousand tons) ........................................................................................................ (0.02) 0.04 0.06 0.06 

NOX (thousand tons) ....................................................................................................... 4.7 31.2 38.3 38.3 

Hg (tons) .......................................................................................................................... (0.0002) (0.0001) (0.0001) (0.0001) 

CH4 (thousand tons) ........................................................................................................ 21.7 143.9 176.7 176.7

N2O (thousand tons) ........................................................................................................ 0.00 0.02 0.03 0.03 

Negative values refer to an increase in emissions. 

As part of the analysis for this rule, 

DOE estimated monetary benefits likely 

to result from the reduced emissions of 

CO2 that DOE estimated for each of the 

considered TSLs for CWH equipment. 

Section IV.L of this document discusses 

the estimated SC–CO2 values that DOE 

used. Table V.39 presents the value of 

CO2 emissions reduction at each TSL. 

TABLE V.39—PRESENT VALUE OF CO2 EMISSIONS REDUCTION FOR CWH EQUIPMENT SHIPPED IN 2026–2055 

TSL 

SC–CO2 Case 

Discount rate and statistics 

5% 

Average 

3% 

Average 

2.5% 

Average 

3% 

95th percentile 

(million 2022$) 

1 ................................................................................................................. 67 285 445 867 

2 ................................................................................................................. 272 1,163 1,817 3,531 

3 ................................................................................................................. 386 1,642 2,563 4,986 

4 ................................................................................................................. 517 2,189 3,411 6,650 

As discussed in section IV.L, DOE 

estimated the climate benefits likely to 

result from the reduced emissions of 

CH4 and N2O that DOE estimated for 

each of the considered TSLs for CWH 

equipment. Table V.40 presents the 

value of the CH4 emissions reduction at 

each TSL, and Table V.41 presents the 

value of the N2O emissions reduction at 

each TSL. The time-series of annual 

values is presented for the selected TSL 

in chapter 14 of the final rule TSD. 

TABLE V.40—PRESENT VALUE OF METHANE EMISSIONS REDUCTION FOR CWH EQUIPMENT SHIPPED IN 2026–2055 

TSL 

SC–CH4 Case 

Discount rate and statistics 

5% 

Average 

3% 

Average 

2.5% 

Average 

3% 

95th percentile 

(million 2022$) 

1 ................................................................................................................. 39 114 159 303 

2 ................................................................................................................. 159 469 653 1,241 


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TABLE V.40—PRESENT VALUE OF METHANE EMISSIONS REDUCTION FOR CWH EQUIPMENT SHIPPED IN 2026–2055— 

Continued 

TSL 

SC–CH4 Case 

Discount rate and statistics 

5% 

Average 

3% 

Average 

2.5% 

Average 

3% 

95th percentile 

(million 2022$) 

3 ................................................................................................................. 224 659 917 1,745 

4 ................................................................................................................. 300 874 1,214 2,315 

TABLE V.41—PRESENT VALUE OF NITROUS OXIDE EMISSIONS REDUCTION FOR CWH EQUIPMENT SHIPPED IN 2026–2055 

TSL 

SC–N2O Case 

Discount rate and statistics 

5% 

Average 

3% 

Average 

2.5% 

Average 

3% 

95th percentile 

(million 2022$) 

1 ................................................................................................................. 0.05 0.19 0.30 0.51 

2 ................................................................................................................. 0.20 0.79 1.22 2.10 

3 ................................................................................................................. 0.28 1.13 1.76 3.02 

4 ................................................................................................................. 0.39 1.53 2.36 4.07 

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 global and U.S. 

economy continues to evolve rapidly. 

DOE, together with other Federal 

agencies, will continue to review 

methodologies for estimating the 

monetary value of reductions in CO2

and other GHG emissions. This ongoing 

review will consider the comments on 

this subject that are part of the public 

record for this and other rulemakings, as 

well as other methodological 

assumptions and issues. DOE notes, 

however, that the adopted standards 

would be economically justified, even 

without inclusion of monetized benefits 

of reduced GHG emissions. 

DOE also estimated the monetary 

value of the economic benefits 

associated with NOX and SO2 emissions 

reductions anticipated to result from the 

considered TSLs for CWH equipment. 

The dollar-per-ton values that DOE used 

are discussed in section IV.L of this 

document. Table V.42 presents the 

present value for NOX emissions 

reduction for each TSL calculated using 

7-percent and 3-percent discount rates, 

and Table V.43 presents similar results 

for SO2 emissions reductions. The 

results in these tables reflect application 

of the low dollar-per-ton values, which 

DOE used to be conservative. Results 

that reflect high dollar-per-ton values 

are presented in chapter 14 of the final 

rule TSD. 

TABLE V.42—PRESENT VALUE OF NOX EMISSIONS REDUCTION FOR CWH EQUIPMENT SHIPPED IN 2026–2055 

TSL 3% Discount rate 7% Discount rate 

(million 2022$) 

1 ............................................................................................................................................................... 573 240 

2 ............................................................................................................................................................... 2,330 949 

3 ............................................................................................................................................................... 3,290 1,356 

4 ............................................................................................................................................................... 4,390 1,840 

TABLE V.43—PRESENT VALUE OF SO2 EMISSIONS REDUCTION FOR CWH EQUIPMENT SHIPPED IN 2026–2055 

TSL 3% Discount rate 7% Discount rate 

(million 2022$) 

1 ............................................................................................................................................................... (0.40) (0.11) 

2 ............................................................................................................................................................... (1.19) (0.82) 

3 ............................................................................................................................................................... 1.87 0.51 

4 ............................................................................................................................................................... 5.38 2.10 

DOE has not considered the monetary 

benefits of the reduction of Hg for this 

final rule. Not all the public health and 

environmental benefits from the 

reduction of greenhouse gases, NOX, 

and SO2 are captured in the values 


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69810 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations 

above, and additional unquantified 

benefits from the reductions of those 

pollutants as well as from the reduction 

of Hg, direct particulate matter (‘‘PM’’), 

and other co-pollutants may be 

significant. 

The benefits of reduced CO2, CH4, and 

N2O emissions are collectively referred 

to as climate benefits. The benefits of 

reduced SO2 and NOX emissions are 

collectively referred to as health 

benefits. For the time-series of estimated 

monetary values of reduced emissions, 

see chapter 14 of the final rule TSD. 

7. Other Factors 

The Secretary of Energy, in 

determining whether a standard is 

economically justified, may consider 

any other factors that the Secretary 

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

6313(a)(6)(B)(ii)(VII)) No other factors 

were considered in this analysis. 

8. Summary of Economic Impacts 

Table V.44 presents the NPV values 

that result from adding the estimates of 

the economic benefits resulting from 

reduced GHG and NOX and SO2

emissions to the NPV of consumer 

benefits calculated for each TSL 

considered in this rulemaking. The 

consumer benefits are domestic U.S. 

monetary savings that occur as a result 

of purchasing the covered commercial 

water heaters, and they are measured for 

the lifetime of products shipped in 

2026–2055. The climate benefits 

associated with reduced GHG emissions 

resulting from the adopted standards are 

global benefits, which are also 

calculated based on the lifetime of 

commercial water heaters shipped in 

2026–2055. The climate benefits 

associated with four SC–GHG estimates 

are shown. DOE does not have a single 

central SC–GHG point estimate and it 

emphasizes the importance and value of 

considering the benefits calculated 

using all four SC–GHG estimates. 

TABLE V.44—NPV OF CONSUMER BENEFITS COMBINED WITH CLIMATE AND HEALTH BENEFITS FROM EMISSIONS

REDUCTIONS

Category TSL 1 TSL 2 TSL 3 TSL 4 

3% discount rate for NPV of Consumer and Health Benefits (billion 2022$) 

5% d.r., Average SC–GHG case ..................................................................................... 1.09 3.55 5.33 7.46 

3% d.r., Average SC–GHG case ..................................................................................... 1.38 4.75 7.02 9.71 

2.5% d.r., Average SC–GHG case .................................................................................. 1.59 5.59 8.20 11.27 

3% d.r., 95th percentile SC–GHG case .......................................................................... 2.15 7.89 11.46 15.61 

7% discount rate for NPV of Consumer and Health Benefits (billion 2022$) 

5% d.r., Average SC–GHG case ..................................................................................... 0.53 1.54 2.40 3.47 

3% d.r., Average SC–GHG case ..................................................................................... 0.82 2.74 4.09 5.72 

2.5% d.r., Average SC–GHG case .................................................................................. 1.03 3.57 5.27 7.28 

3% d.r., 95th percentile SC–GHG case .......................................................................... 1.59 5.88 8.52 11.62 

The national operating cost savings 

are domestic U.S. monetary savings that 

occur as a result of purchasing CWH 

equipment, and are measured for the 

lifetime of products shipped in 2026– 

2055. The benefits associated with 

reduced GHG emissions achieved as a 

result of the adopted standards are also 

calculated based on the lifetime of CWH 

equipment shipped in 2026–2055. 

C. Conclusion 

As noted previously, EPCA specifies 

that, for any commercial and industrial 

equipment addressed under 42 U.S.C. 

6313(a)(6)(A)(i), DOE may prescribe an 

energy conservation standard more 

stringent than the level for such 

equipment in ASHRAE Standard 90.1, 

as amended, only if ‘‘clear and 

convincing evidence’’ shows that a 

more-stringent standard would result in 

significant additional conservation of 

energy and is technologically feasible 

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

6313(a)(6)(A)(ii)(II)) In determining 

whether a standard is economically 

justified, the Secretary must determine 

whether the benefits of the standard 

exceed its burdens by, to the greatest 

extent practicable, considering the 

seven statutory factors discussed 

previously. (42 U.S.C. 

6313(a)(6)(B)(ii)(I)–(VII) and 42 U.S.C. 

6313(a)(6)(C)(i)) 

For this final rule, DOE considered 

the impacts of amended standards for 

CWH equipment at each TSL, beginning 

with the max-tech 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 in this section 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 who may be 

disproportionately affected by a national 

standard and impacts on employment. 

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. 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, (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 (for example, 

between renters and owners, or builders 

and purchasers). Having less than 

perfect foresight and a high degree of 

uncertainty about the future, consumers 

may trade off these types of investments 

at a higher than expected rate between 

current consumption and uncertain 

future energy cost savings. 


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1. Benefits and Burdens of TSLs 

Considered for CWH Equipment 

Standards 

Table V.45 and Table V.46 summarize 

the quantitative impacts estimated for 

each TSL for CWH equipment. The 

national impacts are measured over the 

lifetime of each class of CWH 

equipment purchased in the 30-year 

period that begins in the anticipated 

year of compliance with amended 

standards (2026–2055). The energy 

savings, emissions reductions, and 

value of emissions reductions refer to 

full-fuel-cycle results. DOE is presenting 

monetized benefits in accordance with 

the applicable Executive Orders and 

DOE would reach the same conclusion 

presented in this notice in the absence 

of the SC–GHG, including the Interim 

Estimates presented by the Interagency 

Working Group. The efficiency levels 

contained in each TSL are described in 

section V.A of this document. 

TABLE V.45—SUMMARY OF ANALYTICAL RESULTS FOR CWH EQUIPMENT TSLS—NATIONAL IMPACTS

Category TSL 1 TSL 2 TSL 3 TSL 4 

Cumulative FFC National Energy Savings (quads) 

Commercial gas-fired storage and storage-type instantaneous ..................................... 0.04 0.18 0.28 0.48 

Residential-duty gas-fired storage ................................................................................... 0.05 0.09 0.13 0.16 

Instantaneous gas-fired tankless ..................................................................................... 0.00 0.02 0.02 0.02 

Instantaneous circulating water heaters and hot water supply boilers ........................... 0.03 0.21 0.26 0.26 

Total Quads .............................................................................................................. 0.12 0.49 0.70 0.92 

NPV of Consumer Costs and Benefits (billion 2022$) 

NPV at 3% discount rate 

Commercial gas-fired storage and storage-type instantaneous ..................................... 0.15 0.41 0.81 1.51 

Residential-duty gas-fired storage ................................................................................... 0.16 0.17 0.27 0.38 

Instantaneous gas-fired tankless ..................................................................................... 0.02 0.03 0.04 0.04 

Instantaneous circulating water heaters and hot water supply boilers ........................... 0.08 0.18 0.30 0.30 

Total NPV at 3% (billion 2022$) ............................................................................... 0.41 0.79 1.43 2.25 

NPV at 7% discount rate 

Commercial gas-fired storage and storage-type instantaneous ..................................... 0.07 0.13 0.32 0.65 

Residential-duty gas-fired storage ................................................................................... 0.07 0.04 0.08 0.13 

Instantaneous gas-fired tankless ..................................................................................... 0.01 0.01 0.01 0.01 

Instantaneous circulating water heaters and hot water supply boilers ........................... 0.03 (0.02) 0.02 0.02 

Total NPV at 7% (billion 2022$) ............................................................................... 0.18 0.15 0.43 0.81 

Cumulative FFC Emissions Reduction (Total FFC Emissions) 

CO2 (million metric tons) ................................................................................................. 7 27 38 50 

SO2 (thousand tons) ........................................................................................................ 0.00 0.03 0.10 0.17 

NOX (thousand tons) ....................................................................................................... 18 74 103 135 

Hg (tons) .......................................................................................................................... (0.000) (0.001) (0.001) (0.001) 

CH4 (thousand tons) ........................................................................................................ 82 343 479 628 

N2O (thousand tons) ........................................................................................................ 0.01 0.05 0.08 0.10 

Present Value of Benefits and Costs (3% discount rate, billion 2022$) 

Consumer Operating Cost Savings ................................................................................. 0.51 1.87 2.76 3.83 

Climate Benefits * ............................................................................................................. 0.40 1.63 2.30 3.06 

Health Benefits ** ............................................................................................................. 0.57 2.33 3.29 4.40 

Total Benefits † ................................................................................................................ 1.49 5.83 8.35 11.29 

Consumer Incremental Product Costs ‡ .......................................................................... 0.10 1.08 1.33 1.58 

Consumer Net Benefits ................................................................................................... 0.41 0.79 1.43 2.25 

Total Net Benefits ..................................................................................................... 1.38 4.75 7.02 9.71 

Present Value of Benefits and Costs (7% discount rate, billion 2022$) 

Consumer Operating Cost Savings ................................................................................. 0.24 0.86 1.28 1.81 

Climate Benefits * ............................................................................................................. 0.40 1.63 2.30 3.06 

Health Benefits ** ............................................................................................................. 0.24 0.95 1.36 1.84 

Total Benefits † ................................................................................................................ 0.88 3.44 4.94 6.71 

Consumer Incremental Product Costs ‡ .......................................................................... 0.06 0.70 0.85 1.00 

Consumer Net Benefits ................................................................................................... 0.18 0.15 0.43 0.81 

Total Net Benefits ..................................................................................................... 0.82 2.74 4.09 5.72 

Note: This table presents the costs and benefits associated with commercial water heaters shipped in 2026¥2055. These results include benefits to consumers which accrue after 2055 from the products shipped in 2026¥2055. 


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* Climate benefits are calculated using four different estimates of the social cost of carbon (SC–CO2), methane (SC–CH4), and nitrous oxide 

(SC–N2O) (model average at 2.5 percent, 3 percent, and 5 percent discount rates; 95th percentile at 3 percent discount rate), as shown in Table 

V.39 through Table V.41. Together these represent the global social cost of greenhouse gases (SC–GHG). For presentational purposes of this 

table, the climate benefits associated with the average SC–GHG at a 3 percent discount rate are shown; however, DOE emphasizes the importance and value of considering the benefits calculated using all four sets of SC–GHG estimates. To monetize the benefits of reducing GHG emissions, this analysis uses the interim estimates presented in the Technical Support Document: Social Cost of Carbon, Methane, and Nitrous Oxide 

Interim Estimates Under Executive Order 13990 published in February 2021 by the IWG. 

** Health benefits are calculated using benefit-per-ton values for NOX and SO2. DOE is currently only monetizing PM2.5 and (for NOX) ozone 

precursor health benefits, but will continue to assess the ability to monetize other effects such as health benefits from reductions in direct PM2.5

emissions. The health benefits are presented at real discount rates of 3 and 7 percent. See section IV.L of this document for more details. 

† Total and net benefits include consumer, climate, and health benefits. For presentation purposes, total and net benefits for both the 3-percent 

and 7-percent cases are presented using the average SC–GHG with 3-percent discount rate. 

‡ Costs include incremental equipment costs as well as installation costs. 

TABLE V.46—SUMMARY OF ANALYTICAL RESULTS FOR CWH EQUIPMENT TSLS—MANUFACTURER AND CONSUMER

IMPACTS

Category TSL 1 * TSL 2 * TSL 3 * TSL 4 * 

Manufacturer Impacts: INPV (million 2022$) 

Commercial gas-fired storage and storage-type instantaneous (No-new-standards case 

INPV = 154.2) ........................................................................................................................ 153.3–154.0 139.1–142.7 130.4–136.5 62.0–73.1 

Residential-duty gas-fired storage (No-new-standards case INPV = 9.0) ............................... 8.4–9.6 7.6–9.6 6.5–011.2 2.3–7.4 

Instantaneous gas-fired tankless (No-new-standards case INPV = 8.9) ................................. 8.3–8.4 7.2–7.5 7.2–7.6 7.2–7.6 

Instantaneous circulating water heaters and hot water supply boilers (No-new-standards 

case INPV = 40.8) ................................................................................................................. 40.6–40.7 36.3–43.6 30.9–39.7 30.9–39.7 

Total INPV ($) (No-new-standards case INPV = 212.8) ................................................... 210.7–212.7 190.3–203.5 175.1–195.1 102.7–128.1 

Manufacturer Impacts: Industry NPV (% Change) 

Commercial gas-fired storage and storage-type instantaneous ............................................... (0.6)–(0.1) (9.7)–(7.4) (15.4)–(11.4) (59.8)–(52.6) 

Residential-duty gas-fired storage ............................................................................................ (5.8)–6.8 (15.3)–7.4 (27.3)–25.0 (74.7)–(16.9) 

Instantaneous gas-fired tankless .............................................................................................. (6.0)–(5.6) (18.6)–(15.6) (19.0)–(14.2) (19.0)–(14.2) 

Instantaneous circulating water heaters and hot water supply boilers .................................... (0.5)–(0.1) (10.9)–7.0 (24.3)–(2.7) (24.3)–(2.7) 

Total INPV (% change) ............................................................................................................. (1.0)–(0.0) (10.6)–(4.4) (17.7)–(8.3) (51.8)–(39.8) 

Consumer Average LCC Savings (2022$) 

Commercial Gas-Fired Storage and Storage-type Instantaneous Water Heaters ................... 267 (85) 367 528 

Residential-Duty Gas-Fired Storage ......................................................................................... 509 (80) 119 370 

Gas-Fired Instantaneous Water Heaters and Hot Water Supply Boilers ................................. 756 695 898 898 

—Instantaneous, Gas-Fired Tankless ............................................................................... 295 105 120 120 

—Instantaneous Water Heaters and Hot Water Supply Boilers ....................................... 1,153 1,204 1,570 1,570 

Shipment-Weighted Average * .................................................................................................. 384 49 423 569 

Consumer Simple PBP (years) 

Commercial Gas-Fired Storage and Storage-type Instantaneous Water Heaters ................... 2 8 6 5 

Residential-Duty Gas-Fired Storage ......................................................................................... 3 8 7 6 

Gas-Fired Instantaneous Water Heaters and Hot Water Supply Boilers ................................. 1 10 9 9 

—Instantaneous, Gas-Fired Tankless ............................................................................... 1 9 9 9 

—Instantaneous Water Heaters and Hot Water Supply Boilers ....................................... 1 10 9 9 

Shipment-Weighted Average * .................................................................................................. 2 8 7 6 

Percent of Consumers that Experience a Net Cost 

Commercial Gas-Fired Storage and Storage-type Instantaneous Water Heaters ................... 3 19 17 23 

Residential-Duty Gas-Fired Storage ......................................................................................... 6 43 42 37 

Gas-Fired Instantaneous Water Heaters and Hot Water Supply Boilers ................................. 1 14 17 17 

—Instantaneous, Gas-Fired Tankless ............................................................................... 0 10 15 15 

—Instantaneous Water Heaters and Hot Water Supply Boilers ....................................... 2 17 18 18 

Shipment-Weighted Average * .................................................................................................. 3 21 21 24 

Parentheses indicate negative (¥) values. 

* Weighted by shares of each equipment class in total projected shipments in 2026. 

DOE first considered TSL 4, which 

represents the max-tech efficiency 

levels. At this TSL, the Secretary has 

determined that the benefits are 

outweighed by the burdens, as 

discussed in detail in the following 

paragraphs. 

TSL 4 would save an estimated 0.92 

quads of energy, an amount DOE 

considers significant. Commercial gasfired storage water heaters and storagetype instantaneous water heaters save 

an estimated 0.48 quads while 

residential-duty gas-fired storage 

equipment saves 0.16 quads of energy. 

Instantaneous gas-fired tankless water 

heaters are estimated to save 0.02 quads 

of energy, while instantaneous 

circulating water heaters and hot water 

supply boilers save an estimated 0.26 

quads. 

Under TSL 4, the NPV of consumer 

benefit would be $0.81 billion using a 

discount rate of 7 percent, and $2.25 

billion using a discount rate of 3 

percent. Much of the consumer benefit 

is provided by the commercial gas-fired 

storage water heaters and storage-type 

instantaneous water heaters, totaling an 

estimated $0.65 billion using a 7- 

percent discount rate, and $1.51 billion 

using a 3-percent discount rate. The 

consumer benefit for residential-duty 

gas-fired storage water heaters is 

estimated to be $0.13 billion at a 7- 

percent discount rate and $0.38 billion 


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at a 3-percent discount rate. The 

consumer benefit for instantaneous gasfired tankless water heaters is estimated 

to be $0.01 billion at a 7-percent 

discount rate and $0.04 at a 3-percent 

discount rate, and the consumer benefit 

for instantaneous circulating water 

heaters and hot water supply boilers is 

estimated to be $0.02 billion at a 7- 

percent discount rate and $0.30 billion 

at a 3-percent discount rate. 

The cumulative emissions reductions 

at TSL 4 are 50 million metric tons of 

CO2, 0.17 thousand tons of SO2, 135 

thousand tons of NOX, ¥0.001 ton of 

Hg, 628 thousand tons of CH4, and 0.10 

thousand tons of N2O. The estimated 

monetary value of the climate benefits 

from reduced GHG emissions 

(associated with the average SC-GHG at 

a 3-percent discount rate) at TSL 4 is 

$3.06 billion. The estimated monetary 

value of the health benefits from 

reduced NOX and SO2 emissions at TSL 

4 is $1.84 billion using a 7-percent 

discount rate and $4.40 billion using a 

3-percent discount rate. 

Using a 7-percent discount rate for 

consumer benefits and costs, health 

benefits from reduced SO2 and NOX

emissions, and the 3-percent discount 

rate case for climate benefits from 

reduced GHG emissions, the estimated 

total NPV at TSL 4 is $5.72 billion. 

Using a 3-percent discount rate for all 

benefits and costs, the estimated total 

NPV at TSL 4 is $9.71 billion. The 

estimated total NPV is provided for 

additional information; however, DOE 

primarily relies upon the NPV of 

consumer benefits when determining 

whether a proposed standard level is 

economically justified. 

At TSL 4, the average LCC impact is 

a savings of $528 for commercial gasfired storage and storage-type 

instantaneous water heaters, $370 for 

residential-duty gas-fired storage water 

heaters, $120 for instantaneous gas-fired 

instantaneous water heaters, and $1,570 

for instantaneous circulating water 

heaters and hot water supply boilers. 

The simple PBP is 5 years for 

commercial gas-fired storage water 

heaters, 6 years for residential-duty gasfired storage water heaters, 9 years for 

instantaneous gas-fired tankless water 

heaters, and 9 years for instantaneous 

circulating water heaters and hot water 

supply boilers. The fraction of 

consumers experiencing a net LCC cost 

is 23 percent for commercial gas-fired 

storage water heaters and storage-type 

instantaneous water heaters, 37 percent 

for residential-duty gas-fired storage 

water heaters, 15 percent for 

instantaneous gas-fired tankless water 

heaters, and 18 percent for 

instantaneous circulating water heaters 

and hot water supply boilers. 

At TSL 4, the projected change in 

manufacturer INPV ranges from a 

decrease of $110.1 million to a decrease 

of $84.6 million, which corresponds to 

decreases of 51.8 percent and 39.8 

percent, respectively. Conversion costs 

total $132.2 million. 

Commercial gas-fired storage water 

heaters and storage-type instantaneous 

equipment currently account for 

approximately 68 percent of current 

unit shipments in the CWH industry. 

The projected change in manufacturer 

INPV for commercial gas-fired storage 

water heaters and storage-type 

instantaneous equipment ranges from a 

decrease of $92.1 million to a decrease 

of $81.0 million, which corresponds to 

decreases of 59.8 percent and 52.6 

percent, respectively. The potentially 

large negative impacts on INPV are 

largely driven by industry conversion 

costs. In particular, there are substantial 

increases in product conversion costs at 

TSL 4 for commercial gas-fired storage 

water heaters and storage-type 

instantaneous equipment 

manufacturers. There are several factors 

that lead to high product conversion 

costs for this equipment. 

Currently, only two models of this 

equipment type from a single 

manufacturer can meet a 99 percent 

thermal efficiency standard, which 

represents less than 1 percent of the 

commercial gas-fired storage water 

heaters and storage-type instantaneous 

equipment models currently offered on 

the market. The two models both have 

an input capacity of 300,000 Btu/h and 

share a similar design. The 

manufacturer of these models is a small 

business with less than 1 percent market 

share in the commercial gas storage 

water heater market. The company’s 

ability to ramp-up production capacity 

at 99 percent thermal efficiency to serve 

a significantly larger portion of the 

market is unclear. 

Nearly all existing models would 

need to be redesigned to meet a 99 

percent thermal efficiency standard. 

Traditionally, manufacturers design 

their equipment platforms to support a 

range of models with varying input 

capacities and storage volumes, and the 

efficiency typically will vary slightly 

between models within a given 

platform. However, at TSL 4, 

manufacturers would not be able to 

maintain a platform approach to 

designing commercial gas-fired storage 

water heaters because the 99 percent 

thermal efficiency level represents the 

maximum achievable efficiency and 

there would be no allowance for slight 

variations in efficiency between 

individual models. At TSL 4, 

manufacturers would be required to 

individually redesign each model to 

optimize performance for one specific 

input capacity and storage volume 

combination. As a result, the industry’s 

level of engineering effort and 

investment would grow significantly. In 

manufacturer interviews, some 

manufacturers raised concerns that they 

would not have sufficient engineering 

capacity to complete necessary 

redesigns within the 3-year conversion 

period. If manufacturers require more 

than 3 years to redesign all models, they 

would likely prioritize redesigns based 

on sales volume. There is risk that some 

models become unavailable, either 

temporarily or permanently. 

Product conversion costs for 

commercial gas-fired storage water 

heaters and storage-type instantaneous 

equipment are expected to reach $84.1 

million over the 3-year conversion 

period. These investment levels are six 

times greater than typical R&D spending 

on this equipment class over a threeyear period. Compliance with DOE 

standards could limit other engineering 

and innovation efforts, such as 

developing heat pump water heaters for 

the commercial market, during the 

conversion period beyond compliance 

with amended energy conservation 

standards. 

Residential-duty gas-fired storage 

water heaters account for approximately 

14 percent of current unit shipments in 

the CWH industry. At TSL 4, the 

projected change in INPV for 

residential-duty gas-fired storage water 

heaters ranges from a decrease of $6.7 

million to a decrease of $1.5 million, 

which corresponds to decreases of 74.7 

percent and 16.9 percent, respectively. 

Conversion costs total $7.3 million. 

The drivers of negative impacts on 

INPV for residential-duty gas-fired 

storage water heaters are largely 

identical to those identified for the 

commercial gas-fired storage water 

heaters. At TSL 4, there is only one 

manufacturer with a compliant model at 

this standard level. This represents less 

than 2 percent of models currently 

offered in the market. Product 

conversion costs are expected to reach 

$4.8 million over the conversion period 

as manufacturers have to optimize 

designs for each specific input capacity 

and storage volume combination. 

Instantaneous gas-fired tankless water 

heaters account for approximately 9 

percent of current unit shipments in the 

CWH industry. At TSL 4, the projected 

change in manufacturer INPV for 

instantaneous gas-fired tankless water 

heaters ranges from a decrease of $1.7 

million to a decrease of $1.3 million, 


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which corresponds to decreases of 19.0 

percent and 14.2 percent, respectively. 

Conversion costs total $2.1 million. 

At TSL 4, approximately 64 precent of 

currently offered instantaneous gas-fired 

tankless water heaters models would 

meet TSL 4 today. While most 

manufacturers have some compliant 

models, manufacturers would likely 

develop cost-optimized models to 

compete in a market where energy 

efficiency provides less product 

differentiation. Product conversion cost 

are expected to reach $1.5 million. 

Instantaneous circulating water 

heaters and hot water supply boilers 

account for approximately 10 percent of 

current unit shipments in the CWH 

industry. At TSL 4, the projected change 

in manufacturer INPV for instantaneous 

circulating water heaters and hot water 

supply boilers ranges from a decrease of 

$9.9 million to a decrease of $1.1 

million, which corresponds to decreases 

of 24.3 percent and 2.7 percent, 

respectively. Conversion cost total $10.5 

million. 

At TSL 4, approximately 29 percent of 

instantaneous circulating water heaters 

and hot water supply boilers models 

would meet TSL 4 today. DOE notes 

that industry offers a large number of 

models to fit a wide range of installation 

requirements despite relatively low 

shipment volumes. Product conversion 

cost are expected to reach $8.5 million. 

The Secretary concludes that at TSL 

4 for CWH equipment, the benefits of 

energy savings, positive NPV of 

consumer benefits, emission reductions, 

and the estimated monetary value of the 

emissions reductions would be 

outweighed by the economic burden on 

some consumers and the impacts on 

manufacturers, including the potentials 

for large conversion costs, reduced 

equipment availability, delayed 

technology innovation, and substantial 

reductions in INPV. As previously 

noted, only one small manufacturer 

currently produces commercial gas-fired 

storage water heaters at TSL 4. 

Similarly, only one manufacturer 

currently produces residential-duty gasfired water heaters at that level. In light 

of substantial conversion costs, it is 

unclear whether a sufficient quantity of 

other manufacturers would undertake 

the conversions necessary to offer a 

competitive range of products across the 

range of sizes and applications required 

for gas-fired storage water heaters. 

Consequently, the Secretary has 

concluded that the current record does 

not provide a clear and convincing basis 

to conclude that TSL 4 is economically 

justified. 

DOE then considered TSL 3, which 

would save an estimated 0.70 quads of 

energy, an amount DOE also considers 

significant. Commercial gas-fired storage 

and storage-type instantaneous water 

heaters are estimated to save 0.28 quads 

while residential-duty gas-fired storage 

water heaters are estimated to save 0.13 

quads of energy. Instantaneous gas-fired 

tankless water heaters are estimated to 

save 0.02 quads. Instantaneous 

circulating gas-fired water heaters and 

hot water supply boilers are estimated 

to save 0.26 quads of energy. 

Under TSL 3, the NPV of consumer 

benefit would be $0.43 billion using a 

discount rate of 7 percent, and $1.43 

billion using a discount rate of 3 

percent. Benefits to consumers of 

commercial gas-fired storage and 

storage-type instantaneous equipment 

are estimated to be $0.32 billion using 

a discount rate of 7 percent, and $0.81 

billion using a discount rate of 3 

percent. Consumer benefits for 

residential-duty gas-fired storage 

equipment are estimated to be $0.08 

billion dollars at a 7-percent discount 

rate and $0.27 billion at a 3-percent 

discount rate. Benefits to consumers of 

instantaneous gas-fired tankless water 

heaters are estimated to be $0.01 billion 

at a 7-percent discount rate and $0.04 

billion at a 3-percent discount rate, and 

consumer benefits for instantaneous 

circulating gas-fired water heaters and 

hot water supply boilers are estimated 

to be $0.02 billion at a 7-percent 

discount rate and 0.30 billion at a 3- 

percent discount rate. 

The cumulative emissions reductions 

at TSL 3 are 38 million metric tons of 

CO2, 0.10 thousand tons of SO2, 103 

thousand tons of NOX, ¥0.001 tons of 

Hg, 479 thousand tons of CH4, and 0.08 

thousand tons of N2O. The estimated 

monetary value of the climate benefits 

from reduced GHG emissions reduction 

(associated with the average SC–GHG at 

a 3-percent discount rate) at TSL 3 is 

$2.30 billion. The estimated monetary 

value of the health benefits from 

reduced NOX and SO2 emissions at TSL 

3 is $1.36 billion using a 7-percent 

discount rate and $3.29 billion using a 

3-percent discount rate. 

Using a 7-percent discount rate for 

consumer benefits and costs, health 

benefits from reduced SO2 and NOX

emissions, and the 3-percent discount 

rate case for climate benefits from 

reduced GHG emissions, the estimated 

total NPV at TSL 3 is $4.09 billion. 

Using a 3-percent discount rate for all 

benefits and costs, the estimated total 

NPV at TSL 3 is $7.02 billion. The 

estimated total NPV is provided for 

additional information; however, DOE 

primarily relies upon the NPV of 

consumer benefits when determining 

whether a proposed standard level is 

economically justified. 

At TSL 3, the average LCC impact is 

a savings of $367 for commercial gasfired storage and storage-type 

instantaneous water heaters, $119 for 

residential-duty gas-fired storage water 

heaters, $120 for instantaneous gas-fired 

tankless water heaters, and $1,570 for 

instantaneous circulating water heaters 

and hot water supply boilers. The 

simple PBP is 6 years for commercial 

gas-fired storage water heaters, 7 years 

for residential-duty gas-fired storage 

water heaters, 9 years for instantaneous 

gas-fired tankless water heaters, and 9 

years for instantaneous circulating water 

heaters and hot water supply boilers. 

The fraction of consumers experiencing 

a net LCC cost is 17 percent for 

commercial gas-fired storage water 

heaters, 42 percent for residential-duty 

gas-fired storage water heaters, 15 

percent for instantaneous gas-fired 

tankless water heaters, and 18 percent 

for instantaneous circulating water 

heaters and hot water supply boilers. 

At TSL 3, the projected change in 

manufacturer INPV ranges from a 

decrease of $37.6 million to a decrease 

of $17.7 million, which corresponds to 

decreases of 17.7 percent and 8.3 

percent, respectively. Conversion costs 

total $42.7 million. 

At TSL 3, nearly all commercial gasfired storage water heaters and storagetype instantaneous equipment 

manufacturers have models at a range of 

input capacities and storage volumes 

that can meet 95 percent thermal 

efficiency. Approximately 34 percent of 

commercial gas-fired storage water 

heaters and storage-type instantaneous 

models currently offered would meet 

TSL 3 today. Additionally, an amended 

standard at TSL 3 would allow 

manufacturers to design equipment 

platforms that support a range of models 

with varying input capacities and 

storage volumes, rather than having to 

optimize designs for each individual 

input capacity and storage volume 

combinations. 

The change in INPV for commercial 

gas-fired storage water heaters and 

storage-type instantaneous equipment 

ranges from a decrease of $23.7 million 

to a decrease of $17.6 million, which 

corresponds to decreases of 15.4 percent 

and 11.4 percent, respectively. Product 

conversion costs are $10.9 million and 

capital conversion costs are $16.9 

million, for a total of approximately 

$27.8 million. At this level, product 

conversion costs are typical of R&D 

spending over the conversion period. 

At TSL 3, multiple residential-duty 

gas-fired storage water heater 

manufacturers offer models at a range of 


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input capacities and storage volumes 

that can meet a UEF standard at this 

level today. Approximately 34 percent 

of current residential-duty gas-fired 

storage water heater models would meet 

TSL 3. An amended standard at TSL 3 

would allow manufacturers to design 

equipment platforms that support a 

range of models with varying input 

capacities and storage volumes, rather 

than having to optimize designs for each 

individual input capacity and storage 

volume combination. 

The projected change in INPV for 

residential-duty gas-fired storage water 

heaters ranges from a decrease of $2.5 

million to an increase of $2.2 million, 

which corresponds to a decrease of 27.3 

percent and an increase of 25.0 percent, 

respectively. DOE expects conversion 

costs for this equipment class to reach 

$2.3 million. 

At TSL 3, approximately 64 percent of 

instantaneous gas-fired tankless water 

heaters models would meet TSL 3 

today. The projected change in 

manufacturer INPV for instantaneous 

gas-fired tankless water heaters ranges 

from a decrease of $1.7 million to a 

decrease of $1.3 million, which 

corresponds to decreases of 19.0 percent 

and 14.2 percent, respectively. 

Conversion costs total $2.1 million. 

At TSL 3, approximately 39 percent of 

instantaneous circulating water heaters 

and hot water supply boilers models 

would meet TSL 3 today. The projected 

change in manufacturer INPV for 

instantaneous circulating water heaters 

and hot water supply boilers ranges 

from a decrease of $9.9 million to a 

decrease of $1.1 million, which 

corresponds to decreases of 24.3 percent 

and 2.7 percent, respectively. 

Conversion cost total $10.5 million. 

After considering the analysis and 

weighing the benefits and burdens, the 

Secretary concludes that a standard set 

at TSL 3 for CWH equipment would be 

economically justified. Notably, the 

benefits to consumers vastly outweigh 

the cost to manufacturers. At TSL 3, the 

NPV of consumer benefits, even 

measured at the more conservative 

discount rate of 7 percent, is 1,000 

percent higher than the maximum of 

manufacturers’ loss in INPV. The 

positive average LCC savings—a 

different way of quantifying consumer 

benefits—reinforces this conclusion. 

The economic justification for TSL 3 is 

clear and convincing even without 

weighing the estimated monetary value 

of emissions reductions. When those 

emissions reductions are included— 

representing $2.3 billion in climate 

benefits (associated with the average 

SC–GHG at a 3-percent discount rate), 

and $3.3 billion (using a 3-percent 

discount rate) or $1.4 billion (using a 7- 

percent discount rate) in health 

benefits—the rationale becomes stronger 

still. DOE notes, however, that it would 

reach the same conclusion presented in 

this rule in the absence of the estimated 

SC–GHG benefits, based on the February 

2021 Interim Estimates presented by the 

IWG. 

As stated, DOE conducts the walkdown analysis to determine the TSL that 

represents the maximum improvement 

in energy efficiency that is 

technologically feasible and 

economically justified as required under 

EPCA. Although DOE has not conducted 

a comparative analysis to select the 

amended energy conservation 

standards, DOE notes at TSL 3 the 

conversion cost impacts for commercial 

gas storage and residential-duty gasfired storage water heaters are less 

severe than TSL 4. For commercial gas 

storage water heaters, nearly all 

manufacturers have equipment that can 

meet TSL 3 across a range of input 

capacities and storage volumes. 

Similarly, for residential-duty 

commercial gas water heaters, multiple 

manufacturers currently produce 

equipment meeting TSL 3. The concerns 

of manufacturers being unable to offer a 

competitive range of equipment across 

the range of input capacities and storage 

volumes currently offered would be 

mitigated at TSL 3. 

Although DOE considered proposed 

amended standard levels for CWH 

equipment by grouping the efficiency 

levels for each equipment category into 

TSLs, DOE evaluates all analyzed 

efficiency levels in its analysis. For 

commercial gas instantaneous water 

heaters (including tankless and 

circulating/hot water supply boilers), 

TSL 3 (i.e., the proposed TSL) includes 

the max-tech efficiency levels, which is 

the maximum level determined to be 

technologically feasible. For commercial 

gas-fired storage water heaters and 

residential-duty gas-fired storage water 

heaters, TSL 3 includes efficiency levels 

that are one level below the max-tech 

efficiency level. As discussed 

previously, at the max-tech efficiency 

levels for gas-fired storage water heaters 

and residential-duty gas-fired storage 

water heaters there is a substantial risk 

of manufacturers being unable to offer a 

competitive range of equipment across 

the range of input capacities and storage 

volumes currently available. Setting 

standards at max-tech for these classes 

could limit other engineering and 

innovation efforts, such as developing 

heat pump water heaters for the 

commercial market, during the 

conversion period beyond compliance 

with amended energy conservation 

standards. The benefits of max-tech 

efficiency levels for commercial gasfired storage water heaters and 

residential-duty gas-fired storage water 

heaters do not outweigh the negative 

impacts to consumers and 

manufacturers. Therefore, DOE 

concludes that the max-tech efficiency 

levels are not justified. 

Therefore, based on the previous 

considerations, DOE adopts the energy 

conservation standards for CWH 

equipment at TSL 3. The amended 

energy conservation standards for CWH 

equipment, which are expressed as 

thermal efficiency and standby loss for 

commercial gas-fired storage and 

commercial gas-fired instantaneous 

water heaters and hot water supply 

boilers, and as UEF for residential-duty 

gas storage water heaters, are shown in 

Table V.47 and Table V.48. 

TABLE V.47—PROPOSED AMENDED ENERGY CONSERVATION STANDARDS FOR COMMERCIAL WATER HEATING EQUIPMENT

EXCEPT FOR RESIDENTIAL-DUTY COMMERCIAL WATER HEATERS

Equipment Size 

Energy conservation standards * 

Minimum 

thermal 

efficiency 

(%) 

Maximum standby loss † 

Gas-fired storage water heaters and storage-type instantaneous water 

heaters.

All ................... 95 0.86 × [Q/800 + 110(Vr)1⁄2] (Btu/h). 

Electric instantaneous water heaters ‡ ...................................................... <10 gal ...........

≥10 gal ...........

80 

77 

N/A. 

2.30 + 67/Vm (%/h). 


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TABLE V.47—PROPOSED AMENDED ENERGY CONSERVATION STANDARDS FOR COMMERCIAL WATER HEATING EQUIPMENT

EXCEPT FOR RESIDENTIAL-DUTY COMMERCIAL WATER HEATERS—Continued 

Equipment Size 

Energy conservation standards * 

Minimum 

thermal 

efficiency 

(%) 

Maximum standby loss † 

Gas-fired instantaneous water heaters and hot water supply boilers ...... <10 gal ...........

≥10 gal ...........

96 

96 

N/A. 

Q/800 + 110(Vr)1⁄2 (Btu/h). 

* Vm is the measured storage volume, and Vr is the rated volume, both in gallons. Q is the nameplate input rate in Btu/h. 

† Water heaters and hot water supply boilers having more than 140 gallons of storage capacity need not meet the standby loss requirement if: 

(1) the tank surface area is thermally insulated to R–12.5 or more, (2) a standing pilot light is not used, and (3) for gas or oil-fired storage water 

heaters, they have a fire damper or fan-assisted combustion. 

‡Energy conservation standards for electric instantaneous water heaters are included in EPCA. (42 U.S.C. 6313(a)(5)(D)–(E)) The compliance 

date for these energy conservation standards is January 1, 1994. In this final rule, DOE proposes to codify these standards for electric instantaneous water heaters in its regulations at 10 CFR 431.110. Further discussion of standards for electric instantaneous water heaters is included in 

section III.B.3 of this final rule. 

TABLE V.48—AMENDED ENERGY CONSERVATION STANDARDS FOR RESIDENTIAL-DUTY GAS-FIRED COMMERCIAL WATER

HEATERS

Equipment Specification * Draw pattern ** Uniform energy factor 

Gas-fired Storage .......................... >75 kBtu/h and .............................

≤105 kBtu/h and 

≤120 gal and 

≤180 °F 

Very Small ....................................

Low 

Medium 

High 

0.5374¥(0.0009 × Vr). 

0.8062¥(0.0012 × Vr). 

0.8702¥(0.0011 × Vr). 

0.9297¥(0.0009 × Vr). 

* Additionally, to be classified as a residential-duty water heater, a commercial water heater must meet the following conditions: (1) if requiring 

electricity, use single-phase external power supply; and (2) the water heater must not be designed to heat water at temperatures greater than 

180 °F. 

** Draw pattern is a classification of hot water use of a consumer water heater or residential-duty commercial water heater, based upon the 

first-hour rating. The draw pattern is determined using the Uniform Test Method for Measuring the Energy Consumption of Water Heaters in appendix E to subpart B of 10 CFR part 430. 

2. Annualized Benefits and Costs of the 

Adopted Standards 

The benefits and costs of the proposed 

standards can also be expressed in terms 

of annualized values. The annualized 

net benefit is (1) the annualized national 

economic value (expressed in 2022$) of 

the benefits from operating products 

that meet the proposed standards 

(consisting primarily of operating cost 

savings from using less energy, minus 

increases in product purchase costs, and 

(2) the annualized monetary value of the 

benefits of GHG and NOX emission 

reductions. 

Table V.49 shows the annualized 

values for CWH equipment under TSL 

3, expressed in 2022$. The results under 

the primary estimate are as follows. 

Using a 7-percent discount rate for 

consumer benefits and costs and health 

benefits from reduced NOX and SO2

emissions, and a 3-percent discount rate 

case for climate benefits from reduced 

GHG emissions, the estimated cost of 

the proposed standards for CWH 

equipment is $78 million per year in 

increased equipment costs, while the 

estimated annual benefits are $118 

million in reduced equipment operating 

costs, $125 million in climate benefits, 

and $125 million in health benefits. In 

this case, the net benefit amounts to 

$289 million per year. 

Using a 3-percent discount rate for all 

benefits and costs, the estimated cost of 

the proposed standards for CWH 

equipment is $72 million per year in 

increased equipment costs, while the 

estimated annual benefits are $149 

million in reduced operating costs, $125 

million in climate benefits, and $178 

million in health benefits. In this case, 

the net benefit would amount to $380 

million per year. 

TABLE V.49—ANNUALIZED BENEFITS AND COSTS OF PROPOSED ENERGY CONSERVATION STANDARDS FOR CWH 

EQUIPMENT

[TSL 3] 

Category 

Million 2022$/year 

Primary estimate Low-net-benefits 

estimate 

High-net-benefits 

estimate 

3% discount rate 

Consumer Operating Cost Savings ........................................................................... 149 144 154 

Climate Benefits * ....................................................................................................... 125 124 128 

Health Benefits ** ....................................................................................................... 178 177 197 

Total Benefits † ................................................................................................... 452 445 479 

Consumer Incremental Product Costs ‡ .................................................................... 72 72 74 


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TABLE V.49—ANNUALIZED BENEFITS AND COSTS OF PROPOSED ENERGY CONSERVATION STANDARDS FOR CWH 

EQUIPMENT—Continued 

[TSL 3] 

Category 

Million 2022$/year 

Primary estimate Low-net-benefits 

estimate 

High-net-benefits 

estimate 

Net Benefits ........................................................................................................ 380 373 405

Change in Producer Cashflow (INPV‡‡) .................................................................. (4)–(2) (4)–(2) (4)–(2) 

7% discount rate 

Consumer Operating Cost Savings ........................................................................... 118 115 122 

Climate Benefits * (3% discount rate) ........................................................................ 125 124 128 

Health Benefits ** ....................................................................................................... 125 124.4 138.1 

Total Benefits† .................................................................................................... 368 364 388 

Consumer Incremental Product Costs ‡ .................................................................... 78 78.2 80.0 

Net Benefits ............................................................................................................... 289 285 308 

Change in Producer Cashflow (INPV‡‡) .................................................................. (4)–(2) (4)–(2) (4)–(2) 

Note: This table presents the costs and benefits associated with consumer pool heaters shipped in 2026–2055. These results include benefits 

to consumers which accrue after 2055 from the products shipped in 2026–2055. Numbers may not add due to rounding. 

* Climate benefits are calculated using four different estimates of the social cost of carbon (SC–CO2), methane (SC–CH4), and nitrous oxide 

(SC–N2O) (model average at 2.5 percent, 3 percent, and 5 percent discount rates; 95th percentile at 3 percent discount rate). Together these 

represent the global social cost of greenhouse gases (SC–GHG). For presentational purposes of this table, the climate benefits associated with 

the average SC–GHG at a 3 percent discount rate are shown; however, DOE emphasizes the importance and value of considering the benefits 

calculated using all four sets of SC–GHG estimates. To monetize the benefits of reducing GHG emissions, this analysis uses the interim estimates presented in the Technical Support Document: Social Cost of Carbon, Methane, and Nitrous Oxide Interim Estimates Under Executive 

Order 13990 published in February 2021 by the IWG. 

** Health benefits are calculated using benefit-per-ton values for NOX and SO2. DOE is currently only monetizing PM2.5 and (for NOX) ozone 

precursor health benefits, but will continue to assess the ability to monetize other effects such as health benefits from reductions in direct PM2.5

emissions. The health benefits are presented at real discount rates of 3 and 7 percent. See section IV.L of this document for more details. 

† Total and net benefits include consumer, climate, and health benefits. For presentation purposes, total and net benefits for both the 3-percent 

and 7-percent cases are presented using the average SC–GHG with 3-percent discount rate. 

‡ Costs include incremental equipment costs as well as installation costs. 

‡‡ Operating Cost Savings are calculated based on the life cycle costs analysis and national impact analysis as discussed in detail below. See 

sections IV.F and IV.H of this document. DOE’s NIA includes all impacts (both costs and benefits) along the distribution chain beginning with the 

increased costs to the manufacturer to manufacture the equipment and ending with the increase in price experienced by the consumer. DOE 

also separately conducts a detailed analysis on the impacts on manufacturers (the MIA). See section IV.J of this document. In the detailed MIA, 

DOE models manufacturers’ pricing decisions based on assumptions regarding investments, conversion costs, cashflow, and margins. The MIA 

produces a range of impacts, which is the rule’s expected impact on the INPV. The change in INPV is the present value of all changes in industry cash flow, including changes in production costs, capital expenditures, and manufacturer profit margins. The annualized change in INPV is 

calculated using the industry weighted average cost of capital value of 9.1% that is estimated in the manufacturer impact analysis (see chapter 

12 of the final rule TSD for a complete description of the industry weighted average cost of capital). For commercial water heaters, those values 

are ¥$4 million and ¥$2 million. DOE accounts for that range of likely impacts in analyzing whether a TSL is economically justified. See section 

V.C of this document. DOE is presenting the range of impacts to the INPV under two markup scenarios: the Preservation of Gross Margin scenario, which is the manufacturer markup scenario used in the calculation of Consumer Operating Cost Savings in this table, and the Preservation 

of Operating Profit Markup scenario, where DOE assumed manufacturers would not be able to increase per-unit operating profit in proportion to 

increases in manufacturer production costs. DOE includes the range of estimated annualized change in INPV in the above table, drawing on the 

MIA explained further in Section IV.J of this document, to provide additional context for assessing the estimated impacts of this rule to society, 

including potential changes in production and consumption, which is consistent with OMB’s Circular A–4 and E.O. 12866. If DOE were to include 

the INPV into the annualized net benefit calculation for this final rule, the annualized net benefits would range from $376 million to $378 million at 

3-percent discount rate and would range from $285 million to $287 million at 7-percent discount rate. Parentheses () indicate negative values. 

VI. Procedural Issues and Regulatory 

Review 

A. Review Under Executive Orders 

12866, 13563, and 14094 

E.O. 12866, ‘‘Regulatory Planning and 

Review,’’ as supplemented and 

reaffirmed by E.O. 13563, ‘‘Improving 

Regulation and Regulatory Review, 76 

FR 3821 (Jan. 21, 2011) and E.O. 14094, 

‘‘Modernizing Regulatory Review,’’ 88 

FR 21879 (April 11, 2023), requires 

agencies, to the extent permitted by law, 

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. DOE emphasizes as 

well that E.O. 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 

(‘‘OIRA’’) in the Office of Management 


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184The business size standards are listed by 

NAICS code and industry description and are 

available at www.sba.gov/document/support--tablesize-standards (Last accessed April 21, 2023). 185MAEDbS can be accessed at 

www.cacertappliances.energy.ca.gov/Pages/Search/ 

AdvancedSearch.aspx (Last accessed December 19, 

2022). 

186Energy Star certified product can be found in 

the Energy Star database accessed at 

www.energystar.gov/productfinder/product/ 

certified-commercial-water-heaters/results (Last 

accessed December 19, 2022). 

187Certified equipment in the CCD are listed by 

product class and can be accessed at 

www.regulations.doe.gov/certification-data/ 

#q=Product_Group_s%3A* (Last accessed 

December 19, 2022). 

and Budget (‘‘OMB’’) 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, this final 

regulatory action is consistent with 

these principles. 

Section 6(a) of E.O. 12866 also 

requires agencies to submit ‘‘significant 

regulatory actions’’ to OIRA for review. 

OIRA has determined that this final 

regulatory action constitutes a 

‘‘significant regulatory action’’ within 

the scope of section 3(f)(1) of E.O. 

12866, as amended by E.O. 14094. 

Accordingly, pursuant to section 

6(a)(3)(C) of E.O. 12866, DOE has 

provided to OIRA an assessment, 

including the underlying analysis, of 

benefits and costs anticipated from the 

final regulatory action, together with, to 

the extent feasible, a quantification of 

those costs; and an assessment, 

including the underlying analysis, of 

costs and benefits of potentially 

effective and reasonably feasible 

alternatives to the planned regulation, 

and an explanation why the planned 

regulatory action is preferable to the 

identified potential alternatives. These 

assessments are summarized in this 

preamble and further detail can be 

found in the TSD for this rulemaking. 

B. Review Under the Regulatory 

Flexibility Act 

The Regulatory Flexibility Act (5 

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

of an initial regulatory flexibility 

analysis (‘‘IRFA’’) and 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 E.O. 13272, 

‘‘Proper Consideration of Small Entities 

in Agency Rulemaking,’’ 67 FR 53461 

(Aug. 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 website (www.energy.gov/gc/ 

office-general-counsel). As part of the 

May 2022 CWH ECS NOPR, DOE 

prepared an IRFA. 87 FR 30722. DOE 

has prepared the following FRFA for the 

products that are the subject of this 

rulemaking. 

1. Need for, and Objectives of, the Rule 

EPCA authorizes DOE to regulate the 

energy efficiency of a number of 

consumer products and industrial 

equipment. Title III, Part C of EPCA, 

added by Public Law 95–619, Title IV, 

section 441(a) (42 U.S.C. 6311–6317, as 

codified), established the Energy 

Conservation Program for Certain 

Industrial Equipment, which sets forth a 

variety of provisions designed to 

improve energy efficiency. This 

equipment includes the classes of CWH 

equipment that are the subject of this 

final rule. (42 U.S.C. 6311(1)(K)) EPCA 

prescribed energy conservation 

standards for CWH equipment. (42 

U.S.C. 6313(a)(5)) 

Pursuant to EPCA, DOE is to consider 

amending the energy efficiency 

standards for certain types of 

commercial and industrial equipment, 

including the equipment at issue in this 

document, whenever ASHRAE amends 

the standard levels or design 

requirements prescribed in ASHRAE 

Standard 90.1, ‘‘Energy Standard for 

Buildings Except Low-Rise Residential 

Buildings,’’ (‘‘ASHRAE Standard 90.1’’), 

and at a minimum, every 6 years. DOE 

must adopt the new ASHRAE efficiency 

level, unless DOE determines, 

supported by clear and convincing 

evidence, that adoption of a more 

stringent level would produce 

significant additional conservation of 

energy would be technologically 

feasible and economically justified. (42 

U.S.C. 6313(a)(6)(A)–(C)) Not later than 

2 years after a NOPR is issued, DOE 

must publish a final rule amending the 

standard. (42 U.S.C. 6313(a)(6)(C)(iii)) 

2. Significant Issues Raised in Response 

to the IRFA 

DOE did not receive any comments 

directly commenting on the Regulatory 

Flexibility Analysis in response to the 

IRFA. 

3. Description and Estimate of the 

Number of Small Entities Affected 

For manufacturers of CWH 

equipment, 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. See 13 CFR part 121. The 

equipment covered by this rule are 

classified under North American 

Industry Classification System 

(‘‘NAICS’’) code 333310,184

‘‘Commercial and Service Industry 

Machinery Manufacturing.’’ In 13 CFR 

121.201, the SBA sets a threshold of 

1,000 employees or fewer for an entity 

to be considered as a small business for 

this category. DOE’s analysis relied on 

publicly available databases to identify 

potential small businesses that 

manufacture equipment covered in this 

rulemaking. DOE utilized the CEC 

Modernized Appliance Efficiency 

Database System (‘‘MAEDbS’’),185 the 

DOE Energy Star Database,186 and the 

DOE Certification Compliance Database 

(‘‘CCD’’) 187 in identifying 

manufacturers. For the purpose of this 

final rule, two analyses are being 

performed regarding impacts to small 

businesses: (1) impact of the amended 

standards and (2) impact of the 

codification of requirements for electric 

instantaneous water heater 

manufacturers. 

Regarding manufacturers impacted by 

the amended standards, DOE identified 

15 original equipment manufacturers 

(‘‘OEM’’). DOE screened out companies 

that do not meet the definition of a 

‘‘small business’’ or are foreign-owned 

and operated. DOE used subscriptionbased business information tools to 

determine headcount and revenue of the 

small businesses. Of these 15 OEMs, 

DOE identified three companies that are 

small, domestic OEMs. 

Regarding models impacted by the 

codification of requirements for electric 

instantaneous water heaters, DOE’s 

research identified nine OEMs of 

commercial electric instantaneous water 

heaters being sold in the U.S. market. Of 

these nine companies, DOE has 

identified three as domestic, small 

businesses. The small businesses do not 

currently certify any other CWH 

equipment to DOE’s CCD. 

4. Description and Estimate of 

Compliance Requirements 

This final rule proposes to adopt 

amended standards for gas-fired storage 

water heaters, gas-fired instantaneous 

water heaters and hot water supply 

boilers, and residential-duty gas-fired 

storage water heaters. Additionally, this 


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final rule seeks to codify energy 

conservation standards for electric 

instantaneous water heaters from EPCA 

into the CFR. 

To determine the impact on the small 

OEMs, product conversion costs and 

capital conversion costs were estimated. 

Product conversion costs are 

investments in research, development, 

testing, marketing, and other noncapitalized costs necessary to make 

product designs comply with amended 

energy conservation standards. Capital 

conversion costs are one-time 

investments in plant, property, and 

equipment made in response to new 

and/or amended standards. DOE’s 

estimates of conversion costs increased 

between the NOPR and the final rule. As 

noted in section IV.J.2.c of this final 

rule, DOE updated its conversion cost 

analysis for the final rule to reflect 

written comments submitted in 

response to the NOPR and feedback 

received from additional manufacturer 

interviews conducted at the request of 

industry. Additionally, DOE updated its 

analysis to reflect changes to industry 

model availability that occurred 

between the NOPR analysis and final 

rule analysis. These changes result in 

different costs to small manufacturers 

between the IRFA and FRFA. 

In reviewing all commercially 

available models in DOE’s Compliance 

Certification Database, the three small 

manufacturers account for 

approximately 4 percent of industry 

model offerings. Of the three small 

manufacturers, the first manufacturer 

exclusively manufactures gas-fired 

instantaneous tankless water heaters 

and will remain unimpacted by the 

proposed standards as 100 percent of 

models meet TSL 3 or higher. There are 

no anticipated capital conversion costs 

or production conversion costs required 

to meet the adopted standards. 

The second manufacturer exclusively 

manufacturers hot water supply boilers 

and 76 percent of its models are 

unimpacted by the proposed standards. 

DOE estimates that this manufacturer 

will incur approximately $50,000 in 

capital conversion costs and $210,000 in 

product conversion costs to meet 

proposed standards. The combined 

conversion costs represent less than 1 

percent of the firm’s estimated revenue 

during the conversion period. 

The third manufacturer primarily 

manufactures gas-fired storage water 

heaters and residential-duty gas fired 

storage water heaters. For this 

manufacturer, 33 percent of their 

models are unimpacted by the proposed 

standards. DOE estimates that this 

manufacturer will incur approximately 

$0.6 million in capital conversion costs 

and $0.9 million in product conversion 

costs to meet proposed standards. The 

combined conversion costs represent 

approximately 4.8 percent of the firm’s 

estimated revenue during the 

conversion period. 

TABLE VI.1—SUMMARY OF SMALL MANUFACTURER IMPACTS

Conversion costs 

($ millions) 

Annual revenue 

($ millions) 

Conversion 

period revenue 

($ millions) 

Conversion 

costs/conversion 

period revenue 

Manufacturer A ...................................................................... 0 27 81 0.0 

Manufacturer B ...................................................................... 0.2 219 657 0.0 

Manufacturer C ...................................................................... 1.6 10.9 32.7 4.8 

In addition to amending standards, in 

this rulemaking, DOE is codifying 

standards for electric instantaneous 

CWH equipment from EPCA into the 

CFR. 

EPCA prescribes energy conservation 

standards for several classes of CWH 

equipment manufactured on or after 

January 1, 1994. (42 U.S.C. 6313(a)(5)) 

DOE codified these standards in its 

regulations for CWH equipment at 10 

CFR 431.110. However, when 

previously codifying these standards 

from EPCA, DOE inadvertently omitted 

the standards put in place by EPCA for 

electric instantaneous water heaters. In 

the final rule, DOE is codifying these 

standards in its regulations at 10 CFR 

431.110. This final rule does not 

propose certification requirements for 

electric instantaneous water heaters. 

Thus, DOE estimates no additional 

paperwork costs on manufacturers of 

electric instantaneous water heater 

equipment as a result of the final rule. 

5. Significant Alternatives to the Rule 

The discussion in the previous 

section analyzes impacts on small 

businesses that would result from the 

adopted standards, represented by TSL 

3. In reviewing alternatives to the 

adopted standards, DOE examined 

energy conservation standards set at 

lower efficiency levels. While TSL 1 and 

TSL 2 would reduce the impacts on 

small business manufacturers, it would 

come at the expense of a reduction in 

energy savings. 

TSL 2 would save 0.49 quads of 

energy with the projected change in 

manufacturer INPV ranging from ¥10.6 

percent to ¥4.4 percent. TSL 2 has 

energy savings that are 30 percent lower 

than TSL 3. TSL 1 would save 0.12 

quads of energy with the projected 

change in manufacturer INPV ranging 

from ¥1.0 percent to less than 0.1 

percent. TSL 1 has energy savings that 

are 83 percent lower than TSL 3. 

Establishing standards at TSL 3 

balances the benefits of the energy 

savings at TSL 3 with the potential 

burdens placed on CWH equipment 

manufacturers, including small business 

manufacturers. Accordingly, DOE is not 

adopting one of the other TSLs 

considered in the analysis, or the other 

policy alternatives examined as part of 

the regulatory impact analysis and 

included in chapter 17 of the final rule 

TSD. 

Additional compliance flexibilities 

may be available through other means. 

Manufacturers subject to DOE’s energy 

efficiency standards may apply to DOE’s 

Office of Hearings and Appeals for 

exception relief under certain 

circumstances. Manufacturers should 

refer to 10 CFR part 1003 for additional 

details. 

C. Review Under the Paperwork 

Reduction Act 

Manufacturers of CWH equipment 

must certify to DOE that their products 

comply with any applicable energy 

conservation standards. In certifying 

compliance, manufacturers must test 

their products according to the DOE test 

procedures for CWH equipment, 

including any amendments adopted for 

those test procedures. DOE has 

established regulations for the 

certification and recordkeeping 

requirements for all covered consumer 

products and commercial equipment, 

including CWH equipment. (See 

generally 10 CFR part 429). The 

collection-of-information requirement 

for the certification and recordkeeping 

is subject to review and approval by 

OMB under the Paperwork Reduction 

Act (‘‘PRA’’). This requirement has been 

approved by OMB under OMB control 

number 1910–1400. The public 


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reporting burden for the certification is 

estimated to average 35 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 

Pursuant to the National 

Environmental Policy Act of 1969 

(‘‘NEPA’’), DOE has analyzed this final 

rule in accordance with NEPA and 

DOE’s NEPA implementing regulations. 

10 CFR part 1021. DOE has determined 

that this rule qualifies for categorical 

exclusion under 10 CFR part 1021, 

subpart D, appendix B5.1 because it is 

a rulemaking that establishes energy 

conservation standards for consumer 

products or industrial equipment, none 

of the exceptions identified in B5.1(b) 

apply, no extraordinary circumstances 

exist that require further environmental 

analysis, and it meets the requirements 

for application of a categorical 

exclusion. See 10 CFR 1021.410. 

Therefore, DOE has determined that 

promulgation of this rule is not a major 

Federal action significantly affecting the 

quality of the human environment 

within the meaning of NEPA and does 

not require an environmental 

assessment or an environmental impact 

statement. 

E. Review Under Executive Order 13132 

E.O. 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. DOE has examined this rule and 

has determined that it would not have 

a substantial direct effect on the States, 

on the relationship between the national 

government and the States, or on the 

distribution of power and 

responsibilities among the various 

levels of government. EPCA governs and 

prescribes Federal preemption of State 

regulations as to energy conservation for 

the equipment that is the subject of this 

final rule. States can petition DOE for 

exemption from such preemption to the 

extent, and based on criteria, set forth in 

EPCA. (See 42 U.S.C. 6316(a) and (b); 42 

U.S.C. 6297.) Therefore, no further 

action is required by E.O. 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 E.O. 

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, (3) provide a clear 

legal standard for affected conduct 

rather than a general standard, and (4) 

promote simplification and burden 

reduction. 61 FR 4729 (Feb. 7, 1996). 

Regarding the review required by 

section 3(a), section 3(b) of E.O. 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 E.O. 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 if 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 final rule meets the relevant 

standards of E.O. 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 1 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 them. 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 

www.energy.gov/sites/prod/files/gcprod/ 

documents/umra_97.pdf. 

This rule does not contain a Federal 

intergovernmental mandate, nor is it 

expected to require expenditures of 

$100 million or more in any 1 year by 

the private sector. As a result, the 

analytical requirements of UMRA do not 

apply. 

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 

Pursuant to E.O. 12630, 

‘‘Governmental Actions and Interference 

with Constitutionally Protected Property 

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

DOE has determined that this rule 

would not result in any takings that 

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 


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188The 2007 ‘‘Energy Conservation Standards 

Rulemaking Peer Review Report’’ is available at the 

following website: energy.gov/eere/buildings/ 

downloads/energy-conservation-standardsrulemaking-peer-review-report-0 (last accessed 

December 14, 2022). 

189The report is available at 

www.nationalacademies.org/our-work/review-ofmethods-for-setting-building-and-equipmentperformance-standards. 

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

provides for Federal agencies to review 

most disseminations of information to 

the public under information quality 

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). Pursuant to 

OMB Memorandum M–19–15, 

Improving Implementation of the 

Information Quality Act (April 24, 

2019), DOE published updated 

guidelines, which are available at 

www.energy.gov/sites/prod/files/2019/ 

12/f70/DOE%20Final%20Updated

%20IQA%20Guidelines%20Dec%

202019.pdf. DOE has reviewed this final 

rule 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 

E.O. 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 

E.O. 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 this 

regulatory action, which sets forth 

amended energy conservation standards 

for CWH equipment, is not a significant 

energy action because the 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 this final 

rule. 

L. Information Quality 

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 Federal 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.’’ 70 FR 2664, 2667. 

In response to OMB’s Bulletin, DOE 

conducted formal peer reviews of the 

energy conservation standards 

development process and the analyses 

that are typically used and prepared a 

report describing that peer review.188

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. Because 

available data, models, and 

technological understanding have 

changed since 2007, DOE has engaged 

with the National Academy of Sciences 

to review DOE’s analytical 

methodologies to ascertain whether 

modifications are needed to improve 

DOE’s analyses. DOE is in the process 

of evaluating the resulting report.189

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). 

VII. Approval of the Office of the 

Secretary 

The Secretary of Energy has approved 

publication of this final rule. 

List of Subjects in 10 CFR Part 431 

Administrative practice and 

procedure, Confidential business 

information, Energy conservation test 

procedures, Incorporation by reference, 

and Reporting and recordkeeping 

requirements. 

Signing Authority 

This document of the Department of 

Energy was signed on July 27, 2023, by 

Francisco Alejandro Moreno, Acting 

Assistant Secretary for Energy Efficiency 

and Renewable Energy, pursuant to 

delegated authority from the Secretary 

of Energy. That document with the 

original signature and date is 

maintained by DOE. For administrative 

purposes only, and in compliance with 

requirements of the Office of the Federal 

Register, the undersigned DOE Federal 

Register Liaison Officer has been 

authorized to sign and submit the 

document in electronic format for 

publication, as an official document of 

the Department of Energy. This 

administrative process in no way alters 

the legal effect of this document upon 

publication in the Federal Register. 

Signed in Washington, DC, on September 

15, 2023. 

Treena V. Garrett, 

Federal Register Liaison Officer, U.S. 

Department of Energy. 

For the reasons set forth in the 

preamble, DOE amends part 431 of 

chapter II, subchapter D, of title 10 of 

the Code of Federal Regulations, to read 

as set forth below: 

PART 431—ENERGY EFFICIENCY 

PROGRAM FOR COMMERCIAL AND 

INDUSTRIAL EQUIPMENT 

■ 1. The authority citation for part 431 

continues to read as follows: 

Authority: 42 U.S.C. 6291–6317; 28 U.S.C. 

2461 note. 

■ 2. Amend § 431.102 by revising the 

definition of ‘‘Storage-type 

instantaneous water heater’’ to read as 

follows: 

§ 431.102 Definitions concerning 

commercial water heaters, hot water supply 

boilers, unfired hot water storage tanks, 

and commercial heat pump water heaters. 

* * * * * 

Storage-type instantaneous water 

heater means an instantaneous water 

heater that includes a storage tank with 

a rated storage volume greater than or 

equal to 10 gallons. 

* * * * * 

■ 3. Amend § 431.105 by revising 

paragraph (a) to read as follows: 


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69822 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations 

§ 431.105 Materials incorporated by 

reference. 

(a) Certain material is incorporated by 

reference into this subpart with the 

approval of the Director of the Federal 

Register in accordance with 5 U.S.C. 

552(a) and 1 CFR part 51. To enforce 

any edition other than that specified in 

this section, the DOE must publish a 

document in the Federal Register and 

the material must be available to the 

public. All approved incorporation by 

reference (IBR) material is available for 

inspection at DOE and at the National 

Archives and Records Administration 

(NARA). Contact DOE at: the U.S. 

Department of Energy, Office of Energy 

Efficiency and Renewable Energy, 

Building Technologies Program, 1000 

Independence Avenue SW, EE–5B, 

Washington, DC 20024, (202) 586–9127, 

Buildings@ee.doe.gov, www.energy.gov/ 

eere/buildings/building-technologiesoffice. For information on the 

availability of this material at NARA, 

visit www.archives.gov/federal-register/ 

cfr/ibr-locations.html or email: 

fr.inspection@nara.gov. The material 

may be obtained from the sources in the 

following paragraphs of this section. 

* * * * * 

■ 4. Revise § 431.110 to read as follows: 

§ 431.110 Energy conservation standards 

and their effective dates. 

(a) Each commercial storage water 

heater, instantaneous water heater, and 

hot water supply boiler (excluding 

residential-duty commercial water 

heaters) must meet the applicable 

energy conservation standard level(s) as 

specified in the table to this paragraph. 

Any packaged boiler that provides 

service water that meets the definition 

of ‘‘commercial packaged boiler’’ in 

subpart E of this part, but does not meet 

the definition of ‘‘hot water supply 

boiler’’ in subpart G of this part, must 

meet the requirements that apply to it 

under subpart E of this part. 

TABLE 1 TO § 431.110(a)—COMMERCIAL WATER HEATER ENERGY CONSERVATION STANDARDS

Equipment Size 

Energy conservation standards a

Minimum thermal 

efficiency 

(equipment 

manufactured on 

and after October 9, 

2015) 

(%) 

Minimum thermal 

efficiency 

(equipment 

manufactured on 

and after October 6, 

2026) 

(%) 

Maximum standby loss 

(equipment manufactured on 

and after October 29, 2003) b

Maximum standby loss 

(equipment manufactured on 

and after October 6, 2026) b

Electric storage water heaters .............. All ............ N/A N/A 0.30 + 27/Vm (%/h) ............... 0.30 + 27/Vm (%/h) 

Gas-fired storage water heaters and 

storage-type instantaneous water 

heaters.

All ............ 80 95 Q/800 + 110(Vr)1⁄2 (Btu/h) .... 0.86 × [Q/800 + 110(Vr)1⁄2] 

(Btu/h) 

Oil-fired storage water heaters ............. All ............ 80 80 Q/800 + 110(Vr)1⁄2 (Btu/h) .... Q/800 + 110(Vr)1⁄2 (Btu/h) 

Electric instantaneous water heaters c .. <10 gal ....

≥10 gal ....

80 

77 

80 

77 

N/A ........................................

2.30 + 67/Vm (%/h) ...............

N/A 

2.30 + 67/Vm (%/h) 

Gas-fired instantaneous water heaters 

and hot water supply boilers.

<10 gal ....

≥10 gal ....

80 

80 

96 

96 

N/A ........................................

Q/800 + 110(Vr)1⁄2 (Btu/h) ....

N/A 

Q/800 + 110(Vr)1⁄2 (Btu/h) 

Oil-fired instantaneous water heater 

and hot water supply boilers.

<10 gal ....

≥10 gal ....

80 

78 

80 

78 

N/A ........................................

Q/800 + 110(Vr)1⁄2 (Btu/h) ....

N/A 

Q/800 + 110(Vr)1⁄2 (Btu/h) 

aVm is the measured storage volume, and Vr is the rated storage volume, both in gallons. Q is the rated input in Btu/h, as determined pursuant to 10 CFR 429.44. bWater heaters and hot water supply boilers with a rated storage volume greater than 140 gallons need not meet the standby loss requirement if: 

(1) The tank surface area is thermally insulated to R–12.5 or more, with the R-value as defined in § 431.102 

(2) A standing pilot light is not used; and 

(3) For gas-fired or oil-fired storage water heaters, they have a flue damper or fan-assisted combustion. 

cThe compliance date for energy conservation standards for electric instantaneous water heaters is January 1, 1994. 

(b) Each unfired hot water storage 

tank manufactured on and after October 

29, 2003, must have a minimum thermal 

insulation of R–12.5. 

(c) Each residential-duty commercial 

water heater must meet the applicable 

energy conservation standard level(s) as 

follows: 

TABLE 2 TO § 431.110(c)—RESIDENTIAL-DUTY COMMERCIAL WATER HEATER ENERGY CONSERVATION STANDARDS

Equipment Specifications a Draw pattern 

Uniform energy factor b

Equipment manufactured 

before October 6, 2026 

Equipment manufactured 

after October 6, 2026 

Gas-fired storage ................ >75 kBtu/hr and ≤105 kBtu/hr and ≤120 gal .... Very Small ..........................

Low .....................................

Medium ...............................

High ....................................

0.2674¥(0.0009 × Vr) ......

0.5362¥(0.0012 × Vr) ......

0.6002¥(0.0011 × Vr) ......

0.6597¥(0.0009 × Vr) ......

0.5374¥(0.0009 × Vr) 

0.8062¥(0.0012 × Vr) 

0.8702¥(0.0011 × Vr) 

0.9297¥(0.0009 × Vr) 

Oil-fired storage .................. >105 kBtu/hr and ≤140 kBtu/hr and ≤120 gal .. Very Small ..........................

Low .....................................

Medium ...............................

High ....................................

0.2932¥(0.0015 × Vr) ......

0.5596¥(0.0018 × Vr) ......

0.6194¥(0.0016 × Vr) ......

0.6470¥(0.0013 × Vr) ......

0.2932¥(0.0015 × Vr) 

0.5596¥(0.0018 × Vr) 

0.6194¥(0.0016 × Vr) 

0.6470¥(0.0013 × Vr) 

Electric instantaneous ......... >12 kW and ≤58.6 kW and ≤2 gal ................... Very Small ..........................

Low .....................................

Medium ...............................

High ....................................

0.80 ...................................

0.80 ...................................

0.80 ...................................

0.80 ...................................

0.80 

0.80 

0.80 

0.80 

aAdditionally, to be classified as a residential-duty commercial water heater, a commercial water heater must meet the following conditions: (1) If the water heater 

requires electricity, it must use a single-phase external power supply; and (2) The water heater must not be designed to heat water to temperatures greater than 

180 °F. bVr is the rated storage volume (in gallons), as determined pursuant to 10 CFR 429.44. 


lotter on DSK11XQN23PROD with RULES2
Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations 69823 

Note: The following letter will not appear 

in the Code of Federal Regulations. 

BILLING CODE 6450–01–P 


lotter on DSK11XQN23PROD with RULES2ER06OC23.060</GPH>

July 18, 2022 

Ami Grace-Tardy 

U.S. Department of Justice 

Antitrust Division 

RFK Main Justice Building 

950 Pennsylvania Avenue, NW 

Washington, DC 20530-0001 

Assistant General Counsel for Legislation, Regulation and 

Energy Efficiency 

U.S. Department of Energy 

Washington, DC 20585 

Ami.Grace-Tardy@hg.doe.gov 

Dear Assistant General Counsel Grace-Tardy: 

I am responding to your June 1, 2022, letters seeking the views of the Attorney 

General about the potential impact on competition of proposed energy conservation 

standards for commercial water heating equipment. 

Your request was submitted under Section 325(o)(2)(B)(i)(V) of the Energy 

Policy and Conservation Act, as amended (EPCA), 42 U.S.C. 6295(o)(2)(B)(i)(V) and 42 

U.S.C. 6316(a), which requires the Attorney General to make a determination of the 

impact of any lessening of competition that is likely to result from the imposition of 

proposed energy conservation standards. The Attorney General's responsibility for 

responding to requests from other departments about the effect of a program on 

competition has been delegated to the Assistant Attorney General for the Antitrust 

Division in 28 CPR § 0.40(g). The Assistant Attorney General for the Antitrust Division 

has authorized me, as the Policy Director for the Antitrust Division, to provide the 

Antitrust Division's views regarding the potential impact on competition of proposed 

energy conservation standards on his behalf. 

In conducting its analysis, the Antitrust Division examines whether a proposed 

standard may lessen competition, for example, by substantially limiting consumer choice 

or increasing industry concentration. A lessening of competition could result in higher 

prices to manufacturers and consumers. We have reviewed the proposed standards 

contained in the Notice of Proposed Rulemaking (87 Fed. Reg. 30610, May 19, 2022). 

We have also reviewed public comments and information provided by industry 

participants and have listened to the Webinar of the Public Meeting held on June 23, 

2022. 
69824 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations 

[FR Doc. 2023–20392 Filed 10–5–23; 8:45 am] 

BILLING CODE 6450–01–C 


lotter on DSK11XQN23PROD with RULES2ER06OC23.061</GPH>

Based on the information currently available, we do not believe that the proposed 

energy conservation standards for commercial water heating equipment are likely to have 

a significant adverse impact on competition. 

Sincerely, 

Isl 

David G.B. Lawrence 

Director of Policy